UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 FORM
10-K
  (MARK
      ONE)
                    x
                    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended  December 31,
  2008OR ̈
                    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  Commission
file number 1-8594
 
 PRESIDENTIAL
      REALTY CORPORATION(Exact
      name of registrant as specified in its
charter)
 
 Delaware
                  
                  13-1954619(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)
 
 180 South Broadway, White Plains, New
      York
                    
                    10605(Address
      of principal executive offices)
                    
                    (Zip
      Code)
 
 Registrant’s telephone number, including area code
914-948-1300
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Name
      of each exchange onTitle of each class
                        
                        which registeredClass A Common Stock
                        
                        NYSE Alternext USClass B Common Stock
                        
                        NYSE Alternext
US
 
 Securities
      registered pursuant to Section 12(g) of the Act:None(Title
      of class)
 
 Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.         Yes  ̈   No
x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   Yes  ̈  No x
 
 Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.             Yes
x    No
 ̈
 
 Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form
10-K.                                                             x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
      accelerated filer  ̈
                  Accelerated
      filer  ̈Non-accelerated
      filer  ̈  (Do
      not check if a smaller reporting company)Smaller
      reporting company  x
  
 
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act).  Yes  ̈   No
x
 
 The aggregate market value of voting
stock held by non-affiliates of the registrant based on the closing price of the
stock at June 30, 2008 was $18,005,000.  The registrant has no
non-voting stock.
 
 The number of shares outstanding of
each of the registrant’s classes of common stock as of March 25, 2009 was
442,533 shares of Class A common stock and 2,957,147 shares of Class B common
stock.
 
 Documents Incorporated by
Reference:  The registrant’s definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on June 15, 2009, which Proxy
Statement will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the registrant’s fiscal year end of
December 31, 2008, is incorporated by reference into Part III of this Form
10-K.
  
  PRESIDENTIAL REALTY
CORPORATION
 
 TABLE OF
CONTENTS
 
 FORWARD-LOOKING
      STATEMENTS
                                                                                                      1PARI
      IItem
      1.
                                                                                                      Business
                                                                                                      1Item
      1A.
                                                                                                      Risk
      Factors
                                                                                                      12Item
      1B.
                                                                                                      Unresolved
      Staff Comments
                                                                                                      12Item
      2.
                                                                                                      Properties
                                                                                                      12Item
      3.
                                                                                                      Legal
      Proceedings
                                                                                                      17Item
      4.
                                                                                                      Submission
      of Matters to a Vote of Security Holders
                                                                                                      17PART
      IIItem
      5.
                                                                                                      Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                                                                      17Item
      6.
                                                                                                      Selected
      Financial Data
                                                                                                      19Item
      7.
                                                                                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                                                      20Item
      7A.
                                                                                                      Quantitative
      and Qualitative Disclosures about
      Market Risk
                                                                                                      48Item
      8.
                                                                                                      Financial
      Statements and Supplementary Data
                                                                                                      48Item
      9.
                                                                                                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                                                      48Item
      9A.
                                                                                                      Controls
      and Procedures
                                                                                                      48Item
      9B.
                                                                                                      Other
      Information
                                                                                                      49PART
      IIIItem
      10.
                                                                                                      Directors,
      Executive Officers and Corporate Governance
                                                                                                      50Item
      11.
                                                                                                      Executive
      Compensation
                                                                                                      50Item
      12.
                                                                                                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                                                                      50Item
      13.
                                                                                                      Certain
      Relationships and Related Transactions, and
      Director IndependenceItem
      14.
                                                                                                      Principal
      Accounting Fees and Services
                                                                                                      50PART
      IVItem
      15.
                                                                                                      Exhibits,
      Financial Statement Schedules
                                                                                                      50Table
      of Contents to Consolidated Financial Statements
                                                                                                      56
  
  Forward-Looking
Statements
 
 Certain
statements made in this report may constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.  Such factors include, among other
things, the following:
 
 ·
              generally
      adverse economic and business conditions, which, among other things (a)
      affect the demand for apartments, retail and office space at properties
      owned by the Company or which are security for loans made by the Company,
      (b) affect the availability and creditworthiness of prospective tenants
      and the rental rates obtainable at the properties, and (c) affect consumer
      demand for the products offered by the tenants at the malls owned by the
      joint ventures in which the Company is a member, which adversely affects
      the operating results and valuations of such
  malls;
 ·
              adverse
      changes in the real estate markets, including a severe tightening of the
      availability of credit, which adversely affect the ability of the Company
      or the joint ventures in which the Company is a member to sell, or
      refinance the mortgages on, their properties and which may also affect the
      ability of prospective tenants to rent space at these
      properties;
 ·
              general
      risks of real estate development, ownership and
  operation;
 ·
              governmental
      actions and initiatives; and
 ·
              environmental
      and safety requirements.
 
 PART
I
 
 ITEM
      I.
              BUSINESS
 
 (a)           General
 
 Presidential
Realty Corporation is a Delaware corporation organized in 1983 to succeed to the
business of a company of the same name which was organized in 1961 to succeed to
the business of a closely held real estate business founded in
1911.  The terms “Presidential” or the “Company” refer to the present
Presidential Realty Corporation or its predecessor company of the same name and
to any subsidiaries.  Since 1982 the Company has elected to be treated
as a real estate investment trust (“REIT”) for Federal and State income tax
purposes.  See Qualification as a
REIT.  The Company has investments in joint ventures that own
shopping malls, owns real estate and interests in real estate and makes loans
secured by interests in real estate.
 
 Presidential
self-manages the properties that it owns and the property owned by PDL, Inc. and
Associates Limited Co-Partnership (the “Hato Rey Partnership”) in which the
Company is the general partner and has a 60% partnership interest.  At
December 31, 2008, the Company employed 18 people, of whom 13 are employed at
the Company’s home office and 5 are employed at the individual property
sites.  The Company does not manage the shopping mall properties owned
by the joint ventures in which it has invested.  Those properties are
managed by an affiliate of the Company’s partner in the joint
ventures.
  1
  The
Company’s principal assets fall into the following categories:
 
 (i)  Equity
interests in rental properties.  Approximately 55% of the Company’s
assets are equity interests in commercial and residential rental
properties.  These properties have a carrying value of $17,686,971,
less accumulated depreciation of $2,211,207, resulting in a net carrying value
of $15,475,764 at December 31, 2008.  See Properties
below.
 
 (ii)  Notes
receivable.  Approximately 8% of the Company’s assets consists of
notes receivable, which are reflected on the Company’s Consolidated Balance
Sheet at December 31, 2008 as “Net Mortgage Portfolio”.  The
$2,290,370 aggregate principal amount of these notes has been reduced by $41,167
of discounts (which reflect the difference between the stated interest rates on
the notes and the market interest rates at the time the notes were
made).  See Notes 1-B, 1-C, 1-D and 3 of Notes to Consolidated
Financial Statements.  Accordingly, the net carrying value of
the Company’s “Net Mortgage Portfolio” was $2,249,203 at December 31,
2008.  All of the loans included in this category of assets were
current at December 31, 2008.
 
 (iii)  Joint
ventures.  Approximately 5% of the Company’s assets consists of
investments in and advances to joint ventures with entities affiliated with The
Lightstone Group (“Lightstone”), which are controlled by David
Lichtenstein.  The Company accounts for these investments using the
equity method.  At December 31, 2008, investments in and advances to
joint ventures were $1,511,887 which reflects a reduction of $3,411,314 from the
$4,923,201 at December 31, 2007.  This reduction resulted from losses
of $1,568,685 and distributions of $1,842,629.  See Investments in and Advances
to Joint Ventures, Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Note 4 of
Notes to Consolidated
Financial Statements.
 
 (iv)  Other
investments.  At December 31, 2007, the Company held a $1,000,000
investment with Broadway Real Estate Partners LLC (“Broadway Partners”), a
private real estate investment and management firm, which invests in high
quality office properties.  In the fourth quarter of 2008, the Company
wrote off its $1,000,000 investment due to the decline in value of Broadway
Partners’ investment portfolio.  (See Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Note 5 of
Notes to the
Consolidated Financial Statements.)
 
 (v)  Cash
and cash equivalents.  At December 31, 2008, the Company had
$5,984,550 in cash and cash equivalents which is approximately 21% of the
Company’s assets.  (See Investment Strategies
below.)
 
 Under the
equity method of accounting for investments in and advances to joint ventures,
the $25,935,000 of mezzanine loans and the $1,438,410 investment which the
Company had made to various entities that own and operate shopping mall
properties has been reduced by distributions received and by the Company’s 29%
share of the losses from the joint venture entities. At December 31, 2008,
investments in and advances to joint ventures was $1,511,887.
  2
  The
Company is entitled to receive interest at the rate of 11% per annum on the
$25,935,000 mezzanine loans and on its $1,438,410 investment and records these
payments when received as distributions in investments in and advances to joint
ventures.  During 2008, a number of defaults occurred in regard to
payments of the interest due on these mezzanine loans.
 
 Subsequent
to December 31, 2008, the Company entered into a Settlement Agreement with
Lightstone and David Lichtenstein individually with respect to various claims
that the Company had asserted against them in connection with the Company’s
investments in and advances to the joint ventures described
above.  The Settlement Agreement is described below under Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources – Joint Venture Mezzanine Loans and Settlement
Agreement.
 
 Under the
Internal Revenue Code of 1986, as amended (the “Code”), a REIT that meets
certain requirements is not subject to Federal income tax on that portion of its
taxable income that is distributed to its shareholders, if at least 90% of its
“real estate investment trust taxable income” (exclusive of capital gains) is so
distributed.  Since January 1, 1982, the Company has elected to be
taxed as a REIT and has paid regular quarterly cash distributions through
December 31, 2008.  Total dividends paid by the Company in 2008 were
$.56 per share.
 
 While the
Company intends to operate in such a manner as to enable it to be taxed as a
REIT, and to pay dividends in an amount sufficient to maintain REIT status, no
assurance can be given that the Company will, in fact, continue to be taxed as a
REIT or that the Company will have cash available to pay sufficient dividends in
order to maintain REIT status.  The Company believes that it will not
be required to pay dividends in 2009 to maintain its REIT
status.  Subsequent to December 31, 2008, the Company did not declare
a dividend for the first quarter of 2009 and announced that it was unlikely that
it would pay a dividend in 2009.  See Qualification as a REIT,
Item 5. - Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities and Note 15 of Notes to Consolidated
Financial Statements.
 
 (b)  Investment
Strategies
 
 The
Company’s general investment strategy has been to make investments in real
property that offer attractive current yields with, in some cases, potential for
capital appreciation.  However, in light of the current economic
climate and unavailability of financing on a reasonable basis, the Company does
not expect to seek new investment opportunities at this time.  In
addition, management believes that the Company is too small to operate
effectively, particularly as an independent public company, in today’s
marketplace.  To that end, the Company has taken a number of steps and
is considering others.  The Company is conserving its cash resources
($5,984,550 at December 31, 2008) so that cash is available to service its
existing assets and to operate the Company until a strategic alternative can be
effectuated that will maximize shareholder value.  As previously
noted, the Company will not pay a dividend for the first quarter of 2009 and it
is unlikely that it will declare a dividend in 2009, except as may be required
to comply with applicable REIT requirements.  In addition, subsequent
to December 31, 2008, the Company restructured its mezzanine loans to Lightstone
in order to achieve some potential value after their default.
  3
  From time
to time in the Company’s recent history, the Company has considered various
strategic alternatives, including a merger, consolidation or sale of all or
substantially all of its assets.  In the past, no appropriate
opportunity has been found but the Board of Directors and management will always
consider reasonable proposals.  In the current economic environment,
the Company may seek to sell one or more of its assets if reasonable prices can
be determined and obtained.  If a sale or sales can be made,
management may consider submitting a plan of liquidation to its shareholders for
approval.  The plan of liquidation would provide for the sale of all
of the Company’s assets over time and the distribution of the net proceeds of
sale to the shareholders after satisfaction of the Company’s
liabilities.  While management has considered this course of action,
among others as noted above, there has been no determination to adopt such a
plan of liquidation at this time or to enter into any strategic
alternative.  Further, there can be no assurance that the Company will
be able to sell any of its assets at prices that management deems
fair.
 
 Over the
past years, the Company’s primary investment strategies have been as
follows:
 
 (i)  Loans and Investments in
Joint Ventures
 
 The
Company has in the last seven years utilized a substantial portion of its funds
available for investment to make loans secured by interests in real
property.  These loans have been “mezzanine” type loans, which are
secured by subordinate security interests in real property or by ownership
interests in entities that own real property.  These loans carry
interest rates in excess of rates usually obtainable on first priority
loans.  In some cases, the Company has, in connection with a loan,
obtained an ownership interest in the borrowing entity and, as a result, is
entitled to share in the earnings of the borrower.  These loans are
reflected on the Company’s consolidated financial statements at December 31,
2008 and 2007 as “Investments in and advances to joint ventures”.  To
date, all of these mezzanine loans have been made to entities controlled by
David Lichtenstein.  See Investments in and Advances
to Joint Ventures.
 
 The
Company has in the past and may in the future receive mortgage notes from the
sales of its properties.  In such cases, the capital gains from sales
of real properties are recognized for income tax purposes on the installment
method as principal payments are received.  To the extent that any
such gain is recognized by Presidential, or to the extent that Presidential
incurs a capital gain from the sale of a property, it may, as a REIT, either (i)
elect to retain such gain, in which event it will be required to pay Federal and
State income tax on such gain, (ii) distribute all or a portion of such gain to
shareholders, in which event Presidential will not be required to pay taxes on
the gain to the extent that it is distributed to shareholders or (iii) elect to
retain such gain and designate it as a retained capital gain dividend, in which
event the Company would pay the Federal tax on such gain, the shareholders would
be taxed on their share of the undistributed long-term capital gain and the
shareholders would receive a tax credit for their share of the Federal tax that
the Company paid and increase the tax basis of their stock for the difference
between the long-term capital gain and the tax credit.  To the extent
that Presidential retains any principal payments on notes or proceeds of sale,
the proceeds, after payment of any taxes, will be available for
investment.  Presidential has not adopted a specific policy with
respect to the distribution or retention of capital gains, and its decision as
to any such gain will be made in connection with all of the circumstances
existing at the time the gain is recognized.  The Company did not
designate any capital gain in 2008 as a retained capital gain
dividend.
  4
  (ii)
              Equity
      Properties
 
 Prior to
2001, the Company’s investment policy was focused on acquiring equity interests
in income producing real estate, principally moderate income apartment
properties located in the eastern United States.  However, in recent
years the Company has not found any such investments that offer rates of return
satisfactory to the Company or otherwise meet the Company’s investment
criteria.
 
 While it
has been Presidential’s policy to acquire properties for long term investment,
it has from time to time sold its equity interests in such properties and may do
so in the future.  Over the past seven years, the Company has sold or
otherwise disposed of eight of its properties and expects to sell one apartment
property in 2009.  See Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Discontinued
Operations.
 
 (iii)
              Funding
      of Investments
 
 The
Company typically obtains funds to make loans and investments from excess cash
from refinancing of mortgage loans on its real estate equities or from sales of
such equities, and from repayments on its mortgage portfolio.  In the
past, the Company also obtained loans from financial institutions secured by
specific real property or from general corporate borrowings.  Such
loans have in the past been, and may in the future be, secured by real property
and provide for recourse to Presidential.  However, especially under
current market conditions, funds may not be readily available from these sources
and such unavailability may limit the Company’s ability to make new
investments.  In addition, the Company may face competition for
investment properties from other potential purchasers with greater financial
resources.  See Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources.
 
 The
Company’s investment policy is not contained in or subject to restrictions
included in the Company’s Certificate of Incorporation or Bylaws, and there are
no limits in the Company’s Certificate of Incorporation or Bylaws on the
percentage of assets that it may invest in any one type of asset or the
percentage of securities of any one issuer that it may acquire.  The
investment policy may, therefore, be changed by the Board of Directors of the
Company without the concurrence of the holders of its outstanding
stock.  However, to continue to qualify as a REIT, the Company must
restrict its activities to those permitted under the Code.  See Qualification as a
REIT.
  5
  (c)  Investments in and Advances
to Joint Ventures
 
 During
the past five years, the Company made investments in and loans to joint ventures
and received 29% ownership interests in these joint ventures.  The
Company accounts for these investments and loans under the equity method because
it exercises significant influence over, but does not control, these
entities.  These investments are recorded at cost, as investments in
and advances to joint ventures, and adjusted for the Company’s share of each
venture’s income or loss and increased for cash contributions and decreased for
distributions received.  Real estate held by such entities is reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, and is written down to its estimated
fair value if an impairment is determined to exist.  In 2007, an
impairment loss of approximately $75,994,000 was recorded by the joint ventures
for this real estate.  The Company’s 29% share of these impairment
losses was approximately $22,038,000.  However, because the recording
of losses is limited to the extent of the Company’s investment in and advances
to joint ventures, the Company recorded an impairment loss of
$8,370,725.
 
 The first
investment, the Martinsburg Mall in Martinsburg, West Virginia, was purchased in
September, 2004, by PRC Member LLC, a limited liability company which was
originally wholly owned by the Company.  The Company made a $1,438,410
investment in PRC Member, LLC and PRC Member LLC obtained a mezzanine loan from
Lightstone in the amount of $2,600,000, which is secured by a pledge of
ownership interests in the entity that owns the Martinsburg Mall.  The
loan matures on September 27, 2014, and the interest rate on the loan is 11% per
annum.  Lightstone Member LLC (“Lightstone I”) manages the property
and David Lichtenstein received a 71% ownership interest in PRC Member LLC, and
the Company owns the remaining 29% ownership interest.
 
 In 2007,
the Company’s basis of its investment in the Martinsburg Mall was reduced by
distributions and losses to zero and, accordingly, the Company only recorded its
share of the loss to the extent of its basis.  Any subsequent
distributions received from the Martinsburg Mall were recorded in income from
joint ventures.
 
 In
September, 2004, the Company made a $8,600,000 mezzanine loan to Lightstone I in
connection with the acquisition by Lightstone I of four shopping malls, namely
the Shenango Valley Mall in Hermitage, Pennsylvania; the West Manchester Mall in
York, Pennsylvania; the Bradley Square Mall in Cleveland, Tennessee and the
Mount Berry Square Mall in Rome, Georgia (the “Four Malls”).  The loan
is secured by the ownership interests in the entities that own the Four Malls
and the Martinsburg Mall and the Company received a 29% ownership interest in
the Four Malls.  The loan matures on September 27, 2014 and the
interest rate on the loan is 11% per annum.
 
 In the
second quarter of 2008, the Company’s basis of its investment in the Four Malls
was reduced by distributions and losses to zero and, accordingly, the Company
only recorded its share of the loss to the extent of its basis.  Any
subsequent distributions received from the Four Malls were recorded in income
from joint ventures.
 
 In
October, 2008, Lightstone I defaulted on the payment of interest due under the
Company’s $8,600,000 mezzanine loan relating to the Four Malls and also did not
make the payments of the preferential return of 11% per annum due on the
Company’s $1,438,410 investment in the Martinsburg Mall.  Lightstone I
has also defaulted on payments of interest due under the first mortgage covering
the Martinsburg Mall and three of the Four Malls (Bradley Square, Mount Berry
Square and Shenango Valley) on and after August 1, 2008 and the holder of the
first mortgage commenced foreclosure proceedings and appointed a receiver to
operate the properties.  The Company believes that the outstanding
principal balance of the first mortgage substantially exceeds the current value
of the mortgaged properties and that it is unlikely that the Company will be
able to recover any amount of its mezzanine loan in the amount of $8,600,000 and
investment in the amount of $1,438,410 from the collateral that it holds as
security for its mezzanine loan and investment.
  6
  In
December, 2004, the Company made a $7,500,000 mezzanine loan to Lightstone
Member II LLC (“Lightstone II”) in connection with the acquisition by Lightstone
II of the Brazos Mall in Lake Jackson, Texas and the Shawnee Mall in Shawnee,
Oklahoma (the “Shawnee/Brazos Malls”).  The loan is secured by the
ownership interests in the entities that own the Shawnee/Brazos Malls and the
Company received a 29% ownership interest in these entities.  The loan
matures on December 23, 2014 and the interest rate on the loan is 11% per
annum.  In June, 2006, the Company made an additional $335,000
mezzanine loan to Lightstone II.  The loan was added to the original
$7,500,000 loan and has the same interest rate and maturity date as the original
loan.
 
 At
December 31, 2008, the Company’s basis of its investment in the Shawnee/Brazos
Malls was $1,511,887.
 
 The
Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II secured by
interests in the Shawnee Mall and the Brazos Mall was in good standing at
December 31, 2008.  However, Lightstone II failed to make the interest
payments due on January 1, 2009 and on the first day of subsequent months and
the loan is now in default.  The first mortgage loan secured by the
properties was due to mature in January of 2009 but Lightstone II obtained a one
year extension of the maturity date until January of 2010.  In
connection with the extension, the holder of the first mortgage exercised its
right (exercisable because the cash flow from the properties did not satisfy a
required debt service coverage ratio) to retain all cash flow from the
properties (after payment of all operating expenses but before payment of
interest on the Company’s mezzanine loan) as additional security for the
repayment of the first mortgage loan.
 
 In July,
2005, the Company made a $9,500,000 mezzanine loan to Lightstone Member III LLC
(“Lightstone III”) in connection with the acquisition by Lightstone III of the
Macon Mall in Macon, Georgia and the Burlington Mall in Burlington, North
Carolina (the “Macon/Burlington Malls”).  The loan is secured by the
ownership interests in the entities that own the Macon/Burlington Malls and the
Company received a 29% ownership interest in these entities.  The loan
matures on June 30, 2015 and the interest rate on the loan is 11% per
annum.
 
 In 2007,
the Company’s basis of its investment in the Macon/Burlington Malls was reduced
by distributions and losses to zero and, accordingly, the Company only recorded
its share of the loss to the extent of its basis.  Any subsequent
distributions received from the Macon/Burlington Malls were recorded in income
from joint ventures.
 
 In
February, 2008, Lightstone III defaulted on payments of interest due under the
Company’s $9,500,000 loan related to the Macon/Burlington
Malls.  Lightstone III also defaulted on payments of interest due on
the first mortgage loan covering the properties and the holder of the first
mortgage has commenced foreclosure proceedings and has appointed a receiver to
operate the properties.  The Company believes that the outstanding
principal balance of the first mortgage substantially exceeds the current value
of the Macon/Burlington Malls and that it is unlikely that the Company will be
able to recover any additional amounts of interest or any principal on its
mezzanine loan from the collateral that it holds as security for the
loan.
  7
  Subsequent
to December 31, 2008, the Company entered into a Settlement Agreement with
Lightstone and David Lichtenstein with respect to various claims that the
Company had asserted against them in connection with the Company’s investments
in and advances to the joint ventures described above.  The Settlement
Agreement is described below under Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources –Joint Venture Mezzanine Loans and Settlement
Agreement.
 
 (d)  Loans and
Investments
 
 The
following table sets forth information as of December 31, 2008 with respect to
the mortgage loan portfolio resulting from the sale of properties or loans
originated by the Company.
  8
  NET
MORTGAGE PORTFOLIO
 
 DECEMBER
31, 2008
 
 InterestNet
                              
                              
                              
                              RateNote
                              
                              
                              
                              
                              
                              Carrying
                              
                              Maturity
                              
                              December 31,Name
      of Property
                              
                              
                              
                              
                              Receivable
                              
                              
                              Discount
                              
                              
                              Value
                              
                              Date
                              
                              20082323
      So. Craycroft Rd.
                              
                              
                              (1)
                              
                              
                              $
                              75,000
                              
                              
                              $
                              -
                              
                              
                              $
                              75,000
                              
                              2009
                              
                              NoneTucson,
      AZVirginia
      Apartment Properties
                              
                              
                              (2)
                              
                              
                              
                              2,074,994
                              
                              
                              
                              -
                              
                              
                              
                              2,074,994
                              
                              2013
                              
                              13.00%Various
      Sold Co-op Apartments
                              
                              
                              
                              
                              
                              
                              140,376
                              (a)
                              
                              
                              41,167
                              
                              
                              
                              99,209
                              
                              Various
                              
                              VariousTotal
      Notes Receivable
                              
                              
                              
                              
                              
                              $
                              2,290,370
                              
                              
                              $
                              41,167
                              
                              
                              $
                              2,249,203
 
 (a)
              Notes
      received from the sales of cooperative apartments.  Interest
      rates and maturity dates vary in accordance with the terms of each
      individual note.
  9
 
 (1)
              In
      March, 2007, the Company sold its Cambridge Green property in Council
      Bluffs, Iowa.  As part of the sales price, the Company received
      a $200,000 secured note receivable which matured on March 20,
      2008.  The note receivable carried an interest rate of 7% per
      annum, payment of which was deferred until maturity.  The note
      is secured by a Deed of Trust on property located at 2323 So. Craycroft
      Road in Tucson, Arizona.  At December 31, 2007, the accrued
      deferred interest was $11,083.  In March, 2008, the Company
      agreed to extend the maturity of the loan to December 31, 2008 and
      received a $25,000 payment for $13,917 of principal and $11,083 of accrued
      deferred interest and as a result the loan balance was reduced to
      $186,083.  In December, 2008, the Company agreed to accept
      $175,000 in full payment of the loan and accrued interest thereon if
      $100,000 was paid on or before December 19, 2008 (received) and $75,000
      was paid on or before April 1, 2009.  If the note is not paid by
      April 1, 2009, the note will be due in accordance with its original
      terms.  At December 31, 2008, the Company recorded a bad debt
      expense of $11,083.
 
 (2)
              In
      October, 2003, the Company made a $4,500,000 loan to an entity controlled
      by David Lichtenstein, which loan matures on October 23, 2013 and is
      collateralized by ownership interests in entities owning nine apartment
      properties located in the Commonwealth of Virginia. The first mortgages on
      these properties were refinanced and in March, 2006, Presidential received
      $2,425,006 of net refinancing proceeds in repayment of a portion of its
      loan principal and $215,750 in payment of the deferred interest to date,
      leaving an outstanding principal balance of $2,074,994.  Under
      the original terms of the note, upon a refinancing and principal
      prepayment on the note, the interest rate on the unpaid balance of the
      note was to be recalculated pursuant to a specific formula.  In
      order to resolve a disagreement over the recalculation of this interest
      rate, in July, 2006, the Company and the borrower modified the terms of
      this note.  Under the terms of the modification, effective
      January 1, 2006, the interest rate on the note was increased from 11.50%
      per annum to 13.50% per annum until October 24, 2007 and 13% per annum
      thereafter until maturity (2% of such interest was deferred and paid in
      October, 2008, as per the original terms of the note).  In
      addition, the Company will receive additional interest in an amount equal
      to 27% of any operating cash flow distributed to the borrower and 27%
      (increased from 25%) of any net proceeds resulting from sales or
      refinancings of the properties. The Company did not receive any additional
      interest for 2008.  This loan, which was in good standing at
      December 31, 2008, was consolidated with other indebtedness and modified
      pursuant to a Settlement Agreement entered into with Mr.
      Lichtenstein.  (See Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Liquidity and Capital Resources – Joint Venture Mezzanine Loans and
      Settlement Agreement.)
 
 (e)
              Qualification as a
      REIT
 
 Since
1982, the Company has operated in a manner intended to permit it to qualify as a
REIT under Sections 856 to 860 of the Code.  The Company intends to
continue to operate in a manner to permit it to qualify as a
REIT.  However, no assurance can be given that it will be able to
continue to operate in such a manner or to remain qualified.
  10
  In any
year that the Company qualifies as a REIT and meets other conditions, including
the distribution to stockholders of at least 90% of its “real estate investment
trust taxable income” (excluding long-term capital gains but before a deduction
for dividends paid), the Company will be entitled to deduct the distributions
that it pays to its stockholders in determining its ordinary income and capital
gains that are subject to federal income taxation (see Note 11 of Notes to Consolidated
Financial Statements).  Income not distributed is subject to tax
at rates applicable to a domestic corporation.  In addition,
the Company is subject to an excise tax (at a rate of 4%) if the amounts
actually ordeemed distributed during the year do not meet certain
distribution requirements.  In order to receive this favorable tax
treatment, the Company must restrict its operations to those activities that are
permitted under the Code and to restrict itself to the holding of assets that a
REIT is permitted to hold.
 
 No
assurance can be given that the Company will continue to be taxed as a REIT;
that the Company will have sufficient cash to pay dividends in order to maintain
REIT status or that the Company will make cash distributions in the
future.  In addition, even if the Company continues to qualify as a
REIT, the Board of Directors has the discretion to determine whether or not to
distribute long-term capital gains and other types of income not required to be
distributed in order to maintain REIT tax treatment.
 
 (f)
              Relationship with Ivy
      Properties, Ltd.
 
 The
Company holds nonrecourse purchase money notes receivable from Ivy Properties,
Ltd. and its affiliates (“Ivy”) relating to loans made to Ivy in connection with
Ivy’s former cooperative conversion business, or as a result of a settlement of
disputes between Ivy and the Company, all of which transactions and settlement
negotiations occurred between 1989 and 1996.  At December 31, 2008,
the notes receivable from Ivy had a carrying amount of zero and an outstanding
principal balance of $4,770,050 (the “Consolidated Loans”).  These
notes were received by the Company in 1991 in exchange for nonrecourse loans
that had been previously written off by the Company.  Accordingly,
these notes were recorded at zero except for a small portion of the notes that
was adequately secured and was repaid in 2002.
 
 Ivy is
owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the “Ivy
Principals”), who are the sole partners of Pdl Partnership, which owns 198,735
shares of the Company’s Class A common stock. As a result of the ownership of
these shares and 27,601 aggregate additional shares of Class A common stock
owned individually by the Ivy Principals, Pdl Partnership and the Ivy Principals
have beneficial ownership of an aggregate of approximately 51% of the
outstanding shares of Class A common stock of the Company, which class of stock
is entitled to elect two-thirds of the Board of Directors of the
Company.  By reason of such beneficial ownership, the Ivy Principals
are in a position substantially to control elections of the Board of Directors
of the Company.  In addition, these three officers own an aggregate of
211,477 shares of the Company’s Class B common stock.
 
 Jeffrey
Joseph is the Chief Executive Officer, the President and a Director of
Presidential.  Thomas Viertel, an Executive Vice President and the
Chief Financial Officer of Presidential, is the nephew of Robert E. Shapiro,
Chairman of the Board of Directors and a former President of
Presidential.  Steven Baruch, an Executive Vice President and a
Director of Presidential, is the cousin of Robert E. Shapiro.
  11
  Since
1996, the Ivy Principals have made payments on the Consolidated Loans in an
amount equal to 25% of the operating cash flow (after provision for certain
reserves) of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of
the Ivy Principals to carry on theatrical productions.  Amounts
received by Presidential from Scorpio are applied to unpaid and unaccrued
interest on the Consolidated Loans and recognized as income.  The
Company believes that these amounts could be material from time to
time.  However, the profitability of theatrical productions is by its
nature uncertain and management believes that any estimate of payments from
Scorpio on the Consolidated Loans for future periods is too speculative to
project.  During 2008 and 2007, Presidential received $146,750 and
$256,000, respectively, of interest payments on the Consolidated
Loans.  Although, as stated above, management believes that any
estimate of payments by Scorpio for future periods are too speculative to
project, in light of the material adverse effect of the current economic
downturn on the theatrical production business, the Company does not expect to
receive any payments on the Consolidated Loans in 2009.  The
Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime
rate, which was 3.25% at December 31, 2008.  At December 31, 2008, the
unpaid and unaccrued interest was $3,520,522 and such interest is not
compounded.
 
 Any
transactions relating to or otherwise involving Ivy and the Ivy Principals were
and remain subject to the approval by a committee of three members of the Board
of Directors with no affiliations with the owners of Ivy.
 
 For
further historical information about the loan transactions with Ivy, reference
is made to the Company’s Annual Report on Form 10-K for the year ended December
31, 2003.
 
 (g)
              Competition
 
 The real
estate business is highly competitive in all respects.  In all phases
of its business Presidential faces competition from companies with greater
financial resources.  With fewer financial institutions offering loans
under current market conditions, it will be more difficult for the Company to
find sources of financing for its properties, such as the Hato Rey Center
property, since it will be competing for available funds with other borrowers
with greater financial resources.  To the extent that Presidential
seeks to acquire additional properties or originate new loans, it will face
competition from other potential purchasers or lenders with greater financial
resources.
 
