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|                              |   |                                                                                                                                   |
|-----------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
| (MARK                        ONE) | x      | ANNUAL REPORT                        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                        1934     |
|                              |   | For the fiscal year                        ended December 31, 2007                                                                     |
|                              |   |                                                                                                                                   |
|                              | o      | 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 small                        business issuer as specified in its charter) |
|                                                   |   |                                       |
|--------------------------------------------------------|--------|--------------------------------------------|
| Delaware                                               |   | 13-1954619                                 |
|                                                        |   |                                            |
| (State or other                        jurisdiction of |   | (I.R.S.                        Employer    |
| incorporation 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:
|                                        |   |                                                                                    |
|---------------------------------------------|--------|-----------------------------------------------------------------------------------------|
| Title of each                        class  |   | Name                        of each exchange on                        which registered |
|                                             |   |                                                                                         |
| Class A Common                        Stock |   | American Stock                        Exchange                                          |
|                                             |   |                                                                                         |
| Class B Common                        Stock |   | American Stock                        Exchange                                          |
|                                             |   |                                                                                         |

Securities registered pursuant            to Section 12(g) of the Act:
|                                    |
|-----------------------------------------|
| None                                    |
|                                         |
| (Title of                        class) |

          Check            if there is no disclosure of delinquent filers in response to Item 405 of Regulation            S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form            10-KSB.x

          Indicate            by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of            the Exchange Act). YesoNox

          The            registrant’s revenues for the year ended December 31, 2007 were            $7,334,379.

          The            aggregate market value of voting stock held by non-affiliates of the registrant based            on the closing price of the stock at February 15, 2008 was $18,133,000. The registrant            has no non-voting stock.

          The            number of shares outstanding of each of the registrant’s classes of common stock            on March 10, 2008 was 473,565 shares of Class A common and 3,494,914 shares of Class B            common.

                      Documents Incorporated by Reference: The Company’s definitive Proxy            Statement for its Annual Meeting of Shareholders to be held on June 16, 2008, which            Proxy Statement will be filed with the Securities and Exchange Commission pursuant to            Regulation 14A, is incorporated by reference into Part III of this Form            10-KSB.

Transitional Small Business            Disclosure Format (check one): YesoNox

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PRESIDENTIAL            REALTY CORPORATION

TABLE OF            CONTENTS

|                                                                          |                            |                                                                                                                                                                                |   |
|-------------------------------------------------------------------------------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| FORWARD-LOOKING                        STATEMENTS                             | 1                               |
|                                                                          |                            |
| PART                        I                                                 |                            |                                                                                                                                                                                |   |
|                                                                          | Item                        1.  | Description                        of Business                                                                                                                                      | 1      |
|                                                                          | Item                        2.  | Description                        of Property                                                                                                                                      | 14     |
|                                                                          | Item                        3.  | Legal                        Proceedings                                                                                                                                            | 19     |
|                                                                          | Item                        4.  | Submission                        of Matters to a Vote of Security Holders                                                                                                          | 19     |
|                                                                          |                            |                                                                                                                                                                                |   |
| PART                        II                                                |                            |                                                                                                                                                                                |   |
|                                                                          | Item                        5.  | Market                        for Common Equity and Related Stockholder Matters and Small Business Issuer                        Purchases of Equity Securities                     | 19     |
|                                                                          | Item                        6.  | Management’s                        Discussion and Analysis or Plan of Operation                                                                                              | 22     |
|                                                                          | Item                        7.  | Financial                        Statements                                                                                                                                         | 45     |
|                                                                          | Item                        8.  | Changes                        in and Disagreements with Accountants on Accounting and Financial                        Disclosure                                                  | 46     |
|                                                                          | Item                        8A. | Controls                        and Procedures                                                                                                                                      | 46     |
|                                                                          | Item                        8B. | Other                        Information                                                                                                                                            | 47     |
|                                                                          |                            |                                                                                                                                                                                |   |
| PART                        III                                               |                            |                                                                                                                                                                                |   |
|                                                                          | Item                        9.  | Directors,                        Executive Officers, Promoters, Control Persons and Corporate Governance;                        Compliance with Section 16(a) of the Exchange Act | 47     |
|                                                                          | Item                        10. | Executive                        Compensation                                                                                                                                       | 48     |
|                                                                          | Item                        11. | Security                        Ownership of Certain Beneficial Owners and Management and Related                        Stockholder Matters                                        | 48     |
|                                                                          | Item                        12. | Certain                        Relationships and Related Transactions, and Director                        Independence                                                             | 48     |
|                                                                          | Item                        13. | Exhibits                                                                                                                                                                            | 48     |
|                                                                          | Item                        14. | Principal                        Accountant Fees and Services                                                                                                                       | 51     |
|                                                                          |                            |                                                                                                                                                                                |   |
| Table of                        Contents to Consolidated Financial Statements | 53                              |

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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:

|   |   |                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | general economic and                        business conditions, which will, among other things, affect the demand for                        apartments, mall space or other commercial space, availability and                        creditworthiness of prospective tenants, rental rates and the terms and                        availability of financing; |
|   |   |                                                                                                                                                                                                                                                                                                                                                              |
|   | • | adverse changes in                        the real estate markets including, among other things, competition with                        other companies;                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                              |
|   | • | risks of real estate                        development, acquisition, ownership and operation;                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                              |
|   | • | governmental actions                        and initiatives; and                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                              |
|   | • | environmental and                        safety requirements.                                                                                                                                                                                                                                                                                                     |

PART            I

|                           |                                           |
|--------------------------------|------------------------------------------------|
| ITEM                        I. | DESCRIPTION OF                        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            invests 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, 2007, the Company            employed 19 people, of whom 13 are employed at the Company’s home office and 6            are employed at the individual property sites. The Company does not manage the shopping            mall properties owned by the

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joint ventures in which it has            invested. Those properties are managed by an affiliate of the Company’s partner            in the joint ventures.

The Company’s principal            assets fall into the following categories:

(i) Joint ventures.            Approximately 14% of the Company’s assets consists of investments in and advances            to joint ventures. The Company accounts for these investments using the equity method.            At December 31, 2007, investments in and advances to joint ventures were $4,923,201            which reflects a reduction of $13,136,548 from the $18,059,749 at December 31, 2006.            This reduction resulted from losses of $10,084,207 (including an impairment loss of            $8,370,725) and distributions of $3,052,341. See Investments in and Advances to            Joint Ventures, Management’s Discussion and Analysis or Plan of            Operation and Note 2 of Notes to Consolidated Financial            Statements.

(ii) Equity interests in rental            properties. Approximately 46% of the Company’s assets are equity interests in            commercial and residential rental properties. These properties have a carrying value of            $21,041,049, less accumulated depreciation of $4,834,757, resulting in a net carrying            value of $16,206,292 at December 31, 2007. See Description of Property            below.

(iii) Notes receivable.            Approximately 22% of the Company’s assets consists of notes receivable, which are            reflected on the Company’s Consolidated Balance Sheet at December 31, 2007 as            “Mortgage portfolio: notes receivable – net”. The $8,051,342            aggregate principal amount of these notes has been reduced by $392,117 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 4            of Notes to Consolidated Financial Statements. Accordingly, the net carrying            value of the Company’s “Mortgage portfolio: notes receivable” was            $7,659,225 at December 31, 2007. All of the loans included in this category of assets            were current at December 31, 2007.

Notes reflected under            “Mortgage portfolio: notes receivable – net” consist of notes            received from sales of real properties previously owned by the Company in the aggregate            principal amount of $4,285,000, loans originated by the Company in the aggregate            principal amount of $3,574,994 and notes in the aggregate principal amount of $191,348            that relate to sold cooperative apartments.

(iv) Other investments.            Approximately 3% of the Company’s assets are other investments. These investments            are with Broadway Real Estate Partners LLC, a private real estate investment and            management firm, which invests in high quality office properties. At December 31, 2007,            other investments were $1,000,000. See Management’s Discussion and Analysis or            Plan of  Operation and Note 6 of Notes to the Consolidated Financial            Statements.

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The Company’s investments            in and advances to joint ventures in the amount of $4,923,201 were made to joint            ventures controlled by affiliates of David Lichtenstein. Due to the current downturn in            the commercial real estate market and the lack of demand for retail space in regions            where some of the joint venture properties are located, at December 31, 2007, the            recoverability of the carrying value of certain of the shopping mall properties owned            by the joint ventures was deemed to be impaired. As a result, at December 31,            2007, the joint venture entities recorded an impairment loss of approximately            $75,994,000 for four of the nine mall properties owned by the entities. The            Company’s 29% share of the impairment loss recorded by the joint ventures was            approximately $22,038,000. However, the Company recognized an impairment loss of            $8,370,725 because the recording of losses is limited to the balance of the            Company’s investment in and advances to joint ventures.

At December 31, 2007, in            addition to Presidential’s investments in these joint ventures with entities            controlled by Mr. Lichtenstein, Presidential has three loans that are due from entities            that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount            of $7,449,994 with a net carrying value of $7,112,498. Two of the loans in the            outstanding principal amount of $5,375,000, with a net carrying value of $5,037,504,            are secured by interests in five apartment properties and are also personally            guaranteed by Mr. Lichtenstein up to a maximum amount of $3,137,500. The third loan in            the outstanding principal amount of $2,074,994 is secured by interests in nine            apartment properties. All of these loans are in good standing. While the Company            believes that all of these loans are adequately secured, a default on any or all of            these loans could have a material adverse effect on Presidential’s business and            operating results.

The $12,035,699 net carrying            value of investments in and advances to joint ventures with entities controlled by Mr.            Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein            constitute 34% of the Company’s total assets at December 31, 2007. Subsequent to            December 31, 2007, the Company received repayment of a $1,500,000 loan (included in the            $7,449,994 referred to above).

Presidential first met Mr.            Lichtenstein, the principal owner of The Lightstone Group (“Lightstone”),            in 1999 when it sold him its first and second mortgage notes secured by the Fairfield            Towers apartment property in Brooklyn, New York. In connection with that transaction,            Mr. Lichtenstein assumed the obligation to repay a $4,000,000 note that is still held            by the Company. Over the next four years, the Company made four new loans to Mr.            Lichtenstein secured by various apartment properties. As Mr. Lichtenstein expanded his            business into shopping center properties with the acquisition in 2003 of Prime Retail,            Inc., the owner of 36 outlet shopping malls throughout the United States, Presidential            saw an opportunity to participate in this new investment area, and in 2004 and 2005            made the joint venture investments referenced above. Lightstone currently owns and            manages a

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diverse portfolio of            approximately 19,000 apartment units, 24,000,000 square feet of office, industrial and            commercial space and 687 hotels in 46 states, the District of Columbia, Puerto Rico and            Canada.

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. Total dividends paid by the Company in 2007 were $.64 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, that distributions will be            maintained at the current rate or that the Company will have cash available to pay            sufficient dividends in order to maintain REIT status. See Qualification as a REIT,            Item 5. - Market for Common Equity and Related Stockholder Matters and Note 15 of            Notes to Consolidated Financial Statements.

|   |                                         |
|--------|----------------------------------------------|
| (b)    | Investment                        Strategies |

The Company’s general            investment strategy is to make investments in real property that offer attractive            current yields with, in some cases, potential for capital appreciation. 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.

The Company’s primary            investment strategies are as follows:

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Loans and                        Investments in Joint Ventures |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                           |
|   | The Company has in                        the last six 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. See notes to                        the Mortgage Portfolio: Notes Receivable table under Loans and                        Investments. In some cases, the Company has, in |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|   | 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 as                        “Investments in and advances to joint ventures”. The Company                        may make additional loans of this type if the opportunity to do so arises.                        To date, all of these loans have been made to entities controlled by David                        Lichtenstein. See Investments in and Advances to Joint                        Ventures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company has over                        the years held long term mortgage notes which provide for balloon principal                        payments at varying times. The Company may in appropriate circumstances                        agree to extend and modify these notes. See the table set forth below under                        Loans and Investments. It should be noted that there can be no                        assurance that the balloon principal payments due in accordance with the                        purchase money notes will actually be made when due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company has in                        the past and may in the future receive mortgage notes from the sales of its                        properties. As a result, 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 2007                        as a retained capital gain dividend. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |
|   | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Equity                        Properties |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |
|   | For many years 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | not found any such                        investments that offer rates of return satisfactory to the Company or                        otherwise meet the Company’s investment criteria. As described in                        subparagraph (i) above, in recent years the Company has focused its                        investment activities in making loans secured by interests in real property                        or by ownership interests in entities that own real property; and in some                        instances the Company has obtained ownership interests in the properties in                        connection with its loans. While the Company’s present intention is                        to continue to seek opportunities to make loans as described above, the                        Company may in the future acquire equity interests in real estate,                        including residential properties and commercial properties such as office                        buildings, shopping centers and light industrial properties.                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 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 six years, the Company has sold or                        otherwise disposed of seven of its apartment properties. See                        Management’s Discussion and Analysis or Plan of Operation –                        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, 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 or Plan of Operation – Liquidity and Capital                        Resources. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                          |
| (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Investments in                        and Advances to Joint Ventures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| During the past four                        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 would be                        written down to its estimated |

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fair value if an impairment was            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 Company purchased the            Martinsburg Mall in Martinsburg, West Virginia for $27,000,000 in September, 2004 and            subsequent to closing 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 the entity            owning the property, and the Company owns the remaining 29% ownership            interest.