 ITEM
      1A.
              RISK
      FACTORS
 
 Not
required for a smaller reporting company.
 
 ITEM
      1B
              UNRESOLVED STAFF
      COMMENTS
 
 None.
 
 ITEM
      2.
              PROPERTIES
 
 As of
December 31, 2008, the Company had an ownership interest in 617,500 square feet
of commercial, industrial and professional space and six cooperative apartment
units, all of which are carried on its balance sheet at $15,475,764 (net of
accumulated depreciation of $2,211,207).  The Company has mortgage
debt on the majority of these properties in the aggregate principal amount of
$16,392,285.  The $15,245,921 mortgage on the Hato Rey Center property
is nonrecourse to the Company, whereas the $1,072,906 Building Industries Center
mortgage and the $73,458 Mapletree Industrial Center mortgage are recourse to
Presidential.
  12
  At
December 31, 2008, Presidential and PDL, Inc. owned an aggregate 60% general and
limited partner interest in the Hato Rey Partnership, which owns and operates
the Hato Rey Center, an office building with 209,000 square feet of commercial
space, located in Hato Rey, Puerto Rico.  The Company’s consolidated
financial statements include 100% of the account balances of this
partnership.
 
 In 2006
and 2007, the Company purchased a 25% limited partnership interest and an
additional 1% limited partnership, respectively, in the Hato Rey Partnership,
which were recorded as partial step acquisitions in accordance with the
provisions of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated
Financial Statements”, and Statement of Financial Accounting Standards (“SFAS”)
No. 141, “Business Combinations”.
 
 Presidential
owns six cooperative apartment units.  Although it may from time to
time sell individual or groups of these apartments, Presidential intends to
continue to hold them as rental apartments.
 
 As of
December 31, 2008, the Company also has an ownership interest in one apartment
property that is classified as assets related to discontinued
operations.  At December 31, 2008, the carrying value of this property
was $391,479 (net of accumulated depreciation of $2,912,447) and the mortgage
debt, which is nonrecourse to Presidential, was $2,078,971.
 
 The chart
below lists the Company’s properties as of December 31, 2008.
  13
  REAL
ESTATE
 
 Average
                                                                            
                                                                            
                                                                            Gross
      Amount of Real Estate
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Net
      Amount ofVacancy
                                                                            
                                                                            
                                                                            At
      December 31, 2008
                                                                            
                                                                            
                                                                            Accumulated
                                                                            
                                                                            
                                                                            Real
      Estate
                                                                            
                                                                            
                                                                            MortgageRate
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Buildings
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Depreciation
                                                                            
                                                                            
                                                                            At
                                                                            
                                                                            
                                                                            BalanceRentable
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Percent
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            and
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            December
      31,
                                                                            
                                                                            
                                                                            December
      31,
                                                                            
                                                                            
                                                                            December
      31,
                                                                            
                                                                            Maturity
                                                                            
                                                                            InterestProperty
                                                                            
                                                                            Space
      (approx.)
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            Land
                                                                            
                                                                            
                                                                            Improvements
                                                                            
                                                                            
                                                                            Total
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            Date
                                                                            
                                                                            RateCommercial
      BuildingsBuilding
      Industries Center,  White Plains, NY
                                                                            
                                                                            23,500
      sq.ft.
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            0.17
                                                                            %
                                                                            
                                                                            $
                                                                            61,328
                                                                            
                                                                            
                                                                            $
                                                                            1,342,243
                                                                            
                                                                            
                                                                            $
                                                                            1,403,571
                                                                            
                                                                            
                                                                            $
                                                                            1,168,225
                                                                            
                                                                            
                                                                            $
                                                                            235,346
                                                                            
                                                                            
                                                                            $
                                                                            1,072,906
                                                                            (4)
                                                                            March, 2010
                                                                            
                                                                            
                                                                            5.45
                                                                            %Mapletree
      Industrial Center,  Palmer, MA
                                                                            
                                                                            385,000
      sq.ft.
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            9.92
                                                                            %
                                                                            
                                                                            
                                                                            79,100
                                                                            
                                                                            
                                                                            
                                                                            857,653
                                                                            
                                                                            
                                                                            
                                                                            936,753
                                                                            
                                                                            
                                                                            
                                                                            278,872
                                                                            
                                                                            
                                                                            
                                                                            657,881
                                                                            
                                                                            
                                                                            
                                                                            73,458
                                                                            
                                                                            June, 2011
                                                                            
                                                                            
                                                                            5.00
                                                                            %The
      Hato Rey Center, Hato Rey, PR
                                                                            
                                                                            209,000
      sq.ft.
                                                                            
                                                                            
                                                                            (2)
                                                                            
                                                                            
                                                                            
                                                                            27.24
                                                                            %
                                                                            
                                                                            
                                                                            1,905,985
                                                                            
                                                                            
                                                                            
                                                                            13,366,282
                                                                            
                                                                            
                                                                            
                                                                            15,272,267
                                                                            
                                                                            
                                                                            
                                                                            739,736
                                                                            
                                                                            
                                                                            
                                                                            14,532,531
                                                                            
                                                                            
                                                                            
                                                                            15,245,921
                                                                            (5)
                                                                            May, 2028
                                                                            
                                                                            
                                                                            9.38
                                                                            %ResidentialIndividual
      Cooperative ApartmentsVarious
      Cooperative Apartments, NY & CT
                                                                            
                                                                            6
      Apt. Units
                                                                            
                                                                            
                                                                            (3)
                                                                            
                                                                            
                                                                            
                                                                            1.93
                                                                            %
                                                                            
                                                                            
                                                                            13,443
                                                                            
                                                                            
                                                                            
                                                                            60,937
                                                                            
                                                                            
                                                                            
                                                                            74,380
                                                                            
                                                                            
                                                                            
                                                                            24,374
                                                                            
                                                                            
                                                                            
                                                                            50,006
                                                                            
                                                                            
                                                                            
                                                                            -$
                                                                            2,059,856
                                                                            
                                                                            
                                                                            $
                                                                            15,627,115
                                                                            
                                                                            
                                                                            $
                                                                            17,686,971
                                                                            
                                                                            
                                                                            $
                                                                            2,211,207
                                                                            
                                                                            
                                                                            $
                                                                            15,475,764
                                                                            
                                                                            
                                                                            $
                                                                            16,392,285Real
      Estate of Discontinued OperationsResidentialApartment
      BuildingCrown
      Court,  New
                                                                            (1)
                                                                            105
      Apt. Units &
                                                                            
                                                                            
                                                                            (3)
                                                                            
                                                                            
                                                                            (Net
      Lease)
                                                                            
                                                                            
                                                                            $
                                                                            168,000
                                                                            
                                                                            
                                                                            $
                                                                            3,135,926
                                                                            
                                                                            
                                                                            $
                                                                            3,303,926
                                                                            
                                                                            
                                                                            $
                                                                            2,912,447
                                                                            
                                                                            
                                                                            $
                                                                            391,479
                                                                            
                                                                            
                                                                            $
                                                                            2,078,971
                                                                            
                                                                            November, 2021
                                                                            
                                                                            
                                                                            7.00
                                                                            %Haven,
      CT
                                                                            
                                                                            2,000
      sq.ft. of comml. space
 
 (1)
                The
      Crown Court property is subject to a long-term net lease containing an
      option to purchase in 2009.
 
 (2)
              The
      Hato Rey Center property has been recorded at fair value for the 26%
      partial step acquisitions in accordance with ARB No. 51 and SFAS No. 141
      (see above).
 
 (3)
              Typically
      apartment units range from one bedroom/bath units to two bedroom/two bath
      units and rentable areas range from 541 square feet to 827 square
      feet.
 
 (4)
              This
      mortgage amortizes monthly with a balloon payment due at
      maturity.
 
 (5)
              See
      The Hato Rey Center - Hato Rey, Puerto Rico
  below.
  14
  Crown
Court – New Haven, Connecticut
 
 The Crown
Court property in New Haven, Connecticut is subject to a long-term net lease
with an option to purchase which is exercisable in April, 2009.  In
August, 2008, the lessee notified the Company that it is electing to exercise
this option in accordance with the terms of the net lease, at which time the
Company designated the property as held for sale.  The option purchase
price is $1,635,000 over the outstanding principal mortgage balance at the date
of the exercise of the option.  The gain from sale for financial
reporting purposes is estimated to be approximately $3,261,000 and the estimated
net proceeds of sale will be approximately $1,615,000.
 
 Mapletree
Industrial Center – Palmer, Massachusetts
 
 The
Company is involved in an environmental remediation process for contaminated
soil found on its property.  In the fourth quarter of 2006, the
Company accrued a $1,000,000 liability, which was discounted by $145,546, and
charged $854,454 to expense.  At December 31, 2008, the accrued
liability balance was $924,640 and the discount balance was
$142,214.  See Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Environmental
Matters and Note 12 of Notes to Consolidated
Financial Statements.
 
 The Hato
Rey Center – Hato Rey, Puerto Rico
 
 During
2005 and 2006, three tenants at the Hato Rey Center vacated a total of 82,387
square feet of office space at the expiration of their leases in order to take
occupancy of their own newly constructed office buildings.  As a
result, at December 31, 2006, the vacancy rate at the property was approximately
45%.  In 2006, the Hato Rey Partnership began a program of repairs and
improvements to the property and since that time has spent approximately
$826,000 to upgrade the physical condition and appearance of the
property.  Management believes that the improvement program, which was
substantially completed by the end of 2007, has brought the building up to
modern standards for office buildings in the area and that vacancy rates will
over time decrease.  At December 31, 2007, the vacancy rate had been
reduced to 31% and was further reduced to 25% at December 31, 2008.
 
 In 2005,
the Company agreed to lend up to $2,000,000 to the Hato Rey Partnership to pay
for the cost of improvements to the building and fund any negative cash flows
from the operation of the property.  The loan, which is advanced from
time to time as funds are needed, bore interest at the rate of 11% per annum
until May 11, 2008, with interest and principal to be paid out of the first
positive cash flow from the property or upon a refinancing of the first mortgage
on the property.  In September, 2007, the Company agreed to lend an
additional $500,000 to the Hato Rey Partnership under the same terms as the
original $2,000,000 agreement, except that the interest rate on the additional
$500,000 is at the rate of 13% per annum and that the interest rate on the
entire loan was increased to 13% per annum on May 11, 2008.  At
December 31, 2008, the Company had advanced $2,299,275 to the Hato Rey
Partnership and subsequent to December 31, 2008, the Company advanced an
additional $135,000.  The $2,299,275 loan and the accrued interest of
$497,175 have been eliminated in consolidation.
  15
  The first
mortgage loan on the Hato Rey Center property is due on May 11, 2028 but
provides that if it was not repaid on or before May 11, 2008, the interest rate
on the loan would be increased by two percentage points (to 9.38% per annum of
which 2% per annum is deferred until maturity) and all cash flow from the
property, after payment of all operating expenses, will be applied to pay down
the outstanding principal balance of the loan.  The Company did not
repay the existing mortgage on May 11, 2008 and the mortgage provisions
described above became applicable.  During 2008, no funds were
available from net cash flow to pay down the mortgage balance.  At
December 31, 2008, the outstanding principal balance of the first mortgage loan
was $15,245,921 and the deferred interest was $205,692.
 
 The net
amount of real estate of the Hato Rey Center of $14,532,531 at December 31,
2008, constitutes more than 10% of the assets of the Company.  The
following additional information is provided for this property:
 
 1)  The
occupancy rate at the building at December 31, 2008 was 75% and included one
tenant who occupied more than 10% of the building’s square
footage.  This tenant is a Puerto Rico governmental agency that is
responsible for the monitoring, evaluating and approval of college
courses.  The tenant’s lease term is for five years with a monthly
base rent of $35,012 for the 22,113 square feet it occupies.
 
 2)  In
addition to governmental agencies, the Hato Rey Center is occupied by many
professionals including accountants, attorneys, engineers and computer
consultants.  The average effective annual rent per square foot at the
building is $21.11.
 
 3)  The
following is a schedule of lease expirations at the Hato Rey Center for the next
ten years:
 
 Number of
                    
                    
                    Total
                    
                    
                    
                    
                    
                    PercentageTenants Whose
                    
                    
                    Square
                    
                    
                    
                    
                    
                    of GrossLeases Will
                    
                    
                    Feet
                    
                    
                    Annual
                    
                    
                    AnnualExpire
                    
                    
                    Expiring
                    
                    
                    Rental
                    
                    
                    Rental2009
                    
                    
                    49
                    
                    
                    
                    43,277
                    
                    
                    $
                    867,256
                    
                    
                    
                    25.38
                    %2010
                    
                    
                    36
                    
                    
                    
                    43,650
                    
                    
                    
                    948,109
                    
                    
                    
                    27.752011
                    
                    
                    17
                    
                    
                    
                    17,558
                    
                    
                    
                    375,888
                    
                    
                    
                    11.002012
                    
                    
                    5
                    
                    
                    
                    25,374
                    
                    
                    
                    489,564
                    
                    
                    
                    14.332013
                    
                    
                    4
                    
                    
                    
                    30,039
                    
                    
                    
                    637,004
                    
                    
                    
                    18.642014
                    
                    
                    1
                    
                    
                    
                    3,000
                    
                    
                    
                    98,955
                    
                    
                    
                    2.902015-2018
                    
                    None
                    
                    
                    None
                    
                    
                    None
                    
                    
                    None112
                    
                    
                    
                    162,898
                    
                    
                    $
                    3,416,776
                    
                    
                    
                    100.00
                    %
 
 4)  The
federal tax basis at December 31, 2008 for the Hato Rey Center building and its
improvements was $4,428,883.  Depreciation is provided on the
straight-line method over the assets’ estimated useful lives, which is 31-1/2
years for the building and which range from 5 to 20 years for the
improvements.
 
 5)  The
real estate tax rate is 8.83% and annual real estate taxes for the property were
$269,234 for 2008.  There is not expected to be any increase in the
taxes due to any proposed improvements.
  16
  Other
Matters
 
 In the
opinion of management, all of the Company’s properties are adequately covered by
insurance in accordance with normal insurance practices.  All real
estate owned by the Company is owned in fee simple with title generally insured
for the benefit of the Company by reputable title insurance
companies.
 
 The
mortgages on the Company’s properties have fixed rates of interest and amortize
monthly with the exception of the Building Industries Center mortgage, which has
a balloon payment of $1,038,086 due at maturity in March, 2010, and the Hato Rey
Center mortgage described above.  In 2009, the maturity date of the
mortgage on the Building Industries Center was extended from January 1, 2009 to
March 1, 2010.
 
 ITEM
      3.
              LEGAL
      PROCEEDINGS
 
 None.
 
 ITEM
      4.
              SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY
HOLDERS
 
 None.
 
 PART
II
 
 ITEM
      5.
              MARKET FOR
      REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES
 
 (a)
              The
      principal market for the Company’s Class A and Class B Common Stock is the
      NYSE Alternext US (ticker symbols PDL A and PDL B).  The high
      and low prices for the stock on such principal exchange for each quarterly
      period during the past two years, and the per share dividends declared per
      quarter, are as follows:
 
 DividendsStock
      Prices
                                            
                                            
                                            Paid
      PerShare
      onClass
      A
                                            
                                            
                                            Class
      B
                                            
                                            
                                            Class
      AHigh
                                            
                                            
                                            Low
                                            
                                            
                                            High
                                            
                                            
                                            Low
                                            
                                            
                                            and
      Class BCalendar
      2007First
      Quarter
                                            
                                            $
                                            8.00
                                            
                                            
                                            $
                                            7.30
                                            
                                            
                                            $
                                            7.99
                                            
                                            
                                            $
                                            7.00
                                            
                                            
                                            $
                                            .16Second
      Quarter
                                            
                                            
                                            8.15
                                            
                                            
                                            
                                            7.55
                                            
                                            
                                            
                                            8.05
                                            
                                            
                                            
                                            7.01
                                            
                                            
                                            
                                            .16Third
      Quarter
                                            
                                            
                                            7.70
                                            
                                            
                                            
                                            6.38
                                            
                                            
                                            
                                            7.25
                                            
                                            
                                            
                                            6.05
                                            
                                            
                                            
                                            .16Fourth
      Quarter
                                            
                                            
                                            6.60
                                            
                                            
                                            
                                            5.90
                                            
                                            
                                            
                                            6.90
                                            
                                            
                                            
                                            5.55
                                            
                                            
                                            
                                            .16Calendar
      2008First
      Quarter
                                            
                                            $
                                            6.20
                                            
                                            
                                            $
                                            4.40
                                            
                                            
                                            $
                                            6.28
                                            
                                            
                                            $
                                            4.50
                                            
                                            
                                            $
                                            .16Second
      Quarter
                                            
                                            
                                            5.55
                                            
                                            
                                            
                                            4.95
                                            
                                            
                                            
                                            6.10
                                            
                                            
                                            
                                            4.47
                                            
                                            
                                            
                                            .16Third
      Quarter
                                            
                                            
                                            5.40
                                            
                                            
                                            
                                            4.30
                                            
                                            
                                            
                                            6.50
                                            
                                            
                                            
                                            4.40
                                            
                                            
                                            
                                            .16Fourth
      Quarter
                                            
                                            
                                            4.61
                                            
                                            
                                            
                                            2.95
                                            
                                            
                                            
                                            4.95
                                            
                                            
                                            
                                            0.84
                                            
                                            
                                            
                                            .08
 
 (b)
              The
      number of record holders for the Company’s Common Stock at December 31,
      2008 was 83 for Class A and 453 for Class
B.
  17
  (c)
              Under
      the Code, a REIT which meets certain requirements is not subject to
      Federal income tax on that portion of its taxable income which is
      distributed to its shareholders, if at least 90% of its “real estate
      investment trust taxable income” (exclusive of capital gains) is so
      distributed.  Since January 1, 1982, the Company has elected to
      be taxed as a REIT and has paid regular quarterly cash distributions until
      December 31, 2008.  Subsequent to December 31, 2008, the Company
      announced that it would not pay a dividend for the first quarter of 2009
      and that it was unlikely that it would pay a dividend in
      2009.  No assurance can be given that the Company will continue
      to be taxed as a REIT, or that the Company will have sufficient cash to
      pay dividends in order to maintain REIT status.  See Item 1. - Business -
      Qualification as a REIT
above.
 
 (d)
              The
      following table sets forth certain information as of December 31, 2008,
      relating to the Company’s 2005 Restricted Stock Plan, which was approved
      by security holders (the Company has no other equity compensation
      plans):
 
 Number
      ofsecuritiesremainingavailablefor
      futureissuanceNumber
      of
                  
                  under
      equitysecurities
                  
                  compensationto
      be issued
                  Weighted
      average
                  plansupon
      exercise
                  exercise
      price of
                  (excludingof
      outstanding
                  outstanding
      options,
                  securitiesoptions,
      warrants
                  warrants
      and
                  reflected
      inand
      rights
                  rights
                  column
      (a))(a)
                  (b)
                  (c)None
                  None
                  50,500Class BCommon
      Shares
 
 (e)
              The
      following table sets forth the purchase by the Company of its equity
      securities during the three months ended December 31, 2008.  The
      Company does not have a publicly announced plan or program for such
      purchases but it may purchase additional shares in the future if it deems
      it appropriate under all the circumstances.  The purchase was
      made after the Company was approached by an individual
      shareholder.  The table only lists the month when such purchase
      was made.
  18
  Issuer
Purchases of Equity Securities
 
 (d)(c)
                                      
                                      MaximumTotal number
                                      
                                      number (orof shares
                                      
                                      approximate(or units)
                                      
                                      dollar value)(b)
                                      
                                      purchased as
                                      
                                      of sharesAverage
                                      
                                      part of
                                      
                                      (or units)(a)
                                      
                                      price
                                      
                                      publicly
                                      
                                      that may yet beTotal number of
                                      
                                      paid per
                                      
                                      announced
                                      
                                      purchased undershares (or units)
                                      
                                      share
                                      
                                      plans or
                                      
                                      the plans orPeriod
                                      
                                      purchased
                                      
                                      (or unit)
                                      
                                      programs
                                      
                                      programsNovember
                                      
                                      102,895
                                      
                                      $            2.275
                                      
                                      None
                                      
                                      None1 –
      30
                                      
                                      Class
      B
 
 The above
shares were purchased in a private transaction with a shareholder pursuant to a
common stock repurchase agreement.
 
 ITEM
      6.
              SELECTED FINANCIAL
      DATA
 
 Not
required for a smaller reporting company.
  19
  ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF
      OPERATIONS
 
 Overview
 
 Presidential
Realty Corporation is taxed for federal income tax purposes as a real estate
investment trust.  Presidential owns real estate directly and through
a partnership and joint ventures and makes loans secured by interests in real
estate.
 
 During
the past year, the downturn in the economy, higher unemployment and lack of
consumer confidence have adversely affected the operating results of the
shopping mall properties in which the Company has invested. These conditions,
among others, have resulted in defaults in 2008 on two of the mezzanine loans
made by the Company to joint ventures owning seven shopping mall properties and
in defaults on the first mortgage loans secured by six of these
properties.  Subsequent to year end, the borrower defaulted in the
payment of interest on the Company’s third mezzanine loan.  (See Liquidity and Capital
Resources – Joint Ventures Mezzanine Loans and Settlement Agreement
below.)
 
 In
addition, the turmoil in the credit markets has made it very difficult for the
Company and its joint venture partners to obtain refinancing of the mortgage
loans on some of its properties on satisfactory terms. For example, the Company
was unable to refinance the existing $15,245,921 first mortgage on its Hato Rey
Center office building in May, 2008 when the terms of the mortgage anticipated
repayment. As a result, while the mortgage is not in default, the annual
interest rate was increased by 200 basis points (the payment of which is
deferred until maturity) and the mortgagee is entitled to receive all net cash
flow from the property to reduce the outstanding principal
balance.  During 2008, there was no net cash flow available to reduce
the principal balance of the mortgage and no assurances can be given that there
will be any net cash flow available in 2009.  While the Company has
been successful in increasing the occupancy rate at the Hato Rey Center property
from 69% at December 31, 2007 to 78% at February 28, 2009, the worsening economy
may adversely affect the Company’s ability to continue to increase occupancy
rates in the near future and to refinance the property. (See Hato Rey Partnership
below.)
 
 The
restrictive credit markets also adversely affect the ability of the Company and
the joint ventures to sell properties owned by them on satisfactory terms
because of the inability of prospective purchasers to obtain financing on
satisfactory terms.
 
 There are
no current market indications of when the general U.S. economy will rebound or
when credit will become more easily available.  The Company's Board of
Directors and management will continue to review the options available to the
Company.
 
 From time
to time in the Company’s recent history, the Company has considered various
strategic alternatives, including a merger, consolidation or sale of all or
substantially all of its assets.  In the past, no appropriate
opportunity has been found but the Board of Directors and management will always
consider reasonable proposals.  In the current economic environment,
the Company may seek to sell one or more of its assets if reasonable prices can
be determined and obtained.  If a sale or sales can be made,
management may consider submitting a plan of liquidation to its shareholders for
approval.  The plan of liquidation would provide for the sale of all
of the Company’s assets over time and the distribution of the net proceeds of
sale to the shareholders after satisfaction of the Company’s
liabilities.  While management has considered this course of action,
among others, as noted above, there has been no determination to adopt such a
plan of liquidation at this time or to enter into any strategic
alternative.  Further, there can be no assurance that the Company will
be able to sell any of its assets at prices that management deems
fair.
  20
  Investments
in and Advances to Joint Ventures
 
 Under the
equity method of accounting for investments in and advances to joint ventures,
the $25,935,000 of mezzanine loans and the $1,438,410 investment which the
Company had made to various entities that own and operate shopping mall
properties has been reduced by distributions received and by the Company’s 29%
share of the losses from the joint venture entities. At December 31, 2008,
investments in and advances to joint ventures was $1,511,887.
 
 The
Company is entitled to receive interest at the rate of 11% per annum on the
$25,935,000 mezzanine loans and an 11% preferential return per annum on its
$1,438,410 investment and records these payments when received as distributions
in investments in and advances to joint ventures.  During 2008, a
number of defaults occurred in regard to payments of the interest due on these
mezzanine loans.
 
 Subsequent
to December 31, 2008, the Company entered into a Settlement Agreement with The
Lightstone Group (“Lightstone”) and David Lichtenstein with respect to various
claims that the Company had asserted against them in connection with the
Company’s investments in and advances to the joint ventures described
above.  The Settlement Agreement is described below under Liquidity and Capital
Resources – Joint Venture Mezzanine Loans and Settlement
Agreement.
 
 Real Estate Loans
 
 During
2008, the Company received principal payments on its mortgage portfolio of
$5,747,679, of which $3,875,000 was for the repayment of its Fairfield Towers
note receivable and $1,500,000 was for the repayment of its loan receivable
collateralized by ownership interests in Reisterstown Square Associates, LLC,
which owns Reisterstown Apartments in Baltimore, Maryland.
 
 Hato Rey Partnership
 
 PDL, Inc.
(a wholly owned subsidiary of Presidential) is the general partner of PDL, Inc.
and Associates Limited Co-Partnership (the “Hato Rey
Partnership”).  The Hato Rey Partnership owns and operates the Hato
Rey Center, an office building in Hato Rey, Puerto Rico.
 
 At
December 31, 2007 and 2008, Presidential and PDL, Inc. owned an aggregate 60%
general and limited partner interest in the Hato Rey Partnership.  The
Company consolidates the Hato Rey Partnership in the Company’s consolidated
financial statements.
  21
  For the
year ended December 31, 2008, the Hato Rey Partnership had a loss of
$481,352.  The minority partners have no basis in their investment in
the Hato Rey Partnership, and as a result, the Company is required to record the
minority partners’ 40% share of the loss which was
$192,541.  Therefore, the Company recorded 100% of the loss from the
partnership of $481,352 in the Company’s consolidated financial
statements.  Future earnings of the Hato Rey Partnership, should they
materialize, will be recorded by the Company up to the amount of the losses
previously absorbed that were applicable to the minority partners.
 
 Other Investments
 
 In the
fourth quarter of 2008, the Company wrote off its $1,000,000 investment with
Broadway Real Estate Partners LLC (“Broadway Partners”) due to the decline in
value of Broadway Partners’ investment portfolio.
 
 Discontinued
Operations
 
 In
September, 2008, the Company sold a package of 42 cooperative apartment units at
Towne House located in New Rochelle, New York for a sales price of $3,450,000,
with net cash proceeds of sale of $3,343,187.
 
 In July,
2008, the Company sold a cooperative apartment unit located in New Haven,
Connecticut for a sales price of $122,000, with net cash proceeds of sale of
$113,990.
 
 The Crown
Court property in New Haven, Connecticut is subject to a long-term net lease
with an option to purchase which is exercisable in April, 2009.  In
August, 2008, the lessee notified the Company that it is electing to exercise
this option in accordance with the terms of the net lease and the Company has
classified this property as a discontinued operation.  The option
purchase price is $1,635,000 over the outstanding principal mortgage balance at
the date of the exercise of the option and the estimated net proceeds of sale
will be approximately $1,615,000.
 
 Critical Accounting
Policies
 
 In
preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”),
management is required to make estimates and assumptions that affect the
financial statements and disclosures. These estimates require difficult, complex
and subjective judgments. Management has discussed with the Company’s Audit
Committee the implementation of the critical accounting policies described below
and the estimates required with respect to such policies.
 
 Real
Estate
 
 Real
estate is carried at cost, net of accumulated depreciation and
amortization.  Additions and improvements are capitalized and repairs
and maintenance are charged to rental property operating expenses as
incurred.  Depreciation is generally provided on the straight-line
method over the estimated useful life of the asset. The useful life of each
property, as well as the allocation of the costs associated with a property to
its various components, requires estimates by management. If management
incorrectly estimates the allocation of those costs or incorrectly estimates the
useful lives of its real estate, depreciation expense may be
miscalculated.
  22
  The
Company reviews each of its properties for impairment if events or changes in
circumstances warrant. If impairment were to occur, the property would be
written down to its estimated fair value.  The Company assesses the
recoverability of its investment in real estate based on undiscounted cash flow
estimates.  The future estimated cash flows of a property are based on
current rental revenues and operating expenses, as well as the current local
economic climate affecting the property.  Considerable judgment is
required in making these estimates and changes in these estimates could cause
the estimated cash flows to change and an impairment could occur. As of December
31, 2008, the Company’s net real estate was carried at
$15,475,764.  During 2008, no impairment loss was recorded on any real
estate owned by the Company.
 
 Investments in Joint
Ventures
 
 The
Company has equity investments in joint ventures and accounts for these
investments using the equity method of accounting.  These investments
are recorded at cost and adjusted for the Company’s share of each entity’s
income or loss and adjusted for cash contributions or
distributions.  Real estate held by such entities is reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, and is written down to its estimated
fair value if an impairment is determined to exist.  During 2008, no
impairment losses were recorded by the joint ventures on any of these
properties.
 
 Purchase Accounting
 
 In 2006
and 2007, the Company acquired an additional 25% and 1% limited partnership
interest in the Hato Rey Partnership, respectively.  The Company
allocated the fair value of acquired tangible and intangible assets and assumed
liabilities based on their estimated fair values in accordance with the
provisions of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated
Financial Statements”, and Statement of Financial Accounting Standards (“SFAS”)
No. 141, “Business Combinations”, as a partial step acquisition.  No
gain or goodwill was recognized on the recording of the acquisitions of the
additional interests in the Hato Rey Partnership.  Building and
improvements are depreciated on the straight-line method over 39
years.  In-place lease values are amortized to expense over the terms
of the related tenant leases.  Above and below market lease values are
amortized as a reduction of, or an increase to, rental revenue over the
remaining term of each lease.  Mortgage discount was amortized to
mortgage interest expense over the original expected term of the mortgage using
the interest method (while the maturity date is May, 2028, the original
anticipated repayment date of the mortgage was May, 2008).
 
 Assets and Liabilities Related to
Discontinued Operations
 
 Assets
related to discontinued operations are carried at the lower of cost(net of
accumulated depreciation and amortization) or fair value less costs to
sell.  An operating property is classified as held for sale and,
accordingly, as a discontinued operation when, in the judgment of management, a
sale that will close within one year is probable. The Company discontinues
depreciation and amortization when a property is classified as a discontinued
operation.  At December 31, 2008, assets related to discontinued
operations for the Crown Court property were $391,479.  During 2008,
no impairment charges were recorded for this property.
  23
  Liabilities
related to assets held for sale at December 31, 2008, consist of the $2,078,971
nonrecourse mortgage debt on the Crown Court property, which will be repaid from
the proceeds of the sale (see Liquidity and Capital
Resources - Discontinued Operations below).
 
 Mortgage
Portfolio
 
 The
Company evaluates the collectibility of both accrued interest and principal on
its $2,290,370 mortgage portfolio to determine whether there are any impaired
loans. If a mortgage loan were considered to be impaired, the Company would
establish a valuation allowance equal to the difference between a) the carrying
value of the loan, and b) the present value of the expected cash flows from the
loan at its effective interest rate, or at the estimated fair value of the real
estate collateralizing the loan. Although a loan modification could be an
indicator of a possible impairment, the Company has in the past, and may in the
future, modify loans for business purposes and not as a result of debtor
financial difficulties.  Income on impaired loans is recognized only
as cash is received.  At December 31, 2008, all loans were current as
to payment of principal and interest according to their terms, as modified, and
no loans have been classified as impaired.
 
 Rental
Revenue Recognition
 
 The
Company recognizes rental revenue on the straight-line basis from the later of
the date of the commencement of the lease or the date of acquisition of the
property subject to existing leases, which averages minimum rents over the terms
of the leases. Certain leases require the tenants to reimburse a pro rata share
of real estate taxes, utilities and maintenance costs.
 