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 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.

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.

7

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Subsequent to year end,            Lightstone III failed to make the monthly payments of interest due on February 1, 2008            and March 1, 2008 on the Company’s $9,500,000 mezzanine loan relating to the            Macon/Burlington Malls. Lightstone III has also failed to make the payments due            February 1, 2008 and March 1, 2008 on a portion of the first mortgage loan secured by            the Macon/Burlington Malls. Lightstone III has informed the Company that it is            attempting to negotiate the release of certain funds from escrow accounts held by the            holder of the first mortgage and a deferment of interest on all of the indebtedness            related to the Macon/Burlington Malls in order to provide funds for the improvement of            the properties. The Company cannot predict whether Lightstone III will be able to            obtain a modification of the indebtedness on the Macon/Burlington Malls. If Lightstone            III cannot obtain such a modification and does not cure its defaults on the mortgage            indebtedness, the holders of the first mortgage on the properties may foreclose their            lien on the properties and the Company’s $9,500,000 mezzanine loan may not be            paid, which could have a material adverse effect on the Company’s business,            financial condition, results of operations and prospects.

The following table sets forth            information as of December 31, 2007 with respect to the investments in and advances to            joint ventures. Presidential’s ownership interest in the owning entities of the            malls is 29%. David Lichtenstein is the majority joint venture partner in the owning            entities and is the managing partner.

8

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|                                                                  |   |   |                                                                                                               |   |      |   |
|-----------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|
| Name                        of                        Property        |   |   | Investments                        in and                        Advances to                        Joint Ventures |
|                                                                       |   |   |                                                                                                                    |        |           |
|                                                                  |
| Martinsburg                        Mall                               |   | (1)    |                                                                                                               | $      | —   |   |
|      Martinsburg,                        WV  |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Four                        Malls                                     |   | (2)    |                                                                                                               |   | 688,735   |   |
| Bradley Square                        Mall                            |   |   |                                                                                                               |   |      |   |
|      Cleveland,                        TN    |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Mount Berry Square                        Mall                        |   |   |                                                                                                               |   |      |   |
|      Rome,                        GA         |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Shenango Valley                        Mall                           |   |   |                                                                                                               |   |      |   |
|      Hermitage,                        PA    |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| West Manchester                        Mall                           |   |   |                                                                                                               |   |      |   |
|      York,                        PA         |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Macon/Burlington                        Malls                         |   | (3)    |                                                                                                               |   | —   |   |
| Burlington                        Mall                                |   |   |                                                                                                               |   |      |   |
|      Burlington,                        NC   |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Macon                        Mall                                     |   |   |                                                                                                               |   |      |   |
|      Macon,                        GA        |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Shawnee/Brazos                        Malls                           |   |   |                                                                                                               |   | 4,234,466 |   |
| Brazos                        Mall                                    |   |   |                                                                                                               |   |      |   |
|      Lake                        Jackson, TX |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |   |      |   |
| Shawnee                        Mall                                   |   |   |                                                                                                               |   |      |   |
|      Shawnee,                        OK      |   |   |                                                                                                               |   |      |   |
|                                                                  |   |   |                                                                                                               |        |           |   |
|                                                                  |
|                                                                  |   |   |                                                                                                               | $      | 4,923,201 |   |
|                                                                  |   |   |                                                                                                               |        |           |   |

(1) The Company’s basis of            its investment in the Martinsburg Mall was reduced by distributions and losses to zero            in 2007 and, accordingly, the Company only recorded its share of the loss to the extent            of its basis. Any future distributions received from the Martinsburg Mall will be            recorded in income.

(2) The Company recorded a            $2,886,704 loss for 2007 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).

(3) The Company recorded a            $6,294,912 loss for 2007 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, such losses may be recorded only to            the extent of the Company’s basis, and, therefore, the impairment loss recorded            by the Company was $6,246,722. Any future distributions received from the            Macon/Burlington Malls will be recorded in income.

|   |                                         |
|--------|----------------------------------------------|
| (d)    | Loans and                        Investments |

The following table sets forth            information as of December 31, 2007 with respect to the mortgage loan portfolio            resulting from the sale of properties or loans originated by the Company.

9

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|                                                        |
|-------------------------------------------------------------|
| MORTGAGE PORTFOLIO:                        NOTES RECEIVABLE |
|                                                        |
| DECEMBER 31,                        2007                    |
|                                                             |

|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
|--------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|-----------|--------|----------|--------|---------|----------|--------|-----------|--------|--------------|--------|----------|--------|--------|
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   | Interest |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     | Net    |      |   |         | Rate   |     |
|                                                                                       |   |   |   |   | Note       |      |   |     |   |    | Carrying |   | Maturity  |   | December 31, |   |
| Name                        of Property                                                    |   |   |   |   | Receivable |      |   | Discount |   | Value   |     | Date   |      | 2007   |         |
|                                                                                            |   |   |   |   |            |      |   |          |   |         |     |        |      |        |         |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Chelsea Village                        Apartments                        Atlantic City, NJ |   | (a)    | (1)    |   | $          | 3,875,000 | (b)    |     | $      | 337,496 |     | $      | 3,537,504 |   | 2009         |   | 10.75    | %      |   |
| Pinewood Chase                        Apartments                        Suitland, MD       |   | (a)    |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Plaza Village                        Apartments                        Morrisville, PA     |   | (a)    |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Town Oaks                        Apartments                        South Bound Brook, NJ   |   | (a)    |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Reisterstown                        Apartments                        Baltimore, MD        |   | (a)    | (2)    |   |       | 1,500,000 | (b)    |     |   | — |     |   | 1,500,000 |   | 2008         |   | 13.58    | %      |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| 2323 So. Craycroft                        Rd.                        Tucson, AZ            |   |   | (3)    |   |       | 200,000   |   |     |   | — |     |   | 200,000   |   | 2008         |   | 7.00     | %      |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Mark Terrace                        Associates                        Bronx, NY            |   |   | (4)    |   |       | 110,000   |   |     |   | — |     |   | 110,000   |   | 2008         |   | 11.00    | %      |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Pinewood I & II                        Des Moines, IA                                  |   |   |   |   |       | 100,000   |   |     |   | — |     |   | 100,000   |   | 2008         |   | 12.00    | %      |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Virginia Apartment                        Properties                                       |   |   | (5)    |   |       | 2,074,994 | (b)    |     |   | — |     |   | 2,074,994 |   | 2013         |   | 13.00    | %      |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
| Various Sold Co-op                        Apartments                                       |   |   |   |   |       | 191,348   | (c)    |     |   | 54,621  |     |   | 136,727   |   | Various      |   | Various  |   |   |
|                                                                                       |   |   |   |   |       |      |   |     |   |    |     |   |      |   |         |   |     |   |   |
|                                                                                       |   |   |   |   |            |           |   |     |        |         |     |        |           |   |         |   |     |   |   |
| Total Notes                        Receivable                                              |   |   |   |   | $          | 8,051,342 |   |     | $      | 392,117 |     | $      | 7,659,225 |   |         |   |     |   |   |
|                                                                                       |   |   |   |   |            |           |   |     |        |         |     |        |           |   |         |   |     |   |   |

|   |                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)    | These properties                        collateralize both the $3,875,000 loan and the $1,500,000 loan.                                                                                             |
|   |                                                                                                                                                                                                |
| (b)    | These loans were                        made to various companies that are controlled by David                        Lichtenstein.                                                                 |
|   | Some, but not all,                        of these loans are guaranteed in whole or in part by Mr.                        Lichtenstein.                                                             |
|   |                                                                                                                                                                                                |
| (c)    | Notes received from                        the sales of cooperative apartments. Interest rates and maturity dates vary                        in accordance with the terms of each individual note. |

10

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | This note, which was                        received by the Company in connection with the sale of the Fairfield Towers                        mortgages in 1999, is collateralized by security interests in the ownership                        interests in entities that own various properties located in Maryland, New                        Jersey and Pennsylvania. The discount on this note was computed at a rate                        of 18%. The loan is due in February, 2009, but the Company may 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (2)    | In February, 2003,                        the Company made a $1,500,000 loan collateralized by ownership interests in                        Reisterstown Square Associates, LLC, which owns Reisterstown Apartments in                        Baltimore, Maryland, and by a personal guarantee from the borrower. The                        loan had an annual interest rate of 10.50% until January 31, 2005 and                        thereafter, the interest rate changed every six months to a rate equal to                        800 basis points (825 basis points since July 1, 2005) above the six month                        LIBOR rate, with a minimum rate of 10.50% per annum. At December 31, 2007,                        the annual interest rate was 13.58%. The loan matured on January 31, 2008                        and was paid in full.                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (3)    | 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 has an interest rate                        of 7% per annum, payment of which is deferred until maturity. The note is                        secured by a Deed of Trust on property located at 2323 So. Craycroft Road                        in Tucson, Arizona. In March, 2008, the Company agreed to extend the                        maturity date of this loan to December 31, 2008 and received a $25,000                        payment of principal and interest.                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (4)    | Under the terms of                        the Mark Terrace note, the borrower had annual options to extend the                        maturity date from November 29, 2005 to November 29, 2008 at the interest                        rate of 9.16% per annum until maturity. In 2005 and 2006, the borrower                        exercised his option to extend the note for one year periods, and the                        Company received principal payments of $100,000 for each extension. The                        outstanding principal balance of $110,000 was due on November 29, 2007, and                        in lieu of another one year extension and a principal payment of $100,000,                        the Company agreed to extend the maturity of the note to March 31, 2008.                        The interest rate was increased from 9.16% per annum to 11% per annum. As                        of December 31, 2007, the note is collateralized by 75 unsold cooperative                        apartments at the Mark Terrace property. During 2007, the Company received                        principal payments of $85,000 on the Mark Terrace note.                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (5)    | In October, 2003,                        the Company made a $4,500,000 loan which 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 |

11

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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 will be deferred and                        payable on October 23, 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                        refinancing of the properties. The Company did not receive any additional                        interest for 2007. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (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.

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 or deemed 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 distributions will be maintained at            the current rate; that the Company will have sufficient cash to pay dividends in order            to maintain REIT status or that it will be able to 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, 2007, 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.

12

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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 48% 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.

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 anticipates that these amounts may 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 2007 and 2006, Presidential            received $256,000 and $186,500, respectively, of interest payments on the Consolidated            Loans. The Consolidated Loans bear interest at a rate equal to the JP Morgan Chase            Prime rate, which was 7.25% at December 31, 2007. At December 31, 2007, the unpaid and            unaccrued interest was $3,420,554 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.

See Note 4 and 22 of Notes to            the Consolidated Financial Statements for additional information on transactions            with related parties. 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 attempting to expand its portfolio of owned            properties, the Company will be in competition with other potential purchasers for            properties and sources of financing, most of whom will be larger and have greater            financial resources than the Company. In addition, in attempting to make loans secured            by interests in real estate, the Company may be competing with other real estate            lenders who may be willing to make loans at more favorable rates. As a result of such            competition, there can be no assurance that the Company will

13

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be able to obtain opportunities for            new investments at attractive rates of return.

|                           |                                           |
|--------------------------------|------------------------------------------------|
| ITEM                        2. | DESCRIPTION OF                        PROPERTY |

As of December 31, 2007, the            Company had an ownership interest in 154 apartment units and 619,500 square feet of            commercial, industrial and professional space, all of which are carried on its balance            sheet at $16,206,292 (net of accumulated depreciation of $4,834,757). The Company has            mortgage debt on the majority of these properties in the aggregate principal amount of            $18,916,944, all of which is nonrecourse to Presidential with the exception of            $1,101,578 secured by a mortgage on the Building Industries Center property and $99,619            secured by a mortgage on the Mapletree Industrial Center property. At December 31,            2007, mortgage debt on the consolidated balance sheet was $18,868,690, which has been            discounted by $48,254 to reflect the fair value of the Hato Rey Partnership mortgage as            a result of the consolidation of the partnership.

The Company is the general            partner of the Hato Rey Partnership and had an aggregate 33% general and limited            partner interest in the Hato Rey Partnership at December 31, 2005. During 2006, the            Company purchased an additional 1% and 25% limited partnership interest. At December            31, 2006, Presidential and PDL, Inc. owned an aggregate 59% general and limited partner            interest. In January, 2007, the Company purchased an additional 1% limited partnership            interest for a purchase price of $53,694. At December 31, 2007, Presidential and PDL,            Inc. owned an aggregate 60% general and limited partner interest in the Hato Rey            Partnership.

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.

Prior to the purchase of the            additional 25% limited partnership interest in 2006, the Company accounted for its            investment in this partnership under the equity method. As a result of the purchase of            the additional 25% limited partnership interest at December 31, 2006, the Company owns            the majority of the partnership interests in the partnership, is the general partner of            the partnership, and exercises effective control over the partnership through its            ability to manage the affairs of the partnership in the ordinary course of            business.

The purchases of the additional            25% limited partnership interest in 2006 and the 1% limited partnership interest in            2007, 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”.