 Allowance
for Doubtful Accounts
 
 Management
assesses the collectibility of amounts due from tenants and other receivables,
using indicators such as past-due accounts, the nature and age of the
receivable, the payment history and the ability of the tenant or debtor to meet
its payment obligations.  Management’s estimate of allowances for
doubtful accounts is subject to revision as these factors
change.  Rental revenue is recorded on the accrual method and rental
revenue recognition is generally discontinued when the tenant in occupancy is
delinquent for ninety days or more.  Bad debt expense is charged for
vacated tenant accounts and subsequent receipts collected for those receivables
will reduce bad debt expense. At December 31, 2008, other receivables, net of an
allowance for doubtful accounts of $106,183, were $462,479. For the years ended
December 31, 2008 and 2007, bad debt expense for continuing operations relating
to tenant obligations was $41,595 and $16,657, respectively.
  24
  Pension Plans
 
 The
Company maintains a qualified Defined Benefit Pension Plan, which covers
substantially all of its employees.  The plan provides for monthly
retirement benefits commencing at age 65. The Company makes annual contributions
that meet the minimum funding requirements and the maximum contribution levels
under the Internal Revenue Code.  Net periodic benefit costs for the
years ended December 31, 2008 and 2007 were $183,321 and $118,940,
respectively.  The projected benefit obligation at December 31, 2008
was $8,168,816 and the fair value of the plan assets was $5,915,677. At December
31, 2008 and 2007, the discount rate used in computing the projected benefit
obligation was 6.37% and 6.24%, respectively.  The expected long-term
rate of return on plan assets was 7% for both years.  The Company was
not required to make any contributions to the plan in 2008 for the 2007 tax
year.  There will not be any required contributions in 2009 for the
2008 tax year although the Company may decide to make such a
contribution.  However, as a result of the precipitous decline in the
stock market in the second half of 2008 and the first quarter of 2009, which has
adversely affected the value of the assets in the Defined Benefit Pension Plan
portfolio, the Company will be required by the rules governing the funding of
pension plans to make contributions to the Defined Benefit Pension Plan in the
approximate amount of $600,000 for the 2009 tax year and will be required to
make additional contributions in subsequent years.  The Company may
make contributions in excess of the required contributions if it believes it is
prudent to do so.  Management and trustees regularly review the plan
assets, the actuarial assumptions and the expected rate of
return.  Changes in actuarial assumptions, interest rates or changes
in the fair value of the plan assets can materially affect the benefit
obligation, the required funding and the benefit costs.  Subsequent to
December 31, 2008, the Company froze the accrual of additional benefits under
the Defined Benefit Pension Plan at February 28, 2009 so that the benefits
payable to participants will not be increased as a result of additional years of
service or increased compensation levels after the freeze date.
 
 In
addition, the Company has contractual retirement agreements with certain active
and retired officers providing for unfunded pension benefits.  The
Company accrues on an actuarial basis the estimated costs of these benefits
during the years the employee provides services.  The benefits
generally provide for annual payments in specified amounts for each participant
for life, commencing upon retirement, with an annual cost of living
increase.  Benefits paid for the years ended December 31, 2008 and
2007 were $216,660 and $469,575, respectively.  Benefit costs for the
years ended December 31, 2008 and 2007 were $31,149 and $508,713, respectively.
The projected contractual pension benefit obligation at December 31, 2008 was
$1,367,646.  At December 31, 2008 and 2007, the discount rate used in
computing the projected benefit obligation was 6.24% and 6.00%,
respectively.  Changes in interest rates and actuarial assumptions,
amendments to the plan and life expectancies could materially affect benefit
costs and the contractual accumulated pension benefit obligation.
 
 Fourth
Floor Management Corp. Profit Sharing Plan
 
 Fourth
Floor Management Corp., a 100% owned subsidiary of Presidential Realty
Corporation that manages the Company’s properties, maintains a profit sharing
plan for substantially all of its employees.  The profit sharing plan
provides for annual contributions up to a maximum of 5% of the employees annual
compensation.  The Company made a $9,420 contribution to the plan in
March, 2009 for the 2008 plan year and a $9,140 contribution to the plan in
February, 2008 for the 2007 plan year.  Contributions are charged to
general and administrative expense.
  25
  Income
Taxes
 
 The
Company operates in a manner intended to enable it to continue to qualify as a
Real Estate Investment Trust (“REIT”) under Sections 856 to 860 of the Code.
Under those sections, a REIT which meets certain requirements is not subject to
Federal income tax on that portion of its taxable income which is distributed to
its shareholders, if at least 90% of its REIT taxable income (exclusive of
capital gains) is so distributed.  As a result of its ordinary tax
loss for 2008, there is no requirement to make a distribution in
2009.  In addition, although no assurances can be given, the Company
currently expects that it will not have to pay Federal income taxes for 2008
because the Company will apply a portion of its 2006 loss carryforward and all
of its available 2008 distributions to reduce its 2008 taxable income to
zero.  Accordingly, no provision for income taxes has been made at
December 31, 2008.  If the Company failed to distribute the required
amounts of income to its shareholders, or otherwise fails to meet the REIT
requirements, it would fail to qualify as a REIT and substantial adverse tax
consequences could result.  The Company believes that it will not be
required to pay a dividend in 2009 to maintain its REIT status.
 
 Accounting for Uncertainty in Income
Taxes
 
 On
January 1, 2007, the Company adopted the Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN 48”). If the Company’s tax
positions in relation to certain transactions were examined and were not
ultimately upheld, the Company would be required to pay an income tax assessment
and related interest.  Alternatively, the Company could elect to pay a
deficiency dividend to its shareholders in order to continue to qualify as a
REIT and the related interest assessment to the taxing authorities.
 
 Results of
Operations
 
 2008 vs
2007
 
 Financial
Highlights from Consolidated Statements of Operations:
 
 Year
      Ended December 31,2008
                                  
                                  
                                  2007Revenues
                                  
                                  $
                                  6,406,416
                                  
                                  
                                  $
                                  6,280,450Loss
      from continuing operations
                                  
                                  $
                                  (4,168,380
                                  )
                                  
                                  $
                                  (12,397,131
                                  )
      (1)Discontinued
      Operations:Income
      from discontinued operations
                                  
                                  
                                  250,478
                                  
                                  
                                  
                                  151,550Net
      gain from sales of discontinued operations
                                  
                                  
                                  2,892,258
                                  
                                  
                                  
                                  735,705Total
      income from discontinued operations
                                  
                                  
                                  3,142,736
                                  
                                  
                                  
                                  887,255Net
      Loss
                                  
                                  $
                                  (1,025,644
                                  )
                                  
                                  $
                                  (11,509,876
                                  )
 
 (1)
              The
      2007 period includes equity in the loss from joint ventures of
      $10,084,207.
 
 Continuing
Operations:
 
 Revenues
increased by $125,966 primarily as a result of increases in rental revenues,
partially offset by decreases in interest income on mortgages-notes receivable
and interest income on mortgages-notes receivable-related
parties.
  26
  Rental
revenues increased by $568,197 primarily due to increased occupancy rates at the
Hato Rey Center property, which increased rental revenues by
$566,276.  The $566,276 increase in rental revenues at the Hato Rey
Center property also includes lease termination fees in the amount of
$56,122.
 
 Interest
on mortgages-notes receivable decreased by $312,621 primarily as a result of
repayments of $5,585,000 on notes receivable which were received in
2008.  Interest income on those notes decreased by $294,990 in the
2008 period.
 
 Interest
on mortgages-notes receivable-related parties decreased by $120,825 primarily as
a result of a decrease of $109,250 in payments of interest received on the
Consolidated Loans.  Payments received on the Consolidated Loans
fluctuate because they are based on the cash flows of Scorpio Entertainment,
Inc. (see Liquidity
and Capital Resources – Consolidated Loans below).
 
 Costs and
expenses decreased by $1,088,394 primarily due to decreases in general and
administrative expenses and amortization of in-place lease values and mortgage
costs. These decreases were partially offset by increases in rental property
operating expenses, interest on mortgage debt and depreciation
expense.
 
 General
and administrative expenses decreased by $1,283,105 primarily as a result of the
reversal of the $965,106 interest expense previously accrued in accordance with
FIN 48, related to certain tax positions for which the Company may have been
required to pay a deficiency dividend.  When the statute of
limitations with respect to these tax positions lapsed in September, 2008, the
accrued liability was reversed. This reversal resulted in a reduction of
interest expense of $1,174,360.  In addition, professional fees
decreased by $250,296 (primarily accounting fees) and contractual pension
benefit expenses decreased by $492,662 as a result of the deaths of two
participants in 2007.  These decreases were partially offset by
increases in salary expense of $573,347 and an increase in employee benefit plan
expense of $64,381. Salary expense increased primarily due to an amendment of an
executive employment agreement which requires payments upon the retirement of
the executive.  As a result, there was an increase in accrued salary
expense of $471,927.
 
 Rental
property operating expenses increased by $233,905 primarily as a result of
increases in utility expenses of $210,172 and increases in bad debt expense of
$21,273 at the Hato Rey Center property.
 
 Interest
on mortgage debt increased by $120,676 primarily as a result of a $187,523
increase in mortgage interest expense on the Hato Rey Center property first
mortgage.  The terms of the existing first mortgage provided for a 2%
per annum increase in the interest rate on the mortgage beginning on May 12,
2008.  This increase was partially offset by a decrease of $62,068 in
the amortization of discount on mortgage payable.
 
 Depreciation
on real estate increased by $51,268 primarily as a result of a $55,368 increase
in depreciation on the Hato Rey Center property.
 
 Amortization
of in-place lease values and mortgage costs decreased by $212,095 as a result of
a $178,567 decrease in the amortization of in-place lease values and a $33,528
decrease in the amortization of mortgage costs.  In-place lease values
were recorded in connection with the partial step acquisition of the Hato Rey
Partnership in 2006 and 2007 and amortize over the remaining terms of the
leases.
  27
  Other
income increased by $7,012,197 as a result of a decrease in the equity in the
loss from joint ventures of $8,515,522, partially offset by the $1,000,000
write-off of other investments and a decrease in investment income of
$503,325.  The loss from joint ventures decreased by $8,515,522 from a
loss of $10,084,207 (including an $8,370,725 impairment loss) in 2007 to a loss
of $1,568,685 in 2008.  (See Liquidity and Capital
Resources – Investments in and Advances to Joint Ventures
below.)  Investment income decreased primarily due to a decrease of
$508,379 in distributions received from Broadway Partners Fund A because the
fund was substantially liquidated in 2007.  In addition, as a result
of the decline in value of the investment portfolio held by Broadway Partners
Fund A II, in the fourth quarter of 2008, the Company wrote off its $1,000,000
investment in this fund.
 
 Loss from
continuing operations decreased by $8,228,751 from a loss of $12,397,131 in 2007
to a loss of $4,168,380 in 2008.  The $8,228,751 decrease in loss was
primarily a result of an increase of $7,012,197 in other income and a decrease
of $1,283,105 in general and administrative expenses.
 
 Discontinued
Operations:
 
 In 2008,
the Company has three properties that were classified as discontinued
operations.  The Crown Court property in New Haven, Connecticut, which
consists of 105 apartment units and 2,000 square feet of commercial space, is
owned subject to a net lease agreement with an option to purchase in April,
2009.  During the quarter ended September 30, 2008, the Company
received notification from the lessee that it has elected to exercise its
purchase option and the property was designated as held for sale in the quarter
ended September 30, 2008.  In addition, the Towne House property in
New Rochelle, New York, which consists of 42 cooperative apartment units, and a
cooperative apartment unit in New Haven, Connecticut were designated as held for
sale during the quarter ended June 30, 2008 and sold during the quarter ended
September 30, 2008.  (See Liquidity and Capital
Resources – Discontinued Operations below.)
 
 In 2007,
the Company had two properties that were classified as discontinued operations:
the Cambridge Green property in Council Bluffs, Iowa, which was sold in March,
2007, and a cooperative apartment unit in New Haven, Connecticut, which was sold
in June, 2007.
 
 The
following table compares the total income from discontinued operations for the
years ended December 31, 2008 and 2007 for properties included in discontinued
operations:
  28
 
 2008
                  
                  
                  2007Income
      (loss) from discontinued operations:Cambridge
      Green, Council Bluffs, IA
                  
                  $
                  -
                  
                  
                  $
                  (92,302
                  )Cooperative
      apartment units, New Haven, CT
                  
                  
                  854
                  
                  
                  
                  107Crown
      Court, New Haven, CT
                  
                  
                  161,209
                  
                  
                  
                  137,402Towne
      House, New Rochelle, NY
                  
                  
                  88,415
                  
                  
                  
                  106,343Income
      from discontinued operations
                  
                  
                  250,478
                  
                  
                  
                  151,550Net
      gain from sales ofdiscontinued
      operations:Cambridge
      Green
                  
                  
                  -
                  
                  
                  
                  646,759Cooperative
      apartment units
                  
                  
                  85,759
                  
                  
                  
                  88,946Towne
      House
                  
                  
                  2,806,499
                  
                  
                  
                  -Net
      gain from sales of discontinued operations
                  
                  
                  2,892,258
                  
                  
                  
                  735,705Total
      income from discontinued operations
                  
                  $
                  3,142,736
                  
                  
                  $
                  887,255
 
 Balance
Sheet
 
 December 31, 2008 vs
December 31, 2007
 
 Net real
estate decreased by $730,528 primarily as a result of the $415,526
reclassification in 2008 of net real estate related to the Crown Court property
from net real estate to assets related to discontinued
operations.  The Crown Court property at the beginning of the year had
a carrying value of $3,303,926, less accumulated depreciation of $2,888,400,
resulting in a net carrying value of $415,526.  In addition, the
Company sold the Towne House property and one cooperative apartment unit, which
decreased net real estate by $548,330.  The Company also purchased
additions and improvements to its properties of $702,828 and recorded
depreciation of $469,500.
 
 Net
mortgage portfolio decreased by $5,410,022 primarily as a result of the
$5,747,679 of payments received on the Company’s mortgage
portfolio.  In the first quarter of 2008, the Company received
repayment of its $1,500,000 mezzanine loan on the Reisterstown Apartments
property and repayment of its $100,000 note on the Pinewood
property.  In the second and third quarters of 2008, the Company
received repayments of its $3,875,000 note receivable relating to the sale of
the Fairfield Towers mortgages in 1999 and its $110,000 Mark Terrace note
receivable.  Also, during 2008, the Company received $113,917 in
partial payments on its $200,000 note receivable related to the sale of
Cambridge Green in 2007.  This decrease was partially offset by the
$348,740 of amortization of discounts on notes receivable.
 
 Investments
in and advances to joint ventures decreased by $3,411,314 as a result of
$1,842,629 of distributions received and $1,568,685 of equity in the loss from
the joint ventures.
 
 Other
investments decreased by $1,000,000 due to the write-off of the Company’s
investment with Broadway Partners.
  29
  Assets
related to discontinued operations increased by $391,479.  In the
third quarter of 2008, the Company classified the Crown Court property in New
Haven, Connecticut as discontinued operations.
 
 Prepaid
expenses and deposits in escrow decreased by $99,725 primarily as a result of
decreases of $121,893 in deposits in escrow, offset by increases of $22,168 in
prepaid expenses.
 
 Prepaid
defined benefit plan costs decreased by $371,942 primarily as a result of the
decline in the fair value of the plan assets, which created a defined benefit
plan liability as discussed below.
 
 Other
receivables increased by $92,475 primarily as a result of a $175,877 increase in
net tenant accounts receivable and a $56,174 increase in miscellaneous
receivables, partially offset by a $139,576 decrease in accrued interest
receivable.
 
 Cash and
cash equivalents increased by $3,641,053 primarily as a result of the $5,747,679
of repayments received on the Company’s mortgage portfolio and the $3,457,177 of
proceeds from the sales of properties.  This increase was partially
offset by the purchase of treasury stock of $2,873,358, the distributions on
common stock to shareholders of $2,062,555 and disbursements for additions and
improvements of $726,164.
 
 Other
assets decreased by $159,155 primarily as a result of decreases of $118,174 of
amortization of in-place lease values and $34,822 of amortization of mortgage
costs.
 
 Mortgage
debt decreased by $2,476,405 and liabilities related to discontinued operations
increased by $2,078,971.  In 2008, the Company reclassified the
$2,078,971 Crown Court mortgage debt from mortgage debt to liabilities related
to discontinued operations.
 
 Contractual
pension and postretirement benefits liabilities decreased by $361,304 primarily
due to a $319,502 decrease in the contractual postretirement benefits obligation
as a result of the deaths of two participants in 2007 and the deferral of
retirement for four other plan participants.  In addition, there was a
$41,802 decrease in the contractual pension benefit obligation.
 
 Defined
benefit plan liability increased by $2,253,139 as a result of the $2,316,614
decline in the fair value of the plan assets from $8,232,291 in 2007 to
$5,915,677 in 2008.
 
 Accrued
liabilities decreased by $431,333 primarily as a result of the reversal of the
$817,580 interest accrued at December 31, 2007 related to FIN 48.  In
addition, accrued commissions decreased by $110,000.  These decreases
were partially offset by an increase of $501,387 in accrued salary expense
payable upon retirement of an executive officer.
 
 During
2008, the Company awarded 3,000 shares of the Company’s Class B common stock to
three independent directors of the Company as partial payment of directors’ fees
for the 2008 year.  These shares were issued from the Company’s 2005
Restricted Stock Plan (the “2005 Plan”).  Stock granted to directors
is fully vested on the grant date and stock granted in prior years to officers
and employees are vesting at rates ranging from 20% to 50% per
year.  Notwithstanding the vesting schedule, the officers and
employees are entitled to receive distributions on the total number of shares
awarded. The issued shares are valued at the market value of the Class B common
stock at the grant date. The following is a summary of the shares issued in 2008
and the expense related to the shares vested in 2008.
  30
  2008Unvested
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            Unvested
                                            
                                            Class BShares
                                            
                                            
                                            
                                            Market
                                            
                                            
                                            
                                            
                                            
                                            Shares
                                            
                                            Commonat
                                            
                                            Shares
                                            
                                            Value at
                                            
                                            
                                            Shares
                                            
                                            
                                            at
                                            
                                            Stock - Par
                                            
                                            AdditionalDate of
                                            
                                            December
                                            
                                            Issued
                                            
                                            Date of
                                            
                                            
                                            Vested
                                            
                                            
                                            December
                                            
                                            Value $.10
                                            
                                            Paid -in
                                            
                                            Directors'
                                            
                                            SalaryIssuance
                                            
                                            31, 2007
                                            
                                            in 2008
                                            
                                            Grant
                                            
                                            
                                            in 2008
                                            
                                            
                                            
                                            31, 2008
                                            
                                            Per Share
                                            
                                            Capital
                                            
                                            Fees
                                            
                                            ExpenseAug.,
      2005 (1)
                                            
                                            
                                            6,000
                                            
                                            
                                            
                                            $
                                            7.51
                                            
                                            
                                            
                                            2,000
                                            
                                            
                                            
                                            4,000Aug.,
      2005 (1)
                                            
                                            
                                            600
                                            
                                            
                                            
                                            
                                            9.04
                                            
                                            
                                            
                                            200
                                            
                                            
                                            
                                            400Jan.,
      2006
                                            
                                            
                                            13,500
                                            
                                            
                                            
                                            
                                            7.40
                                            
                                            
                                            
                                            4,500
                                            
                                            
                                            
                                            9,000
                                            
                                            
                                            
                                            $
                                            33,300
                                            
                                            
                                            
                                            $
                                            33,300Dec.,
      2006
                                            
                                            
                                            5,200
                                            
                                            
                                            
                                            
                                            7.05
                                            
                                            
                                            
                                            1,300
                                            
                                            
                                            
                                            3,900
                                            
                                            
                                            
                                            
                                            9,165
                                            
                                            
                                            
                                            
                                            9,165May,
      2007
                                            
                                            
                                            5,000
                                            
                                            
                                            
                                            
                                            7.44
                                            
                                            
                                            
                                            5,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            37,200
                                            
                                            
                                            
                                            
                                            37,200Dec.,
      2007
                                            
                                            
                                            2,500
                                            
                                            
                                            
                                            
                                            5.80
                                            
                                            
                                            
                                            500
                                            
                                            
                                            
                                            2,000
                                            
                                            
                                            
                                            
                                            2,900
                                            
                                            
                                            
                                            
                                            2,900Jan.,
      2008
                                            
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            5.92
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            
                                            
                                            
                                            $            300
                                            
                                            
                                            17,460
                                            
                                            $      17,76032,800
                                            
                                            3,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            16,500
                                            
                                            
                                            
                                            19,300
                                            
                                            $            300
                                            
                                            $
                                            100,025
                                            
                                            $      17,760
                                            
                                            $
                                            82,565
 
 (1)
              These
      shares were part of 11,000 shares granted in 2004 and 2005 and issued in
      2005.  The Company recorded salary expense of $9,040 in 2005 and
      $75,100 in 2004. In 2005, when the shares were issued, the Company
      recorded additions to Class B common stock of $1,100 and $83,040 to
      additional paid-in capital.
  31
  Accumulated
other comprehensive loss increased by $2,258,780 primarily as a result of a
$2,441,760 adjustment for the defined benefit plan, partially offset by
adjustments of $186,082 for contractual pension and postretirement
benefits.  The adjustment for the defined benefit plan was primarily
attributable to the decline in the fair value of the defined benefit plan
assets, as discussed above.
 
 Treasury
stock increased by $2,873,358 as a result of the Company’s purchase of 540,767
shares of its Class B common stock at an average cost of $5.00 per share and
31,032 shares of its Class A common stock at an average cost of $5.50 per
share.  (See Liquidity and Capital
Resources – Financing Activities below.)
 
 Liquidity and Capital
Resources
 
 (a)  General
 
 Presidential
obtains funds for working capital and investment from its available cash and
cash equivalents, from operating activities, from refinancing of mortgage loans
on its real estate equities or from sales of such equities, and from repayments
on its mortgage portfolio.  The Company also has at its disposal a
$250,000 unsecured line of credit from a lending institution.  At
December 31, 2008, there was no outstanding balance due under the line of
credit.
 
 During
the year ended December 31, 2008, the Company received repayments in full from
an affiliate of Mr. Lichtenstein of a $3,875,000 note receivable and a
$1,500,000 note receivable.  The Company also received net proceeds of
$3,343,187 from the sale of 42 cooperative apartment units at Towne House
Apartments in New Rochelle, New York.
 
 At
December 31, 2008, Presidential had $5,984,550 in available cash and cash
equivalents, an increase of $3,641,053 from the $2,343,497 it had at December
31, 2007.  This increase in cash and cash equivalents was due to cash
provided by operating activities of $547,586 and cash provided by investing
activities of $8,478,692, offset by cash used in financing activities of
$5,385,225.
 
 On
November 13, 2008, the Company announced that it was reducing its dividend for
the fourth quarter of 2008 from $.16 per share to $.08 per share.  The
decision of the Board of Directors of the Company to reduce the Company’s
dividend at that time recognized, among other things, the adverse economic
conditions currently affecting real estate markets, the existing defaults on two
of the Company’s loans to affiliates of David Lichtenstein, the Company’s
inability at the present time to refinance the Hato Rey Center office building
mortgage and the desirability of conserving the Company’s cash resources under
these circumstances.  On February 4, 2009, the Company announced that
it was not declaring a dividend for the first quarter of 2009 and that it was
unlikely that it would declare any dividend in 2009.
 
 As
discussed above, the tenant at the Crown Court Apartment property owned by the
Company has elected to exercise its option to purchase the
property.  The closing is expected to take place in April of 2009 and
the Company expects to receive net proceeds of sale of approximately $1,615,000
at that time.
  32
  Except as
discussed herein, management is not aware of any other trends, events,
commitments or uncertainties that will have a significant effect on the
Company’s liquidity.
 
 (b) Joint Venture Mezzanine
Loans and Settlement Agreement
 
 In
February, 2008, Lightstone III defaulted on payments of interest due under the
Company’s $9,500,000 loan related to the Macon/Burlington
Malls.  Lightstone III also defaulted on payments of interest due on
the first mortgage loan covering the properties and the holder of the first
mortgage commenced foreclosure proceedings and appointed a receiver to operate
the properties.  The Company believes that the outstanding principal
balance of the first mortgage substantially exceeds the current value of the
Macon/Burlington Malls and that it is unlikely that the Company will be able to
recover any interest or any principal on its mezzanine loan from the collateral
that it holds as security for the loan.
 
 In
October, 2008, Lightstone I defaulted on the payment of interest due under the
Company’s $8,600,000 mezzanine loan relating to the Four Malls and also did not
make the payments of the preferential return of 11% per annum due on the
Company’s $1,438,410 investment in the Martinsburg Mall.  Lightstone I
also defaulted on payments of interest due under the first mortgage covering the
Martinsburg Mall and three of the Four Malls (Bradley Square, Mount Berry Square
and Shenango Valley) on and after August 1, 2008 and the holder of the first
mortgage commenced foreclosure proceedings and appointed a receiver to operate
the properties.  The Company believes that the outstanding principal
balance of the first mortgage substantially exceeds the current value of the
mortgaged properties and that it is unlikely that the Company will be able to
recover any amount of its mezzanine loan in the amount of $8,600,000 and
investment in the amount of $1,438,410 from the collateral that it holds as
security for its mezzanine loan and investment.
 
 The
Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II secured by
interests in the Shawnee Mall and the Brazos Mall was in good standing at
December 31, 2008.  However, the borrower failed to make the interest
payments due on January 1, 2009 and on the first day of subsequent months and
the Company’s loan is now in default.  The first mortgage loan secured
by the properties was due to mature in January of 2009 but Lightstone II
obtained a one year extension of the maturity date until January of
2010.  In connection with the extension, the holder of the first
mortgage exercised its right (exercisable because the cash flow from the
properties did not satisfy a required debt service coverage ratio) to retain all
cash flow from the properties (after payment of all operating expenses but
before payment of interest on the Company’s mezzanine loan) as additional
security for the repayment of the first mortgage loan.  Lightstone II
is attempting to sell the properties (which sale requires the consent of
Presidential), but a sale will be difficult to accomplish under current market
conditions and with only short term financing on the properties.
 
 Subsequent
to the defaults under the $9,500,000 and $8,600,000 mezzanine loans, the Company
asserted various claims against Lightstone and Mr. Lichtenstein personally with
respect to such loans and on February 27, 2009 completed a settlement of such
claims.  Under the settlement:
  33
  (1)
$5,000,003 of the indebtedness under the $9,500,000 mezzanine loan and
$5,000,003 of the indebtedness under the $8,600,000 mezzanine loan were assumed
by an affiliate of Lightstone which is the debtor on an existing loan from the
Company in the outstanding principal amount of $2,074,994.  The total
indebtedness was consolidated into a nonrecourse loan in the outstanding
principal amount of $12,075,000 (the “Consolidated Note”) and is secured by the
ownership interests in entities owning nine apartment properties (1,056
apartment units) located in Virginia (which had previously secured the
$2,074,994 indebtedness) and the ownership interests in entities owning nine
additional apartment properties (931 apartment units) located in Virginia and
North Carolina.
 
 The
Consolidated Note accrues interest at the rate of 13% per annum and is due on
February 1, 2012.  All net cash flow from the eighteen apartment
properties will be utilized to pay the interest accrued on the Consolidated Note
and to the extent that there is not sufficient cash flow to pay all accrued
interest, the unpaid interest will be deferred until the maturity of the
Consolidated Note. The Company anticipates that a substantial portion of the
annual interest will not be paid currently and will be deferred in accordance
with the terms of the Consolidated Note.  The Company also anticipates
that it is likely that on the maturity date of the Consolidated Note, the
outstanding principal balance of the Consolidated Note plus any unpaid deferred
interest thereon will exceed the value of the Company’s security therefor and,
accordingly, since the Consolidated Loan is a nonrecourse loan, the Company does
not expect to obtain payment in full of the Consolidated Note on
maturity.
 
 (2) The
Company obtained a 50% ownership interest in IATG, LLC, the Lightstone affiliate
that owns The Las Piedras Industrial Complex, an industrial property located in
Las Piedras, Puerto Rico and consisting of approximately 68 acres of land and
380,800 square feet of rentable space contained in several buildings in the
complex.  The property is substantially vacant and the owners may
attempt to sell the property.  Lightstone has agreed to advance funds
to pay any negative cash flow from the operations of the property until a sale
can be accomplished and has agreed that if it does not do so, it will transfer
its remaining 49% interest in the property to Presidential.
 
 (3) The
Company received at closing $250,000 in cash and a note from Mr. Lichtenstein in
the amount of $750,000 payable without interest on March 1, 2010.  Mr.
Lichtenstein is not personally liable for payment of the $750,000 note, but the
note is secured by a 25% ownership interest in the Las Piedras
property.
 
 (4) The
Company received a personal guaranty from Mr. Lichtenstein that the Company
will receive all accrued interest on the Company’s $7,835,000 mezzanine loan
(relating to the Shawnee/Brazos Malls) through the date of repayment and
$500,000 of the principal amount of the loan, which personal guaranty is limited
to $500,000.  As part of the settlement, the Company agreed to modify
its right to receive repayment in full of the $7,835,000 loan before Mr.
Lichtenstein receives any return on his capital contributions to the borrowing
entity to the following extent: the Company will receive the first net proceeds
of any sale or refinancing of the Shawnee/Brazos Malls in an amount equal to all
accrued and unpaid interest and $2,000,000 of principal; Mr. Lichtenstein will
receive the next $1,000,000 of any such net sale or refinancing proceeds; the
Company will receive the next $1,000,000 of any such net proceeds and any
additional net proceeds shall be paid 50% to the Company and 50% to Mr.
Lichtenstein.  Mr. Lichtenstein’s guaranty is secured by his remaining
interest in the entity that owns the Las Piedras Industrial
Complex.
  34
  The
Company has agreed with Lightstone that it will not foreclose on its $7,835,000
mezzanine loan so long as the first mortgage on the Shawnee/Brazos Malls is not
accelerated or due at maturity and the holder of the first mortgage is retaining
funds from operations of the properties in an amount sufficient to pay the
interest due on the mezzanine loan.
 
 It is
impossible to predict at this time whether or to what extent the Company will be
able to recover any amounts on the $7,835,000 mezzanine loan.  While
the Shawnee/Brazos Malls currently generate more than sufficient cash flow to
service the first mortgage and the Company’s mezzanine loan, if the adverse
market conditions currently affecting the sale and refinancing of shopping mall
properties persist through 2009, it may not be possible to extend or refinance
the first mortgage when it becomes due in January of 2010 or to sell the
properties for an amount in excess of the first mortgage balance.  The
carrying value on the Company’s financial statements of the $7,835,000 mezzanine
loan and the Company’s minority interest in the entity owning the Shawnee/Brazos
Malls is $1,511,887 at December 31, 2008.
 
 While
under existing market conditions it is difficult to place a value on the assets
and collateral received from Lightstone and Mr. Lichtenstein in settlement of
the Company’s claims against them, management believes that the settlement is in
the best interests of the Company taking into account the nature of the
Company’s claims and the cost and unpredictability of litigation and collection
of any judgment that might have been obtained.
 
 The
defaults in payment of the Company’s $9,500,000 mezzanine loan to Lightstone
III, the $8,600,000 mezzanine loan to Lightstone I, and the $7,835,000 mezzanine
loan to Lightstone II have had and will have a material adverse affect on the
Company’s business, financial condition, results of operations and
prospects.  Notwithstanding the foregoing, management believes that
the Company has sufficient liquidity and capital resources to carry on its
existing business and, barring any unforeseen circumstances, to pay any
dividends required to maintain REIT status in the foreseeable
future.
 
 The
principal effect of the execution of the February 27, 2009, Settlement Agreement
on the Company’s financial statements in 2009, is expected to be as
follows:
 
 (i)  The
carrying value of the $12,075,000 Consolidated Note on the Company’s
consolidated balance sheet will be $2,074,994. This is the same carrying value
of the $2,074,994 note that was on the Company’s consolidated balance sheet
prior to the consolidation of this note with the additional $10,000,006
indebtedness received in the settlement agreement.  The $10,000,006
additional portion of the note was received in partial settlement of the
$9,500,000 and $8,600,000 mezzanine loans, which had a net carrying value of $0
on the Company’s consolidated balance sheet at December 31,
2008.  Accordingly, there will be no significant adjustment on the
Company’s consolidated balance sheet in 2009 as a result of the receipt of the
Consolidated Note.
 