At December 31, 2006, the            Company consolidated the Hato Rey Partnership on the Company’s consolidated            balance sheet. The results of operations of the Hato Rey Partnership were not            consolidated on the Company’s consolidated statement of operations for the year            ended December 31, 2006 because the Company only had a 34% ownership interest in the            partnership during the year and, accordingly, the Company’s share of the loss            from the partnership for 2006 was recorded in Equity in the loss from partnership,            under the equity method of accounting.

14

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For the year ended December 31,            2007, the Company consolidated the results of operations of the Hato Rey Partnership on            the Company’s consolidated statement of operations and recorded a loss from the            partnership of $521,102 of which $208,441 was attributable to the minority            partners’ 40% interest. See Management’s Discussion and Analysis or Plan            of Operation – Hato Rey Partnership and Note 8 of Notes to Consolidated            Financial Statements.

Included in the 154 apartment            units owned by Presidential are 49 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.

The chart below lists the            Company’s properties as of December 31, 2007.

15

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**REAL ESTATE**

|                                                                         |        |        | Rentable                Space (approx.)                                         |        |        |        | Average                Vacancy                Rate                Percent                2007 |        |        | Gross Amount of Real Estate                At December 31, 2007 |        |        | Accumulated                Depreciation                December 31,                2007 |        |        | Net Amount of                Real Estate                At                December 31,                2007 |        |        | Mortgage                Balance                December 31,                2007 |        | Maturity                Date |            | Interest                Rate |        |
|------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|------------------------------|------------|------------------------------|--------|
||
||
| **Property**                                                                 |
||
||
|                                                                              |   |   |                                                                                 |   |   |   |                                                                                               |   |        |                                                            |        |   |                                                                                         |   |        |                                                                                                       |        |   |                                                                                 |   |                              |       |                              |   |
|                                                                         |   |
| **    Apartment                Building**                |   |   |                                                                            |   |   |   |                                                                                          |   |   |                                                            |   |   |                                                                                    |   |   |                                                                                                       |   |   |                                                                            |   |                         |       |                         |   |   |   |   |   |   |   |
| Crown Court, New Haven,                CT                                    |   | (1)    | 105 Apt. Units &                2,000                sq.ft. of comml. space |   | (2)    |   | (Net                Lease)                                                                    |   | $      | 168,000                                                         |   | $      | 3,135,926                                                                               |   | $      | 3,303,926                                                                                                  |   | $      | 2,888,400                                                                       |   | $                            | 415,526    |                         | $      | 2,174,747 |   | November, 2021 |   | 7.00 | % |
|                                                                    |
| **    Individual                Cooperative Apartments** |   |   |                                                                            |   |   |   |                                                                                          |   |   |                                                            |   |   |                                                                                    |   |   |                                                                                                       |   |   |                                                                            |   |                         |       |                         |   |   |   |   |   |   |   |
|                                                                    |
| Towne                House, New Rochelle, NY                                 |   |   | 42 Apt.                Units                                                    |   | (2)    |   | 1.98                                                                                          | %      |   | 81,204                                                          |   |   | 642,335                                                                                 |   |   | 723,539                                                                                                    |   |   | 203,516                                                                         |   |                         | 520,023    |                         |   | — |   |   |   |   |   |
|                                                                    |
| Various                Cooperative Apartments, NY & CT                   |   |   | 7 Apt.                Units                                                     |   | (2)    |   | 0.26                                                                                          | %      |   | 14,313                                                          |   |   | 89,508                                                                                  |   |   | 103,821                                                                                                    |   |   | 22,844                                                                          |   |                         | 80,977     |                         |   | — |   |   |   |   |   |
|                                                                    |
| **Commercial                Buildings**                                      |   |   |                                                                            |   |   |   |                                                                                          |   |   |                                                            |   |   |                                                                                    |   |   |                                                                                                       |   |   |                                                                            |   |                         |       |                         |   |   |   |   |   |   |   |
|                                                                    |
| Building                Industries Center, White Plains, NY                  |   |   | 23,500                sq.ft.                                                    |   |   |   | 0.18                                                                                          | %      |   | 61,328                                                          |   |   | 1,330,555                                                                               |   |   | 1,391,883                                                                                                  |   |   | 1,138,440                                                                       |   |                         | 253,443    |                         |   | 1,101,578 | (4) | January,                2009 |   | 5.45 | % |
|                                                                    |
| Mapletree                Industrial Center, Palmer, MA                       |   |   | 385,000                sq.ft.                                                   |   |   |   | 5.45                                                                                          | %      |   | 79,100                                                          |   |   | 784,839                                                                                 |   |   | 863,939                                                                                                    |   |   | 237,428                                                                         |   |                         | 626,511    |                         |   | 99,619 |   | June,                2011 |   | 8.25 | % |
|                                                                    |
| The Hato                Rey Center, Hato Rey, PR                             |   |   | 209,000                sq.ft.                                                   |   | (3)    |   | 34.96                                                                                         | %      |   | 1,905,985                                                       |   |   | 12,747,956                                                                              |   |   | 14,653,941                                                                                                 |   |   | 344,129                                                                         |   |                         | 14,309,812 |                         |   | 15,492,746 | (5) | May,                2028 |   | 7.38 | % |
|                                                                         |   |   |                                                                            |   |   |   |                                                                                          |   |        |                                                            |        |   |                                                                                    |   |   |                                                                                                       |
|                                                                         |   |   |                                                                            |   |   |   |                                                                                          |   | $      | 2,309,930                                                       |   | $      | 18,731,119                                                                              |   | $      | 21,041,049                                                                                                 |   | $      | 4,834,757                                                                       |   | $                            | 16,206,292 |                         | $      | 18,868,690 |   |   |   |   |   |
|                                                                         |   |   |                                                                            |   |   |   |                                                                                          |   |        |                                                            |        |   |                                                                                    |   |   |                                                                                                       |

|   |                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The Crown Court                        property is subject to a long-term net lease containing an option to                        purchase in 2009.                                                                                                      |
|   |                                                                                                                                                                                                                                                      |
| (2)    | Typically apartment                        units range from one bedroom/bath units to two bedroom/two bath units and                        rentable areas range from 517 square feet to 827 square feet.                                                 |
|   |                                                                                                                                                                                                                                                      |
| (3)    | The Hato Rey Center                        property and its related mortgage have been recorded at fair value for the                        partial step acquisitions in accordance with ARB No. 51 and SFAS No. 141                        (see above). |
|   |                                                                                                                                                                                                                                                      |
| (4)    | This mortgage                        amortizes monthly with a balloon payment due at maturity.                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                      |
| (5)    | See The Hato Rey                        Center - Hato Rey, Puerto Rico below.                                                                                                                                                                             |

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Crown Court – New Haven,            Connecticut

The Crown Court property is            subject to a long-term net lease with an option to purchase which is exercisable only            in April, 2009. The option purchase price is $1,635,000 over the outstanding principal            mortgage balance at the date of the exercise of the option. If the purchase option is            exercised on the option date, it is estimated that the Company’s gain from sale            would be approximately $3,000,000.

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. In addition to the $854,454            charged to operations for environmental expense, the Company incurred costs of $225,857            for environmental site testing and removal of soil. The total amounts charged to            operations for environmental expense for 2006 were $1,080,311. In 2007, the Company            incurred environmental expenses of $41,493 for further excavation and testing of the            site. See Management’s Discussion and Analysis or Plan of Operation –            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            $795,000 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%.

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 was advanced from time to time as funds were needed, bears interest at            the rate of 11% per annum, 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 would be at the rate of 13% per annum            and that the interest rate on the entire loan would be increased to 13% per annum to            the extent that the loan is not repaid in May, 2008. At December 31, 2007, the Company            had advanced $1,999,275 to the Hato Rey Partnership. The $1,999,275 loan and the            accrued interest of $235,239 have been eliminated in consolidation.

The first mortgage loan on the            Hato Rey Center property is due on May 11, 2028 but provides that if it is not repaid            on or before May 11, 2008, the interest rate on the loan will be increased by two            percentage points (to

17

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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 outstanding principal balance of the loan on May 11, 2008 will be            approximately $15,445,000. The Company is attempting to refinance the existing first            mortgage but has not yet obtained a commitment to do so. Failure to repay the existing            mortgage loan on May 11, 2008 does not constitute a default under the loan.

The net amount of real estate of            the Hato Rey Center of $14,309,812 at December 31, 2007, 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, 2007 was 69% 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 $21.40.

3) The following is a schedule            of lease expirations at the Hato Rey Center for the next ten years:

|      |   |                                                                                                            |   |                                                                                            |   |                                 |   |                                                                                                   |      |   |   |   |   |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------------------------------------------------------------------------|-----------|--------|--------|--------|--------|
|      |   | Number of                        Tenants Whose                        Leases Will                        Expire |   | Total                        Square                        Feet                        Expiring |   | Annual                        Rental |   | Percentage                        of Gross                        Annual                        Rental |      |
|      |   |                                                                                                                 |   |                                                                                                 |   |                                      |   |                                                                                                        |      |
| 2008      |   | 35                                                                                                              |   |                                                                                            |   | 42,259                               |   | $                                                                                                      | 941,161   |   | 30.66  | %      |   |
| 2009      |   | 32                                                                                                              |   |                                                                                            |   | 25,139                               |   |                                                                                                   | 518,718   |   | 16.90  |   |   |
| 2010      |   | 35                                                                                                              |   |                                                                                            |   | 39,326                               |   |                                                                                                   | 850,969   |   | 27.73  |   |   |
| 2011      |   | 3                                                                                                               |   |                                                                                            |   | 8,934                                |   |                                                                                                   | 188,434   |   | 6.14   |   |   |
| 2012      |   | 4                                                                                                               |   |                                                                                            |   | 24,534                               |   |                                                                                                   | 471,084   |   | 15.35  |   |   |
| 2013      |   | None                                                                                                            |   |                                                                                            |   | None                                 |   |                                                                                                   | None      |   | None   |   |   |
| 2014      |   | 1                                                                                                               |   |                                                                                            |   | 3,000                                |   |                                                                                                   | 98,950    |   | 3.22   |   |   |
| 2015-2017 |   | None                                                                                                            |   |                                                                                            |   | None                                 |   |                                                                                                   | None      |   | None   |   |   |
|      |   |                                                                                                                 |   |                                                                                            |        |                                      |   |                                                                                                        |           |   |        |   |   |
|      |   | 110                                                                                                             |   |                                                                                            |   | 143,192                              |   | $                                                                                                      | 3,069,316 |   | 100.00 | %      |   |
|      |   |                                                                                                                 |   |                                                                                            |        |                                      |   |                                                                                                        |           |   |        |   |   |

4) The federal tax basis at            December 31, 2007 for the Hato Rey Center building and its improvements was $4,200,149.            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 $280,544 for 2007. There is            not expected to be any increase in the taxes due to any proposed            improvements.

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

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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            $1,072,906 due at maturity in January, 2009, and the Hato Rey Center mortgage described            above.

During 2004 and 2005,            Presidential invested in and made loans to various entities that own and operate            shopping center malls throughout the United States. In addition to interest payable on            the loans at the rate of 11% per annum, the Company also received a 29% ownership            interest in these various entities (see Description of Business – Investments            in and Advances to Joint Ventures above). Presidential accounts for these            investments in and advances to joint ventures under the equity method. At December 31,            2007, investments in and advances to joint ventures was $4,923,201.

|                           |                                                                       |
|--------------------------------|----------------------------------------------------------------------------|
| ITEM                        3. | LEGAL                        PROCEEDINGS                                   |
|                           |                                                                       |
| None.                          |                                                                       |
|                           |                                                                       |
| ITEM                        4. | SUBMISSION OF                        MATTERS TO A VOTE OF SECURITY HOLDERS |
|                           |                                                                       |
| None.                          |                                                                       |