 (ii)  The
Company does not believe that there will be sufficient cash flow from the
security for the Consolidated Note to pay all of the interest that is due on the
note, the deferred interest that will be due at maturity and the $12,075,000
principal amount due at maturity. However, the Company believes that the monthly
interest due on the $2,074,994 portion of the note will be paid in accordance
with the terms of the note and, as a result, the Company will accrue the
interest on this portion of the note (as of March 25, 2009, all payments of
interest due on  this portion of the note are current  and
in good standing).  The interest due on the $10,000,006 portion of the
note will be recorded in income on a cash basis as interest is received and the
balance of the interest due on the $10,000,006 will be deferred and due at
maturity of the note.
  35
  (iii) As
at the settlement date of February 27, 2009, no gain or loss will be
recorded on the Company’s financial statements in connection with the
consolidation of the $2,074,994 and $10,000,006 indebtedness and the
substitution of the collateral for the $10,000,006 indebtedness.
 
 (iv)  The
50% membership interest in IATG, LLC obtained by the Company will be recorded on
the Company’s books at its estimated fair value. The Company is currently in the
process of evaluating the fair value of the 50% ownership interest for inclusion
in its unaudited financial statements for the three months ending March 31,
2009, and the Company anticipates that it will recognize income in 2009 in an
amount equal to such estimated fair value.
 
 (v)  The
$250,000 payment received at the closing will be utilized to pay the Company’s
legal, accounting and due diligence expenses. The Company is currently
evaluating the fair value of the $750,000 non-interest bearing note due in
March, 2010, which is secured by an additional 25% ownership interest in IATG,
LLC. The Company will record the fair value of the note on its financial
statements for the three months ending March 31, 2009, and the Company
anticipates that it will recognize income in 2009 in an amount equal to such
estimated fair value.
 
 (c) Mortgage Loans
Payable
 
 The first
mortgage on the Building Industries Center property in White Plains, New York
was due on January 1, 2009 with an outstanding principal balance of
$1,072,906.  In February, 2009, the Company finalized a previously
agreed upon extension of the first mortgage.  The terms of the loan
remain the same with the exception of the extension of the maturity date until
March 1, 2010.  At or prior to the maturity date, the Company expects
either to refinance or repay the $1,038,086 balance.
 
 As
described under “Hato
Rey Partnership” below, the first mortgage on the Hato Rey Center
property provides that all cash flow from the property, after payment of all
operating expenses, will be utilized to repay the outstanding principal of the
first mortgage loan on the property.  In addition, the Company has
loaned the partnership which owns the Hato Rey Center property a total of
$2,299,275 through December 31, 2008 (which loan may be increased to up to
$2,500,000), which loans bears interest at the rate of 13% per annum with such
interest and principal to be paid from the first positive cash flow from the
property or upon a refinancing of the first mortgage on the
property.  Since all cash flow will be devoted to repayment of the
first mortgage, the Company does not expect to receive payment of any interest
or principal on the loan to the partnership until the first mortgage is
refinanced.  While the property generates sufficient cash flow to
support a refinancing of the first mortgage under ordinary market conditions, in
light of the current restrictive credit market, the Company does not expect to
be able to refinance the first mortgage in 2009.
  36
  (d) Distributions
 
 During
2008, the Company paid cash distributions to shareholders which exceeded cash
flows from operating activities.  Periodically, the Company receives
balloon payments on its mortgage portfolio and net proceeds from sales of
discontinued operations and other properties.  These payments are
available to the Company for distribution to its shareholders or the Company may
retain these payments for future investment.  The Company may in the
future, as it did in 2008, pay dividends in excess of its cash flow from
operating activities if the Board of Directors believes that the Company’s
liquidity and capital resources are sufficient to pay such
dividends.  The Company reduced its dividend for the fourth quarter of
2008 from $.16 per share to $.08 per share and subsequent to year end announced
that it would not pay a dividend for the first quarter of 2009 and that it was
unlikely that it would pay any dividend in 2009.
 
 To the
extent that payments received on its mortgage portfolio or payments received
from sales are taxable as capital gains, the Company has the option to
distribute the gain to its shareholders or to retain the gain and pay Federal
income tax on it.  The Company does not have a specific policy as to
the retention or distribution of capital gains.  The Company’s
dividend policy regarding capital gains for future periods will be based upon
many factors including, but not limited to, the Company’s present and projected
liquidity, its desire to retain funds available to pay operating expenses or for
additional investment, its historical dividend rate and its ability to reduce
taxes by paying dividends.
 
 (e) Insurance
 
 The
Company carries comprehensive liability, fire, extended coverage, rental loss
and acts of terrorism insurance on all of its properties.  Management
believes that all of its properties are adequately covered by
insurance.  In 2008, the cost for this insurance was approximately
$255,000.  The Company has renewed its insurance coverage for 2009 and
the Company estimates that the premium costs will be approximately $254,000 for
2009.  Although the Company has been able to obtain terrorism coverage
on its properties in the past, this coverage may not be available in the
future.
 
 (f) Consolidated
Loans
 
 Presidential
holds two nonrecourse notes (the “Consolidated Loans”), which it received in
1991 from Ivy Properties, Ltd. and its affiliates (“Ivy”).  At
December 31, 2008, the Consolidated Loans have an outstanding principal balance
of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements
between the Company and the Ivy principals, the Company is entitled to receive,
as payments of principal and interest on the Consolidated Loans, 25% of the cash
flow of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the
Ivy principals (Steven Baruch, Executive Vice President and a Director of
Presidential, and Thomas Viertel, Executive Vice President and Chief Financial
Officer of Presidential) to carry on theatrical productions.  Amounts
received by Presidential from Scorpio will be applied to unpaid and unaccrued
interest on the Consolidated Loans and recognized as income.  The
Company believes that these amounts could be material from time to
time.  However, the profitability of theatrical production is by its
nature uncertain and management believes that any estimate of payments from
Scorpio on the Consolidated Loans for future periods is too speculative to
project.  Presidential received payments of $146,750 in 2008 and
$256,000 in 2007 of interest income on the Consolidated
Loans.  Although, as stated above, management believes that any
estimate of payments by Scorpio for future periods are too speculative to
project, in light of the material adverse effect of the current economic
downturn on the theatrical production business, the Company does not expect to
receive any payments on the Consolidated Loans in 2009.  The
Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime
rate, which was 3.25% at December 31, 2008.  At December 31, 2008, the
unpaid and unaccrued interest was $3,520,522 and such interest is not
compounded.
  37
  (g) Operating
Activities
 
 Cash from
operating activities includes interest on the Company’s mortgage portfolio, net
cash received from rental property operations and distributions received from
joint ventures.  In 2008, cash received from interest on the Company’s
mortgage portfolio was $882,566 and distributions received from joint ventures
were $1,842,629.  Net cash received from rental property operations
was $1,012,475.  Net cash received from rental property operations is
net of distributions to minority partners, if any, but is before additions and
improvements and mortgage amortization.
 
 (h) Investing
Activities
 
 Presidential
holds a portfolio of mortgage notes receivable.  During 2008, the
Company received principal payments of $5,747,679 on its mortgage portfolio, of
which $5,706,579 represented prepayments and balloon payments.
 
 During
2008, the Company invested $726,164 in additions and improvements to its
properties, including $560,688 for the Hato Rey Center.  It is
projected that additions and improvements in 2009 will be approximately
$535,000, including $435,000 for the Hato Rey Center.
 
 In
September, 2008, the Company sold a package of 42 cooperative apartment units at
Towne House located in New Rochelle, New York for a sales price of $3,450,000
and the net cash proceeds of sale were $3,343,187.
 
 In July,
2008, the Company sold a cooperative apartment unit located in New Haven,
Connecticut for a sales price of $122,000 and the net cash proceeds of sale were
$113,990.
 
 (i) Financing
Activities
 
 The
Company’s indebtedness at December 31, 2008, consisted of mortgage debt of
$16,392,285 for continuing operations and $2,078,971 for discontinued
operations.  The mortgage debt is collateralized by individual
properties.  The $15,245,921 mortgage on the Hato Rey Center property
is nonrecourse to the Company, whereas the $1,072,906 Building Industries Center
mortgage and the $73,458 Mapletree Industrial Center mortgage are recourse to
Presidential.  The $2,078,971 mortgage on the Crown Court property,
which is classified as a discontinued operation, is nonrecourse to the
Company.  In addition, some of the Company’s mortgages provide for
Company liability for damages resulting from specified acts or circumstances,
such as for environmental liabilities and fraud.  Generally, mortgage
debt repayment is serviced with cash flow from the operations of the individual
properties.  During 2008, the Company made $445,688 of principal
payments on mortgage debt.
  38
  The
mortgages on the Company’s properties are at fixed rates of interest and will
fully amortize by periodic principal payments, with the exception of the
Building Industries Center mortgage, which has a balloon payment of $1,038,086
due at maturity in March, 2010, and the Hato Rey Center mortgage.  The
$15,245,921 Hato Rey Center mortgage matures in May, 2028, and had a fixed rate
of interest of 7.38% per annum until May, 2008; thereafter the interest rate
increased by 2% and additional repayments of principal will be required from net
cash flows from operations of the property (see Hato Rey Partnership
below).
 
 During
2008, Presidential declared and paid cash distributions of $2,062,555 to its
shareholders.
 
 During
2008, the Company purchased 31,032 shares of its Class A common stock and
540,767 shares of its Class B common stock.  Details of these
purchases are as follows:
 
 Number of
                      
                      
                      
                      
                      
                      Number ofClass A
                      
                      
                      Price Per
                      
                      
                      Class B
                      
                      
                      Price Per
                      
                      
                      TotalPeriod
                      
                      Purchased From
                      
                      Shares
                      
                      
                      Share
                      
                      
                      Shares
                      
                      
                      Share
                      
                      
                      PaidMay
                      
                      Foundation
      controlled by a director and an officer of the Company (1)
                      
                      
                      932
                      
                      
                      $
                      5.375
                      
                      
                      
                      4,072
                      
                      
                      $
                      5.725
                      
                      
                      $
                      28,322June
                      
                      Private
      Investor (2)
                      
                      
                      12,100
                      
                      
                      
                      5.50
                      
                      
                      
                      226,800
                      
                      
                      
                      5.75
                      
                      
                      
                      1,370,650July
                      
                      Private
      Investor
                      
                      
                      1,000
                      
                      
                      
                      5.50
                      
                      
                      
                      7,000
                      
                      
                      
                      5.90
                      
                      
                      
                      46,800July
                      
                      Private
      Investor (2)
                      
                      
                      17,000
                      
                      
                      
                      5.50
                      
                      
                      
                      200,000
                      
                      
                      
                      5.50
                      
                      
                      
                      1,193,500November
                      
                      Private
      Investor (2)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      102,895
                      
                      
                      
                      2.275
                      
                      
                      
                      234,086Total
                      
                      
                      
                      
                      31,032
                      
                      
                      
                      
                      
                      
                      
                      540,767
                      
                      
                      
                      
                      
                      
                      $
                      2,873,358
 
 (1) These
shares were purchased at 1/8th of a
point below market price.
 (2) These
shares were purchased pursuant to common stock repurchase
agreements.
 
 The
Company believes that the repurchase of the Company’s shares at or about the
then current price for the Company’s shares was an appropriate use of the
Company’s cash available for investment and in the best interest of all of the
shareholders of the Company.  However, the Company has no specific
plan or program to repurchase additional shares but it may do so in the
future.
 
 Discontinued
Operations
 
 For the
years ended December 31, 2008 and 2007, income from discontinued operations
includes the Crown Court property in New Haven, Connecticut (which consists of
105 apartment units and 2,000 square feet of commercial space), 42 cooperative
apartment units at the Towne House Apartments in New Rochelle, New York and
another cooperative apartment unit in New Haven, Connecticut.  The
Crown Court property was designated as held for sale during the three months
ended September 30, 2008.  The other properties were designated as
held for sale during the three months ended June 30, 2008 and sold during the
three months ended September 30, 2008.  In addition, income from
discontinued operations for the year ended December 31, 2007, included the
Cambridge Green property, which was sold in March, 2007, and a cooperative
apartment unit in New Haven, Connecticut, which was sold in June,
2007.
  39
  The Crown
Court property in New Haven, Connecticut is subject to a long-term net lease
with an option to purchase which is exercisable in April, 2009.  In
August, 2008, the lessee notified the Company that it is electing to exercise
this option in accordance with the terms of the net lease.  The option
purchase price is $1,635,000 over the outstanding principal mortgage balance at
the date of the exercise of the option.  The gain from sale for
financial reporting purposes is estimated to be approximately $3,261,000 and the
estimated net proceeds of sale will be approximately $1,615,000.
 
 The
Company owns a small portfolio of cooperative apartments located in New York and
Connecticut.  These apartments are held for the production of rental
income and generally are not marketed for sale.  However, from time to
time, the Company will receive purchase offers for some of these apartments or
decide to market specific apartments and will make sales if the purchase price
is acceptable to management.
 
 In
September, 2008, the Company sold a package of 42 cooperative apartment units at
Towne House located in New Rochelle, New York for a sales price of
$3,450,000.  The net proceeds of sale were $3,343,187 and the gain
from sale for financial reporting purposes was $2,806,499.
 
 In July,
2008, the Company sold one cooperative apartment unit located in New Haven,
Connecticut for a sales price of $122,000.  The net proceeds of sale
were $113,990 and the gain from the sale for financial reporting purposes was
$85,759.
 
 On March
21, 2007, the Company completed the sale of the Cambridge Green property, a
201-unit apartment property in Council Bluffs, Iowa for a sales price of
$3,700,000.  As part of the sales price, (i) the $2,856,452
outstanding principal balance of the first mortgage debt was assumed by the
buyer, (ii) the Company received a $200,000 secured note receivable from the
buyer, which originally was due to mature on March 20, 2008 and had an interest
rate of 7% per annum, and (iii) the balance of the sales price was paid in
cash.  The net proceeds from the sale were $664,780, which included
the $200,000 note receivable.  The Company recognized a gain from the
sale for financial reporting purposes of $646,759 in March, 2007.
 
 In June,
2007, the Company sold one cooperative apartment unit located in New Haven,
Connecticut for a sales price of $125,000.  The net proceeds of sale
were $117,224 and the Company recognized a gain from the sale for financial
reporting purposes of $88,946 in June, 2007.
 
 The
following table summarizes income for the properties sold or held for
sale:
  40
 
 Year Ended December 31,2008
                        
                        
                        2007Revenues:Rental
                        
                        $
                        943,579
                        
                        
                        $
                        1,167,114Rental
      property expenses:Operating
      expenses
                        
                        
                        322,153
                        
                        
                        
                        560,947Interest
      on mortgage debt
                        
                        
                        148,640
                        
                        
                        
                        186,818Real
      estate taxes
                        
                        
                        187,420
                        
                        
                        
                        203,571Depreciation
      on real estate
                        
                        
                        35,176
                        
                        
                        
                        66,556Total
                        
                        
                        693,389
                        
                        
                        
                        1,017,892Other
      income:Investment
      income
                        
                        
                        288
                        
                        
                        
                        2,328Income
      from discontinued operations
                        
                        
                        250,478
                        
                        
                        
                        151,550Net
      gain from sales of discontinued operations
                        
                        
                        2,892,258
                        
                        
                        
                        735,705Total
      income from discontinued operations
                        
                        $
                        3,142,736
                        
                        
                        $
                        887,255
 
 Investments in and Advances
to Joint Ventures
 
 Over the
past several years the Company made aggregate investments in and advances to
four joint ventures that own nine shopping malls of $27,373,410. The Company has
a 29% ownership interest in these joint ventures and accounts for these
investments under the equity method.  All of the investments in and
advances to joint ventures were made with various entities of
Lightstone.  Each individual owning entity is a single purpose entity
that is prohibited by its organizational documents from owning any assets other
than the nine shopping mall properties.
 
 The
Company’s investments in three of the joint ventures were mezzanine loans to the
various joint venture entities in the aggregate principal balance of
$25,935,000. These loans mature in 2014 and 2015 and have an annual interest
rate of 11% per annum.  The loans are secured by the ownership
interests in the entities that own the malls, subject to the first mortgage
liens.  The Company is entitled to receive monthly payments of
interest on these loans from the joint ventures and under the equity method of
accounting records these payments when received as distributions in investments
in and advances to joint ventures.  The Company’s investments in the
joint ventures are reduced by the distributions received from the joint ventures
and by the Company’s share of losses recorded for the joint ventures (and
increased by any income recorded for the joint ventures).
 
 In
addition, the Company’s investment in the Martinsburg Mall is a capital
contribution to the owning joint venture in the original amount of
$1,438,410.  The Company is entitled to receive a preferential return
on its capital contribution at the rate of 11% per annum.  The
Company’s investment in the Martinsburg Mall is reduced by distributions
received from the joint venture and the Company’s share of losses recorded for
the joint venture (and increased by any income recorded for the joint
venture).
  41
  As a
result of accounting for these investments under the equity method of
accounting, the Company’s investments in and advances to the joint ventures in
the total amount of $27,373,410 ($25,935,000 in loans and a $1,438,410 capital
contribution) has been reduced by distributions received from the joint ventures
and the Company’s share of the losses, including impairment losses, from the
joint ventures.  Activity in investments in and advances to joint
ventures for the year ended December 31, 2008 is as follows:
 
 Equityin theIncomeBalance at
                  
                  
                  
                  
                  
                  (Loss) from
                  
                  
                  Balance atDecember 31,
                  
                  
                  Distributions
                  
                  
                  Joint
                  
                  
                  December 31,2007
                  
                  
                  Received
                  
                  
                  Ventures
                  
                  
                  2008Martinsburg
      Mall
                  
                  
                  (1)
                  
                  
                  $
                  -
                  
                  
                  $
                  (151,396
                  )
                  
                  $
                  151,396
                  
                  
                  $
                  -Four
      Malls
                  
                  
                  (2)
                  
                  
                  
                  688,735
                  
                  
                  
                  (722,638
                  )
                  
                  
                  33,903
                  
                  
                  
                  -Shawnee/BrazosMalls
                  
                  
                  (3)
                  
                  
                  
                  4,234,466
                  
                  
                  
                  (878,609
                  )
                  
                  
                  (1,843,970
                  )
                  
                  
                  1,511,887Macon/Burlington
                  
                  
                  (4)Malls
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  (89,986
                  )
                  
                  
                  89,986
                  
                  
                  
                  -$
                  4,923,201
                  
                  
                  $
                  (1,842,629
                  )
                  
                  $
                  (1,568,685
                  )
                  
                  $
                  1,511,887
 
 Equity in
the income (loss) from joint ventures is as follows:
 
 Year Ended December 31,2008
                    
                    
                    2007Martinsburg
      Mall
                    
                    
                    (1)
                    
                    
                    
                    151,396
                    
                    
                    $
                    (2,953
                    )Four
      Malls
                    
                    
                    (2)
                    
                    
                    
                    33,903
                    
                    
                    
                    (2,886,704
                    )Shawnee/Brazos
      Malls
                    
                    
                    (3)
                    
                    
                    
                    (1,843,970
                    )
                    
                    
                    (899,638
                    )Macon/Burlington
      Malls
                    
                    
                    (4)
                    
                    
                    
                    89,986
                    
                    
                    
                    (6,294,912
                    )$
                    (1,568,685
                    )
                    
                    $
                    (10,084,207
                    )
 
 (1) The
Company’s share of the income (loss) from joint ventures for the Martinsburg
Mall is determined after the deduction for interest expense at the rate of 11%
per annum on the outstanding $2,600,000 loan from Lightstone.  In
2007, the Company’s basis of its investment in the Martinsburg Mall was reduced
by distributions and losses to zero and, accordingly, the Company only recorded
its share of the loss to the extent of its basis.  In 2008, the
Company recorded $151,396 of distributions received in income from joint
ventures.
 
 (2)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $8,600,000 loan from the Company to Lightstone I is included in the
calculation of the Company’s share of the income (loss) from joint ventures for
the Four Malls.  In 2007, the Company recorded a $2,886,704 loss from
the Four Malls, of which $2,124,003 pertained to an impairment loss ($1,165,471
for the Mount Berry Square Mall and $958,532 for the West Manchester
Mall).  In the second quarter of 2008, the Company’s basis of its
investment in the Four Malls was reduced by distributions and losses to zero,
and, accordingly, the Company only recorded its share of the loss to the extent
of its basis.  In 2008, the Company recorded $33,903 of distributions
received in income from joint ventures.
 
 (3)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $7,835,000 loan from the Company to Lightstone II is included in the
calculation of the Company’s share of the loss from joint ventures for the
Shawnee/Brazos Malls.
  42
  (4)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $9,500,000 loan from the Company to Lightstone III is included in
the calculation of the Company’s share of the income (loss) from joint ventures
for the Macon/Burlington Malls.  In 2007, the Company’s basis of its
investment in the Macon/Burlington Malls was reduced by distributions and losses
to zero and, accordingly, the Company only recorded its share of the loss to the
extent of its basis.  The Company recorded a $6,294,912 loss for the
2007 year from the Macon/Burlington Malls (of which $6,246,722 pertained to an
impairment loss).  The Company’s share of the impairment loss from the
Macon/Burlington Malls was $19,914,390.  However, because the
recording of losses is limited to the extent of the Company’s basis, the
impairment loss recorded by the Company was $6,246,722.  In 2008, the
Company recorded $89,986 of distributions received in income from joint
ventures.
 
 As a
result of the Company’s use of the equity method of accounting with respect to
its investments in and advances to the joint ventures, the Company’s
consolidated statements of operations reflect its proportionate share of the
income (loss) from the joint ventures.  The Company’s equity in the
loss from joint ventures of $1,568,685 for the year ended December 31, 2008 is
after deductions in the aggregate amount of $1,325,300 for the Company’s
proportionate share of noncash charges (depreciation of $1,183,132 and
amortization of deferred financing costs, in-place lease values and other costs
of $142,168, all of which pertain to the Shawnee/Brazos
Malls).  Notwithstanding the loss from the joint ventures, the Company
is entitled to receive its interest at the rate of 11% per annum on its
$25,935,000 of loans to the joint ventures.  For the year ended
December 31, 2008, the Company received distributions from the joint ventures in
the amount of $1,842,629, of which $1,691,233 were interest payments received on
the outstanding loans to the joint ventures and $151,396 was a return on
investment.
 
 The
Lightstone Group is controlled by David Lichtenstein.  At December 31,
2008, in addition to Presidential’s investments of $1,511,887 in these joint
ventures with entities controlled by Mr. Lichtenstein, Presidential has a loan
to an entity that is controlled by Mr. Lichtenstein in the outstanding principal
amount of $2,074,994.  The loan is secured by interests in nine
apartment properties and is in good standing.
 
 The
$3,586,881 net carrying value of investments in and advances to joint ventures
with entities controlled by Mr. Lichtenstein and the loan outstanding to an
entity controlled by Mr. Lichtenstein constitute approximately 13% of the
Company’s total assets at December 31, 2008.
 
 In 2008,
Lightstone III and Lightstone I defaulted in their respective obligations under
the Company’s $9,500,000 and $8,600,000 mezzanine loans to them and subsequent
to December 31, 2008, Lightstone II defaulted in its obligations under the
Company’s $7,835,000 mezzanine loan to it.  Subsequent to year end,
the Company entered into a Settlement Agreement with Mr. Lichtenstein and
certain Lightstone affiliates of various claims that the Company had asserted
with respect to these loans.  (See Liquidity and Capital
Resources – Joint Venture Mezzanine Loans and Settlement Agreement
above.)
 
 Hato Rey
Partnership
 
 At
December 31, 2008, the Company has an aggregate 60% general and limited
partnership interest in the Hato Rey Partnership.  The Hato Rey
Partnership owns and operates the Hato Rey Center, an office building in Hato
Rey, Puerto Rico.
  43
  In 2005
and 2006, three tenants vacated a total of 82,387 square feet of space to occupy
their own newly constructed office buildings and, as a result, by March 31,
2006, the vacancy rate at the building was approximately 48%.  In 2005,
Presidential and its partners agreed to undertake a program of repairs and
improvements to the building, which program was substantially completed by the
end of 2007 at a cost of approximately $826,000. Presidential believes that the
improvement program has accomplished its goal of bringing the building (which
was constructed in 1967) up to modern standards for office buildings in the
area.  In order to pay for the cost of the improvements to the
building and fund negative cash flow from the operation of the property during
the period of high vacancies, in 2005 Presidential agreed to lend the
partnership a total of $2,000,000 (subsequently increased to $2,500,000).
Presidential’s loan bears interest at the rate of 11% per annum (13% after May
11, 2008), with interest and principal to be paid from the first positive cash
flow from the property or upon a refinancing of the first mortgage on the
property.  At December 31, 2008, total advances under the loan were
$2,299,275 and accrued interest on the loan was $497,175, all of which have been
eliminated in consolidation.  Subsequent to December 31, 2008, the
Company advanced an additional $135,000 to the Hato Rey
Partnership.
 
 At
December 31, 2008, the vacancy rate at the Hato Rey Center had been reduced to
approximately 25%.
 
 The
Company had expected to refinance the existing $15,245,921 first mortgage on the
building in the second quarter of 2008, when the terms of the existing mortgage
would be automatically modified to increase the interest rate, but the
combination of the slower than anticipated leasing of vacant space and the
turmoil in the lending markets made a refinancing unfeasible.  The
modification of the terms of the existing mortgage provided for a 2% increase in
the interest rate (from 7.38% to 9.38%), which additional interest will be
deferred until the maturity date of the mortgage in 2028.  In addition, the
modification provides that all cash flow from the property, after payment of all
operating expenses, will be utilized to repay the outstanding principal of the
mortgage loan.  The Company intends to refinance this mortgage when
occupancy rates at the property have improved and lending markets have returned
to a more normal state.  However, until the first mortgage is
refinanced, the Company will not receive any cash payments on its loan to the
Hato Rey Partnership since principal and interest on the Company’s loan are
payable only out of operating cash flow or proceeds of sale or refinancings and
under the terms of the modified mortgage, all net cash flow will be utilized to
reduce principal on the first mortgage.
 
 Contractual
Commitments
 
 The
Company’s significant contractual commitments are its liabilities under mortgage
debt and employment agreements, which are payable as follows:
  44
 Mortgage
                      
                      
                      EmploymentDebt(1)
                      
                      
                      Agreements
                      
                      
                      TotalYear
      ending December 31:2009
                      
                      $
                      376,619
                      
                      
                      $
                      819,930
                      
                      
                      $
                      1,196,5492010
                      
                      
                      1,421,778
                      
                      
                      
                      819,930
                      
                      
                      
                      2,241,7082011
                      
                      
                      388,418
                      
                      
                      
                      819,930
                      
                      
                      
                      1,208,3482012
                      
                      
                      398,803
                      
                      
                      
                      819,930
                      
                      
                      
                      1,218,7332013
                      
                      
                      432,755
                      
                      
                      
                      422,270
                      (2)
                      
                      
                      855,025Thereafter
                      
                      
                      13,373,912
                      
                      
                      
                      882,910
                      
                      
                      
                      14,256,822TOTAL
                      
                      $
                      16,392,285
                      
                      
                      $
                      4,584,900
                      
                      
                      $
                      20,977,185
 
 (1)
Mortgage debt bears interest at fixed rates varying from 5.00% to 9.38% per
annum (see Note 7 of Notes to Consolidated
Financial Statements).
 
 (2)
Employment agreements will expire in 2012 and contain provisions for three years
of consulting fees thereafter.
 
 The
Company also has contractual commitments for pension and postretirement
benefits.  The contractual pension benefits generally provide for
annual payments in specified amounts for each participant for life, commencing
upon retirement, with an annual adjustment for an increase in the consumer price
index.  The contractual benefit plans are not funded.  For
the year ended December 31, 2008, the Company paid $216,660 for pension benefits
and $30,742 for postretirement benefits.  The Company expects that
payments for these contractual benefits will be approximately $249,000 in
2009.
 
 Environmental
Matters
 
 Mapletree
Industrial Center – Palmer, Massachusetts
 
 The
Company is involved in an environmental remediation process for contaminated
soil found on this property.  The land area involved is approximately
1.25 acres.  Since the most serious identified threat on the site is
to songbirds, the proposed remediation will consist of removing all exposed
metals and a layer of soil. The Company estimated that the costs of the cleanup
will not exceed $1,000,000.  In accordance with the provisions of SFAS
No. 5, “Accounting for Contingencies”, in the fourth quarter of 2006, the
Company accrued a $1,000,000 liability which was discounted by $145,546 and
charged $854,454 to expense.  The discount rate used was 4.625%, which
was the interest rate on 10 year Treasury Bonds.  At December 31,
2008, the accrued liability balance was $924,640 and the discount balance was
$142,214 for a net accrued liability of $782,426.
 
 The
remediation must comply with the requirements of the Massachusetts Department of
Environmental Protection (“MADEP”) and subsequent to year end the Company
obtained the consent of MADEP to a specific plan of remediation, which the
Company plans to complete in 2009.  The Company is securing final bids
for completion of the work and management expects that the actual cost of the
remediation will be substantially less than the balance of the accrued liability
at December 31, 2008.
 
 Actual
costs incurred may vary from these estimates due to the inherent uncertainties
involved. The Company believes that any liability in excess of amounts accrued
which may result from the resolution of this matter will not have a material
adverse effect on the financial condition, liquidity or the cash flow of the
Company.
  45
  Recent Accounting
Pronouncements
 
 In
September, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements.  SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007.  The adoption of this standard on
January 1, 2008, did not have a material effect on the Company’s consolidated
financial statements.
 
 In
September, 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for
Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB
Statements No. 87, 88, 106 and 132(R)”.  SFAS No. 158 requires an
employer to (i) recognize in its statement of financial position an asset for a
plan’s overfunded status or a liability for a plan’s underfunded status; (ii)
measure a plan’s assets and its benefit obligations that determine its funded
status as of the end of the employer’s fiscal year (with limited exceptions);
and (iii) recognize changes in the funded status of a defined benefit
postretirement plan in the year in which the changes occur.  Those
changes will be reported in comprehensive income.  The Company
previously adopted in 2006 the requirement to recognize the funded status of a
benefit plan and the disclosure requirements.  The requirement to
measure plan assets and benefit obligations to determine the funded status as of
the end of the fiscal year and to recognize changes in the funded status in the
year in which the changes occur is effective for fiscal years ending after
December 15, 2008.  The adoption of the measurement date provisions of
this standard did not have a material effect on the Company’s consolidated
financial statements.
 
 In
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”.  SFAS No. 159 permits
entities to choose to measure many financial assets and financial liabilities at
fair value.  Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings.  SFAS No. 159
is effective for fiscal years beginning after November 15, 2007.  The
Company has not elected to measure its financial assets or liabilities at fair
value pursuant to this standard.
 
 In
December, 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”).  SFAS No.141R replaces SFAS No. 141,
which the Company previously adopted.  SFAS No. 141R revises the
standards for accounting and reporting of business combinations.  In
summary, SFAS No. 141R requires the acquirer of a business combination to
measure at fair value the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, with limited
exceptions.  SFAS No. 141R applies to all business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The Company
does not believe that the adoption of this statement on January 1, 2009 will
have a material effect on the Company’s consolidated financial
statements.
 
 In
December, 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
noncontrolling interest.  SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008.  The Company is currently
evaluating the potential impact, if any, that the adoption of this standard will
have on its consolidated financial statements.
  46
  In March,
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”.  SFAS No. 161 changes the reporting
requirements for derivative instruments and hedging activities under SFAS No.
133, “Accounting for Derivatives and Hedging Activities”, by requiring enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments are accounted for under SFAS No. 133 and (c) the effect
of derivative instruments and hedging activities on an entity’s financial
position, financial performance and cash flows.  SFAS No. 161 is
effective for fiscal years beginning after November 15, 2008.  The
Company does not believe that the adoption of this statement on January 1, 2009
will have a material effect on the Company’s consolidated financial
statements.
 
 In April,
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, “Determination
of the Useful Life of Intangible Assets”.  FSP No. FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets”.  The
objective of FSP No. FAS 142-3 is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS No.
141R and GAAP.  FSP FAS No. 142-3 is effective for financial
statements issued for years beginning after December 15, 2008, and interim
periods within those years and applied prospectively to intangible assets
acquired after the effective date.  The Company does not believe that
the adoption of FSP FAS No. 142-3 on January 1, 2009 will have a material effect
on the Company’s consolidated financial statements.
 
 In June,
2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities”.  FSP No. EITF 03-6-1 affects entities which accrue
non-returnable cash dividends on share-based payment awards during the awards’
service period.  The FASB concluded unvested share-based payment
awards which are entitled to cash dividends, whether paid or unpaid, are
participating securities any time the common shareholders receive
dividends.  Because the awards are considered participating
securities, the issuing entity is required to apply the two-class method of
computing basic and diluted earnings per share.  FSP No. EITF 03-6-1
is effective for fiscal years beginning after December 15, 2008, and early
adoption is not permitted.  The Company does not believe that the
adoption of FSP No. EITF 03-6-1 on January 1, 2009 will have a material effect
on the Company’s consolidated financial statements.
 
 Off-Balance Sheet
Arrangements
 
 The
Company does not believe that it has any off-balance sheet arrangements that
have, or are reasonably likely to have, a material effect on its financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital
resources.
  47
  ITEM
      7A.
              QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 While the
Company is not required as a smaller reporting company to comply with this Item
7A, it is providing the following general discussion of qualitative market
risk.
 
 The
Company’s financial instruments consist primarily of notes receivable and
mortgage notes payable.  Substantially all of these instruments bear
interest at fixed rates, so the Company’s cash flows from them are not directly
impacted by changes in market rates of interest.  However, changes in
market rates of interest impact the fair values of these fixed rate assets and
liabilities.  The Company generally holds its notes receivable until
maturity or prepayment and repays its notes payable at maturity or upon sale of
the related properties and, accordingly, any fluctuations in values do not
impact the Company’s earnings, balance sheet or cash flows.  The
Company does not own any derivative financial instruments or engage in hedging
activities.
 
 ITEM
      8.
              FINANCIAL STATEMENTS
      AND SUPPLEMENTARY DATA
 
 See Table
of Contents to Consolidated Financial Statements.
 
 ITEM
      9.
              CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
 
 None.
 
 ITEM
      9A.
              CONTROLS AND
      PROCEDURES
  (a)
Evaluation of Disclosure Controls and Procedures
 
 The
Company maintains disclosure controls and procedures or controls and other
procedures that are designed to ensure that the information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, or Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the Securities and Exchange Commission.  Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports that a company
files or submits under the Exchange Act is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
 
 The
Company carried out an evaluation, under the supervision and with the
participation of our chief executive and chief financial officers, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act)
as of December 31, 2008.  Based on this evaluation, our chief
executive officer and our chief financial officer concluded that as of December
31, 2008, our disclosure controls and procedures were effective at providing
reasonable assurance that the information required to be disclosed by the
Company in reports filed under the Exchange Act is (i) recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms; and (ii) accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding disclosure.
  48
  (b)
Internal Controls over Financial Reporting
 
 Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934.  The Company’s internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.  The Company’s internal control over financial
reporting includes those policies and procedures that:
 
 ·
              Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;
 
 ·
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and
 
 ·
              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 control over financial reporting may not
prevent or detect misstatements.  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.
 
 Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008.  In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.  Based on
its assessment and those criteria, management believes that the Company
maintained effective internal control over financial reporting as of December
31, 2008.
 
 This
Annual Report does not include an attestation report of our registered public
accounting firm regarding our internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this Annual
Report.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 None.
  49
  PART
III
 
 ITEM
      10.
              DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE
GOVERNANCE
 
 Reference
is made to the Company’s definitive Proxy Statement for its Annual Meeting of
Shareholders to be held June 15, 2009, which Proxy Statement will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A and which is
incorporated herein by reference.
 
 ITEM
      11.
              EXECUTIVE
      COMPENSATION
 
 Reference
is made to the Company’s definitive Proxy Statement for its Annual Meeting of
Shareholders to be held June 15, 2009, which Proxy Statement will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A and which is
incorporated herein by reference.
 
 ITEM
      12.
              SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS
 
 Reference
is made to the Company’s definitive Proxy Statement for its Annual Meeting of
Shareholders to be held June 15, 2009, which Proxy Statement will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A and which is
incorporated herein by reference.
 
 ITEM
      13.
              CERTAIN RELATIONSHIPS
      AND RELATED TRANSACTIONS, AND DIRECTOR
  INDEPENDENCE
 
 Reference
is made to the Company’s definitive Proxy Statement for its Annual Meeting of
Shareholders to be held June 15, 2009, which Proxy Statement will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A and which is
incorporated herein by reference.
 
 ITEM
      14.
              PRINCIPAL ACCOUNTING
      FEES AND SERVICES
 
 Reference
is made to the Company’s definitive Proxy Statement for its Annual Meeting to
Shareholders to be held June 15, 2009, which Proxy Statement will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A and which is
incorporated herein by reference.
 
 PART
IV
 
 ITEM
      15.
              EXHIBITS, FINANCIAL
      STATEMENT SCHEDULES
 
 EXHIBITS:
 
 3.1
Certificate of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.5 to Post-effective Amendment No. 1 to the Company’s Registration
Statement on Form S-14, Registration No. 2-83073).
 
 3.2
Certificate of Amendment to Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1987, Commission File No.
1-8594).
 
 3.3
Certificate of Amendment to Certificate of Incorporation of the Company, filed
July 21, 1988 with the Secretary of State of the State of Delaware (incorporated
herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 1988, Commission File No.
1-8594).
  50
  3.4
Certificate of Amendment to Certificate of Incorporation of the Company, filed
on September 12, 1989 with the Secretary of State of the State of Delaware
(incorporated herein by reference to Exhibit 3.4 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 1989, Commission File No.
1-8594).
 
 3.5
By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to
Post-effective Amendment No. 1 to the Company’s Registration Statement on Form
S-14, Registration No. 2-83073).
 
 10.1
Employment Agreement dated as of November 1, 1982 between the Company and Robert
E. Shapiro, as amended by Amendments dated March 1, 1983, November 25, 1985,
February 23, 1987 and January 4, 1988 (incorporated herein by reference to
Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-8594).
 
 10.2
Employment Agreement dated as of November 1, 1982 between the Company and Joseph
Viertel, as amended by Amendments dated March 1, 1983, November 22, 1985,
February 23, 1987 (incorporated herein by reference to Exhibit 10.12 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 1-8594).
 
 10.3
Settlement Agreement dated November 14, 1991 between the Company and Steven
Baruch, Jeffrey F. Joseph and Thomas Viertel, (incorporated herein by reference
to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-8594).
 
 10.4
First Amendment dated August 1, 1996 to Settlement Agreement dated November 14,
1991 between the Company and Steven Baruch, Jeffrey F. Joseph and Thomas Viertel
(incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly
Report on  Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).
 
 10.5
Employment Agreement dated January 1, 2006 between the Company and Elizabeth
Delgado (incorporated herein by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-QSB for the period ended June 30, 2006, Commission
File No. 1-8594).
 
 10.6
Amended and Restated Presidential Realty Corporation Defined Benefit Plan, dated
September 10, 2003 (incorporated herein by reference to Exhibit 10.13 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2003,
Commission File No. 1-8594).
 
 10.7
Amended and Restated Operating Agreement of PRC Member LLC dated September 27,
2004 (incorporated herein by reference to Exhibit 10.15 to the Company’s
Quarterly Report on Form 10-QSB for the period ended September 30, 2004,
Commission File No. 1-8594).
 
 10.8 Loan
Agreement dated September 27, 2004 in the amount of $2,600,000 between David
Lichtenstein and PRC Member LLC (incorporated herein by reference to Exhibit
10.16 to the Company’s Quarterly Report on Form 10-QSB for the period ended
September 30, 2004, Commission File No. 1-8594).
  51
  10.9
Amended and Restated Operating Agreement of Lightstone Member LLC dated
September 27, 2004 (incorporated herein by reference to Exhibit 10.17 to the
Company’s Quarterly Report on Form 10-QSB for the period ended September 30,
2004, Commission File No. 1-8594).
 
 10.10
Loan Agreement dated September 27, 2004 in the amount of $8,600,000 between
Presidential Realty Corporation and Lightstone Member LLC (incorporated herein
by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-QSB
for the period ended September 30, 2004, Commission File No.
1-8594).
 
 10.11
2005 Restricted Stock Plan for 115,000 shares of Class B common stock
(incorporated herein by reference to Exhibit 10.16 to the Company’s Annual
Report on Form 10—KSB for the year ended December 31, 2005, Commission File No.
1-8594).
 
 10.12
Loan Agreement dated December 23, 2004 in the amount of $7,500,000 between
Presidential Realty Corporation and Lightstone Member II (incorporated herein by
reference to Exhibit 10.17 to the Company’s Annual Report on Form 10—KSB for the
year ended December 31, 2005, Commission File No. 1-8594).
 
 10.13
Amended and Restated Operating Agreement of Lightstone Member II LLC dated
December 23, 2004 (incorporated herein by reference to Exhibit 10.18 to the
Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005,
Commission File No. 1-8594).
 
 10.14
Loan Agreement dated June 30, 2005 in the amount of $9,500,000 between
Presidential Realty Corporation and Lightstone Member III (incorporated herein
by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10—KSB for
the year ended December 31, 2005, Commission File No. 1-8594).
 
 10.15
Operating Agreement of Lightstone Member III, LLC dated June 30, 2005
(incorporated herein by reference to Exhibit 10.20 to the Company’s Annual
Report on Form 10—KSB for the year ended December 31, 2005, Commission File No.
1-8594).
 
 10.16
Letter Agreement dated September 16, 2005 between PDL, Inc., the General
Partner, and the Limited Partners, of PDL, Inc. and Associates Limited
Co-Partnership, for PDL, Inc. to lend $1,000,000 to the partnership
(incorporated herein by reference to Exhibit 10.21 to the Company’s Annual
Report on Form 10—KSB for the year ended December 31, 2005, Commission File No.
1-8594).
 
 10.17
Amendment, dated as of January 1, 2007 between the Company and Steven Baruch, to
the Amended and Restated Employment and Consulting Agreement made January 31,
2005 between the Company and Steven Baruch (incorporated herein by reference to
Exhibit 99.1 to the Company’s Form 8-K as filed on January 23, 2007, Commission
File No. 1-8594).
 
 10.18
Amended and Restated Employment and Consulting Agreement, dated December 12,
2007, between Presidential Realty Corporation and Jeffrey F. Joseph
(incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K as
filed on December 13, 2007, Commission File No. 1-8594).
 
 10.19
Amended and Restated Employment and Consulting Agreement, dated December 12,
2007, between Presidential Realty Corporation and Steven Baruch (incorporated
herein by reference to Exhibit 99.2 to the Company’s Form 8-K as filed on
December 13, 2007, Commission File No. 1-8594).
  52
  10.20
Amended and Restated Employment and Consulting Agreement, dated December 12,
2007, between Presidential Realty Corporation and Thomas Viertel (incorporated
herein by reference to Exhibit 99.3 to the Company’s Form 8-K as filed on
December 13, 2007, Commission File No. 1-8594).
 
 10.21
First Amendment to Amended and Restated Employment and Consulting Agreement,
dated December 12, 2007, between Presidential Realty Corporation and Jeffrey F.
Joseph (incorporated herein by reference to Exhibit 99.4 to the Company’s Form
8-K as filed on December 13, 2007, Commission File No. 1-8594).
 
 10.22
Amendment, dated September 11, 2007, to the Letter Agreement dated September 16,
2006 between PDL, Inc., the General Partner, and the Limited Partners, of PDL,
Inc. and Associates Limited Co-Partnership (incorporated herein by reference to
Exhibit 10.22 to the Company’s Form 10-KSB for the year ended December 31, 2007,
Commission File No. 1-8594).
 
 10.23
Common Stock Repurchase Agreement as of June 6, 2008 between Presidential Realty
Corporation and Wilshire Enterprises, Inc. (incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended
June 30, 2008, Commission File No. 1-8594).
 
 10.24
Common Stock Repurchase Agreement as of July 14, 2008 between Presidential
Realty Corporation and Charles Frischer (incorporated herein by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended
June 30, 2008, Commission File No. 1-8594).
 
 10.25
Contract of Sale – Cooperative Apartment made as of June 30, 2008 between
Presidential Realty Corporation and Latipac Corp. and Assignment to 60-70 Locust
LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Form
8-K/A as filed on October 20, 2008, Commission File No. 1-8594).
 
 10.26
Amendment to First Amendment to Amended and Restated Employment and Consulting
Agreement dated October 13, 2008 between Presidential Realty Corporation and
Jeffrey F. Joseph (incorporated herein by reference to Exhibit 99.1 to the
Company’s Form 8-K as filed on October 14, 2008, Commission File No.
1-8594).
 
 10.27
Amendment to Amended and Restated Employment and Consulting Agreement dated
October 13, 2008 between Presidential Realty Corporation and Steven Baruch
(incorporated herein by reference to Exhibit 99.2 to the Company’s Form 8-K as
filed on October 14, 2008, Commission File No. 1-8594).
 
 10.28
Amendment to Amended and Restated Employment and Consulting Agreement dated
October 13, 2008 between Presidential Realty Corporation and Thomas Viertel
(incorporated herein by reference to Exhibit 99.3 to the Company’s Form 8-K as
filed on October 14, 2008, Commission File No. 1-8594).
 
 10.29
Settlement Agreement dated February 27, 2009 among Presidential Realty
Corporation, PRC Member LLC, David Lichtenstein and various other parties
(incorporated herein by reference to Exhibit 99.2 to the Company’s Form 8-K as
filed on March 3, 2009, Commission File No. 1-8594).
  53
  10.30
Consolidated Promissory Note dated February 27, 2009 in the original principal
amount of $12,075,000 payable to Presidential Realty Corporation from David
Lichtenstein and various affiliated entities (incorporated herein by reference
to Exhibit 99.3 to the Company’s Form 8-K as filed on March 3, 2009, Commission
File No. 1-8594).
 
 10.31
Amended and Restated Guaranty dated February 27, 2009 between David Lichtenstein
and Presidential Realty Corporation (incorporated herein by reference to Exhibit
99.4 to the Company’s Form 8-K as filed on March 3, 2009, Commission File No.
1-8594).
 
 10.32
First Modification to Loan Agreement and Operating Agreement dated February 27,
2009 between Presidential Realty Corporation and Lightstone Member II LLC
(incorporated herein by reference to Exhibit 99.5 to the Company’s Form 8-K as
filed on March 3, 2009, Commission File No. 1-8594).
 
 10.33
Amended and Restated Limited Liability Company Agreement of IATG Puerto Rico,
LLC dated February 27, 2009 (incorporated herein by reference to Exhibit 99.6 to
the Company’s Form 8-K as filed on March 3, 2009, Commission File No.
1-8594).
 
 14. Code
of Business Conduct and Ethics of the Company (incorporated herein by reference
to Exhibit 14 to the Company’s Form 10-KSB for the year ended December 31, 2007,
Commission File No. 1-8594).
 
 21. List
of Subsidiaries of Registrant (incorporated herein by reference to Exhibit 21 to
the Company’s Form 10-KSB for the year ended December 31, 2007, Commission File
No. 1-8594).
 
 31.1
Certification of Chief Executive Officer of the Company pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
 
 31.2
Certification of Chief Financial Officer of the Company pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
 
 32.1
Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 32.2
Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 99.1
Combined Financial Statements of Lightstone Member LLC, PRC Member LLC,
Lightstone Member II LLC, and Lightstone Member III LLC for the years ended
December 31, 2007 and 2006 pursuant to Rule 3-09 of Regulation S-X (incorporated
herein by reference to Exhibit 99.1 to the Company’s Form
 10-KSB
for the year ended December 31, 2007, Commission File No. 1-8594).
 
 99.2
Consolidated Financial Statements of Lightstone Member II LLC for the years
ended December 31, 2008 and 2007 pursuant to Rule 3-09 of
Regulation
 S-X.
  54
  SIGNATURES
 
 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.
 
 PRESIDENTIAL
      REALTY CORPORATIONBy:
                /s/ THOMAS VIERTELThomas
      ViertelChief
      Financial OfficerMarch
      25, 2009
 
 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 dates indicated.
 
 Signature and
      Title
                      
                      DateBy:Robert
      E. ShapiroChairman
      of the Board ofDirectors
      and DirectorBy:
                      /s/ JEFFREY F. JOSEPH*
                      
                      March
      25, 2009Jeffrey
      F. JosephPresident
      and Director(Chief
      Executive Officer)By:
                      /s/ THOMAS VIERTEL
                      
                      March
      25, 2009Thomas
      ViertelExecutive
      Vice President(Chief
      Financial Officer)By:
                      /s/ ELIZABETH DELGADO
                      
                      March
      25, 2009Elizabeth
      DelgadoTreasurer(Principal
      Accounting Officer)By:
                      /s/ STEVEN BARUCH*
                      
                      March
      25, 2009Steven
      BaruchExecutive
      Vice Presidentand
      DirectorBy:
                      /s/ RICHARD BRANDT*
                      
                      March
      25, 2009Richard
      BrandtDirectorBy:
                      /s/ MORTIMER M. CAPLIN*
                      
                      March
      25, 2009Mortimer
      M. CaplinDirectorBy:
                      /s/ ROBERT FEDER*
                      
                      March
      25, 2009Robert FederDirector
 
 *A
majority of the Board of Directors
  55





PRESIDENTIAL REALTY
CORPORATION AND SUBSIDIARIES





TABLE OF CONTENTS TO
CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                57Report
      of Independent Registered Public Accounting Firm
                58CONSOLIDATED
      FINANCIAL STATEMENTS:Consolidated
      Balance Sheets – December 31, 2008 and 2007
                59Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                60Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2008
      and 2007
                61Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                62Notes
      to Consolidated Financial Statements
                64


56


Report
of Independent Registered Public Accounting Firm





Board of
Directors and Stockholders


Presidential
Realty Corporation


White
Plains, New York





We have
audited the accompanying consolidated balance sheet of Presidential Realty
Corporation and Subsidiaries (the “Company”) as of December 31, 2008, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the year 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 audit. We did not audit the financial statements of Lightstone Member II
LLC, a joint venture, the investment in which is, as discussed in Note 4 to the
consolidated financial statements, accounted for by the equity method of
accounting. The investment in Lightstone Member II LLC was $1,511,887 as of
December 31, 2008, and the equity in its net loss was $1,843,970 for the year
then ended. The financial statements of Lightstone Member II LLC were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Lightstone Member II LLC, is based
solely on the report of the other auditors.





We
conducted our audit 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 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 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 audit and the report of
the other auditors provide a reasonable basis for our opinion.





In our
opinion, based upon our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Presidential Realty Corporation and
Subsidiaries as of December 31, 2008 and the consolidated results of its
operations and its consolidated cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of
America.





As
described in Note 6 to the consolidated financial statements, the Company has
reclassified the 2007 consolidated financial statements to reflect certain
discontinued operations.





We have
audited the adjustments to the 2007 consolidated financial statements to
retrospectively apply the change in accounting classification, as described in
Note 6. In our opinion, such adjustments are appropriate and have been properly
applied. We were not engaged to audit, review, or apply any procedures to the
2007 consolidated financial statements of the Company other than with respect to
the adjustments and, accordingly, we do not express an opinion or any other form
of assurance on the 2007 consolidated financial statements taken as a
whole.





/s/
HOLTZ, RUBENSTEIN, REMINICK


Melville,
New York


March 31,
2009


57


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Stockholders of
 Presidential
Realty Corporation
 White
Plains, New York
 
 We have
audited, before the effect of the retrospective adjustment for the discontinued
operations discussed in Note 6 to the consolidated financial statements, the
consolidated balance sheet of Presidential Realty Corporation and subsidiaries
(the “Company”) as of December 31, 2007, and the related consolidated statements
of operations, stockholders’ equity and cash flows for the year ended December
31, 2007 (the 2007 consolidated financial statements before the effects of the
adjustment discussed in Note 6 to the consolidated financial statements are not
presented herein).  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 audit.  We did not
audit the combined financial statements of Lightstone Member LLC, PRC Member
LLC, Lightstone Member II LLC and Lightstone Member III LLC (collectively the
“Lightstone LLCs”), the Company’s investments in which are accounted for by the
equity method.  The Company’s equity of $4,923,201 in the Lightstone
LLCs’ net assets at December 31, 2007 and of $10,084,207 in that company’s net
loss for the respective year then ended is included in the accompanying
financial statements.  Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for the Lightstone LLCs, is based solely on the report of
the other auditors.
 
 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 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 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 audit and the report of the other auditors provide a reasonable
basis for our opinion.
 
 In our
opinion, based on our audit and the report of the other auditors, such 2007
consolidated financial statements, before the effects of the retrospective
adjustment for the discontinued operations discussed in Note 6 to the
consolidated financial statements, present fairly, in all material respects, the
financial position of Presidential Realty Corporation and subsidiaries as of
December 31, 2007, and the results of their  operations and their cash
flows for the year ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.
 
 /s/
DELOITTE & TOUCHE LLP
 Stamford,
Connecticut
 
 March
31, 2008


58




PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





December 31,
                    
                    
                    December 31,2008
                    
                    
                    2007AssetsReal
      estate (Note 2)
                    
                    $
                    17,686,971
                    
                    
                    $
                    21,041,049Less:
      accumulated depreciation
                    
                    
                    2,211,207
                    
                    
                    
                    4,834,757Net
      real estate
                    
                    
                    15,475,764
                    
                    
                    
                    16,206,292Net
      mortgage portfolio (Note 3)
                    
                    
                    2,249,203
                    
                    
                    
                    7,659,225Investments
      in and advances to joint ventures (Note 4)
                    
                    
                    1,511,887
                    
                    
                    
                    4,923,201Other
      investments (Note 5)
                    
                    
                    -
                    
                    
                    
                    1,000,000Assets
      related to discontinued operations (Note 6)
                    
                    
                    391,479
                    
                    
                    
                    -Prepaid
      expenses and deposits in escrow
                    
                    
                    1,113,437
                    
                    
                    
                    1,213,162Prepaid
      defined benefit plan costs (Note 18)
                    
                    
                    -
                    
                    
                    
                    371,942Other
      receivables (net of valuation allowance of  $106,183
      in 2008 and $147,065 in 2007)
                    
                    
                    462,479
                    
                    
                    
                    370,004Cash
      and cash equivalents
                    
                    
                    5,984,550
                    
                    
                    
                    2,343,497Other
      assets
                    
                    
                    702,810
                    
                    
                    
                    861,965Total
      Assets
                    
                    $
                    27,891,609
                    
                    
                    $
                    34,949,288Liabilities
      and Stockholders' EquityLiabilities:Mortgage
      debt (Note 7)
                    
                    $
                    16,392,285
                    
                    
                    $
                    18,868,690Liabilities
      related to discontinued operations (Note 6)
                    
                    
                    2,078,971
                    
                    
                    
                    -Contractual
      pension and postretirement benefits liabilities (Note 17)
                    
                    
                    1,808,104
                    
                    
                    
                    2,169,408Defined
      benefit plan liability (Note 18)
                    
                    
                    2,253,139
                    
                    
                    
                    -Accrued
      liabilities
                    
                    
                    2,000,365
                    
                    
                    
                    2,431,698Accounts
      payable
                    
                    
                    524,718
                    
                    
                    
                    464,983Other
      liabilities
                    
                    
                    695,300
                    
                    
                    
                    755,770Total
      Liabilities
                    
                    
                    25,752,882
                    
                    
                    
                    24,690,549


Stockholders'
      Equity:Common
      stock: par value $.10 per share (Note 14)
 December 31, 2008
                                    
                                    
                                    December 31, 2007Class A
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    47,894
                                    
                                    
                                    
                                    47,894Authorized:
                                    
                                    
                                    700,000
                                    
                                    
                                    
                                    700,000Issued:
                                    
                                    
                                    478,940
                                    
                                    
                                    
                                    478,940Treasury:
                                    
                                    
                                    36,407
                                    
                                    
                                    
                                    5,375Class B
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    352,455
                                    
                                    
                                    
                                    352,155Authorized:
                                    
                                    
                                    10,000,000
                                    
                                    
                                    
                                    10,000,000Issued:
                                    
                                    
                                    3,524,547
                                    
                                    
                                    
                                    3,521,547Treasury:
                                    
                                    
                                    570,400
                                    
                                    
                                    
                                    29,633





Additional
      paid-in capital
                
                
                4,586,738
                
                
                
                4,486,713Retained
      earnings
                
                
                3,870,905
                
                
                
                6,959,104Accumulated
      other comprehensive loss (Note 19)
                
                
                (3,589,877
                )
                
                
                (1,331,097
                )Treasury
      stock (at cost) (Note 20)
                
                
                (3,129,388
                )
                
                
                (256,030
                )Total
      Stockholders' Equity
                
                
                2,138,727
                
                
                
                10,258,739Total
      Liabilities and Stockholders' Equity
                
                $
                27,891,609
                
                
                $
                34,949,288





See notes
to consolidated financial statements.


59




PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





YEAR ENDED DECEMBER 31,2008
                            
                            
                            2007Revenues:Rental
                            
                            $
                            5,380,254
                            
                            
                            $
                            4,812,057Interest
      on mortgages - notes receivable
                            
                            
                            874,426
                            
                            
                            
                            1,187,047Interest
      on mortgages - notes receivable - related parties
                            
                            
                            146,750
                            
                            
                            
                            267,575Other
      revenues
                            
                            
                            4,986
                            
                            
                            
                            13,771Total
                            
                            
                            6,406,416
                            
                            
                            
                            6,280,450Costs
      and Expenses:General
      and administrative (Note 21)
                            
                            
                            2,725,471
                            
                            
                            
                            4,008,576Depreciation
      on non-rental property
                            
                            
                            39,568
                            
                            
                            
                            31,620Rental
      property:Operating
      expenses
                            
                            
                            2,816,034
                            
                            
                            
                            2,582,129Interest
      on mortgage debt
                            
                            
                            1,473,780
                            
                            
                            
                            1,353,104Real
      estate taxes
                            
                            
                            442,199
                            
                            
                            
                            449,190Depreciation
      on real estate
                            
                            
                            469,500
                            
                            
                            
                            418,232Amortization
      of in-place lease values and mortgage costs
                            
                            
                            152,996
                            
                            
                            
                            365,091Total
                            
                            
                            8,119,548
                            
                            
                            
                            9,207,942Other
      Income (Loss):Investment
      income
                            
                            
                            113,437
                            
                            
                            
                            616,762Write-off
      of other investments (Note 5)
                            
                            
                            (1,000,000
                            )
                            
                            
                            -Equity
      in the loss from joint ventures (Note 4)
                            
                            
                            (1,568,685
                            )
                            
                            
                            (10,084,207
                            )Loss
      before minority interest
                            
                            
                            (4,168,380
                            )
                            
                            
                            (12,394,937
                            )Minority
      interest
                            
                            
                            -
                            
                            
                            
                            (2,194
                            )Loss
      from continuing operations
                            
                            
                            (4,168,380
                            )
                            
                            
                            (12,397,131
                            )Discontinued
      Operations (Note 6):Income
      from discontinued operations
                            
                            
                            250,478
                            
                            
                            
                            151,550Net
      gain from sales of discontinued operations
                            
                            
                            2,892,258
                            
                            
                            
                            735,705Total
      income from discontinued operations
                            
                            
                            3,142,736
                            
                            
                            
                            887,255Net
      Loss
                            
                            $
                            (1,025,644
                            )
                            
                            $
                            (11,509,876
                            )Earnings
      per Common Share (basic and diluted):Loss
      from continuing operations
                            
                            $
                            (1.13
                            )
                            
                            $
                            (3.18
                            )Discontinued
      Operations:Income
      from discontinued operations
                            
                            
                            0.07
                            
                            
                            
                            0.05Net
      gain from sales of discontinued operations
                            
                            
                            0.78
                            
                            
                            
                            0.18Total
      income from discontinued operations
                            
                            
                            0.85
                            
                            
                            
                            0.23Net
      Loss per Common Share - basic and diluted
                            
                            $
                            (0.28
                            )
                            
                            $
                            (2.95
                            )Cash
      Distributions per Common Share (Note 15)
                            
                            $
                            0.56
                            
                            
                            $
                            0.64Weighted
      Average Number of Shares Outstanding - basic and diluted
                            
                            
                            3,683,283
                            
                            
                            
                            3,903,895





See notes
to consolidated financial statements.


60




PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY





AccumulatedAdditional
                                      
                                      
                                      
                                      
                                      
                                      Other
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      TotalCommon
                                      
                                      
                                      Paid-in
                                      
                                      
                                      Retained
                                      
                                      
                                      Comprehensive
                                      
                                      
                                      Treasury
                                      
                                      
                                      Comprehensive
                                      
                                      
                                      Stockholders'Stock
                                      
                                      
                                      Capital
                                      
                                      
                                      Earnings
                                      
                                      
                                      Loss
                                      
                                      
                                      Stock
                                      
                                      
                                      Loss
                                      
                                      
                                      EquityBalance
      at January 1, 2007
                                      
                                      $
                                      394,126
                                      
                                      
                                      $
                                      4,116,326
                                      
                                      
                                      $
                                      21,453,808
                                      
                                      
                                      $
                                      (2,358,827
                                      )
                                      
                                      $
                                      (22,163
                                      )
                                      
                                      
                                      
                                      
                                      $
                                      23,583,270Cumulative
      effect of adoption of FIN 48 (Note 11)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (460,800
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      (460,800
                                      )Net
      proceeds from dividend reinvestment plan
                                      
                                      
                                      4,373
                                      
                                      
                                      
                                      271,422
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      275,795Cash
      distributions ($.64 per share)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,524,028
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,524,028
                                      )Issuance
      and vesting of restricted stock (Note 16)
                                      
                                      
                                      1,550
                                      
                                      
                                      
                                      98,965
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      100,515Purchase
      of treasury stock
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (233,867
                                      )
                                      
                                      
                                      
                                      
                                      
                                      (233,867
                                      )Comprehensive
      loss:Net
      loss
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (11,509,876
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      (11,509,876
                                      )
                                      
                                      
                                      (11,509,876
                                      )Other
      comprehensive income (loss) -Net
      unrealized loss on securities available for sale
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,055
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,055
                                      )
                                      
                                      
                                      (3,055
                                      )Minimum
      pension liability adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,204,437
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,204,437
                                      
                                      
                                      
                                      1,204,437Adjustment
      for defined benefit plan
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (91,512
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (91,512
                                      )
                                      
                                      
                                      (91,512
                                      )Adjustment
      for contractual postretirement benefits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (82,140
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (82,140
                                      )
                                      
                                      
                                      (82,140
                                      )Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (10,482,146
                                      )Balance
      at December 31, 2007
                                      
                                      
                                      400,049
                                      
                                      
                                      
                                      4,486,713
                                      
                                      
                                      
                                      6,959,104
                                      
                                      
                                      
                                      (1,331,097
                                      )
                                      
                                      
                                      (256,030
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      10,258,739Cash
      distributions ($.56 per share)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,062,555
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,062,555
                                      )Issuance
      and vesting of restricted stock (Note 16)
                                      
                                      
                                      300
                                      
                                      
                                      
                                      100,025
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      100,325Purchase
      of treasury stock
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,873,358
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,873,358
                                      )Comprehensive
      loss:Net
      loss
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,025,644
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      (1,025,644
                                      )
                                      
                                      
                                      (1,025,644
                                      )Other
      comprehensive income (loss) -Net
      unrealized loss on securities available for sale
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,102
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,102
                                      )
                                      
                                      
                                      (3,102
                                      )Minimum
      pension liability adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (143,709
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (143,709
                                      )
                                      
                                      
                                      (143,709
                                      )Adjustment
      for defined benefit plan
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,441,760
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,441,760
                                      )
                                      
                                      
                                      (2,441,760
                                      )Adjustment
      for contractual postretirement benefits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      329,791
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      329,791
                                      
                                      
                                      
                                      329,791Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (3,284,424
                                      )Balance
      at December 31, 2008
                                      
                                      $
                                      400,349
                                      
                                      
                                      $
                                      4,586,738
                                      
                                      
                                      $
                                      3,870,905
                                      
                                      
                                      $
                                      (3,589,877
                                      )
                                      
                                      $
                                      (3,129,388
                                      )
                                      
                                      
                                      
                                      
                                      
                                      $
                                      2,138,727





See notes
to consolidated financial statements.