PART            II

|                           |                                                                                                                                                            |
|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM                        5. | MARKET FOR COMMON                        EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES                        OF EQUITY SECURITIES |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)    | The principal market                        for the Company’s Class A and Class B Common Stock is the American                        Stock Exchange (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: |

|                                  |   |                                |   |                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------|--------|-------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                  |   | Stock                        Prices |   | Dividends                        Paid Per                        Share on                        Class A                        and Class B |   |
|                                  |   |                                     |   |                                                                                                                                        |
|                                  |   | Class A                             |   | Class                        B                                                                                                              |   |   |
|                                  |   |                                     |   |                                                                                                                                             |   |   |
|                                  |   | High                                |   | Low                                                                                                                                         |   | High   |   | Low    |   |   |
|                                  |   |                                     |   |                                                                                                                                             |   |        |   |        |   |        |   |
|                                  |
| Calendar                        2006  |   |                                |   |                                                                                                                                        |   |   |   |   |   |   |   |
| First                        Quarter  |   | $                                   | 8.30   |                                                                                                                                        | $      | 7.94   |   | $      | 7.80   |   | $      | 6.45   |   |   | $      | .16    |   |   |
| Second                        Quarter |   |                                | 8.00   |                                                                                                                                        |   | 7.05   |   |   | 7.35   |   |   | 6.20   |   |   |   | .16    |   |   |
| Third                        Quarter  |   |                                | 7.25   |                                                                                                                                        |   | 6.80   |   |   | 7.38   |   |   | 6.60   |   |   |   | .16    |   |   |
| Fourth                        Quarter |   |                                | 7.15   |                                                                                                                                        |   | 6.90   |   |   | 7.20   |   |   | 6.51   |   |   |   | .16    |   |   |
|                                  |   |                                |   |                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Calendar                        2007  |   |                                |   |                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First                        Quarter  |   | $                                   | 8.00   |                                                                                                                                        | $      | 7.30   |   | $      | 7.99   |   | $      | 7.00   |   |   | $      | .16    |   |   |
| Second                        Quarter |   |                                | 8.15   |                                                                                                                                        |   | 7.55   |   |   | 8.05   |   |   | 7.01   |   |   |   | .16    |   |   |
| Third                        Quarter  |   |                                | 7.70   |                                                                                                                                        |   | 6.38   |   |   | 7.25   |   |   | 6.05   |   |   |   | .16    |   |   |
| Fourth                        Quarter |   |                                | 6.60   |                                                                                                                                        |   | 5.90   |   |   | 6.90   |   |   | 5.55   |   |   |   | .16    |   |   |

|   |                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | The number of record                        holders for the Company’s Common Stock at December 31, 2007 was 96                        for Class A and 477 for Class B. |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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. 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, 2007, relating to the                        Company’s 2005 Restricted Stock Plan, which was approved by security                        holders (the Company has no other equity compensation plans):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|   |                                                                                                                                                                                                                                  |                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Number of                        securities                        to be issued                        upon exercise                        of outstanding                        options, warrants                        and rights | Weighted average                        exercise price of                        outstanding options,                        warrants and                        rights | Number of                        securities                        remaining                        available                        for future                        issuance                        under equity                        compensation                        plans                        (excluding                        securities                        reflected in                        column (a)) |
|   |                                                                                                                                                                                                                                  |                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |             (a)                                                                                                                                                           |             (b)                                                                                             |          (c)                                                                                                                                                                                                                                                                                                                                                                       |
|   |           None                                                                                                                                                                      |           None                                                                                                        |       53,500                                                                                                                                                                                                                                                                                                                                                                                      |

(e) The            following table sets forth the purchases by the Company of its equity securities during            calendar year 2007. The Company does not have a publicly announced plan or program for            such purchases. The purchases were made after the Company was approached by individual            shareholders. The table only lists the months in 2007 when such purchases were            made.

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Small Business            Issuer Purchases of Equity Securities

|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|      |   |                                                                                                                 |   | (b)                        Average                        price                        paid per                        share                        (or unit) |   | (c)                        Total number                        of shares                        (or units)                        purchased as                        part of                        publicly                        announced                        plans or                        programs |      | (d)                        Maximum                        number (or                        approximate                        dollar value)                        of shares                        (or units)                        that may yet be                        purchased under                        the plans or                        programs |   |
|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                 |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   | (a)                        Total number of                        shares (or units)                        purchased |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                      |   |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |
| Period    |   | Class                        A                                                                                       |   | Class                        B                                                                                                                                |   |                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                                                                                                                                                                                                                              |
|           |   |                                                                                                                      |   |                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |
| February  |   |                                                                                                                 | 774    |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |      | $                                                                                                                                                                                                                                                                                                                                                                 | 7.60   |   |   | None   |   |   | None   |   |
| February  |   |                                                                                                                 |   |                                                                                                                                                          |   | 3,870                                                                                                                                                                                                                                                                                                          |      |                                                                                                                                                                                                                                                                                                                                                              | 7.47   |   |   | None   |   |   | None   |   |
| March     |   |                                                                                                                 |   |                                                                                                                                                          |   | 7,658                                                                                                                                                                                                                                                                                                          |      |                                                                                                                                                                                                                                                                                                                                                              | 8.07   |   |   | None   |   |   | None   |   |
| April     |   |                                                                                                                 |   |                                                                                                                                                          |   | 10,000                                                                                                                                                                                                                                                                                                         |  (1) |                                                                                                                                                                                                                                                                                                                                                              | 7.00   |   |   | None   |   |   | None   |   |
| July      |   |                                                                                                                 | 1      |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                                                                                                                                                                                                                              | 6.70   |   |   | None   |   |   | None   |   |
| July      |   |                                                                                                                 |   |                                                                                                                                                          |   | 1                                                                                                                                                                                                                                                                                                              |      |                                                                                                                                                                                                                                                                                                                                                              | 7.25   |   |   | None   |   |   | None   |   |
| August    |   |                                                                                                                 |   |                                                                                                                                                          |   | 104                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                                                                                                                                                                                                                              | 7.19   |   |   | None   |   |   | None   |   |
| September |   |                                                                                                                 | 4,500  |                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                                                                                                                                                                                                                              | 6.58   |   |   | None   |   |   | None   |   |
| September |   |                                                                                                                 |   |                                                                                                                                                          |   | 6,500                                                                                                                                                                                                                                                                                                          |  (1) |                                                                                                                                                                                                                                                                                                                                                              | 6.15   |   |   | None   |   |   | None   |   |
|      |   |                                                                                                                      |        |                                                                                                                                                          |        |                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|      |   |                                                                                                                 | 5,275  |                                                                                                                                                          |   | 28,133                                                                                                                                                                                                                                                                                                         |      |                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|      |   |                                                                                                                      |        |                                                                                                                                                          |        |                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |

(1) The 10,000 shares purchased            in April and 6,000 shares purchased in September were purchased from a director of the            Company at a price below market.

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|                           |                                                                                   |
|--------------------------------|----------------------------------------------------------------------------------------|
| ITEM                        6. | MANAGEMENT’S                        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |

Overview

Presidential Realty Corporation            is taxed for federal income tax purposes as a real estate investment trust.            Presidential owns real estate directly and through partnerships and joint ventures and            makes loans secured by interests in real estate.

          Investments            in and Advances to Joint Ventures

At December 31, 2007, the            Company’s investments in and advances to joint ventures were $4,923,201. 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 recorded an            impairment loss of $8,370,725. Subsequent to year end, Lightstone III defaulted on            payments of interest on the Company’s $9,500,000 mezzanine loan relating to the            Macon/Burlington Malls. In addition, Lightstone III also defaulted on payments of            interest due on a portion of the first mortgage loan secured by those properties. In            light of these defaults, the Company may not receive the repayment of its $9,500,000            loan, which could have a material adverse effect on the Company’s business,            financial condition, results of operations and prospects. The managing member has            informed the Company that it is attempting to negotiate an agreement with the first            mortgagee, which would include, among other things, a possible two year deferment of            interest payments on all outstanding indebtedness. The Company is entitled to receive            annual interest payments of $1,059,514 on its $9,500,000 loan. The carrying value for            this investment was reduced to zero at December 31, 2007.

          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.

In January, 2007, the Company            purchased an additional 1% limited partnership interest and recorded the purchase as a            partial step acquisition 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”. At December 31, 2007, Presidential and PDL, Inc.            owned an aggregate 60% general and limited partner interest in the Hato Rey            Partnership.

For the year ended December 31,            2007, the Company consolidated the results of operations of the Hato Rey Partnership on            the Company’s consolidated statement of operations. The Hato Rey Partnership had            a loss of $521,102 for 2007. 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 $208,441. Therefore, the            Company recorded 100% of the loss from the partnership of $521,102 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

22

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the amount of the losses            previously absorbed that were applicable to the minority partners.

          Other            Investments

At December 31, 2006, the            Company had $2,000,000 invested with Broadway Real Estate Partners, LLC            (“Broadway Partners”). During 2007, the Company received repayment of            $1,000,000 from these investments and the balance invested at December 31, 2007 is            $1,000,000. In addition, the Company received a distribution from Broadway Partners            from the proceeds of sales in the amount of $537,087, which was recorded in investment            income. These investments are accounted for by the Company under the cost            method.

          Discontinued            Operations

In March 2007, the Company            completed the sale of its Cambridge Green Apartments in Council Bluffs, Iowa. The net            proceeds of the sale were $664,780, which included a $200,000 secured note receivable            from the buyer that matures in one year and has a 7% per annum interest rate. The net            cash proceeds of sale were $464,780.

In June, 2007, the Company sold            a cooperative apartment unit located in New Haven, Connecticut for a sales price of            $125,000 and the net cash proceeds of sale were $117,224.

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.

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 their 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 of 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

23

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31, 2007, the Company’s            net real estate was carried at $16,206,292. During 2007, no impairment loss was            recorded on any of these properties.

          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 was determined to exist. During 2007, impairments of $75,994,000 were            recorded by the joint ventures on four 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 ARB No. 51 and SFAS No. 141,            as a partial step acquisition. 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 is amortized to mortgage interest            expense over the remaining term of the mortgage using the interest method. No gain or            goodwill was recognized on the recording of the acquisitions of the 25% or the 1%            additional interest in the Hato Rey Partnership.

          Mortgage            Portfolio

The Company evaluates the            collectibility of both accrued interest and principal on its $8,051,342 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. All loans are 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.

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          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, 2007,            other receivables, net of an allowance for doubtful accounts of $147,065, were            $370,004. For the years ended December 31, 2007 and 2006, bad debt expense for            continuing operations relating to tenant obligations was $23,325 and $6,598,            respectively.

          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. The Company was not            required to make any contributions to the plan in 2007 for the 2007 tax year. There are            no required contributions for 2008. Net periodic benefit costs for the years ended            December 31, 2007 and 2006 were $118,940 and $326,972, respectively. The projected            benefit obligation at December 31, 2007 was $7,860,349 and the fair value of the plan            assets was $8,232,291. At December 31, 2007 and 2006, the discount rate used in            computing the projected benefit obligation was 6.24% and 5.72%, respectively. The            expected rate of return on plan assets was 7% for both years. Management regularly            reviews 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.

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, 2007 and 2006 were $469,575 and $480,402,            respectively. Benefit costs for the years ended December 31, 2007 and 2006 were            $508,713 and $481,879, respectively. The projected contractual pension benefit            obligation at December 31, 2007 was $1,409,448. At December 31, 2007 and 2006, the            discount rate used in computing the projected benefit obligation was 6.00% and 5.72%,            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

In 2006, Fourth Floor Management            Corp., a 100% owned subsidiary of Presidential Realty Corporation that manages the            Company’s properties,

25

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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 $9,140 contribution to the            plan in February, 2008 for the 2007 plan year and a $10,937 contribution to the plan in            January, 2007 for the 2006 plan year. Contributions are charged to general and            administrative expense.

          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 2007, there is no requirement to make a distribution in            2008. In addition, although no assurances can be given, the Company currently expects            that it will not have to pay Federal income taxes for 2007 because the Company will            apply its 2007 distributions and a portion of its 2006 loss carryforward to reduce its            2007 taxable income to zero. Accordingly, no provision for income taxes has been made            at December 31, 2007. 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.

          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, or a            deficiency dividend and related interest, for prior years. Should such an assessment            require the Company to pay a deficiency dividend in order to continue to qualify as a            REIT, the Company would pay the deficiency dividend to its shareholders and the related            interest assessment to the taxing authorities.

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 be required to pay a deficiency dividend. In addition, for the year            ended December 31, 2007, the Company recorded interest expense of $356,780 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            December 31, 2007, the Company had accrued $817,580 of interest related to these            matters, which is included in accrued liabilities in its consolidated balance sheet. As            of December 31, 2007, the tax years that remain open to examination by the federal,            state and local taxing authorities are the 2004 – 2006 tax years.

26

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Results of            Operations

                      2007 vs 2006

The table below is the results            of operations for the Company for the years ended December 31, 2007 and 2006. For the            year ended December 31, 2007, the Company consolidated 100% of the results of            operations of the Hato Rey Partnership. For the year ended December 31, 2006, the Hato            Rey Partnership was not consolidated on the Company’s consolidated statement of            operations. The Company recorded its share of the loss from operations from the Hato            Rey Partnership under the equity method of accounting and, accordingly, the loss was            recorded in the equity in the loss from partnership. The table also segregates for            analysis purposes the results of operations of the Hato Rey Partnership for the year            ended December 31, 2007.

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|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|-----------|--------|--------|--------|--------|----------|--------|--------|--------|-------------|--------|--------|------------|--------|
|                                                                              |   | Year                        Ended December 31,                                                                        |   |                                                                   |   |                                    |
|                                                                              |   |                                                                                                                       |   |
|                                                                              |   | 2007                                                                                                                  |   | 2006                                                                   |   |
|                                                                              |   |                                                                                                                       |   |                                                                        |   |
|                                                                              |   | Before                        Consolidation                        of the Hato Rey                        Partnership |   | Hato                        Rey                        Partnership (1) |   | Eliminations                        (2) |   | Total  |      | Total  |   |
|                                                                              |   |                                                                                                                       |   |                                                                        |   |                                         |   |        |      |        |   |
| Revenues:                                                                         |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Rental                                                                            |   |                                                                                                                  | $      | 2,575,400                                                              |   |                                    |   | $      | 3,448,158 |   |   |   | ($     | 157,572  | )      |   | $      | 5,865,986   |   | $      | 2,237,691  |   |
| Interest on mortgages -                        notes receivable                   |   |                                                                                                                  |   | 1,187,047                                                              |   |                                    |   |   | —   |   |   |   |   | —  |   |   |   | 1,187,047   |   |   | 1,295,040  |   |
| Interest on mortgages -                        notes receivable - related parties |   |                                                                                                                  |   | 267,575                                                                |   |                                    |   |   | —   |   |   |   |   | —  |   |   |   | 267,575     |   |   | 207,875    |   |
| Other                        revenues                                             |   |                                                                                                                  |   | 276,662                                                                |   |                                    |   |   | —   |   |   |   |   | (262,891 | )      |   |   | 13,771      |   |   | 162,845    |   |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
| Total                                                                             |   |                                                                                                                  |   | 4,306,684                                                              |   |                                    |   |   | 3,448,158 |   |   |   |   | (420,463 | )      |   |   | 7,334,379   |   |   | 3,903,451  |   |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Costs and                        Expenses:                                        |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| General and                        administrative                                 |   |                                                                                                                  |   | 4,166,148                                                              |   |                                    |   |   | —   |   |   |   |   | (157,572 | )      |   |   | 4,008,576   |   |   | 3,494,920  |   |
| Depreciation on                        non-rental property                        |   |                                                                                                                  |   | 31,620                                                                 |   |                                    |   |   | —   |   |   |   |   | —  |   |   |   | 31,620      |   |   | 19,814     |   |
| Rental                        property:                                           |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Operating                        expenses                                         |   |                                                                                                                  |   | 1,313,940                                                              |   |                                    |   |   | 2,132,092 |   |   |   |   | (451,169 | )      |   |   | 2,994,863   |   |   | 2,271,448  |   |
| Interest on mortgage                        debt                                  |   |                                                                                                                  |   | 335,285                                                                |   |                                    |   |   | 1,172,953 |   |   |   |   | —  |   |   |   | 1,508,238   |   |   | 232,802    |   |
| Real estate                        taxes                                          |   |                                                                                                                  |   | 344,532                                                                |   |                                    |   |   | 280,544   |   |   |   |   | —  |   |   |   | 625,076     |   |   | 335,702    |   |
| Depreciation on real                        estate                                |   |                                                                                                                  |   | 126,345                                                                |   |                                    |   |   | 357,456   |   |   |   |   | —  |   |   |   | 483,801     |   |   | 132,924    |   |
| Amortization of                        in-place lease values and mortgage costs   |   |                                                                                                                  |   | 308,605                                                                |   |                                    |   |   | 56,486    |   |   |   |   | —  |   |   |   | 365,091     |   |   | 11,525     |   |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
| Total                                                                             |   |                                                                                                                  |   | 6,626,475                                                              |   |                                    |   |   | 3,999,531 |   |   |   |   | (608,741 | )      |   |   | 10,017,265  |   |   | 6,499,135  |   |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Other Income                        (Loss):                                       |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Investment                        income                                          |   |                                                                                                                  |   | 780,785                                                                |   |                                    |   |   | 30,271    |   |   |   |   | (193,967 | )      |   |   | 617,089     |   |   | 354,270    |   |
| Equity in the loss from                        joint ventures                     |   |                                                                                                                  |   | (10,084,207                                                            | )      |                                    |   |   | —   |   |   |   |   | —  |   |   |   | (10,084,207 | )      |   | (2,083,113 | )      |
| Equity in the loss from                        partnership                        |   |                                                                                                                  |   | —                                                                |   |                                    |   |   | —   |   |   |   |   | —  |   |   |   | —     |   |   | (227,510   | )      |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Loss before minority                        interest                              |   |                                                                                                                  |   | (11,623,213                                                            | )      |                                    |   |   | (521,102  | )      |   |   |   | (5,689   | )      |   |   | (12,150,004 | )      |   | (4,552,037 | )      |
|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Minority                        interest                                          |   |                                                                                                                  |   | (2,194                                                                 | )      |                                    |   |   | —   |   |   |   |   | —  |   |   |   | (2,194      | )      |   | (7,163     | )      |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
| Loss from continuing                        operations                            |   |                                                                                                                  |   | (11,625,407                                                            | )      |                                    |   |   | (521,102  | )      |   |   |   | (5,689   | )      |   |   | (12,152,198 | )      |   | (4,559,200 | )      |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
|                                                                              |
| Discontinued                        Operations:                                   |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Loss from discontinued                        operations                          |   |                                                                                                                  |   | (99,072                                                                | )      |                                    |   |   | —   |   |   |   |   | 5,689    |   |   |   | (93,383     | )      |   | (317,757   | )      |
| Net gain from sales of                        discontinued operations             |   |                                                                                                                  |   | 735,705                                                                |   |                                    |   |   | —   |   |   |   |   | —  |   |   |   | 735,705     |   |   | —    |   |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
| Total income (loss)                        from discontinued operations           |   |                                                                                                                  |   | 636,633                                                                |   |                                    |   |   | —   |   |   |   |   | 5,689    |   |   |   | 642,322     |   |   | (317,757   | )      |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |
|                                                                              |   |                                                                                                                  |   |                                                                   |   |                                    |   |   |      |   |   |   |   |     |   |   |   |        |   |   |       |   |
| Net Loss                                                                          |   |                                                                                                                  | ($     | 10,988,774                                                             | )      |                                    |   | ($     | 521,102   | )      |   |   | $      | —  |   |   | ($     | 11,509,876  | )      | ($     | 4,876,957  | )      |
|                                                                              |   |                                                                                                                  |        |                                                                        |   |                                    |   |        |           |   |   |   |        |          |   |   |        |             |   |        |            |   |

|   |                                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Included in the                        $521,102 net loss from the Hato Rey Partnership is $208,441 for the                        minority partners’ 40% share of the loss. |
|   |                                                                                                                                                                              |
| (2)    | Represents                        intercompany transactions that are eliminated in consolidation.                                                                                 |

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Continuing            Operations:

Revenues increased by $3,430,928            primarily as a result of increases in rental revenues and in interest income on            mortgages-notes receivable-related parties, partially offset by decreases in interest            income on mortgages–notes receivable and in other revenues.

Rental revenues increased by            $3,628,295 primarily due to the consolidation of the Hato Rey Partnership, which            increased rental revenues by $3,427,578 (after the elimination of $20,580 of            intercompany revenues). In addition, rental revenues increased at the majority of the            other rental properties, including a $101,313 increase at the Mapletree Industrial            Center property as a result of increased occupancy rates.

Interest on            mortgages–notes receivable decreased by $107,993 primarily as a result of            repayments on notes receivable received in 2006.

Interest on mortgages-notes            receivable-related parties increased by $59,700 primarily as a result of an increase of            $69,500 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).

Other revenues decreased by            $149,074 primarily as a result of reduced fees of $148,108 earned by the            Company’s management company for third party owned properties, including            primarily the Hato Rey Partnership. As a result of the consolidation of the Hato Rey            Partnership in 2007, such fees were eliminated.

Costs and expenses increased by            $3,518,130 primarily due to the consolidation of the Hato Rey Partnership, which            increased rental property expenses, and increases in general and administrative            expenses.

General and administrative            expenses increased by $513,656 primarily due to interest expense of $356,780 for the            accrual, in accordance with FIN 48, of interest related to tax positions for which the            Company may be required to pay a deficiency dividend. In addition, professional fees            increased by $274,109 and salary expense increased by $88,059. The increased salary            expense was primarily a result of the vesting of restricted stock, which was charged to            salary expense in 2007. These increases were partially offset by a $208,032 decrease in            the defined benefit plan expense.

Rental property operating            expenses increased by $723,415 primarily as a result of the $1,757,252 of operating            expenses (after the elimination of $374,840 in intercompany expenses) from the            consolidation of the Hato Rey Partnership. This increase was partially offset by a            $1,037,197 decrease in environmental expenses at the Mapletree Industrial Center            property. During the 2006 period, the Company recorded $1,080,311 for environmental            site testing and removal of soil at the Mapletree Industrial Center property. The            Company is currently involved in an environmental remediation process which is            discussed further below (see Liquidity and Capital Resources – Environmental            Matters).

Interest on mortgage debt            increased by $1,275,436 primarily as a result of the $1,172,953 interest expense from            the consolidation of the Hato Rey Partnership mortgage. In addition, the Company            recorded amortization of discount on this mortgage of $110,322.

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Amortization of in-place lease            values and mortgage costs increased by $353,566 primarily as a result of $296,741 of            amortization of in-place lease values and $56,486 of amortization of mortgage costs as            a result of the consolidation of the Hato Rey Partnership. The in-place lease values            were recorded in connection with the partial step acquisition of the Hato Rey            Partnership in 2006 and 2007.

Other income decreased by            $7,510,765 primarily as a result of an increase of $8,001,094 in the equity in the loss            from the joint ventures (which included an impairment loss of $8,370,725 in 2007). This            decrease was partially offset by an increase of $262,819 in investment income primarily            due to an increase of $392,011 in distributions received from Broadway Partners            Parallel Fund A (“Broadway Fund A”), partially offset by a decrease of            $88,854 of interest income earned on other funds held by Broadway Partners. In            addition, the 2006 period had a $227,510 loss from the Hato Rey Partnership.

Loss from continuing operations            increased by $7,592,998 from a loss of $4,559,200 in 2006 to a loss of $12,152,198 in            2007. This increase is primarily a result of the $7,510,765 decrease in other            income**.**

Discontinued            Operations:

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. (See            Liquidity and Capital Resources – Discontinued Operations            below.)

The following table compares the            total income (loss) from discontinued operations for the years ended December 31, 2007            and 2006 for properties included in discontinued operations:

|                                                                          |   |   |    |   |   |     |   |
|-------------------------------------------------------------------------------|--------|--------|---------|--------|--------|----------|--------|
|                                                                          |   | 2007   |    | 2006   |   |
|                                                                          |   |        |    |        |   |
|                                                                          |   |   |    |   |   |     |   |
| Loss from                        discontinued operations:                     |   |   |    |   |   |     |   |
|                                                                          |   |   |    |   |   |     |   |
| Cambridge Green,                        Council Bluffs, IA                    |   | $      | (92,302 | )      | $      | (314,143 | )      |
| Cooperative apartment                        unit, New Haven, CT              |   |   | (1,081  | )      |   | (3,614   | )      |
|                                                                          |   |        |         |   |        |          |   |
|                                                                          |   |   |    |   |   |     |   |
| Loss from discontinued                        operations                      |   |   | (93,383 | )      |   | (317,757 | )      |
|                                                                          |   |        |         |   |        |          |   |
|                                                                          |   |   |    |   |   |     |   |
| Net gain (loss) from                        sales of discontinued operations: |   |   |    |   |   |     |   |
| Cambridge                        Green                                        |   |   | 646,759 |   |   | —  |   |
| Cooperative apartment                        unit                             |   |   | 88,946  |   |   | —  |   |
|                                                                          |   |        |         |   |        |          |   |
|                                                                          |   |   |    |   |   |     |   |
| Net gain from sales of                        discontinued operations         |   |   | 735,705 |   |   | —  |   |
|                                                                          |   |        |         |   |        |          |   |
|                                                                          |   |   |    |   |   |     |   |
| Total income (loss)                        from discontinued operations       |   | $      | 642,322 |   | $      | (317,757 | )      |
|                                                                          |   |        |         |   |        |          |   |

30

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Balance Sheet

Investments in and advances to            joint ventures decreased by $13,136,548 as a result of $3,052,341 of distributions            received and $10,084,207 of equity in the loss from the joint ventures.

Net mortgage portfolio increased            by $276,770 primarily as a result of a $200,000 secured note receivable received in            connection with the sale of the Cambridge Green property in March, 2007.

Assets related to discontinued            operations decreased by $2,922,493 as a result of the sale of the Cambridge Green            property.

Other investments decreased by            $1,000,000 primarily as a result of the return of the Company’s $890,000            investment in Broadway Fund A and the return of $110,000 of other funds held by            Broadway Partners (see Liquidity and Capital Resources – Investing            Activities below).

Prepaid expenses and deposits in            escrow decreased by $110,070 primarily as a result of the sale of the Cambridge Green            property. At December 31, 2006, prepaid expenses and deposits in escrow included            $161,236 attributed to Cambridge Green. This decrease was partially offset by a $60,815            increase at the Hato Rey Center property.

Prepaid defined benefit plan            costs decreased by $210,452 primarily as a result of net periodic benefit costs of            $118,940 for 2007 and a $91,512 charge to accumulated other comprehensive            loss.

Other assets decreased by            $350,876 primarily as a result of $296,741 of amortization of in-place lease values and            $68,350 of amortization of mortgage costs.

Liabilities related to            discontinued operations decreased by $2,911,677 as a result of the sale of the            Cambridge Green property.

Contractual pension and            postretirement benefits liabilities decreased by $1,087,453 primarily due to a            $1,165,299 decrease in the contractual pension benefit obligation as a result of the            deaths of two participants in 2007, partially offset by a $77,846 increase in the            contractual postretirement benefits obligation.

Accrued liabilities increased by            $579,745 primarily as a result of the $817,580 accrual for interest related to tax            positions for which the Company may be required to pay a deficiency dividend, partially            offset by a decrease in accrued real estate taxes of $168,924 for the Cambridge Green            property that was sold.

During 2007, the Company awarded            15,500 shares of the Company’s Class B common stock to directors, officers and an            employee of the Company. These shares were issued from the Company’s 2005            Restricted Stock Plan (the “2005 Plan”). Stock granted to directors was            fully vested on the grant date and stock granted to officers and employees will vest 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 2007 and            the expense related to the shares vested in 2007.