61




PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





YEAR ENDED DECEMBER 31,2008
                          
                          
                          2007Cash
      Flows from Operating Activities:Cash
      received from rental properties
                          
                          $
                          6,108,566
                          
                          
                          $
                          5,929,416Interest
      received
                          
                          
                          882,566
                          
                          
                          
                          1,327,073Distributions
      received from joint ventures
                          
                          
                          1,842,629
                          
                          
                          
                          3,052,341Distributions
      received from other investments
                          
                          
                          4,000
                          
                          
                          
                          537,087Miscellaneous
      income
                          
                          
                          24,282
                          
                          
                          
                          49,857Interest
      paid on rental property mortgage debt
                          
                          
                          (1,370,512
                          )
                          
                          
                          (1,447,348
                          )Cash
      disbursed for rental property operations
                          
                          
                          (3,725,579
                          )
                          
                          
                          (4,012,948
                          )Cash
      disbursed for general and administrative costs
                          
                          
                          (3,218,366
                          )
                          
                          
                          (3,282,225
                          )Net
      cash provided by operating activities
                          
                          
                          547,586
                          
                          
                          
                          2,153,253Cash
      Flows from Investing Activities:Payments
      received on notes receivable
                          
                          
                          5,747,679
                          
                          
                          
                          171,254Repayments
      received on other investments
                          
                          
                          -
                          
                          
                          
                          1,000,000Payments
      disbursed for additions and improvements
                          
                          
                          (726,164
                          )
                          
                          
                          (813,366
                          )Proceeds
      from sales of properties
                          
                          
                          3,457,177
                          
                          
                          
                          582,004Purchase
      of additional interests in partnerships
                          
                          
                          -
                          
                          
                          
                          (96,202
                          )Net
      cash provided by investing activities
                          
                          
                          8,478,692
                          
                          
                          
                          843,690Cash
      Flows from Financing Activities:Principal
      payments on mortgage debt
                          
                          
                          (445,688
                          )
                          
                          
                          (426,091
                          )Payments
      disbursed for mortgage costs
                          
                          
                          (3,624
                          )
                          
                          
                          -Distributions
      to minority partners
                          
                          
                          -
                          
                          
                          
                          (8,789
                          )Cash
      distributions on common stock
                          
                          
                          (2,062,555
                          )
                          
                          
                          (2,524,028
                          )Purchase
      of treasury stock
                          
                          
                          (2,873,358
                          )
                          
                          
                          (233,867
                          )Proceeds
      from dividend reinvestment plan
                          
                          
                          -
                          
                          
                          
                          275,795Net
      cash used in financing activities
                          
                          
                          (5,385,225
                          )
                          
                          
                          (2,916,980
                          )Net
      Increase in Cash and Cash Equivalents
                          
                          
                          3,641,053
                          
                          
                          
                          79,963Cash
      and Cash Equivalents, Beginning of Year
                          
                          
                          2,343,497
                          
                          
                          
                          2,263,534Cash
      and Cash Equivalents, End of Year
                          
                          $
                          5,984,550
                          
                          
                          $
                          2,343,497





See notes
to consolidated financial statements.


62




PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





YEAR
      ENDED DECEMBER 31,2008
                    
                    
                    2007Reconciliation
      of Net Loss to Net Cash Provided by Operating ActivitiesNet
      Loss
                    
                    $
                    (1,025,644
                    )
                    
                    $
                    (11,509,876
                    )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Net
      gain from sales of discontinued operations
                    
                    
                    (2,892,258
                    )
                    
                    
                    (735,705
                    )Equity
      in the loss from joint ventures
                    
                    
                    1,568,685
                    
                    
                    
                    10,084,207Write-off
      of other investments
                    
                    
                    1,000,000
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    
                    697,240
                    
                    
                    
                    881,499Amortization
      of discount on mortgage payable
                    
                    
                    48,254
                    
                    
                    
                    110,322Net
      change in revenue related to acquired lease rights/obligations and
      deferred rent receivable
                    
                    
                    (55,812
                    )
                    
                    
                    (86,507
                    )Amortization
      of discounts on notes and fees
                    
                    
                    (348,740
                    )
                    
                    
                    (244,565
                    )Minority
      interest
                    
                    
                    -
                    
                    
                    
                    2,194Issuance
      of stock to directors and officers
                    
                    
                    100,325
                    
                    
                    
                    100,515Distributions
      received from joint ventures
                    
                    
                    1,842,629
                    
                    
                    
                    3,052,341Changes
      in assets and liabilities:Decrease
      (increase) in other receivables
                    
                    
                    (69,100
                    )
                    
                    
                    58,136Increase
      (decrease) in accounts payable and accrued liabilities
                    
                    
                    (599,724
                    )
                    
                    
                    150,869Increase
      in other liabilities
                    
                    
                    35,457
                    
                    
                    
                    51,927Decrease
      in prepaid expenses, deposits in escrow and deferred
    charges
                    
                    
                    235,976
                    
                    
                    
                    233,596Other
                    
                    
                    10,298
                    
                    
                    
                    4,300Total
      adjustments
                    
                    
                    1,573,230
                    
                    
                    
                    13,663,129Net
      cash provided by operating activities
                    
                    $
                    547,586
                    
                    
                    $
                    2,153,253SUPPLEMENTAL
      NONCASH DISCLOSURES:Satisfaction
      of mortgage debt as a result of assumption of the mortgage debt by the
      purchaser
                    
                    
                    
                    
                    
                    $
                    2,856,452Note
      receivable from sale of property
                    
                    
                    
                    
                    
                    $
                    200,000





See notes
to consolidated financial statements.


63


PRESIDENTIAL REALTY
CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS





Presidential
Realty Corporation (“Presidential” or the “Company”), is operated as a
self-administrated, self-managed Real Estate Investment Trust (“REIT”). The
Company is engaged principally in the ownership of income producing real estate
and in the holding of notes and mortgages secured by real estate or interests in
real estate.  Presidential operates in a single business segment,
investments in real estate related assets.





1.     
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





A. Real Estate – Real
estate is stated at cost.  Generally, depreciation is provided on the
straight-line method over the assets’ estimated useful lives, which range from
twenty to thirty-nine years for buildings and from three to ten years for
furniture and equipment.  Maintenance and repairs are charged to
operations as incurred and renewals and replacements are
capitalized.  The Company reviews each of its property investments for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.  Impairment of properties
is determined to exist when estimated amounts recoverable through future
operations on an undiscounted basis are below the properties’ carrying
value.  If a property is determined to be impaired, it is written down
to its estimated fair value.





Purchase
Accounting





In 2006
and 2007, the Company acquired an additional 25% and 1% limited partnership
interest in PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey
Partnership”), respectively.  The Company allocated the fair value of
acquired tangible and intangible assets and assumed liabilities based on their
estimated fair values in accordance with the provisions of Accounting Research
Bulletin (“ARB”) No. 51, “Consolidated Financial Statements”, and the Statement
of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, as
a partial step acquisition.  No gain or goodwill was recognized on the
recording of the acquisition of the additional interests in the Hato Rey
Partnership.  Building and improvements are depreciated on the
straight-line method over thirty-nine years.  In-place lease values
are amortized to expense over the terms of the related tenant
leases.  Above and below market lease values are amortized as a
reduction of, or an increase to, rental revenue over the remaining term of each
lease.  Mortgage discount was amortized to mortgage interest expense
over the original expected term of the mortgage using the interest method (while
the maturity date is May, 2028, the original anticipated repayment date was May,
2008).


64





B.    
Mortgage
Portfolio – Net mortgage portfolio represents the outstanding principal
amounts of notes receivable reduced by discounts.  The primary forms
of collateral on all notes receivable are real estate and ownership interests in
entities that own real property, and may include borrower personal
guarantees.  The Company periodically evaluates the collectibility of
both accrued interest on and principal of its notes receivable to determine
whether they are impaired.  A mortgage loan is considered to be
impaired when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the existing
contractual terms of the loan.  The Company also considers loan
modifications as possible indicators of impairment, although all modifications
during the two years ended December 31, 2008, with the exception of the
modification to the $200,000 Cambridge Green loan (see Note 3), have been at the
Company’s request for business purposes and not as a result of debtor financial
difficulties.  When a mortgage loan is considered to be impaired, the
Company establishes a valuation allowance equal to the difference between a) the
carrying value of the loan, and b) the present value of the expected cash flows
from the loan at its effective interest rate, or at the estimated fair value of
the real estate collateralizing the loan.  Income on impaired loans,
including interest, and the recognition of deferred gains and unamortized
discounts, is recognized only as cash is received.  The Company
currently has no loans that are impaired according to their terms as
modified.





C.   
 Sale of Real
Estate – Presidential complies with the provisions of SFAS No. 66,
“Accounting for Sales of Real Estate”.  Accordingly, the gains on
certain transactions were deferred and were recognized on the installment method
until such transactions complied with the criteria for full profit
recognition.  At December 31, 2008 and 2007, the Company had no
deferred gains.





D.    Discounts on Notes
Receivable – Presidential assigned discounted values to long-term notes
received from the sales of properties to reflect the difference between the
stated interest rates on the notes and market interest rates at the time the
notes were made.  Such discounts are being amortized using the
interest method.





E.     Principles of
Consolidation – The consolidated financial statements include the
accounts of Presidential Realty Corporation and its wholly owned
subsidiaries.  Additionally, the consolidated financial statements
include 100% of the account balances of the Hato Rey
Partnership.  PDL, Inc. (a wholly owned subsidiary of Presidential and
the general partner of the Hato Rey Partnership) and Presidential own an
aggregate 60% general and limited partnership interest in the Hato Rey
Partnership (see Note 8).  The consolidated financial statements for
the year ended December 31, 2007 also included 100% of the account balances of
another partnership, UTB Associates (which was liquidated on December 31,
2007).  Presidential was the general partner of UTB Associates and
owned a 100% interest (previously a 75% interest, see Note 9).





All
significant intercompany balances and transactions have been
eliminated.





F.     Investments in Joint
Ventures– The Company has equity investments in joint ventures and
accounts for these investments using the equity method of
accounting.  These investments are recorded at cost and adjusted for
the Company’s share of each entity’s income or loss and adjusted for cash
contributions or distributions.  Real estate held by such entities is
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable, and would be written down to
its estimated fair value if an impairment was determined to exist. See Note
4.





G.     Rental Revenue
Recognition – The Company acts as lessor under operating
leases.  Rental revenue is recorded on the straight-line basis from
the later of the date of the commencement of the lease or the date of
acquisition of the property subject to existing leases, which averages minimum
rents over the terms of the leases. Certain leases require the tenants to
reimburse a pro rata share of real estate taxes, utilities and maintenance
costs.


65





Recognition
of rental revenue is generally discontinued when the rental is delinquent for
ninety days or more, or earlier if management determines that collection is
doubtful.





H.     Net Loss Per Share –
Basic and diluted net loss per share data is computed by dividing net loss by
the weighted average number of shares of Class A and Class B common stock
outstanding during each year.  Nonvested shares are excluded from the
basic net loss per share computation.  For the years ended December
31, 2008 and 2007, the weighted average shares outstanding as used in the
calculation of diluted loss per share does not include 28,800 and 42,300,
respectively, of restricted shares to be vested, as their inclusion would be
antidilutive.





I.     
Cash and Cash
Equivalents– Cash and cash equivalents includes cash on hand, cash in
banks and money market funds.





J.     
Benefits – The
Company follows SFAS Nos. 87, 106, 132 and 158 in accounting for pension and
postretirement benefits (see Notes 17 and 18).





K.     Management Estimates
– The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America.  In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the consolidated balance sheets and the
reported amounts of income and expense for the reporting
period.  Actual results could differ from those
estimates.





L.     Accounting for Stock
Awards – The Company complies with the provisions of SFAS No. 123R,
“Accounting for Stock-Based Compensation”.  Shares of Class B common
stock granted to directors are fully vested upon the grant date and the shares
granted to officers and employees vest ratably over two to five years, with full
distribution rights at the date of the grants.  The Company recorded
the market value of the grants that vested in 2007 and 2008 to expense in each
year.





M.     Discontinued
Operations - The Company complies with the provisions of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets”.  This statement requires that the results of operations,
including impairment, gains and losses related to the properties that have been
sold or properties that are intended to be sold, be presented as discontinued
operations in the statements of operations for all periods presented and the
assets and liabilities of properties intended to be sold are to be separately
classified on the balance sheet.  Properties designated as held for
sale are carried at the lower of cost or fair value less costs to sell and are
not depreciated.





N.     Accounting for Uncertainty
in Income Taxes - On January 1, 2007, the Company adopted the Financial
Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN
48”).  If the Company’s tax positions in relation to certain
transactions were examined and were not ultimately upheld, the Company would be
required to pay an income tax assessment and related
interest.  Alternatively, the Company could elect to pay a deficiency
dividend to its shareholders in order to continue to qualify as a REIT and the
related interest assessment to the taxing authorities.


66





O.     Recent Accounting
Pronouncements – In September, 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements”, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007.  The adoption of
this standard on January 1, 2008, did not have a material effect on the
Company’s consolidated financial statements.





In
September, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB
Statements No. 87, 88, 106 and 132(R)”. SFAS No. 158 requires an employer to (i)
recognize in its statement of financial position an asset for a plan’s
overfunded status or a liability for a plan’s underfunded status; (ii) measure a
plan’s assets and its benefit obligations that determine its funded status as of
the end of the employer’s fiscal year (with limited exceptions); and (iii)
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur.  Those changes will be
reported in comprehensive income.  The Company previously adopted in
2006 the requirement to recognize the funded status of a benefit plan and the
disclosure requirements.  The requirement to measure plan assets and
benefit obligations to determine the funded status as of the end of the fiscal
year and to recognize changes in the funded status in the year in which the
changes occur is effective for fiscal years ending after December 15,
2008.  The adoption of the measurement date provisions of this
standard did not have a material effect on the Company’s consolidated financial
statements.





In
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”.  SFAS No. 159 permits
entities to choose to measure many financial assets and financial liabilities at
fair value.  Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings.  SFAS No. 159
is effective for fiscal years beginning after November 15, 2007.  The
Company has not elected to measure its financial assets or liabilities at fair
value pursuant to this statement.





In
December, 2007, the FASB issued No. 141 (revised 2007), “Business Combinations”
(“SFAS No. 141R”).  SFAS No. 141R replaces SFAS No. 141, which the
Company previously adopted.  SFAS No. 141R revises the standards for
accounting and reporting of business combinations. In summary, SFAS No. 141R
requires the acquirer of a business combination to measure at fair value the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, with limited exceptions.  SFAS No.
141R applies to all business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  The Company does not believe that the
adoption of this statement on January 1, 2009 will have a material effect on the
Company’s consolidated financial statements.





In
December, 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
noncontrolling interest.  SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008.  The Company is currently
evaluating the potential impact, if any, that the adoption of this standard on
January 1, 2009 will have on its consolidated financial
statements.


67





In March,
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”.  SFAS No. 161 changes the reporting
requirements for derivative instruments and hedging activities under SFAS No.
133, “Accounting for Derivatives and Hedging Activities”, by requiring enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments are accounted for under SFAS No. 133 and (c) the effect
of derivative instruments and hedging activities on an entity’s financial
position, financial performance and cash flows.  SFAS No. 161 is
effective for fiscal years beginning after November 15, 2008.  The
Company does not believe that the adoption of this statement on January 1, 2009
will have a material effect on the Company’s consolidated financial
statements.





In April,
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, “Determination
of the Useful Life of Intangible Assets”.  FSP No. FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets”.  The
objective of FSP No. FAS 142-3 is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS No.
141R and GAAP.  FSP FAS No. 142-3 is effective for financial
statements issued for years beginning after December 15, 2008, and interim
periods within those years and applied prospectively to intangible assets
acquired after the effective date.  The Company does not believe that
the adoption of FSP FAS No. 142-3 on January 1, 2009 will have a material effect
on the Company’s consolidated financial statements.





In June,
2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities”.  FSP No. EITF 03-6-1 affects entities which accrue
non-returnable cash dividends on share-based payment awards during the awards’
service period.  The FASB concluded unvested share-based payment
awards which are entitled to cash dividends, whether paid or unpaid, are
participating securities any time the common shareholders receive
dividends.  Because the awards are considered participating
securities, the issuing entity is required to apply the two-class method of
computing basic and diluted earnings per share.  FSP No. EITF 03-6-1
is effective for fiscal years beginning after December 15, 2008, and early
adoption is not permitted.  The Company does not believe that the
adoption of FSP No. EITF 03-6-1 on January 1, 2009 will have a material effect
on the Company’s consolidated financial statements.





2.     
REAL ESTATE




Real
estate is comprised of the following:





December 31,2008
                  
                  
                  2007Land
                  
                  $
                  2,059,856
                  
                  
                  $
                  2,309,930Buildings
                  
                  
                  15,546,526
                  
                  
                  
                  18,605,700Furniture
      and equipment
                  
                  
                  80,589
                  
                  
                  
                  125,419Total
      real estate
                  
                  $
                  17,686,971
                  
                  
                  $
                  21,041,049


68





Two of
the properties owned by the Company represented 75% and 17% of total rental
revenue in 2008 and 72% and 19% of total rental revenue in 2007.





3.     
MORTGAGE PORTFOLIO





The
Company’s mortgage portfolio includes the following categories of notes
receivable:





(1)
            Long-term
      purchase money notes from sales of properties previously owned by the
      Company and loans and mortgages originated by the
      Company.  These notes receivable have varying interest rates
      with balloon payments due at
maturity.





(2)
            Notes
      receivable from sales of cooperative apartment units.  These
      notes generally have market interest rates and the majority of these notes
      amortize monthly with balloon payments due at
  maturity.





At
December 31, 2008, all of the notes in the Company’s mortgage portfolio are
current in accordance with their terms, as modified.





The
following table summarizes the components of the net mortgage
portfolio:





MORTGAGE
PORTFOLIO





Notes ReceivableProperties
                    
                    
                    
                    
                    
                    CooperativePreviously
                    
                    
                    Originated
                    
                    
                    ApartmentOwned
                    
                    
                    Loans
                    
                    
                    Units
                    
                    
                    TotalDecember 31, 2008Notes
      receivable
                    
                    $
                    75,000
                    
                    
                    $
                    2,074,994
                    
                    
                    $
                    140,376
                    
                    
                    $
                    2,290,370Less:
      Discounts
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    41,167
                    
                    
                    
                    41,167Net
                    
                    $
                    75,000
                    
                    
                    $
                    2,074,994
                    
                    
                    $
                    99,209
                    
                    
                    $
                    2,249,203Due
      within one year
                    
                    $
                    75,000
                    
                    
                    $
                    -
                    
                    
                    $
                    44,274
                    
                    
                    $
                    119,274Long-term
                    
                    
                    -
                    
                    
                    
                    2,074,994
                    
                    
                    
                    54,935
                    
                    
                    
                    2,129,929Net
                    
                    $
                    75,000
                    
                    
                    $
                    2,074,994
                    
                    
                    $
                    99,209
                    
                    
                    $
                    2,249,203December 31, 2007Notes
      receivable
                    
                    $
                    4,285,000
                    
                    
                    $
                    3,574,994
                    
                    
                    $
                    191,348
                    
                    
                    $
                    8,051,342Less:
      Discounts
                    
                    
                    337,496
                    
                    
                    
                    -
                    
                    
                    
                    54,621
                    
                    
                    
                    392,117Net
                    
                    $
                    3,947,504
                    
                    
                    $
                    3,574,994
                    
                    
                    $
                    136,727
                    
                    
                    $
                    7,659,225Due
      within one year
                    
                    $
                    410,000
                    
                    
                    $
                    -
                    
                    
                    $
                    45,827
                    
                    
                    $
                    455,827Long-term
                    
                    
                    3,537,504
                    
                    
                    
                    3,574,994
                    
                    
                    
                    90,900
                    
                    
                    
                    7,203,398Net
                    
                    $
                    3,947,504
                    
                    
                    $
                    3,574,994
                    
                    
                    $
                    136,727
                    
                    
                    $
                    7,659,225


69


Repayments and
Modifications





During
the year ended December 31, 2008, the Company received repayment of (i) its
$1,500,000 loan receivable collateralized by ownership interests in Reisterstown
Square Associates, LLC, which owns Reisterstown Apartments in Baltimore,
Maryland, and (ii) its $3,875,000 Fairfield Towers note receivable, both of
which were due from affiliates of David Lichtenstein.  In addition,
the Company also received repayment of its $100,000 loan collateralized by the
Pinewood property in Des Moines, Iowa and its $110,000 Mark Terrace note
receivable.





In March,
2007, the Company sold its Cambridge Green property in Council Bluffs,
Iowa.  As part of the sales price, the Company received a $200,000
secured note receivable which matured on March 20, 2008.  The note
receivable carried an interest rate of 7% per annum, payment of which was
deferred until maturity.  At December 31, 2007, the accrued deferred
interest was $11,083.  In March, 2008, the Company agreed to extend
the maturity of the loan to December 31, 2008 and received a $25,000 payment for
$13,917 of principal and $11,083 of accrued deferred interest and as a result
the loan balance was reduced to $186,083.  In December, 2008, the
Company agreed to accept $175,000 in full payment of the loan and accrued
interest thereon if $100,000 was paid on or before December 19, 2008 (received)
and $75,000 was paid on or before April 1, 2009.  If the note is not
paid by April 1, 2009, the note will be due in accordance with its original
terms.  At December 31, 2008, the Company recorded a bad debt expense
of $11,083.





The
Company had a $3,875,000 note receivable, which was received by the Company in
connection with the sale of the Fairfield Towers mortgages in 1999 and which was
collateralized by security interests in the ownership interests in entities that
own various properties located in Maryland, New Jersey and
Pennsylvania.  The loan was originally due in February, 2009, but the
Company had the right to require prepayment upon 90 days prior
notice.  On March 20, 2008, the Company notified the borrower that the
loan must be prepaid within 90 days from the date of the notice.  On
June 3, 2008, the Company received a principal payment of $1,079,239 on the loan
and on July 11, 2008, the remaining loan balance of $2,795,761 was
paid.  The Company recognized $337,496 of unamortized discount on this
loan during 2008.





4.     
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES





The
Company has investments in and loans to four joint ventures which own and
operate nine shopping malls located in seven states. These investments in and
advances to joint ventures were made to entities controlled by David
Lichtenstein, who also controls The Lightstone Group (“Lightstone”). The Company
accounts for these investments using the equity method.





The first
investment, the Martinsburg Mall, was purchased by PRC Member LLC, a limited
liability company which was originally owned by the Company, in 2004 and,
subsequent to closing, PRC Member LLC obtained a mezzanine loan from Lightstone
in the amount of $2,600,000, which is secured by ownership interests in the
entity that owns the Martinsburg Mall. The loan matures on September 27, 2014,
and the interest rate on the loan is 11% per annum. Lightstone manages the
Martinsburg Mall and David Lichtenstein received a 71% ownership interest in PRC
Member LLC, leaving the Company with a 29% ownership interest.


70


During
2004 and 2005, the Company made three mezzanine loans in the aggregate principal
amount of $25,600,000 to joint ventures controlled by Mr. Lichtenstein. These
loans are secured by the ownership interests in the entities that own the
properties and the Company received a 29% ownership interest in these entities.
These loans mature in 2014 and 2015 and the interest rate on the loans is 11%
per annum.  During 2006, the Company made an additional $335,000
mezzanine loan to Lightstone II, which loan was added to and has the same
interest rate and maturity date as the original Lightstone II
loan.  At December 31, 2008, the aggregate principal amount of loans
to joint ventures controlled by David Lichtenstein was $25,935,000.





The
following table summarizes information on the mezzanine loans:





OwningEntity
      and
                                                            
                                                            Mezzanine
      LoansProperty
                                                            
                                                            Advanced
      byOwned (1)
                                                            
                                                            the CompanyPRC
      Member LLC (2)Martinsburg MallMartinsburg,
      WVLightstone
      I (2)Four Malls
                                                            
                                                            $
                                                            8,600,000Bradley
      Square MallCleveland,
      TNMount
      Berry Square MallRome,
      GAShenango
      Valley MallHermitage,
      PAWest
      Manchester MallYork,
      PALightstone
      II (3)Shawnee/Brazos Malls
                                                            
                                                            
                                                            7,835,000Brazos
      MallLake
      Jackson, TXShawnee
      MallShawnee,
      OKLightstone
      III (4)Macon/Burlington Malls
                                                            
                                                            
                                                            9,500,000Burlington
      MallBurlington,
      NCMacon
      MallMacon,
      GA$
                                                            25,935,000


71


(1) Each
individual owning entity is a single purpose entity that is prohibited by its
organizational documents from owning any assets other than the specified
shopping mall properties listed above.





(2) In
October, 2008, Lightstone I defaulted on the payment of interest due under the
Company’s $8,600,000 mezzanine loan relating to the Four Malls and also did not
make the payments of the preferential return of 11% per annum due on the
Company’s $1,438,410 investment in the Martinsburg Mall.  Lightstone I
also defaulted on payments of interest due under the first mortgage covering the
Martinsburg Mall and three of the Four Malls (Bradley Square, Mount Berry Square
and Shenango Valley) on and after August 1, 2008 and the holder of the first
mortgage commenced foreclosure proceedings and appointed a receiver to operate
the properties.  The Company believes that the outstanding principal
balance of the first mortgage substantially exceeds the current value of the
mortgaged properties and that it is unlikely that the Company will be able to
recover any amount of its mezzanine loan in the amount of $8,600,000 and
investment in the amount of $1,438,410 from the collateral that it holds as
security for its mezzanine loan and investment.  However, subsequent
to December 31, 2008, the Company entered into a Settlement Agreement with
Lightstone I and various of its affiliates with respect to the $8,600,000
mezzanine loan and its investment, as well as other indebtedness due from such
affiliates (see Note 28).  The Company’s $8,600,000 mezzanine loan is
also secured by interests in the West Manchester Mall but the Company believes
that the outstanding principal balance of the first mortgage on the West
Manchester Mall, which is not in default, exceeds the value of that property
under current market conditions.  At December 31, 2008, the carrying
value of the Company’s investments in PRC Member LLC and Lightstone I have been
reduced to zero.





(3) The
Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II secured by
interests in the Shawnee Mall and the Brazos Mall was in good standing at
December 31, 2008.  However, the borrower failed to make the interest
payments due on January 1, 2009 and on the first day of subsequent months and
the Company’s loan is now in default.  The first mortgage loan secured
by the properties was due to mature in January of 2009 but Lightstone II
obtained a one year extension of the maturity date until January of
2010.  In connection with the extension, the holder of the first
mortgage exercised its right (exercisable because the cash flow from the
properties did not satisfy a required debt service coverage ratio) to retain all
cash flow from the properties (after payment of all operating expenses but
before payment of interest on the Company’s mezzanine loan) as additional
security for the repayment of the first mortgage loan.  Lightstone II
is attempting to sell the properties (which sale requires the consent of
Presidential), but a sale will be difficult to accomplish under current market
conditions and with only short term financing on the properties.  The
$7,835,000 mezzanine loan is also covered by the Settlement Agreement described
in Note 28.





(4) In
February, 2008, Lightstone III defaulted on payments of interest due under the
Company’s $9,500,000 loan related to the Macon/Burlington
Malls.  Lightstone III also defaulted on payments of interest due on
the first mortgage loan covering the properties and the holder of the first
mortgage commenced foreclosure proceedings and appointed a receiver to operate
the properties.  The Company believes that the outstanding principal
balance of the first mortgage substantially exceeds the current value of the
Macon/Burlington Malls and that it is unlikely that the Company will be able to
recover any interest or any principal on its mezzanine loan from the collateral
that it holds as security for the loan.  However, subsequent to
December 31, 2008, the Company entered into a Settlement Agreement with
Lightstone III and various of its affiliates with respect to the $9,500,000
mezzanine loan and other indebtedness due from such affiliates (see Note
28).  The carrying value of the Company’s investment in Lightstone III
was reduced to zero at December 31, 2007.


72


Under the
equity method of accounting, the Company’s investments in the joint ventures,
including the $25,935,000 of loans advanced to the joint ventures, have been
reduced by distributions received and losses recorded for the joint ventures
(and increased by any income recorded for the joint
ventures).  Activity in investments in and advances to joint ventures
for the year ended December 31, 2008 is as follows:





Equityin theIncomeBalance at
                          
                          
                          
                          
                          
                          (Loss) from
                          
                          
                          Balance atDecember 31,
                          
                          
                          Distributions
                          
                          
                          Joint
                          
                          
                          December 31,2007
                          
                          
                          Received
                          
                          
                          Ventures
                          
                          
                          2008Martinsburg
      Mall
                          
                          
                          (1)
                          
                          
                          $
                          -
                          
                          
                          $
                          (151,396
                          )
                          
                          $
                          151,396
                          
                          
                          $
                          -Four
      Malls
                          
                          
                          (2)
                          
                          
                          
                          688,735
                          
                          
                          
                          (722,638
                          )
                          
                          
                          33,903
                          
                          
                          
                          -Shawnee/Brazos  Malls
                          
                          
                          (3)
                          
                          
                          
                          4,234,466
                          
                          
                          
                          (878,609
                          )
                          
                          
                          (1,843,970
                          )
                          
                          
                          1,511,887Macon/Burlington   Malls
                          
                          
                          (4)
                          
                          
                          
                          -
                          
                          
                          
                          (89,986
                          )
                          
                          
                          89,986
                          
                          
                          -$
                          4,923,201
                          
                          
                          $
                          (1,842,629
                          )
                          
                          $
                          (1,568,685
                          )
                          
                          $
                          1,511,887





Equity in
the income (loss) from joint ventures is as follows:





Year Ended December 31,2008
                            
                            
                            2007Martinsburg
      Mall
                            
                            
                            (1)
                            
                            
                            $
                            151,396
                            
                            
                            $
                            (2,953
                            )Four
      Malls
                            
                            
                            (2)
                            
                            
                            
                            33,903
                            
                            
                            
                            (2,886,704
                            )Shawnee/Brazos
      Malls
                            
                            
                            (3)
                            
                            
                            
                            (1,843,970
                            )
                            
                            
                            (899,638
                            )Macon/Burlington
      Malls
                            
                            
                            (4)
                            
                            
                            
                            89,986
                            
                            
                            
                            (6,294,912
                            )$
                            (1,568,685
                            )
                            
                            $
                            (10,084,207
                            )





(1) The
Company’s share of the income (loss) from joint ventures for the Martinsburg
Mall is determined after the deduction for interest expense at the rate of 11%
per annum on the outstanding $2,600,000 loan from Lightstone.  In
2007, the Company’s basis of its investment in the Martinsburg Mall was reduced
by distributions and losses to zero and, accordingly, the Company only recorded
its share of the loss to the extent of its basis.  In 2008, the
Company recorded $151,396 of distributions received in income from joint
ventures.





(2)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $8,600,000 loan from the Company to Lightstone I is included in the
calculation of the Company’s share of the income (loss) from joint ventures for
the Four Malls.  In 2007, the Company recorded a $2,886,704 loss from
the Four Malls, of which $2,124,003 pertained to an impairment loss ($1,165,471
for the Mount Berry Square Mall and $958,532 for the West Manchester
Mall).  In the second quarter of 2008, the Company’s basis of its
investment in the Four Malls was reduced by distributions and losses to zero,
and, accordingly, the Company only recorded its share of the loss to the extent
of its basis.  In 2008, the Company recorded $33,903 of distributions
received in income from joint ventures.


73





(3)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $7,835,000 loan from the Company to Lightstone II is included in the
calculation of the Company’s share of the loss from joint ventures for the
Shawnee/Brazos Malls.





(4)
Interest income earned by the Company at the rate of 11% per annum on the
outstanding $9,500,000 loan from the Company to Lightstone III is included in
the calculation of the Company’s share of the income (loss) from joint ventures
for the Macon/Burlington Malls.  In 2007, the Company’s basis of its
investment in the Macon/Burlington Malls was reduced by distributions and losses
to zero and, accordingly, the Company only recorded its share of the loss to the
extent of its basis.  The Company recorded a $6,294,912 loss for the
2007 year from the Macon/Burlington Malls (of which $6,246,722 pertained to an
impairment loss).  The Company’s share of the impairment loss from the
Macon/Burlington Malls was $19,914,390.  However, because the
recording of losses is limited to the extent of the Company’s basis, the
impairment loss recorded by the Company was $6,246,722.  In 2008, the
Company recorded $89,986 of distributions received in income from joint
ventures.