31

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|                                                           |   |                                                                                                                             |   |                                                                |   |                                                                                               |   |                                                                |   |                                                                                                                             |   |                                                                                                                                                               |   |                                                                      |   |                                         |   |                                  |   |   |   |   |   |   |
|----------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                           |   |                                                                                                                             |   |                                                                |   |                                                                                               |   |                                                                | 2007   |                                                                                                                             |
|                                                           |   |                                                                                                                             |   |                                                                |   |                                                                                               |   |                                                                |        |                                                                                                                             |
| Date                        of                        Issuance |   | Unvested                        Shares                        at                        December                        31, 2006 |   | Shares                        Issued                        in 2007 |   | Market                        Value at                        Date of                        Grant |   | Shares                        Vested                        in 2007 |   | Unvested                        Shares                        at                        December                        31, 2007 |   | Class                        B                        Common                        Stock - Par                        Value $.10                        Per Share |   | Additional                        Paid -in                        Capital |   | Directors’                        Fees |   | Salary                        Expense |   |
|                                                           |   |                                                                                                                             |   |                                                                |   |                                                                                               |   |                                                                |   |                                                                                                                             |   |                                                                                                                                                               |   |                                                                      |   |                                         |   |                                  |   |   |   |   |   |   |
| Aug., 2005                        (1)                          |   | 8,000                                                                                                                            |   |                                                                |   | $                                                                                                  | 7.51   |                                                                | 2,000  |                                                                                                                             | 6,000  |                                                                                                                                                               |   |                                                                      |   |                                         |   |                                  |   |   |   |   |   |   |
| Aug., 2005                        (1)                          |   | 800                                                                                                                              |   |                                                                |   |                                                                                               | 9.04   |                                                                | 200    |                                                                                                                             | 600    |                                                                                                                                                               |   |                                                                      |   |                                         |   |                                  |   |   |   |   |   |   |
| Jan.,                        2006                              |   | 18,000                                                                                                                           |   |                                                                |   |                                                                                               | 7.40   |                                                                | 4,500  |                                                                                                                             | 13,500 |                                                                                                                                                               |   |                                                                      |   | $                                            | 33,300 |                                  |   |   |   | $      | 33,300 |   |
| Dec.,                        2006                              |   | 6,500                                                                                                                            |   |                                                                |   |                                                                                               | 7.05   |                                                                | 1,300  |                                                                                                                             | 5,200  |                                                                                                                                                               |   |                                                                      |   |                                         | 9,165  |                                  |   |   |   |   | 9,165  |   |
| Jan.,                        2007                              |   |                                                                                                                             |   | 3,000                                                               |   |                                                                                               | 6.95   |                                                                | 3,000  |                                                                                                                             |   |                                                                                                                                                               | $      | 300                                                                       |   |                                         | 20,550 |                                  | $      | 20,850 |   |   |   |   |
| May, 2007                                                      |   |                                                                                                                             |   | 10,000                                                              |   |                                                                                               | 7.44   |                                                                | 5,000  |                                                                                                                             | 5,000  |                                                                                                                                                               |   | 1,000                                                                     |   |                                         | 36,200 |                                  |   |   |   |   | 37,200 |   |
| Dec.,                        2007                              |   |                                                                                                                             |   | 2,500                                                               |   |                                                                                               | 5.80   |                                                                |   |                                                                                                                             | 2,500  |                                                                                                                                                               |   | 250                                                                       |   |                                         | (250   | )                                     |   |   |   |   |   |   |
|                                                           |   |                                                                                                                             |   |                                                                |   |                                                                                               |   |                                                                |   |                                                                                                                             |   |                                                                                                                                                               |   |                                                                      |   |                                         |   |                                  |   |   |   |   |   |   |
|                                                           |   |                                                                                                                                  |   |                                                                     |   |                                                                                               |   |                                                                |        |                                                                                                                             |        |                                                                                                                                                               |        |                                                                           |   |                                              |        |                                  |        |        |   |        |        |   |
|                                                           |   | 33,300                                                                                                                           |   | 15,500                                                              |   |                                                                                               |   |                                                                | 16,000 |                                                                                                                             | 32,800 |                                                                                                                                                               | $      | 1,550                                                                     |   | $                                            | 98,965 |                                  | $      | 20,850 |   | $      | 79,665 |   |
|                                                           |   |                                                                                                                                  |   |                                                                     |   |                                                                                               |   |                                                                |        |                                                                                                                             |        |                                                                                                                                                               |        |                                                                           |   |                                              |        |                                  |        |        |   |        |        |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 $83,400 to additional paid-in                        capital. |

32

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Accumulated other comprehensive            loss decreased by $1,027,730 primarily as a result of adjustments of $1,122,297 for            contractual pension and postretirement benefits.

Treasury stock increased by            $233,867 as a result of the Company’s purchase of 11,633 shares of its Class B            common stock at an average cost of $7.86 per share, 16,000 shares of its Class B common            stock from a director of the Company at an average cost of $6.68 per share, and 5,275            shares of its Class A common stock at an average cost of $6.73 per share.

Liquidity and Capital            Resources

Management believes that the            Company has sufficient liquidity and capital resources to carry on its existing            business and, barring any unforeseen circumstances, to pay the dividends required to            maintain REIT status in the foreseeable future. Except as discussed herein, management            is not aware of any other trends, events, commitments or uncertainties that will have a            significant effect on liquidity.

Subsequent to December 31, 2007,            Lightstone III defaulted on payments of interest due under the Company’s            $9,500,000 loan related to the Macon/Burlington Malls (see Investments in and            Advances to Joint Ventures below). As a result, the Company does not expect to            receive approximately $1,060,000 of interest payments that are contractually due to be            received during 2008. Adverse economic conditions affecting some of the Company’s            shopping mall joint ventures could also affect the ability of its borrowers to make            payments on the Company’s other loans to the joint ventures. Any further defaults            on these loans would adversely affect the liquidity of the Company and have a material            adverse effect on the Company’s business, financial condition, results of            operations and prospects.

Subsequent to December 31, 2007,            the Company received repayment of a $1,500,000 loan from an affiliate of Mr.            Lichtenstein and the Company has exercised its right to require prepayment of the            $3,875,000 Note from an affiliate of Mr. Lichtenstein upon 90 days prior notice, which            notice was given on March 20, 2008.

While no decision has been made            with respect to dividends for future periods, if the Company’s cash flow were to            be substantially reduced, the Company would be able to reduce its dividend without            affecting its ability to continue to qualify as a real estate investment trust. The            Company maintained the $.64 dividend rate in 2007, but no assurances can be given that            the present dividend rate will be maintained in the future.

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, or a deficiency dividend and related interest, for prior years. Should such            an assessment require the Company to pay a deficiency dividend in order to continue to            qualify as a REIT, the Company would pay the deficiency dividend to its shareholders            and the related interest assessment to the taxing authorities. The Company would be            required to pay such deficiency dividend within ninety days of such determination. If            the Company had to pay a deficiency dividend and interest thereon, the Company may have            to borrow funds or sell assets to do so.

Presidential obtains funds for            working capital and investment from its available cash and cash equivalents, from            operating activities, from

33

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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, 2007, there was no outstanding            balance under the line of credit.

At December 31, 2007,            Presidential had $2,343,497 in available cash and cash equivalents, an increase of            $79,963 from the $2,263,534 at December 31, 2006. This increase in cash and cash            equivalents was due to cash provided by operating activities of $2,153,253 and cash            provided by investing activities of $843,690, offset by cash used in financing            activities of $2,916,980.

During 2007, 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 2007,            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. However, no assurances can be given with respect to            any dividends for future periods.

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            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 for additional investment,            its historical dividend rate and its ability to reduce taxes by paying            dividends.

          Insurance

The Company carries            comprehensive liability, fire, flood (where necessary), 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 2007, the cost for this            insurance was approximately $271,000. The Company has renewed its insurance coverage            for 2008 and the Company estimates that the premium costs will be approximately            $257,000 for 2008. 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.

          Consolidated            Loans

Presidential holds two            nonrecourse notes (the “Consolidated Loans”) from Ivy Properties, Ltd. and            its affiliates (“Ivy”). At December 31, 2007, 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

34

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Presidential, and Thomas            Viertel, Executive Vice President and Chief Financial Officer of Presidential) to carry            on theatrical productions. Amounts received by Presidential from Ivy will be applied to            unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The            Company anticipates that these amounts may 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            $256,000 in 2007 and $186,500 in 2006 of interest income on the Consolidated Loans. The            Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime rate,            which was 7.25% at December 31, 2007. At December 31, 2007, the unpaid and unaccrued            interest was $3,420,554 and such interest is not compounded.

                      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 and other            investments. In 2007, cash received from interest on the Company’s mortgage            portfolio was $1,327,073, distributions received from joint ventures were $3,052,341            and distributions received from other investments were $537,087. Net cash received from            rental property operations was $460,331. Net cash received from rental property            operations is net of distributions to minority partners but before additions and            improvements and mortgage amortization.

                      Investing Activities

Presidential holds a portfolio            of mortgage notes receivable. During 2007, the Company received principal payments of            $171,254 on its mortgage portfolio, of which $127,583 represented            prepayments.

During 2007, the Company            invested $813,366 in additions and improvements to its properties, including $655,382            for the Hato Rey Center. It is projected that additions and improvements in 2008 will            be approximately $640,000, including $506,000 for the Hato Rey Center.

In March, 2007, the Company            completed the sale of its Cambridge Green Apartments in Council Bluffs, Iowa and the            net proceeds of the sale were $664,780, which included a $200,000 secured note            receivable from the buyer that matures in one year and has a 7% per annum interest            rate. The net cash proceeds of sale were $464,780 (see Discontinued Operations            below).

In June, 2007, the Company sold            a cooperative apartment unit located in New Haven, Connecticut for a sales price of            $125,000 and the net cash proceeds of sale were $117,224 (see Discontinued            Operations below).

In September, 2007, the Company            received the repayment of its $890,000 investment in Broadway Fund A and repayment of            $110,000 from Broadway Partners. In addition, the Company received a distribution from            Broadway Fund A from the proceeds of sales in the amount of $537,087, which was            recorded in investment income.

In January, 2007, the Company            purchased an additional 1% limited partnership interest in the Hato Rey Partnership for            a purchase price of $53,694.

35

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

                      Financing Activities

The Company’s indebtedness            at December 31, 2007, consisted of mortgage debt of $18,868,690 which was reduced by a            discount of $48,254 relating to the Hato Rey Center property mortgage. The mortgage            debt is collateralized by individual properties. The $15,541,000 mortgage on the Hato            Rey Center property and the $2,174,747 mortgage on the Crown Court property are            nonrecourse to the Company, whereas the $1,101,578 Building Industries Center mortgage            and the $99,619 Mapletree Industrial Center mortgage are recourse to Presidential. 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 2007, the Company made            $426,091 of principal payments on mortgage debt.

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 $1,072,906 due at maturity in January, 2009,            and the Hato Rey Center mortgage. The first mortgage loan on the Hato Rey Center            property is due on May 11, 2028 but provides that if it is not repaid on or before May            11, 2008, the interest rate on the loan will 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 outstanding principal balance of the            loan on May 11, 2008 will be approximately $15,445,000. The Company is attempting to            refinance the existing first mortgage but has not yet obtained a commitment to do so.            Failure to repay the existing mortgage loan on May 11, 2008 does not constitute a            default under the loan.

During 2007, Presidential            declared and paid cash distributions of $2,524,028 to its shareholders and received            proceeds from its dividend reinvestment plan of $275,795.

On December 31, 2007, the            Company decided to terminate its dividend reinvestment plan effective as of January 31,            2008.

During 2007, the Company            purchased 5,275 shares of its Class A common stock and 11,633 shares of its Class B            common stock from unaffiliated shareholders for a purchase price of $126,967. In            addition, in April, 2007 and September, 2007, the Company purchased 10,000 shares and            6,000 shares of its Class B common stock from a director of the Company for a below            market purchase price of $70,000 and $36,900, respectively. The Company has from time            to time purchased shares of its stock from individual shareholders who have approached            the Company. The Company has no specific plan or program to repurchase additional            shares but it may do so in the future.

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                      Discontinued Operations

For the years ended December 31,            2007 and 2006, income (loss) from discontinued operations includes 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.

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 matures in one year and has 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 includes the $200,000 note receivable. The Company recognized a gain            from the sale for financial reporting purposes of $646,759.

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 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.

The following table summarizes            income (loss) for the properties sold.

|                                                                    |   |                                           |    |   |   |      |   |
|-------------------------------------------------------------------------|--------|------------------------------------------------|---------|--------|--------|-----------|--------|
|                                                                    |   | Year                        Ended December 31, |    |
|                                                                    |   |                                                |    |
|                                                                    |   | 2007                                           |    | 2006   |   |
|                                                                    |   |                                                |    |        |   |
| Revenues:                                                               |   |                                           |    |   |   |      |   |
| Rental                                                                  |   | $                                              | 113,185 |   | $      | 895,398   |   |
|                                                                    |   |                                                |         |   |        |           |   |
|                                                                    |   |                                           |    |   |   |      |   |
| Rental property                        expenses:                        |   |                                           |    |   |   |      |   |
| Operating                        expenses                               |   |                                           | 148,213 |   |   | 856,260   |   |
| Interest on mortgage                        debt                        |   |                                           | 31,684  |   |   | 192,151   |   |
| Real estate                        taxes                                |   |                                           | 27,685  |   |   | 168,934   |   |
| Depreciation on real                        estate                      |   |                                           | 987     |   |   | 2,048     |   |
|                                                                    |   |                                                |         |   |        |           |   |
| Total                                                                   |   |                                           | 208,569 |   |   | 1,219,393 |   |
|                                                                    |   |                                                |         |   |        |           |   |
|                                                                    |   |                                           |    |   |   |      |   |
| Other                        income:                                    |   |                                           |    |   |   |      |   |
| Investment                        income                                |   |                                           | 2,001   |   |   | 6,238     |   |
|                                                                    |   |                                                |         |   |        |           |   |
|                                                                    |   |                                           |    |   |   |      |   |
| Loss from discontinued                        operations                |   |                                           | (93,383 | )      |   | (317,757  | )      |
|                                                                    |   |                                           |    |   |   |      |   |
| Net gain from sales of                        discontinued operations   |   |                                           | 735,705 |   |   | —   |   |
|                                                                    |   |                                                |         |   |        |           |   |
|                                                                    |   |                                           |    |   |   |      |   |
| Total income (loss)                        from discontinued operations |   | $                                              | 642,322 |   | $      | (317,757  | )      |
|                                                                    |   |                                                |         |   |        |           |   |

37

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                      Investments in and Advances to Joint Ventures

Over the past several years the            Company has made investments in and advances to four joint ventures that own nine            shopping malls. 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 the Lightstone Group            (“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 are 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 receives monthly payments of interest on these loans from            the joint ventures and under the equity method of accounting records these payments to            Investments in and advances to joint ventures, as distributions received. 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).

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, 2007 is as            follows:

38

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|                                          |   |   |   |   |                                                                       |   |   |                                          |   |   |                                                                                                                               |   |   |                                                                       |   |
|-----------------------------------------------|--------|--------|--------|--------|----------------------------------------------------------------------------|--------|--------|-----------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------|--------|
|                                          |   |   |   |   | Balance at                        December 31,                        2006 |   |   | Distributions                        Received |   |   | Equity                        in the                        Loss from                        Joint                        Ventures |   |   | Balance at                        December 31,                        2007 |   |
|                                          |   |   |   |   |                                                                            |   |   |                                               |   |   |                                                                                                                                    |   |   |                                                                            |   |
| Martinsburg                        Mall       |   | (1)    |   | $      | 162,821                                                                    |   | $      | (159,868                                      | )      | $      | (2,953                                                                                                                             | )      | $      | —                                                                    |   |
| Four                        Malls             |   | (2)    |   |   | 4,534,578                                                                  |   |   | (959,139                                      | )      |   | (2,886,704                                                                                                                         | )      |   | 688,735                                                                    |   |
| Macon/Burlington                        Malls |   | (3)    |   |   | 7,354,426                                                                  |   |   | (1,059,514                                    | )      |   | (6,294,912                                                                                                                         | )      |   | —                                                                    |   |
| Shawnee/Brazos                        Malls   |   | (4)    |   |   | 6,007,924                                                                  |   |   | (873,820                                      | )      |   | (899,638                                                                                                                           | )      |   | 4,234,466                                                                  |   |
|                                          |   |   |   |        |                                                                            |   |        |                                               |   |        |                                                                                                                                    |   |        |                                                                            |   |
|                                          |   |   |   | $      | 18,059,749                                                                 |   | $      | (3,052,341                                    | )      | $      | (10,084,207                                                                                                                        | )      | $      | 4,923,201                                                                  |   |
|                                          |   |   |   |        |                                                                            |   |        |                                               |   |        |                                                                                                                                    |   |        |                                                                            |   |

Equity in the loss from joint            ventures is as follows:

|                                          |   |   |   |   |                                           |        |   |   |       |   |
|-----------------------------------------------|--------|--------|--------|--------|------------------------------------------------|-------------|--------|--------|------------|--------|
|                                          |   |   |   |   | Year                        Ended December 31, |        |
|                                          |   |   |   |   |                                                |        |
|                                          |   |   |   |   | 2007                                           |        | 2006   |   |
|                                          |   |   |   |   |                                                |        |        |   |
| Martinsburg                        Mall       |   |   | (1)    |   | $                                              | (2,953      | )      | $      | (480,159   | )      |
| Four                        Malls             |   |   | (2)    |   |                                           | (2,886,704  | )      |   | (1,200,518 | )      |
| Macon/Burlington                        Malls |   |   | (3)    |   |                                           | (6,294,912  | )      |   | (128,030   | )      |
| Shawnee/Brazos                        Malls   |   |   | (4)    |   |                                           | (899,638    | )      |   | (274,406   | )      |
|                                          |   |   |   |   |                                                |             |   |        |            |   |
|                                          |   |   |   |   | $                                              | (10,084,207 | )      | $      | (2,083,113 | )      |
|                                          |   |   |   |   |                                                |             |   |        |            |   |

(1) The Company’s share of            the 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 the second quarter of 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 future distributions received from the Martinsburg Mall will be recorded in            income.

(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 loss from joint ventures for the Four Malls. The Company recorded a $2,886,704 loss            for 2007 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).

(3) 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 loss from joint ventures for the Macon/Burlington Malls. In the fourth quarter            of 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. Any future distributions received from the Macon/Burlington            Malls will be recorded in income.

(4) 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

39

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the calculation of the            Company’s share of the loss from joint ventures for the Shawnee/Brazos            Malls.

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 statement of            operations for the year ended December 31, 2007 reflects 29% of the loss from the joint            ventures. 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 29% 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. 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 recorded an impairment loss of $8,370,725.

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, 2007, the Company received distributions from the joint ventures in the            amount of $3,052,341, of which $2,892,473 were interest payments received on the            outstanding loans to the joint ventures and $159,868 was a return on            investment.

Subsequent to year end,            Lightstone III defaulted on its February and March, 2008 monthly payments of interest            on the Company’s $9,500,000 mezzanine loan relating to the Macon/Burlington            Malls. Lightstone III has also failed to make the February and March, 2008 payments due            on a portion of the first mortgage loan secured by the Macon/Burlington Malls.            Lightstone III has informed the Company that it is attempting to negotiate an agreement            with the first mortgagee, which would include a release of certain funds held in escrow            accounts by the first mortgagee and a deferment of interest payments on all of the            outstanding indebtedness of Macon/Burlington Malls in order to provide funds for the            improvement of the properties. The Company cannot predict whether Lightstone III will            be able to obtain a modification of the indebtedness on the Macon/Burlington Malls. If            Lightstone III cannot obtain such a modification and does not cure its defaults on the            mortgage indebtedness, the holders of the first mortgage on the properties may            foreclose their lien on the properties and the Company’s $9,500,000 mezzanine            loan may not be paid, which could have a material adverse effect on the Company’s            business, financial condition, results of operations and prospects. The Company            receives annual interest payments of $1,059,514 on its $9,500,000 loan. The carrying            value of the investment was reduced to zero at December 31, 2007.

The $29,600,000 nonrecourse            first mortgage loan secured by the West Manchester Mall and the $39,500,000 nonrecourse            first mortgage loan secured by the Shawnee/Brazos Malls carry interest rates that            change monthly based on the London Interbank Offered Rate and mature in June, 2008 and            January, 2009, respectively. A material increase in interest rates could adversely            affect the operating results of the joint ventures and their ability to make the            required interest payments on the Company’s $8,600,000 and $7,835,000 mezzanine            loans to those entities. The interest rate on the first mortgage secured by the West            Manchester Mall was 7.89% per annum at December 31, 2006

40

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and December 31, 2007. The            interest rate on the first mortgages secured by the Shawnee/Brazos Malls was 7.93% per            annum at December 31, 2006 and 7.54% per annum at December 31, 2007. Lightstone II has            the right to extend the maturity date of the Shawnee/Brazos Malls first mortgage for            one additional year. The Company believes that the Shawnee/Brazos Malls first mortgage            will either be extended in accordance with its terms or refinanced prior to its            maturity date. The $29,600,000 first mortgage loan secured by the West Manchester Mall            is due in June of 2008. An affiliate of Lightstone has guaranteed repayment of a total            of $10,360,000 of the first mortgage. Lightstone is attempting to obtain a refinancing            of the first mortgage or an extension of its maturity date. However, there can be no            assurance that such a refinancing or modification can be obtained and if it is not, the            holder of the first mortgage could foreclose on the property and Presidential could            lose its interest in the property. The carrying value of the West Manchester Mall was            written down to its estimated fair value by the owning joint venture at December 31,            2007.

The Lightstone Group is            controlled by David Lichtenstein. At December 31, 2007, in addition to            Presidential’s investments of $4,923,201 in these joint ventures with entities            controlled by Mr. Lichtenstein, Presidential has three loans that are due from entities            that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount            of $7,449,994 with a net carrying value of $7,112,498. Two of the loans in the            outstanding principal amount of $5,375,000, with a net carrying value of 5,037,504, are            secured by interests in five apartment properties and are also personally guaranteed by            Mr. Lichtenstein up to a maximum amount of $3,137,500. The third loan in the            outstanding principal amount of $2,074,994 is secured by interests in nine apartment            properties. All of these loans are in good standing. While the Company believes that            all of these loans are adequately secured, a default on any or all of these loans could            have a material adverse effect on Presidential’s business, financial condition,            results of operations and prospects.

The $12,035,699 net carrying            value of investments in and advances to joint ventures with entities controlled by Mr.            Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein            constitute 34% of the Company’s total assets at December 31, 2007. Subsequent to            December 31, 2007, the Company received repayment of a $1,500,000 loan (included in the            $7,449,994 referred to above).

                      Hato Rey Partnership

At December 31, 2007, 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.

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            $795,000 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

41

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over time decrease. At December            31, 2007, the vacancy rate had been reduced to 31%.

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 was advanced from time to time as funds were needed, bears interest at            the rate of 11% per annum, 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 would be at the rate of 13% per            annum. In addition, if the loan is not repaid by May, 2008, the interest rate on the            entire loan will increase to 13% per annum. At December 31, 2007, the Company had            advanced $1,999,275 to the Hato Rey Partnership. The $1,999,275 loan and the accrued            interest of $235,239 have been eliminated in consolidation.

                      Contractual Commitments

The Company’s significant            contractual commitments are its liabilities under mortgage debt and employment            agreements, which are payable as follows:

|                     |   |                                    |       |                                         |   |      |   |   |       |   |
|--------------------------|--------|-----------------------------------------|------------|----------------------------------------------|--------|-----------|--------|--------|------------|--------|
|                     |   | Mortgage                        Debt(1) |       | Employment                        Agreements |   | Total     |   |
|                     |   |                                         |       |                                              |   |           |   |
|                     |
| Year ending December 31: |   |                                    |       |                                         |   |      |   |   |       |   |
| 2008                     |   | $                                       | 445,130    |                                         | $      | 960,060   |   | $      | 1,405,190  |   |
| 2009                     |   |                                    | 1,524,693  |                                         |   | 807,820   |   |   | 2,332,513  |   |
| 2010                     |   |                                    | 486,476    |                                         |   | 807,820   |   |   | 1,294,296  |   |
| 2011                     |   |                                    | 507,114    |                                         |   | 807,820   |   |   | 1,314,934  |   |
| 2012                     |   |                                    | 525,424    |                                         |   | 416,030   | (2)    |   | 941,454    |   |
| Thereafter               |   |                                    | 15,428,107 |                                         |   | 869,870   |   |   | 16,297,977 |   |
|                     |   |                                         |            |                                         |        |           |   |        |            |   |
|                     |   |                                    |       |                                         |   |      |   |   |       |   |
| TOTAL                    |   | $                                       | 18,916,944 |                                         | $      | 4,669,420 |   | $      | 23,586,364 |   |
|                     |   |                                         |            |                                         |        |           |   |        |            |   |

|   |                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Mortgage debt bears                        interest at fixed rates varying from 5.45% to 8.25% per annum (see Note 7                        of Notes to Consolidated Financial Statements). |
|   |                                                                                                                                                                                        |
| (2)    | Employment                        agreements will expire in 2011 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, 2007, the Company paid $469,575 for pension benefits and $60,424 for            postretirement benefits. The Company expects that payments for these contractual            benefits will be reduced to approximately $251,700 in 2008, as a result of the deaths            of two participants in 2007.

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                      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 and the depth of the contamination is at            this time undetermined. 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 depth of which is yet to be determined). The Company estimates that            the costs of the cleanup will not exceed $1,000,000. The remediation will comply with            the requirements of the Massachusetts Department of Environmental Protection            (“MADEP”). The MADEP has agreed that the Company may complete the            remediation over the next fifteen years, but the Company expects to complete the            project over the next ten years. The Company is currently waiting for regulations to be            finalized by MADEP and will begin remediation thereafter. This estimate is based on            hazard waste regulation 310 CMR 30 being passed in Massachusetts. If this regulation is            not adopted, the costs could be materially different.