The
Company prepares the summary of the condensed combined financial information for
the Martinsburg Mall, the Four Malls, the Shawnee/Brazos Malls and the
Macon/Burlington Malls based on information provided by The Lightstone
Group.  The summary financial information below includes information
for all of the joint ventures.  The condensed combined information is
as follows:





December 31,2008
                            
                            
                            2007(unaudited)Condensed
      Combined Balance SheetsNet
      real estate
                            
                            $
                            231,588,000
                            
                            
                            $
                            235,595,000In-place
      lease values and acquired lease rights
                            
                            
                            7,071,000
                            
                            
                            
                            11,569,000Prepaid
      expenses and deposits in escrow
                            
                            
                            17,774,000
                            
                            
                            
                            18,145,000Cash
      and cash equivalents
                            
                            
                            1,695,000
                            
                            
                            
                            3,028,000Deferred
      financing costs
                            
                            
                            3,531,000
                            
                            
                            
                            2,505,000Other
      assets
                            
                            
                            3,259,000
                            
                            
                            
                            7,307,000Total
      Assets
                            
                            $
                            264,918,000
                            
                            
                            $
                            278,149,000Nonrecourse
      mortgage debt
                            
                            $
                            299,550,000
                            
                            
                            $
                            306,131,000Mezzanine
      notes payable
                            
                            
                            57,477,000
                            
                            
                            
                            49,994,000Other
      liabilities
                            
                            
                            27,601,000
                            
                            
                            
                            29,278,000Total
      Liabilities
                            
                            
                            384,628,000
                            
                            
                            
                            385,403,000Members’
      Deficit
                            
                            
                            (119,710,000
                            )
                            
                            
                            (107,254,000
                            )Total
      Liabilities and Members’ Deficit
                            
                            $
                            264,918,000
                            
                            
                            $
                            278,149,000




74





Year Ended December 31,2008
                
                
                2007(unaudited)Condensed
      Combined Statements of OperationsRevenues
                
                $
                41,510,000
                
                
                $
                59,813,000Interest
      on mortgage debt and other debt
                
                
                (20,329,000
                )
                
                
                (25,144,000
                )Other
      expenses
                
                
                (27,533,000
                )
                
                
                (34,338,000
                )Income
      before depreciation and amortization and provision for losses on real
      estate
                
                
                (6,352,000
                )
                
                
                331,000Depreciation
      and amortization
                
                
                (10,830,000
                )
                
                
                (14,108,000
                )Provision
      for losses on real estate (1)
                
                
                -
                
                
                
                (75,994,000
                )Net
      Loss
                
                $
                (17,182,000
                )
                
                $
                (89,771,000
                )





(1) In
the fourth quarter of 2007, the joint venture entities recorded an impairment
loss of approximately $75,994,000 on four of the nine mall properties owned by
the entities.  The Company’s 29% share of the impairment loss was
approximately $22,038,000.  However, because the recording of losses
is limited to the extent of the Company’s investment in and advances to joint
ventures, the Company’s share of the impairment loss was
$8,370,725.


75


The
summary financial information for the Shawnee/Brazos Malls is as
follows:





Shawnee/Brazos Malls
                    December 31,2008
                  
                  
                  2007Condensed
      Balance SheetsNet
      real estate
                  
                  $
                  61,751,000
                  
                  
                  $
                  62,913,000In-place
      lease values and acquired lease rights
                  
                  
                  916,000
                  
                  
                  
                  1,449,000Prepaid
      expenses and deposits in escrow
                  
                  
                  1,706,000
                  
                  
                  
                  2,102,000Cash
      and cash equivalents
                  
                  
                  440,000
                  
                  
                  
                  699,000Deferred
      financing costs
                  
                  
                  622,000
                  
                  
                  
                  758,000Other
      assets
                  
                  
                  1,308,000
                  
                  
                  
                  1,936,000Total
      Assets
                  
                  $
                  66,743,000
                  
                  
                  $
                  69,857,000Nonrecourse
      mortgage debt
                  
                  $
                  39,061,000
                  
                  
                  $
                  39,500,000Mezzanine
      notes payable
                  
                  
                  35,899,000
                  
                  
                  
                  29,294,000Other
      liabilities
                  
                  
                  7,415,000
                  
                  
                  
                  8,422,000Total
      Liabilities
                  
                  
                  82,375,000
                  
                  
                  
                  77,216,000Members’
      Deficit
                  
                  
                  (15,632,000
                  )
                  
                  
                  (7,359,000
                  )Total
      Liabilities and Members’ Deficit
                  
                  $
                  66,743,000
                  
                  
                  $
                  69,857,000





Year Ended December 31,2008
                        
                        
                        2007Condensed
      Statements of OperationsRevenues
                        
                        $
                        9,630,000
                        
                        
                        $
                        9,812,000Interest
      on mortgage debt and other debt
                        
                        
                        (6,026,000
                        )
                        
                        
                        (5,850,000
                        )Other
      expenses
                        
                        
                        (7,180,000
                        )
                        
                        
                        (6,356,000
                        )Income
      before depreciation and amortization
                        
                        
                        (3,576,000
                        )
                        
                        
                        (2,394,000
                        )Depreciation
      and amortization
                        
                        
                        (4,570,000
                        )
                        
                        
                        (2,847,000
                        )Net
      Loss
                        
                        $
                        (8,146,000
                        )
                        
                        $
                        (5,241,000
                        )




As a
result of the Company’s use of the equity method of accounting with respect to
its investments in and advances to the joint ventures, the Company’s
consolidated statements of operations reflect its proportionate share of the
income (loss) from the joint ventures. The Company’s equity in the loss from
joint ventures of $1,568,685 for the year ended December 31, 2008, is after
deductions in the aggregate amount of $1,325,300 for the Company’s proportionate
share of noncash charges (depreciation of $1,183,132 and amortization of
deferred financing costs, in-place lease values and other costs of $142,168, all
of which pertains to the Shawnee/Brazos Malls).  Notwithstanding the
loss from the joint ventures, the Company is entitled to receive its interest at
the rate of 11% per annum on its $25,935,000 of loans to the joint ventures. For
the year ended December 31, 2008, as a result of the defaults referred to above,
the Company only received distributions from the joint ventures in the amount of
$1,842,629 which included interest payments of $1,691,233 on the outstanding
loans to the joint ventures and return on investment in the amount of
$151,396.


76





The
Company’s equity in the loss from joint ventures of $10,084,207 for the year
ended December 31, 2007, is after (i) deductions in the aggregate amount of
$3,830,077 for the Company’s proportionate share of noncash charges
(depreciation of $2,888,019 and amortization of deferred financing costs,
in-place lease values and other costs of $942,058) and (ii) an impairment loss
of $8,370,725.  For the year ended December 31, 2007, the Company
received distributions from the joint ventures in the amount of $3,052,341,
which included interest payments of $2,892,473 on the outstanding loans to the
joint ventures and return on investment in the amount of $159,868.





The
Lightstone Group is controlled by David Lichtenstein.  At December 31,
2008, in addition to Presidential’s investments of $1,511,887 in these joint
ventures with entities controlled by Mr. Lichtenstein, Presidential has a loan
to an entity that is controlled by Mr. Lichtenstein in the outstanding principal
amount of $2,074,994.  The loan is secured by interests in nine
apartment properties and is in good standing.





The
$3,586,881 net carrying value of investments in and advances to joint ventures
with entities controlled by Mr. Lichtenstein and the loan outstanding to an
entity controlled by Mr. Lichtenstein constitute approximately 13% of the
Company’s total assets at December 31, 2008.





5.           OTHER
INVESTMENTS





At
December 31, 2007, the Company had a $1,000,000 investment in Broadway Partners
Feeder Fund A II, a blind pool of investment capital sponsored by Broadway Real
Estate Partners, LLC.  The Company accounts for this investment under
the cost method.  In the fourth quarter of 2008, the Company wrote off
its $1,000,000 investment due to the decline in value of the fund’s investment
portfolio.





6.           DISCONTINUED
OPERATIONS





For the
years ended December 31, 2008 and 2007, income from discontinued operations
includes the Crown Court property in New Haven, Connecticut (which consists of
105 apartment units and 2,000 square feet of commercial space); 42 cooperative
apartment units at the Towne House Apartments in New Rochelle, New York and
another cooperative apartment unit in New Haven, Connecticut.  The
Crown Court property was designated as held for sale during the three months
ended September 30, 2008.  The other properties were designated as
held for sale during the three months ended June 30, 2008 and sold during the
three months ended September 30, 2008.  In addition, income from
discontinued operations for the year ended December 31, 2007, included the
Cambridge Green property, which was sold in March, 2007, and another cooperative
apartment unit which was sold in June, 2007.





The
following table summarizes income for the properties sold or held for
sale:


77





Year ended December 31,__2008
                    
                    
                    2007Revenues:Rental
                    
                    $
                    943,579
                    
                    
                    $
                    1,167,114Rental
      property expenses:Operating
      expenses
                    
                    
                    322,153
                    
                    
                    
                    560,947Interest
      on mortgage debt
                    
                    
                    148,640
                    
                    
                    
                    186,818Real
      estate taxes
                    
                    
                    187,420
                    
                    
                    
                    203,571Depreciation
      on real estate
                    
                    
                    35,176
                    
                    
                    
                    66,556Total
                    
                    
                    693,389
                    
                    
                    
                    1,017,892Other
      income:Investment
      income
                    
                    
                    288
                    
                    
                    
                    2,328Income
      from discontinued operations
                    
                    
                    250,478
                    
                    
                    
                    151,550Net
      gain from sales of discontinued operations
                    
                    
                    2,892,258
                    
                    
                    
                    735,705Total
      income from discontinued operations
                    
                    $
                    3,142,736
                    
                    
                    $
                    887,255





The Crown
Court property in New Haven, Connecticut is owned subject to a long-term net
lease with an option to purchase which is exercisable in April,
2009.  In August, 2008, the lessee notified the Company that it is
electing to exercise this option in accordance with the terms of the net
lease.  The option purchase price is $1,635,000 over the outstanding
principal mortgage balance at the date of the exercise of the
option.  The gain from sale for financial reporting purposes is
estimated to be approximately $3,261,000 and the estimated net proceeds of sale
will be approximately $1,615,000.





The
Company owns a small portfolio of cooperative apartments located in New York and
Connecticut.  These apartments are held for the production of rental
income and generally are not marketed for sale.  However, from time to
time, the Company will receive purchase offers for some of these apartments or
decide to market specific apartments and will make sales if the purchase price
is acceptable to management.





In
September, 2008, the Company sold a package of 42 cooperative apartment units at
Towne House located in New Rochelle, New York for a sales price of
$3,450,000.  The net proceeds of sale were $3,343,187 and the gain
from sale for financial reporting purposes was $2,806,499.





In July,
2008, the Company sold one cooperative apartment unit located in New Haven,
Connecticut for a sales price of $122,000.  The net proceeds of sale
were $113,990 and the gain from the sale for financial reporting purposes was
$85,759.





On March
21, 2007, the Company completed the sale of the Cambridge Green property, a
201-unit apartment property in Council Bluffs, Iowa for a sales price of
$3,700,000.  As part of the sales price, (i) the $2,856,452
outstanding principal balance of the first mortgage debt was assumed by the
buyer, (ii) the Company received a $200,000 secured note receivable from the
buyer, which originally was due to mature on March 20, 2008 (see Note 3) and had
an interest rate of 7% per annum, and (iii) the balance of the sales price was
paid in cash.  The net proceeds from the sale were $664,780, which
included the $200,000 note receivable.  The Company recognized a gain
from the sale for financial reporting purposes of $646,759 in March,
2007.


78





In June,
2007, the Company sold one cooperative apartment unit located in New Haven,
Connecticut for a sales price of $125,000.  The net proceeds from the
sale were $117,224 and the Company recognized a gain from the sale for financial
reporting purposes of $88,946 in June, 2007.





The
assets and liabilities of the Crown Court property are segregated in the
consolidated balance sheet at December 31, 2008.  The components are
as follows:





December
      31,2008Assets
      related to discontinued operations:Land
                  
                  $
                  168,000Buildings
                  
                  
                  3,090,544Furniture
      and equipment
                  
                  
                  45,382Less:
      accumulated depreciation
                  
                  
                  (2,912,447
                  )Total
                  
                  $
                  391,479Liabilities
      related to discontinued operations:Mortgage
      debt
                  
                  $
                  2,078,971





7.           MORTGAGE
DEBT





All
mortgage debt is secured by individual properties.  The $15,245,921
mortgage on the Hato Rey Center property in Hato Rey, Puerto Rico is nonrecourse
to the Company, whereas the $1,072,906 mortgage on the Building Industries
Center property in White Plains, New York and the $73,458 mortgage on the
Mapletree Industrial Center property in Palmer, Massachusetts are recourse to
Presidential.





Amortization
requirements of all mortgage debt as of December 31, 2008 are summarized as
follows:





Year
ending December 31:





2009
                  
                  $
                  376,6192010
                  
                  
                  1,421,7782011
                  
                  
                  388,4182012
                  
                  
                  398,8032013
                  
                  
                  432,755Thereafter
                  
                  13,373,912TOTAL
                  
                  $
                  16,392,285





Interest
on mortgages is payable at fixed rates, summarized as follows:


79





Interest
rates:





5.00%
                    
                    $
                    73,4585.45%
                    
                    
                    1,072,9069.38%
                    
                    
                    15,245,921TOTAL
                    
                    $
                    16,392,285





The first
mortgage loan on the Hato Rey Center property is due on May 11, 2028 but
provides that if it was not repaid on or before May 11, 2008, the interest rate
on the loan would be increased by two percentage points (to 9.38% per annum of
which 2% per annum would be deferred until maturity) and all cash flow from the
property, after payment of all operating expenses, would be applied to pay down
the outstanding principal balance of the loan.  The Company did not
repay the existing mortgage on May 11, 2008 and the mortgage provisions
described above became applicable.  During 2008, no funds were
available from net cash flow to pay down the mortgage balance.  At
December 31, 2008, the outstanding principal balance of the loan was $15,245,921
and the deferred interest was $205,692.





The first
mortgage loan on the Building Industries Center property was due to mature on
January 1, 2009.  Subsequent to year end, the Company finalized a
previously agreed upon extension of the first mortgage.  The terms of
the loan remain the same with the exception of the extension of the maturity
date until March 1, 2010.





8.           HATO
REY PARTNERSHIP





PDL, Inc.
(a wholly owned subsidiary of Presidential) is the general partner of the Hato
Rey Partnership. Presidential and PDL, Inc. have an aggregate 60% general and
limited partner interest in the Hato Rey Partnership.  The Company
exercises effective control over the partnership through its ability to manage
the affairs of the partnership in the ordinary course of business. Accordingly,
the Company consolidates the Hato Rey Partnership in the accompanying
consolidated financial statements.





The Hato
Rey Partnership owns and operates the Hato Rey Center, an office building with
209,000 square feet of commercial space, located in Hato Rey, Puerto
Rico.  During 2005 and 2006, three tenants at the building vacated a
total of 82,387 square feet of office space at the expiration of their
leases.  In 2006, the Hato Rey Partnership began a program of repairs
and improvements to the property and since that time has spent approximately
$826,000 to upgrade the physical condition and appearance of the
property.  The improvement program was substantially completed by the
end of 2007.  In 2005, the Company agreed to lend up to $2,000,000 to
the Hato Rey Partnership to pay for the cost of improvements to the building and
fund any negative cash flows from the operation of the property.  The
loan, which is advanced from time to time as funds are needed, bore interest at
the rate of 11% per annum until May 11, 2008, with interest and principal to be
paid out of the first positive cash flow from the property or upon a refinancing
of the first mortgage on the property.  In September, 2007, the
Company agreed to lend an additional $500,000 to the Hato Rey Partnership under
the same terms as the original $2,000,000 loan, except that the interest rate on
the additional $500,000 loan is at the rate of 13% per annum and that the
interest rate on the entire loan was increased to 13% per annum on May 11,
2008.  At December 31, 2008, the Company had advanced $2,299,275 of
the loan to the Hato Rey Partnership and subsequent to December 31, 2008, the
Company advanced an additional $135,000.  The $2,299,275 loan and
accrued interest in the amount of $497,175 have been eliminated in
consolidation.


80





For the
years ended December 31, 2008 and 2007, the Hato Rey Partnership had a loss of
$481,352 and $521,102, respectively.  The minority partners have no
basis in their investment in the Hato Rey Partnership and, as a result, the
Company is required to record the minority partners’ 40% share of the loss which
was $192,541 and $208,441, respectively.  Therefore, the Company
recorded 100% of the loss from the partnership of $481,352 and $521,102 on the
Company’s consolidated financial statements for the years ended December 31,
2008 and 2007, respectively.  Future earnings of the Hato Rey
Partnership, should they materialize, will be recorded by the Company up to the
amount of the losses previously absorbed that were applicable to the minority
partners.





9.    
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP





During
2007, Presidential was the general partner of UTB Associates, a partnership,
which held notes receivable and in which Presidential had a 75%
interest.  As the general partner of UTB Associates, Presidential
exercised control over this partnership through its ability to manage the
affairs of the partnership in the ordinary course of business, including the
ability to approve the partnership’s budgets, and through its significant equity
interest.  Accordingly, Presidential consolidated this partnership in
the accompanying consolidated financial statements for the year ended December
31, 2007.  The minority interest reflected the minority partners’
equity in the partnership.





In July,
2007, the Company purchased the remaining 25% limited partnership interests for
a purchase price of $42,508, which was effective as of June 30,
2007.  As a result of the purchase, the Company owned 100% of UTB
Associates.  The major asset of the partnership was a portfolio of
notes receivable that amortize monthly and have various interest
rates.  The Company liquidated the partnership at December 31, 2007
and the remaining assets of the partnership were recorded on the Company’s
consolidated balance sheet.





10.  
LINE OF CREDIT





The
Company has an unsecured $250,000 line of credit from a lending institution
which is renewed annually.  The interest rate on the line of credit is
1% above the prime rate.  There were no borrowings under this line of
credit during 2008 and there are no amounts outstanding under the line of credit
at December 31, 2008.





11.  
INCOME TAXES





Presidential
has elected to qualify as a Real Estate Investment Trust under the Internal
Revenue Code.  A REIT which distributes at least 90% of its real
estate investment trust taxable income to its shareholders each year by the end
of the following year and which meets certain other conditions will not be taxed
on that portion of its taxable income which is distributed to its
shareholders.





The
Company adopted FIN 48 on January 1, 2007.  If the Company’s tax
positions in relation to certain transactions were examined and were not
ultimately upheld, the Company would be required to pay an income tax assessment
and related interest.  Alternatively, the Company could elect
to  pay a deficiency dividend to its shareholders in order to continue
to qualify as a REIT and the related interest assessment to the taxing
authorities.


81





Upon
adoption of FIN 48 the Company recorded a reduction to the January 1, 2007
balance of retained earnings of $460,800 for accrued interest for prior years
related to the tax positions for which the Company may have been required to pay
a deficiency dividend.  In addition, the Company recorded interest
expense of $356,780 for the year ended December 31, 2007 and $147,526 for the
six months ended June 30, 2008 for the interest related to these
matters.  The Company recognized this interest expense in general and
administrative expenses in its consolidated statements of
operations.  As of June 30, 2008, the Company had accrued $965,106 of
interest related to these matters, which was included in accrued liabilities in
its consolidated balance sheet. During the three months ended September 30,
2008, the statute of limitations with respect to the tax year related to the FIN
48 interest accrual expired and the Company reversed the $965,106 interest
accrual.  As of December 31, 2008, the tax years that remain open to
examination by the federal, state and local taxing authorities are the 2005 –
2007 tax years and the Company was not required to accrue any liability for
those years pursuant to FIN 48.





Reconciliation
of the changes in the FIN 48 accrued liability is as follows:




December 31,2008
                        
                        
                        2007Balance
      beginning of year
                        
                        $
                        817,580
                        
                        
                        $
                        -Initial
      adoption
                        
                        
                        -
                        
                        
                        
                        460,800Increase
      due to unrecognized tax benefit
                        
                        
                        147,526
                        
                        
                        
                        356,780Reduction
      due to lapse of statute of limitations
                        
                        
                        (965,106
                        )
                        
                        -Balance
      end of year
                        
                        $
                        -
                        
                        
                        $
                        817,580





Upon
filing the Company’s income tax return for the year ended December 31, 2007,
Presidential applied approximately $584,000 of its 2006 net operating loss
carryforward of approximately $1,412,000 and then applied all of its available
2007 stockholders’ distributions to reduce its taxable income for 2007 to
zero.





The
Company had taxable income (before distributions to stockholders) for the year
ended December 31, 2008, of approximately $2,293,000 ($.68 per share), which is
comprised of capital gains of $5,186,000 ($1.53 per share) and an ordinary loss
of $2,893,000 ($.85 per share).





The
Company intends to apply approximately $230,000 of its 2006 net operating loss
carryforward and all of its available 2008 distributions to its 2008 taxable
income to reduce its 2008 taxable income to zero.  Therefore, no
provision for Federal income taxes has been made at December 31,
2008.





As
previously stated, in order to maintain REIT status, Presidential is required to
distribute 90% of its REIT taxable income (exclusive of capital
gains).  As a result of the ordinary tax loss for 2008, there is no
requirement to make a distribution in 2009.


82


Presidential
has, for tax purposes, reported the gain from the sale of certain of its
properties using the installment method.





12.   
COMMITMENTS AND CONTINGENCIES





Presidential
is not a party to any material legal proceedings.  The Company may
from time to time be a party to routine litigation incidental to the ordinary
course of its business.





In
February, 2009, the Company completed a settlement of various claims it had
asserted against Lightstone and Mr. Lichtenstein (see Note 28).





In the
opinion of management, all of the Company’s properties are adequately covered by
insurance in accordance with normal insurance practices.





The
Company is involved in an environmental remediation process for contaminated
soil found on its Mapletree Industrial Center property in Palmer,
Massachusetts.  The land area involved is approximately 1.25
acres.  Since the most serious identified threat on the site is to
songbirds, the proposed remediation will consist of removing all exposed metals
and a layer of soil. The Company estimated that the costs of the cleanup will
not exceed $1,000,000.  In accordance with the provisions of SFAS No.
5, “Accounting for Contingencies”, in the fourth quarter of 2006, the Company
accrued a $1,000,000 liability, which was discounted by $145,546, and charged
$854,454 to expense.  The discount rate used was 4.625%, which was the
interest rate on 10 year Treasury Bonds.  At December 31, 2008, the
accrued liability balance was $924,640 and the discount balance was
$142,214.





The
remediation must comply with the requirements of the Massachusetts Department of
Environmental Protection (“MADEP”) and subsequent to year end the Company
obtained the consent of MADEP to a specific plan of remediation, which the
Company plans to complete in 2009.  The Company is securing final bids
for completion of the work and management expects that the actual cost of the
remediation will be substantially less than the balance of the accrued liability
at December 31, 2008.





Actual
costs incurred may vary from these estimates due to the inherent uncertainties
involved. The Company believes that any liability in excess of amounts accrued
which may result from the resolution of this matter will not have a material
adverse effect on the financial condition, liquidity or the cash flow of the
Company.





For the
year ended December 31, 2007, the Company incurred environmental expenses of
$41,493 for further excavation and testing of the site.  These
expenses were in addition to the $1,000,000 previously accrued in 2006 for the
costs of the cleanup of the site.  There were no such additional
environmental expenses for the year ended December 31, 2008.





13.   
CONCENTRATIONS OF CREDIT RISK





Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of its mortgage portfolio and cash and cash
equivalents.


83





The
Company’s mortgage portfolio consists of long-term notes receivable
collateralized by real estate located in four states (primarily
Virginia).  The real estate collateralizing these notes, consisting
primarily of moderate income apartment properties and, to a lesser extent,
cooperative apartment units, has at a minimum an estimated fair value equal to
the net carrying value of the notes.





Included
in the mortgage portfolio at December 31, 2008 is a collateralized $2,074,994
loan made to an entity controlled by David Lichtenstein, which is in good
standing  In addition, the Company has invested a total of $27,373,410
with entities controlled by Mr. Lichtenstein in transactions relating to nine
shopping mall properties.





The
Company generally maintains its cash in money market funds with high credit
quality financial institutions.  Periodically, the Company may invest
in time deposits with such institutions.  Although the Company may
maintain balances at these institutions in excess of the FDIC insurance limit,
the Company does not anticipate and has not experienced any losses.





14.    COMMON
STOCK





The Class
A and Class B common stock of Presidential have identical rights except that the
holders of Class A common stock are entitled to elect two-thirds of the Board of
Directors and the holders of the Class B common stock are entitled to elect
one-third of the Board of Directors.





Other
than as described in Note 16, no shares of common stock of Presidential are
reserved.





15.   
DISTRIBUTIONS ON COMMON STOCK (UNAUDITED)





For
income tax purposes, distributions paid on common stock are allocated as
follows:





Taxable
                  
                  
                  TaxableTotal
                  
                  
                  Ordinary
                  
                  
                  Capital
                  
                  
                  Non-Year
                  
                  Distribution
                  
                  
                  Income
                  
                  
                  Gain
                  
                  
                  Taxable2008
                  
                  $
                  0.56
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.56
                  
                  
                  $
                  0.002007
                  
                  $
                  0.64
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.64
                  
                  
                  $
                  0.00





16.   
STOCK COMPENSATION





In 2005,
shareholders approved the adoption of the Company’s 2005 Restricted Stock Plan
(the “2005 Plan”).  The 2005 Plan provides that a total of 115,000
shares of the Company’s Class B common stock may be issued to employees,
directors and consultants of the Company, to provide incentive
compensation.  The 2005 Plan is administered by the Compensation and
Pension Committees of the Company’s Board of Directors, which have the
authority, among other things, to determine the terms and conditions of any
award under the 2005 Plan (including the vesting schedule applicable to the
award, if any).  The Board of Directors may at any time amend, suspend
or terminate the 2005 Plan.  The 2005 Plan will terminate on June 15,
2015, unless terminated earlier by the Board of Directors.


84


In 2007
and 2008, stock granted to directors was fully vested upon the grant
date.  Stock granted to officers and employees are vesting at rates
ranging from 20%-50% year.  Notwithstanding the vesting schedule, the
officers and employees are entitled to receive all distributions on the total
number of shares granted.  Shares granted under the 2005 Plan are
issued at market value on the date of the grant.  The following is a
summary of the Company’s activity for the 2005 Plan in 2007 and
2008:


85





Class
      BMarket
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  CommonValue
      at
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  Stock
      - Par
                                  
                                  
                                  AdditionalDate
      of
                                  
                                  Shares
                                  
                                  
                                  Date
      of
                                  
                                  
                                  Vested
                                  
                                  
                                  Unvested
                                  
                                  
                                  Value
      $.10
                                  
                                  
                                  Paid-in
                                  
                                  
                                  Directors'
                                  
                                  
                                  SalaryIssuance
                                  
                                  Issued
                                  
                                  
                                  Grant
                                  
                                  
                                  Shares
                                  
                                  
                                  Shares
                                  
                                  
                                  Per Share
                                  
                                  
                                  Capital
                                  
                                  
                                  Fees
                                  
                                  
                                  ExpenseActivity for 2007Unvested
      shares as of December 31, 200633,300
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,000
                                  
                                  
                                  
                                  25,300
                                  
                                  
                                  
                                  
                                  
                                  $
                                  42,465
                                  
                                  
                                  
                                  
                                  
                                  $
                                  42,465Shares
      issued in 2007Jan.,
      2007
                                  
                                  
                                  3,000
                                  
                                  
                                  $
                                  6.95
                                  
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  300
                                  
                                  
                                  
                                  20,550
                                  
                                  
                                  $
                                  20,850May,
      2007
                                  
                                  
                                  10,000
                                  
                                  
                                  
                                  7.44
                                  
                                  
                                  
                                  5,000
                                  
                                  
                                  
                                  5,000
                                  
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  36,200
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  37,200Dec.,
      2007
                                  
                                  
                                  2,500
                                  
                                  
                                  
                                  5.80
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,500
                                  
                                  
                                  
                                  250
                                  
                                  
                                  
                                  (250
                                  )15,50048,800
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  16,000
                                  
                                  
                                  
                                  32,800
                                  
                                  
                                  $
                                  1,550
                                  
                                  
                                  $
                                  98,965
                                  
                                  
                                  $
                                  20,850
                                  
                                  
                                  $
                                  79,665Activity for 2008Unvested
      shares as of December 31, 200732,800
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  13,500
                                  
                                  
                                  
                                  19,300
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  82,565
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  82,565Shares
      issued in 2008Jan.,
      2008
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  5.92
                                  
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  300
                                  
                                  
                                  
                                  17,460
                                  
                                  
                                  $
                                  17,76035,800
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  16,500
                                  
                                  
                                  
                                  19,300
                                  
                                  
                                  $
                                  300
                                  
                                  
                                  $
                                  100,025
                                  
                                  
                                  $
                                  17,760
                                  
                                  
                                  $
                                  82,565




86




17.
CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS





Presidential
has employment contracts with several active and retired officers and
employees.  These contracts provide for annual pension benefits and
other postretirement benefits such as health care benefits.  The
pension benefits generally provide for annual payments in specified amounts for
each participant for life, commencing upon retirement, with an annual adjustment
for an increase in the consumer price index.  The Company accrues on
an actuarial basis the estimated costs of these benefits during the years the
employee provides services.  Periodic benefit costs are reflected in
general and administrative expenses.  The contractual benefit plans
are not funded.  The Company uses a December 31 measurement date for
the contractual benefit plans.


87


CONTRACTUAL
PENSION AND POSTRETIREMENT BENEFITS




The
following tables summarize the actuarial costs of the contractual pension and
postretirement benefits:





Contractual Pension Benefit
                  
                  
                  Contractual Postretirement BenefitsYear Ended December 31,
                  
                  
                  Year Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Components
      of net periodic benefit cost:Service
      cost
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2,072
                  
                  
                  $
                  1,946Interest
      cost
                  
                  
                  77,525
                  
                  
                  
                  132,727
                  
                  
                  
                  37,781
                  
                  
                  
                  44,180Amortization
      of prior service cost
                  
                  
                  (46,376
                  )
                  
                  
                  (46,376
                  )
                  
                  
                  3,702
                  
                  
                  
                  (11,779
                  )Amortization
      of actuarial (gain) loss
                  
                  
                  -
                  
                  
                  
                  422,362
                  
                  
                  
                  (2,524
                  )
                  
                  
                  21,782Net
      periodic benefit cost
                  
                  $
                  31,149
                  
                  
                  $
                  508,713
                  
                  
                  $
                  41,031
                  
                  
                  $
                  56,129





The
recorded contractual pension and postretirement benefits liability of $1,808,104
at December 31, 2008 is comprised of $1,367,646 for pension benefits and
$440,458 for postretirement benefits.  The accumulated pension and
postretirement benefit obligations and recorded liabilities, none of which has
been funded, were as follows:





Contractual Pension Benefit
                                                                                                    
                                                                                                    
                                                                                                    Contractual Postretirement BenefitsDecember 31,
                                                                                                    
                                                                                                    
                                                                                                    December 31,2008
                                                                                                    
                                                                                                    
                                                                                                    2007
                                                                                                    
                                                                                                    
                                                                                                    2008
                                                                                                    
                                                                                                    
                                                                                                    2007Change
      in benefit obligation:Benefit
      obligation at beginning of year
                                                                                                    
                                                                                                    $
                                                                                                    1,409,448
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    2,574,747
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    759,960
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    682,114Service
      cost
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,072
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,946Interest
      cost
                                                                                                    
                                                                                                    
                                                                                                    77,525
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    132,727
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    37,781
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    44,180Amendments
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    19,399Actuarial
      (gain) loss
                                                                                                    
                                                                                                    
                                                                                                    97,333
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (828,451
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (328,613
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    72,745Benefits
      paid
                                                                                                    
                                                                                                    
                                                                                                    (216,660
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (469,575
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (30,742
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (60,424
                                                                                                    )Benefit
      obligation at end of year
                                                                                                    
                                                                                                    $
                                                                                                    1,367,646
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,409,448
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    440,458
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    759,960Change
      in plan assets:Employer
      contributions
                                                                                                    
                                                                                                    $
                                                                                                    216,660
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    469,575
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    30,742
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    60,424Benefits
      paid
                                                                                                    
                                                                                                    
                                                                                                    (216,660
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (469,575
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (30,742
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (60,424
                                                                                                    )Fair
      value of plan assets at end of year
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -Funded
      status
                                                                                                    
                                                                                                    $
                                                                                                    (1,367,646
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (1,409,448
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (440,458
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (759,960
                                                                                                    )Net
      amount recognized in the consolidated balance sheet:Accrued
      benefit liability
                                                                                                    
                                                                                                    $
                                                                                                    (1,367,646
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (1,409,448
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (440,458
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (759,960
                                                                                                    )Amounts
      recognized in accumulated other comprehensive (income)
    loss:Net
      actuarial (gain) loss
                                                                                                    
                                                                                                    $
                                                                                                    230,294
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    132,961
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (328,613
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    72,745Prior
      service cost
                                                                                                    
                                                                                                    
                                                                                                    (30,921
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (77,297
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    19,399Amortization
      of unrecognized amounts
                                                                                                    
                                                                                                    
                                                                                                    N/A
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    N/A
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (1,178
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (10,004
                                                                                                    )$
                                                                                                    199,373
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    55,664
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (329,791
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    82,140


88




Contractual Pension Benefit
                                
                                
                                Contractual Postretirement BenefitsYear Ended December 31,
                                
                                
                                Year Ended December 31,2008
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2007Additional
      disclosure items for the plans at December 31,2008
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2007Accumulated
      benefit obligation
                                
                                $
                                1,367,646
                                
                                
                                $
                                1,409,448
                                
                                
                                $
                                440,458
                                
                                
                                $
                                759,960Projected
      benefit obligation
                                
                                
                                1,367,646
                                
                                
                                
                                1,409,448
                                
                                
                                
                                440,458
                                
                                
                                
                                759,960Fair
      value of plan assets
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                N/AIncrease
      (decrease) in minimum liabilityincluded in other comprehensive
      income or loss
                                
                                $
                                143,709
                                
                                
                                $
                                (1,204,437
                                )
                                
                                
                                N/A
                                
                                
                                
                                N/AUnrecognized
      amounts andamortization amounts following
    year:
                                
                                2008
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2007Unrecognized
      amounts:Prior
      year service cost
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                $
                                11,995
                                
                                
                                $
                                15,697Net
      actuarial (gain) loss
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                (186,226
                                )
                                
                                
                                139,862Total
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                $
                                (174,231
                                )
                                
                                $
                                155,559Amortization
      amounts in the following year (estimate):
                                
                                2008
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2007Prior
      year service cost
                                
                                $
                                (30,921
                                )
                                
                                $
                                (46,376
                                )
                                
                                $
                                3,702
                                
                                
                                $
                                (11,779
                                )Net
      actuarial (gain) loss
                                
                                
                                56,117
                                
                                
                                
                                -
                                
                                
                                
                                (29,683
                                )
                                
                                
                                11,805Total
                                
                                $
                                25,196
                                
                                
                                $
                                (46,376
                                )
                                
                                $
                                (25,981
                                )
                                
                                $
                                26





Weighted-average
assumptions used to determine benefit obligations at  December
31:


2008
                
                
                2007
                
                
                2008
                
                
                2007Discount
      rate
                
                
                6.24
                %
                
                
                6.00
                %
                
                
                6.36
                %
                
                
                6.06
                %Expected
      return on plan assets
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/ARate
      of compensation increase
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A





Weighted-average
assumptions used to determine the net periodic benefit costs for year ended
December 31,


2008
                
                
                2007
                
                
                2008
                
                
                2007Discount
      rate
                
                
                6.00
                %
                
                
                5.72
                %
                
                
                6.06
                %
                
                
                5.72
                %Expected
      return on plan assets
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/ARate
      of compensation increase
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A
                
                
                
                N/A





The
assumed health care cost trend rate at December 31, 2008 was 9% for medical and
11% for prescription drugs and 9.5% for medical and 12% for prescription drugs
at December 31, 2007.  The trend rate decreases gradually each
successive year until it reaches 5% by the year 2017.





Assumed
health care cost trend rates have a significant effect on the amounts reported
for the postretirement benefits plan.


A
one-percentage-point change in assumed health care cost trend rates would have
the following effects:





1-Percentage-
                  
                  
                  1-Percentage-Point Increase
                  
                  
                  Point DecreaseEffect
      on total service and interest cost components
                  
                  $
                  2,965
                  
                  
                  $
                  (2,607
                  )Effect
      on postretirement benefit obligation
                  
                  $
                  43,304
                  
                  
                  $
                  (37,596
                  )


89


All
measures of the accumulated postretirement benefit obligation and the net
periodic postretirement benefit cost included in this footnote do not reflect
the effect of the Medicare Prescription Drug Improvement and Modernization Act
of 2003.  As a result of contractual commitments for benefits under
the plan, there will be no impact on plan benefits, costs or obligations from
this legislation.





Cash
Flows





The
contractual pension and postretirement benefit plans are non-funded plans and
employer contributions equal benefit payments.  The Company estimates
that the contractual payments for 2009 will be as follows:





Contractual
      pension benefit payments
                    
                    $
                    223,160Contractual
      postretirement benefit payments
                    
                    
                    25,727




Estimated
Future Benefit Payments





The
following benefit payments (including expected future service and net of
employee contributions) are expected to be paid:





Year
      Ending
                    
                    Contractual
                    
                    
                    ContractualDecember 31,
                    
                    Pension Benefit
                    
                    
                    Postretirement Benefits2009
                    
                    $
                    223,160
                    
                    
                    $
                    25,7272010
                    
                    
                    190,277
                    
                    
                    
                    22,7922011
                    
                    
                    159,314
                    
                    
                    
                    19,7702012
                    
                    
                    130,938
                    
                    
                    
                    16,7752013
                    
                    
                    105,635
                    
                    
                    
                    86,3592014
      – 2018
                    
                    
                    649,428
                    
                    
                    
                    160,232





18.
DEFINED BENEFIT PLAN





The
Company has a noncontributory defined benefit pension plan, which covers
substantially all of its employees.  The plan provides monthly
retirement benefits commencing at age 65.  The monthly benefit is
equal to the sum of (1) 7.15% of average monthly compensation multiplied by the
total number of plan years of service (up to a maximum of 10 years), plus (2)
..62% of such average monthly compensation in excess of one-twelfth of covered
compensation multiplied by the total number of plan years of service (up to a
maximum of 10 years).  The Company makes annual contributions that
meet the minimum funding requirements and the maximum contribution limitations
under the Internal Revenue Code.  Effective February 28, 2009, the
Company will “freeze” or suspend future benefit accruals under the
plan.


90


Periodic
pension costs are reflected in general and administrative expenses.





Year Ended December 31,2008
                  
                  
                  2007Components
      of net periodic benefit cost:Service
      cost
                  
                  $
                  237,655
                  
                  
                  $
                  233,983Interest
      cost
                  
                  
                  487,628
                  
                  
                  
                  431,249Expected
      return on plan assets
                  
                  
                  (573,055
                  )
                  
                  
                  (568,520
                  )Amortization
      of prior service cost
                  
                  
                  12,616
                  
                  
                  
                  12,616Amortization
      of accumulated loss
                  
                  
                  18,477
                  
                  
                  
                  9,612Net
      periodic benefit cost
                  
                  $
                  183,321
                  
                  
                  $
                  118,940





The
following sets forth the plan’s funded status and amount recognized in the
Company’s consolidated balance sheets:





December 31,2008
                      
                      
                      2007Change
      in benefit obligation:Benefit
      obligation at beginning of year
                      
                      $
                      7,860,349
                      
                      
                      $
                      7,539,315Service
      cost
                      
                      
                      237,655
                      
                      
                      
                      233,983Interest
      cost
                      
                      
                      487,628
                      
                      
                      
                      431,249Actuarial
      gain
                      
                      
                      (332,272
                      )
                      
                      
                      (344,198
                      )Benefits
      paid
                      
                      
                      (84,544
                      )
                      
                      -Benefit
      obligation at end of year
                      
                      $
                      8,168,816
                      
                      
                      $
                      7,860,349Change
      in plan assets:Fair
      value of plan assets at beginning of year
                      
                      $
                      8,232,291
                      
                      
                      $
                      8,121,709Actual
      return on plan assets
                      
                      
                      (2,232,070
                      )
                      
                      
                      110,582Benefits
      paid
                      
                      
                      (84,544
                      )
                      
                      -Fair
      value of plan assets at end of year
                      
                      $
                      5,915,677
                      
                      
                      $
                      8,232,291Funded
      status
                      
                      $
                      (2,253,139
                      )
                      
                      $
                      371,942Net
      amount recognized in the consolidated balance sheet:Defined
      benefit plan liability
                      
                      $
                      (2,253,139
                      )
                      
                      $
                      -Prepaid
      benefit cost
                      
                      
                      -
                      
                      
                      
                      371,942$
                      (2,253,139
                      )
                      
                      $
                      371,942Amounts
      recognized in accumulated other comprehensive loss:Net
      loss
                      
                      $
                      3,491,631
                      
                      
                      $
                      1,037,255Prior
      service cost
                      
                      
                      80,742
                      
                      
                      
                      93,358$
                      3,572,373
                      
                      
                      $
                      1,130,613


91





Additional
disclosure items for the plan at December 31:





2008
                
                
                2007Accumulated
      benefit obligation
                
                $
                8,136,123
                
                
                $
                7,828,898Projected
      benefit obligation
                
                
                8,168,816
                
                
                
                7,860,349Fair
      value of plan assets
                
                
                5,915,677
                
                
                
                8,232,291Increase
      (decrease) in minimum liability in accumulated other comprehensive
      loss
                
                
                2,441,760
                
                
                
                91,512





The
estimated net loss and prior service cost that will be amortized from
accumulated other comprehensive loss into net periodic cost over the next year
are $252,732 and $12,616, respectively.





Assumptions





Weighted-average
assumptions used to determine benefit obligations at





December 31,2008
                  
                  
                  2007Discount
      rate
                  
                  
                  6.37
                  %
                  
                  
                  6.24
                  %Rate
      of compensation increase
                  
                  
                  5
                  %
                  
                  
                  5
                  %





Weighted-average
assumptions used to determine net periodic benefit costs for year
ended





December 31,2008
                  
                  
                  2007Discount
      rate
                  
                  
                  6.24
                  %
                  
                  
                  5.72
                  %Expected
      return on plan assets
                  
                  
                  7
                  %
                  
                  
                  7
                  %Rate
      of compensation increase
                  
                  
                  5
                  %
                  
                  
                  5
                  %





The
Company periodically reviews its assumptions for the rate of return on the
plan’s assets.  The assumptions are based primarily on the long-term
historical performance of the assets of the plan.  Differences in the
rates of return in the near term are recognized as gains or losses in the period
that they occur.





December 31,2008
                
                
                2007Plan
      Assets:Cash
      and cash equivalents
                
                $
                256,861
                
                
                $
                354,498Securities
      available for sale
                
                
                5,658,816
                
                
                
                7,877,793Total
      plan assets
                
                $
                5,915,677
                
                
                $
                8,232,291





The
plan’s weighted-average allocations at December 31, by asset
category are as follows:


92





December 31,2008
                    
                    
                    2007Equities
                    
                    
                    49
                    %
                    
                    
                    61
                    %Fixed
      income
                    
                    
                    39
                    %
                    
                    
                    27
                    %Professionally
      managed futures contracts portfolio
                    
                    
                    8
                    %
                    
                    
                    8
                    %Cash
      and money market funds
                    
                    
                    4
                    %
                    
                    
                    4
                    %Total
                    
                    
                    100
                    %
                    
                    
                    100
                    %





The
Company has consistently applied what it believes to be an appropriate
investment strategy for the defined benefit plan.





The
Company invests primarily in a) equities of listed corporations, b) fixed income
funds consisting of corporate bonds, United States treasury bonds and government
mortgage backed securities, c) a professionally managed futures contract
portfolio and d) cash and money market funds.





Cash
Flows





The
Company’s funding policy for the plan is based on contributions that comply with
the minimum and maximum amounts required by law.  The Company is
required to make a contribution of approximately $600,000 for the 2009
year.





Estimated
Future Benefit Payments





The
following benefit payments (including expected future service) are expected to
be paid:





Year
      EndingDecember 31,
                            
                            Pension Benefits2009
                            
                            
                            7,029,418
                            (1)2010
                            
                            
                            119,2022011
                            
                            
                            228,2072012
                            
                            
                            -2013
                            
                            
                            -2014
      – 2018
                            
                            
                            -





(1) Four
executives of the Company have attained the age of 65 and have the right, under
the provisions of the plan, to elect to receive their retirement benefits in
2009, but have not yet done so.





19.
ACCUMULATED OTHER COMPREHENSIVE LOSS





The
components of accumulated other comprehensive loss are as
follows:


93





December
      31,
                  
                  
                  December
      31,2008
                  
                  
                  2007Defined
      benefit plan liability
                  
                  $
                  (3,572,373
                  )
                  
                  $
                  (1,130,613
                  )Contractual
      postretirement benefits liability
                  
                  
                  174,232
                  
                  
                  
                  (155,559
                  )Minimum
      contractual pension benefit liability
                  
                  
                  (199,373
                  )
                  
                  
                  (55,664
                  )Net
      unrealized gain on securities available for sale
                  
                  
                  7,637
                  
                  
                  
                  10,739Total
      accumulated other comprehensive loss
                  
                  $
                  (3,589,877
                  )
                  
                  $
                  (1,331,097
                  )





20.
TREASURY STOCK





Treasury
stock consists of the following:





December 31, 2008
                  
                  
                  December 31, 2007Number
                  
                  
                  Total
                  
                  
                  Number
                  
                  
                  Totalof Shares
                  
                  
                  Cost
                  
                  
                  of Shares
                  
                  
                  CostClass
      A common stock
                  
                  
                  36,407
                  
                  
                  $
                  206,696
                  
                  
                  
                  5,375
                  
                  
                  $
                  36,136Class
      B common stock
                  
                  
                  570,400
                  
                  
                  
                  2,922,692
                  
                  
                  
                  29,633
                  
                  
                  
                  219,894Total
                  
                  
                  606,807
                  
                  
                  $
                  3,129,388
                  
                  
                  
                  35,008
                  
                  
                  $
                  256,030





During
the year ended December 31, 2008, the Company purchased 31,032 shares of its
Class A common stock and 540,767 shares of its Class B common stock as
follows:





Number of
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    Number ofClass A
                                                                                    
                                                                                    
                                                                                    Price Per
                                                                                    
                                                                                    
                                                                                    Class B
                                                                                    
                                                                                    
                                                                                    Price Per
                                                                                    
                                                                                    
                                                                                    TotalPeriod
                                                                                    
                                                                                    Purchased From
                                                                                    
                                                                                    
                                                                                    Shares
                                                                                    
                                                                                    
                                                                                    Share
                                                                                    
                                                                                    
                                                                                    Shares
                                                                                    
                                                                                    
                                                                                    Share
                                                                                    
                                                                                    
                                                                                    PaidMay
                                                                                    
                                                                                    Foundation
      controlled by a director and  an officer of the
      Company
                                                                                    (1)
                                                                                    
                                                                                    
                                                                                    932
                                                                                    
                                                                                    
                                                                                    $
                                                                                    5.375
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,072
                                                                                    
                                                                                    
                                                                                    $
                                                                                    5.725
                                                                                    
                                                                                    
                                                                                    $
                                                                                    28,322June
                                                                                    
                                                                                    Private
      Investor
                                                                                    (2)
                                                                                    
                                                                                    
                                                                                    12,100
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.50
                                                                                    
                                                                                    
                                                                                    
                                                                                    226,800
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.75
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,370,650July
                                                                                    
                                                                                    Private
      Investor
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.50
                                                                                    
                                                                                    
                                                                                    
                                                                                    7,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.90
                                                                                    
                                                                                    
                                                                                    
                                                                                    46,800July
                                                                                    
                                                                                    Private
      Investor
                                                                                    (2)
                                                                                    
                                                                                    
                                                                                    17,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.50
                                                                                    
                                                                                    
                                                                                    
                                                                                    200,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.50
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,193,500November
                                                                                    
                                                                                    Private
      Investor
                                                                                    (2)
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    102,895
                                                                                    
                                                                                    
                                                                                    
                                                                                    2.275
                                                                                    
                                                                                    
                                                                                    
                                                                                    234,086Total
      purchased during the year ended December 31, 2008
                                                                                    
                                                                                    
                                                                                    
                                                                                    31,032
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    540,767
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    $
                                                                                    2,873,358





(1) These
shares were purchased at 1/8th of a
point below market price.


(2) These
shares were purchased pursuant to common stock repurchase
agreements.


94





The
Company has no specific plan or program to repurchase additional shares but it
may do so in the future.





21.  
GENERAL AND ADMINISTRATIVE EXPENSES





General
and administrative expenses include the following:





Year EndedDecember 31,2008
                    
                    
                    2007FIN
      48 interest expense (credit)
                    
                    $
                    (817,580
                    )
                    
                    $
                    356,780Other
      general and administrative expenses
                    
                    
                    3,543,051
                    
                    
                    
                    3,651,796Net
      expense
                    
                    $
                    2,725,471
                    
                    
                    $
                    4,008,576





As
previously discussed in Note 11, during the three months ended September 30,
2008, the statute of limitations with respect to the tax year related to the FIN
48 interest expense accrual had expired and the Company had reversed the
$965,106 interest accrual.  Such reversal reduced general and
administrative expenses by $817,580 for the year ended December 31,
2008.





22.
DIVIDEND REINVESTMENT PLAN





Presidential
maintained a Dividend Reinvestment Plan (the “Plan”).  Under the Plan,
stockholders were able to reinvest cash dividends to purchase Class B common
stock without incurring any brokerage commission or service
charge.  Additionally, the price of Class B common stock purchased
with reinvested cash dividends were discounted by 5% from the average of the
high and low market prices of the five days immediately prior to the dividend
payment date, as reported on the American Stock Exchange (now known as the NYSE
Alternext US).





On
December 31, 2007, the Company notified Plan participants that it was
terminating the Plan effective January 31, 2008.





Class B
Common Shares issued under the Plan are summarized below:





Net
      ProceedsShares
                  
                  
                  ReceivedTotal
      shares issued at December 31, 2006
                  
                  
                  531,297
                  
                  
                  $
                  3,637,409Shares
      issued during 2007
                  
                  
                  43,731
                  
                  
                  
                  275,795Total
      shares issued at December 31, 2007
                  
                  
                  575,028
                  
                  
                  $
                  3,913,204





23.
PROFIT SHARING PLAN





In 2006,
Fourth Floor Management Corp., a 100% owned subsidiary of Presidential Realty
Corporation that manages the Company’s properties, adopted a profit sharing plan
for substantially all of its employees.  The profit sharing plan
became effective as of January 1, 2006, and the plan provides for annual
contributions up to a maximum of 5% of the employees annual
compensation.  The Company made a $9,420 contribution to the plan in
March, 2009 for the 2008 plan year and a $9,140 contribution to the plan in
February, 2008 for the 2007 plan year.  Contributions are charged to
general and administrative expense.


95




24. 
RELATED PARTY TRANSACTIONS





The
Company holds two nonrecourse notes receivable from Ivy, relating to loans made
to Ivy in connection with Ivy’s former cooperative conversion
business.





The notes
have an aggregate outstanding principal balance of $4,770,050 at December 31,
2008.  These notes were received by the Company in 1991 for
nonrecourse loans that had been previously written off by the
Company.  Accordingly, these notes were recorded at zero except for a
$155,584 portion of the notes that was adequately secured and which was repaid
in 2002.  In 1996, the Company and Ivy agreed that the only payments
required under the terms of the note would be in an amount equal to 25% of the
operating cash flow (after provision for certain reserves) of Scorpio
Entertainment, Inc. (“Scorpio”), a company owned by two of the owners of Ivy to
carry on theatrical productions.  The Company received interest
payments on these notes of $146,750 and $256,000 during 2008 and 2007,
respectively.  The Company does not expect to recover any material
principal amounts on these notes; amounts received from Scorpio will be applied
to unpaid, unaccrued interest and recognized as income when
received.  At December 31, 2008, the unpaid and unaccrued interest was
$3,520,522.  The outstanding loans to Ivy at December 31, 2008 are
current in accordance with their modified terms.





The loans
to Ivy were subject to various settlement agreements and modifications in
previous years.  Ivy is owned by three officers of the Company, who
also hold beneficial ownership of an aggregate of approximately 51% of the
outstanding shares of Class A common stock of the Company, which class of stock
is entitled to elect two-thirds of the Board of Directors of the
Company.  Because of the relationship between the owners of Ivy and
the Company, all transactions with Ivy are negotiated on behalf of the Company,
and subject to approval, by a committee of three members of the Board of
Directors with no affiliations with the owners of Ivy.





25. 
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS





Estimated
fair values of the Company’s financial instruments as of December 31, 2008 and
2007 have been determined using available market information and various
valuation estimation methodologies.  Considerable judgment is required
to interpret the effects on fair value of such items as future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors.  The estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.  Also, the use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair values.





The
following table summarizes the estimated fair values of financial
instruments:


96





December 31, 2008
                  
                  
                  December 31, 2007(Amounts in thousands)Net
                  
                  
                  Estimated
                  
                  
                  Net
                  
                  
                  EstimatedCarrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairValue (1)
                  
                  
                  Value
                  
                  
                  Value (1)
                  
                  
                  ValueAssets:Cash
      and cash equivalents
                  
                  $
                  5,985
                  
                  
                  $
                  5,985
                  
                  
                  $
                  2,343
                  
                  
                  $
                  2,343Notes
      receivable
                  
                  
                  2,249
                  
                  
                  
                  2,366
                  
                  
                  
                  7,659
                  
                  
                  
                  8,218Liabilities:Mortgage
      debt
                  
                  
                  16,392
                  
                  
                  
                  19,484
                  
                  
                  
                  18,869
                  
                  
                  
                  21,251





(1)
            Net
      carrying value is net of discounts where
  applicable.





The fair
value estimates presented above are based on pertinent information available to
management as of December 31, 2008 and 2007.  Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued since
December 31, 2008 and, therefore, current estimates of fair value may differ
significantly from the amounts presented above.





Fair
value methods and assumptions are as follows:





Cash and
Cash Equivalents – The estimated fair value approximates carrying value, due to
the short maturity of these investments.





Notes
Receivable – The fair value of notes receivable has been estimated by
discounting projected cash flows using current rates for similar notes
receivable.





Mortgage
Debt – The fair value of mortgage debt has been estimated by discounting
projected cash flows using current rates for similar debt.





26.
FUTURE MINIMUM ANNUAL BASE RENTS





Future
minimum annual base rental revenue for the next five years for commercial real
estate owned at December 31, 2008, and subject to non-cancelable operating
leases is as follows:





Year
      Ending December 31,2009
                  
                  $
                  3,865,7502010
                  
                  
                  2,688,3722011
                  
                  
                  1,732,7232012
                  
                  
                  1,076,9582013
                  
                  
                  790,760Thereafter
                  
                  
                  818,965Total
                  
                  $
                  10,973,528





The above
table assumes that all leases which expire are not renewed and tenant renewal
options are not exercised, therefore neither renewal rentals nor rentals from
replacement tenants are included.  The above table does not reflect
the annual base rental revenue for residential apartments owned, as the leases
for residential apartment units are usually for one year terms.


97


27. 
QUARTERLY FINANCIAL INFORMATION – UNAUDITED


(Amounts
in thousands, except earnings per common share)





EarningsYear
                    
                    
                    
                    
                    
                    
                    
                    PerEnded
                    
                    
                    
                    
                    Net
                    
                    
                    CommonDecember 31
                    
                    Revenues (1)
                    
                    
                    Income (Loss)
                    
                    
                    Share (2)2008First
                    
                    $
                    1,681
                    
                    
                    $
                    (919
                    )
                    
                    $
                    (0.23
                    )Second
                    
                    
                    1,640
                    
                    
                    
                    (627
                    )
                    
                    
                    (0.16
                    )Third
                    
                    
                    1,692
                    
                    
                    
                    3,183
                    (3)
                    
                    
                    0.91
                    (3)Fourth
                    
                    
                    1,393
                    
                    
                    
                    (2,663
                    )(4)
                    
                    
                    (0.78
                    )(4)2007First
                    
                    $
                    1,606
                    
                    
                    $
                    (523
                    )
                    
                    $
                    (0.13
                    )Second
                    
                    
                    1,531
                    
                    
                    
                    (1,214
                    )
                    
                    
                    (0.31
                    )Third
                    
                    
                    1,598
                    
                    
                    
                    (129
                    )
                    
                    
                    (0.03
                    )Fourth
                    
                    
                    1,545
                    
                    
                    
                    (9,644
                    )(5)
                    
                    
                    (2.47
                    )(5)





(1)
            Amounts
      have been adjusted to give effect to the reclassification from revenues to
      discontinued operations for the Crown Court property, which has been
      designated as held for sale, and for the Towne House Apartments and
      another cooperative apartment unit, which were sold in the third quarter
      of 2008.





(2)
            Earnings
      per common share are computed independently for each of thequarters
      presented.  Therefore, the sum of quarterly earnings per share
      do not equal the total computed for the
year.





(3)
            Net
      income for the third quarter of 2008 includes $2,807,272 for thegain
      on sale of the Towne House Apartments and $965,106 for thereversal
      of the FIN 48 interest expense
accrual.





(4)
            Net
      loss for the fourth quarter of 2008 includes $1,000,000 for thewrite-off
      of other investments and a $987,602 increase in the loss fromjoint
      ventures.





(5)
            Net
      loss for the fourth quarter of 2007 included $8,370,725 for theCompany’s
      share of the impairment loss recorded by the joint
    ventures.





28.          SUBSEQUENT
EVENT





Subsequent
to the defaults under the $9,500,000 and $8,600,000 mezzanine loans as discussed
in Note 4, the Company asserted various claims against Lightstone and Mr.
Lichtenstein personally with respect to such loans and on February 27, 2009
completed a settlement of such claims.  Under the
settlement:





(1)
$5,000,003 of the indebtedness under the $9,500,000 mezzanine loan and
$5,000,003 of the indebtedness under the $8,600,000 mezzanine loan were assumed
by an affiliate of Lightstone which is the debtor on an existing loan from the
Company in the outstanding principal amount of $2,074,994.  The total
indebtedness was consolidated into a nonrecourse loan in the outstanding
principal amount of $12,075,000 (the “Consolidated Note”) and is secured by the
ownership interests in entities owning nine apartment properties located in
Virginia (which had previously secured the $2,074,994 indebtedness) and the
ownership interests in entities owning nine additional apartment properties
located in Virginia and North Carolina.


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The
Consolidated Note accrues interest at the rate of 13% per annum and is due on
February 1, 2012.  All net cash flow from the eighteen apartment
properties will be utilized to pay the interest accrued on the Consolidated Note
and to the extent that there is not sufficient cash flow to pay all accrued
interest, the unpaid interest will be deferred until the maturity of the
Consolidated Note. The Company anticipates that a substantial portion of the
annual interest will not be paid currently and will be deferred in accordance
with the terms of the Consolidated Note.  The Company also anticipates
that it is likely that on the maturity date of the Consolidated Note, the
outstanding principal balance of the Consolidated Note plus any unpaid deferred
interest thereon will exceed the value of the Company’s security therefor and,
accordingly, since the Consolidated Loan is a nonrecourse loan, the Company does
not expect to obtain payment in full of the Consolidated Note on
maturity.





(2) The
Company obtained a 50% ownership interest in IATG, LLC, the Lightstone affiliate
that owns The Las Piedras Industrial Complex, an industrial property located in
Las Piedras, Puerto Rico and consisting of approximately 68 acres of land and
380,800 square feet of rentable space contained in several buildings in the
complex.  The property is substantially vacant and the owners may
attempt to sell the property.  Lightstone has agreed to advance funds
to pay any negative cash flow from the operations of the property until a sale
can be accomplished and has agreed that if it does not do so, it will transfer
its remaining 49% interest in the property to Presidential.





(3) The
Company received at closing $250,000 in cash and a note from Mr. Lichtenstein in
the amount of $750,000 payable without interest on March 1, 2010.  Mr.
Lichtenstein is not personally liable for payment of the $750,000 note, but the
note is secured by a 25% ownership interest in the Las Piedras
property.





(4) The
Company received a personal guaranty from Mr. Lichtenstein that the Company
will receive all accrued interest on the Company’s $7,835,000 mezzanine loan
(relating to the Shawnee/Brazos Malls) through the date of repayment and
$500,000 of the principal amount of the loan, which personal guaranty is limited
to $500,000.  As part of the settlement, the Company agreed to modify
its right to receive repayment in full of the $7,835,000 loan before Mr.
Lichtenstein receives any return on his capital contributions to the borrowing
entity to the following extent: the Company will receive the first net proceeds
of any sale or refinancing of the Shawnee/Brazos Malls in an amount equal to all
accrued and unpaid interest and $2,000,000 of principal; Mr. Lichtenstein will
receive the next $1,000,000 of any such net sale or refinancing proceeds; the
Company will receive the next $1,000,000 of any such net proceeds and any
additional net proceeds shall be paid 50% to the Company and 50% to Mr.
Lichtenstein.  Mr. Lichtenstein’s guaranty is secured by his remaining
interest in the entity that owns the Las Piedras Industrial
Complex.





The
Company has agreed with Lightstone that it will not foreclose on its $7,835,000
mezzanine loan so long as the first mortgage on the Shawnee/Brazos Malls is not
accelerated or due at maturity and the holder of the first mortgage is retaining
funds from operations of the properties in an amount sufficient to pay the
interest due on the mezzanine loan.


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The
principal effect of the execution of the February 27, 2009, Settlement Agreement
on the Company’s financial statements in 2009, is expected to be as
follows:





(i)  The
carrying value of the $12,075,000 Consolidated Note on the Company’s
consolidated balance sheet will be $2,074,994. This is the same carrying value
of  the $2,074,994 note that was on the Company’s consolidated balance
sheet prior to the consolidation of this note with the additional $10,000,006
indebtedness received in the settlement agreement.  The $10,000,006
additional portion of the note was received in partial settlement of the
$9,500,000 and $8,600,000 mezzanine loans, which had a net carrying value of $0
on the Company’s consolidated balance sheet at December 31, 2008. Accordingly,
there will be no significant adjustment on the Company’s consolidated balance
sheet in 2009 as a result of the receipt of the Consolidated Note.





(ii)  The
Company does not believe that there will be sufficient cash flow from the
security for the Consolidated Note to pay all of the interest that is due on the
note, the deferred interest that will be due at maturity and the $12,075,000
principal amount due at maturity. However, the Company believes that the monthly
interest due on the $2,074,994 portion of the note will be paid in accordance
with the terms of the note and, as a result, the Company will accrue the
interest on this portion of the note (as of March 25, 2009, all payments of
interest due on this portion of the note are current  and in good
standing).  The interest due on the $10,000,006 portion of the note
will be recorded in income on a cash basis as interest is received and the
balance of the interest due on the $10,000,006 will be deferred and due at
maturity of the note.





(iii)  As
at the settlement date of February 27, 2009, no gain or loss will be recorded on
the Company’s financial statements in connection with the consolidation of the
$2,074,994 and $10,000,006 indebtedness and the substitution of the collateral
for the $10,000,006 indebtedness.





(iv)  The
50% membership interest in IATG, LLC obtained by the Company will be recorded on
the Company’s books at its estimated fair value. The Company is currently in the
process of evaluating the fair value of the 50% ownership interest for inclusion
in its unaudited financial statements for the three months ending March 31,
2009, and the Company anticipates that it will recognize income in 2009 in an
amount equal to such estimated fair value.





(v)  The
$250,000 payment received at the closing will be utilized to pay the Company’s
legal, accounting and due diligence expenses. The Company is currently
evaluating the fair value of the $750,000 non-interest bearing note due in
March, 2010, which is secured by an additional 25% ownership interest in IATG,
LLC. The Company will record the fair value of the note on its financial
statements for the three months ending March 31, 2009, and the Company
anticipates that it will recognize income in 2009 in an amount equal to such
estimated fair value.


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