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. The expected cash payments and            undiscounted amount to be recognized in the Company’s consolidated financial            statements are as follows:

|      |   |                                           |   |                                                                                                        |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-----------|--------|------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Year      |   | Estimated                        Cash Payments |   | Actual                        Cash Payments                        December 31,                        2007 |   | Estimated                        Undiscounted                        Amount to be                        Recognized                        as Expense |   | Discount                        Amount                        Recognized                        as Expense                        December 31,                        2007 |   |
|           |   |                                                |   |                                                                                                             |   |                                                                                                                                                       |   |                                                                                                                                                                            |   |
|      |
| 2007      |   |                                           | $      | 200,000                                                                                                     |   |                                                                                                                                                  |   | $                                                                                                                                                                          | 36,663 |   |   |   | $      | 8,841  |   |   |   | $      | 1,621  |   |   |
| 2008      |   |                                           |   | 200,000                                                                                                     |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   | 16,934 |   |   |   |   |   |   |   |
| 2009      |   |                                           |   | 150,000                                                                                                     |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   | 18,277 |   |   |   |   |   |   |   |
| 2010      |   |                                           |   | 100,000                                                                                                     |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   | 15,612 |   |   |   |   |   |   |   |
| 2011      |   |                                           |   | 100,000                                                                                                     |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   | 18,781 |   |   |   |   |   |   |   |
| 2012-2016 |   |                                           |   | 250,000                                                                                                     |   |                                                                                                                                                  |   |                                                                                                                                                                       |   |   |   |   |   | 67,101 |   |   |   |   |   |   |   |

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 unless regulation 310 CMR 30 is not adopted.

In addition to the $854,454            charged to operations for environmental expense, the Company incurred costs in 2006 of            $225,857 for environmental site testing and removal of soil. The total amounts charged            to operations for environmental expense for 2006 were $1,080,311. For the year ended            December 31, 2007, the Company incurred environmental expenses of $41,493 for further            excavation and testing of the site.

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                      Recent Accounting Pronouncements

In July, 2006, the FASB issued            FIN 48. FIN 48 established new evaluation and measurement processes for all income tax            positions taken. FIN 48 also required expanded disclosures of income tax            matters.

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, or a deficiency dividend            and related interest, for prior years. Should such an assessment require the Company to            pay a deficiency dividend in order to continue to qualify as a REIT, the Company would            pay the deficiency dividend to its shareholders and the related interest assessment to            the taxing authorities.

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 be required to pay a deficiency dividend. In addition, for the year            ended December 31, 2007, the Company recorded interest expense of $356,780 for the            interest related to these matters. As of December 31, 2007, the tax years that remain            open to examination by the federal, state and local taxing authorities are the 2004            – 2006 tax years.

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 and interim periods within            those fiscal years. The adoption of this standard on January 1, 2008, is not expected            to 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            132R”. 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 adoption of the requirement to            recognize the funded status of a benefit plan and the disclosure requirements as of            December 31, 2006 resulted in a $1,112,520 increase in accumulated other comprehensive            loss on the Company’s consolidated balance sheet. 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 is not expected to 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

44

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fiscal years beginning after            November 15, 2007. The Company is not electing 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            adoption of this standard is not expected to 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.

                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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. Changes in market rates of interest impact the fair values of these            fixed rate assets and liabilities. However, because 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, any fluctuations in values do not impact the            Company’s earnings, balance sheet or cash flows. Nevertheless, since some of the            Company’s mortgage notes payable are at fixed rates of interest and provide for            yield maintenance payments upon prepayment prior to maturity, if market interest rates            are lower than the interest rates on the mortgage notes payable, the Company’s            ability to sell the properties securing the notes may be adversely affected and the net            proceeds of any sale may be reduced as a result of the yield maintenance requirements.            The Company does not own any derivative financial instruments or engage in hedging            activities.

|                           |                                        |
|--------------------------------|---------------------------------------------|
| ITEM                        7. | FINANCIAL                        STATEMENTS |

See Table of Contents to            Consolidated Financial Statements.

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|                           |                                                                                                                               |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
| ITEM                        8. | CHANGES IN AND                        DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                        DISCLOSURE |

None.

|                            |                                           |
|---------------------------------|------------------------------------------------|
| ITEM                        8A. | 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, 2007. Based on this evaluation, our chief            executive officer and our chief financial officer concluded that as of December 31,            2007, 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.

(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:

46

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | 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, 2007.            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, 2007.

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                        8B. | OTHER                        INFORMATION |

None.

PART            III

|                           |                                                                                                                                                                                |
|--------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM                        9. | DIRECTORS,                        EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;                        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |

Reference is            made to the Company’s definitive Proxy Statement for its Annual Meeting of            Shareholders to be held June 16, 2008, which Proxy Statement will be filed with the            Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated            herein by reference.

47

----

|                            |                                          |
|---------------------------------|-----------------------------------------------|
| ITEM                        10. | EXECUTIVE                        COMPENSATION |

Reference is            made to the Company’s definitive Proxy Statement for its Annual Meeting of            Shareholders to be held June 16, 2008, 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. | 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 16, 2008, 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. | 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 16, 2008, 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. | 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).

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).

48

----

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).

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

49

----

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).

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.

14.            Code of Business Conduct and Ethics of the Company.

50

----

21.            List of Subsidiaries of Registrant as of December 31, 2007.

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.

|                            |                                                          |
|---------------------------------|---------------------------------------------------------------|
| ITEM                        14. | PRINCIPAL                        ACCOUNTANT FEES AND SERVICES |

Reference is made to the            Company’s definitive Proxy Statement for its Annual Meeting to Shareholders to be            held June 16, 2008, which Proxy Statement will be filed with the Securities and            Exchange Commission pursuant to Regulation 14A and which is incorporated herein by            reference.

51

----

SIGNATURES

Pursuant to the requirements of            Section 13 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                        CORPORATION |
|                                                   |
| By:                                                    | /s/ THOMAS                        VIERTEL |
|                                                   |                                           |                                                |
|                                                   |                                      | Thomas                        Viertel          |
|                                                   |                                      | Chief Financial                        Officer |
|                                                   |                                      | March 25,                        2008          |

Pursuant to the requirements of            the Securities Exchange Act of 1934, the Registrant 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 |                                          | Date                                                  |
|                                            |                                          |                                                       |
|                                       |
| By:                                        | /s/ ROBERT E.                        SHAPIRO  |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Robert E.                        Shapiro              |                                  |   |
|                                       |                                          | Chairman of the                        Board of       |                                  |   |
|                                       |                                          | Directors and                        Director         |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ JEFFREY F.                        JOSEPH  |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Jeffrey F.                        Joseph              |                                  |   |
|                                       |                                          | President and                        Director         |                                  |   |
|                                       |                                          | (Chief Executive                        Officer)      |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ THOMAS                        VIERTEL     |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Thomas                        Viertel                 |                                  |   |
|                                       |                                          | Executive Vice                        President       |                                  |   |
|                                       |                                          | (Chief Financial                        Officer)      |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ ELIZABETH                        DELGADO  |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Elizabeth                        Delgado              |                                  |   |
|                                       |                                          | Treasurer                                             |                                  |   |
|                                       |                                          | (Principal                        Accounting Officer) |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ STEVEN                        BARUCH      |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Steven                        Baruch                  |                                  |   |
|                                       |                                          | Executive Vice                        President       |                                  |   |
|                                       |                                          | and                        Director                   |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ RICHARD                        BRANDT     |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Richard                        Brandt                 |                                  |   |
|                                       |                                          | Director                                              |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ MORTIMER M.                        CAPLIN |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Mortimer M.                        Caplin             |                                  |   |
|                                       |                                          | Director                                              |                                  |   |
|                                       |                                          |                                                  |                                  |   |
| By:                                        | /s/ ROBERT                        FEDER       |                                                  | March 25,                        2008 |
|                                       |                                               |                                                  |                                  |
|                                       |                                          | Robert                        Feder                   |                                  |   |
|                                       |                                          | Director                                              |                                  |   |

52

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PRESIDENTIAL REALTY            CORPORATION AND SUBSIDIARIES

TABLE OF            CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                               |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                               | Page   |
|                                                                                                                                               |        |
|                                                                                                                                               |   |
| Report                        of Independent Registered Public Accounting Firm                                                                     | 54     |
|                                                                                                                                               |   |
| CONSOLIDATED                        FINANCIAL STATEMENTS:                                                                                          |   |
|                                                                                                                                               |   |
| Consolidated                        Balance Sheets –                        December 31, 2007 and 2006                                       | 55     |
|                                                                                                                                               |   |
| Consolidated                        Statements of Operations for the                        Years Ended December 31, 2007 and 2006                 | 56     |
|                                                                                                                                               |   |
| Consolidated                        Statements of Stockholders’ Equity for                        the Years Ended December 31, 2007 and 2006 | 57     |
|                                                                                                                                                    |   |
| Consolidated                        Statements of Cash Flows for the                        Years Ended December 31, 2007 and 2006                 | 58     |
|                                                                                                                                               |   |
| Notes                        to Consolidated Financial Statements                                                                                  | 60     |

53

----

**REPORT OF            INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directors and            Stockholders of            Presidential Realty Corporation            White Plains, New York

We have audited the accompanying            consolidated balance sheets of Presidential Realty Corporation and subsidiaries (the            “Company”) as of December 31, 2007 and 2006, and the related consolidated            statements of operations, stockholders’ equity and cash flows for the years then            ended. These financial statements are the responsibility of the Company’s            management. Our responsibility is to express an opinion on these financial statements            based on our audits. We 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 and $18,059,749 in the Lightstone LLCs’ net assets at December 31,            2007 and 2006, respectively, and of $10,084,207 and $2,083,113 in the Lightstone            LLCs’ net loss for the respective years then ended are 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 audits included            consideration of internal control over financial reporting as a basis for designing            audit procedures that are appropriate in the circumstances, but not for the purpose of            expressing an opinion on the effectiveness of the Company’s internal control over            financial reporting. Accordingly, we express no such opinion. An audit also includes            examining, on a test basis, evidence supporting the amounts and disclosures in the            financial statements, assessing the accounting principles used and significant            estimates made by management, as well as evaluating the overall financial statement            presentation. We believe that our audits and the report of the other auditors provide a            reasonable basis for our opinion.

In our opinion, based on our audits            and the report of the other auditors, such consolidated financial statements present            fairly, in all material respects, the financial position of Presidential Realty            Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of its            operations and its cash flows for the years then ended in conformity with accounting            principles generally accepted in the United States of America.

|   |                                             |
|--------|--------------------------------------------------|
| /s/    | DELOITTE &                        TOUCHE LLP |
|   | Stamford, Connecticut                            |
|   | March 31,                        2008            |

54

----

PRESIDENTIAL REALTY CORPORATION AND            SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                     |        |                                     |                                     |                                     |                                     |       |   |   |    |   |   |    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|------------------------------------------|------------------------------------------|------------------------------------------|------------------------------------------|------------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                                                                                     |        | December 31,                        2007 |                                     | December 31,                        2006 |                                     |
|                                                                                                                                                                     |        |                                          |                                     |                                          |                                     |
| Assets                                                                                                                                                                   |        |                                     |                                     |                                     |                                     |       |   |
|                                                                                                                                                                     |        |                                     |                                     |                                     |                                     |       |   |
| Investments in and                        advances to joint ventures (Note 2)                                                                                            |        | $                                        | 4,923,201                                |                                     | $                                        | 18,059,749 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Real estate (Note                        3)                                                                                                                              |        |                                     | 21,041,049                               |                                     |                                     | 20,333,180 |   |
| Less: accumulated                        depreciation                                                                                                                    |        |                                     | 4,834,757                                |                                     |                                     | 4,363,886  |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Net real                        estate                                                                                                                                   |        |                                     | 16,206,292                               |                                     |                                     | 15,969,294 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
| Mortgage portfolio                        (Note 4):                                                                                                                      |        |                                     |                                     |                                     |                                     |       |   |
| Notes receivable -                        net                                                                                                                            |        |                                     | 7,659,225                                |                                     |                                     | 7,234,239  |   |
| Notes receivable -                        related parties - net                                                                                                          |        |                                     | —                                  |                                     |                                     | 148,216    |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Net mortgage                        portfolio                                                                                                                            |        |                                     | 7,659,225                                |                                     |                                     | 7,382,455  |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Assets related to                        discontinued operations (Note 5)                                                                                                |        |                                     | —                                  |                                     |                                     | 2,922,493  |   |
| Other investments (Note                        6)                                                                                                                        |        |                                     | 1,000,000                                |                                     |                                     | 2,000,000  |   |
| Prepaid expenses and                        deposits in escrow                                                                                                           |        |                                     | 1,213,162                                |                                     |                                     | 1,323,232  |   |
| Prepaid defined benefit                        plan costs (Note 18)                                                                                                      |        |                                     | 371,942                                  |                                     |                                     | 582,394    |   |
| Other receivables (net                        of valuation allowance of $147,065 in 2007 and $274,303 in 2006)                                                           |        |                                     | 370,004                                  |                                     |                                     | 382,393    |   |
| Cash and cash                        equivalents                                                                                                                         |        |                                     | 2,343,497                                |                                     |                                     | 2,263,534  |   |
| Other assets                                                                                                                                                             |        |                                     | 861,965                                  |                                     |                                     | 1,212,841  |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Total Assets                                                                                                                                                             |        | $                                        | 34,949,288                               |                                     | $                                        | 52,098,385 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
| Liabilities and                        Stockholders’ Equity                                                                                                        |        |                                     |                                     |                                     |                                     |       |   |
|                                                                                                                                                                     |        |                                     |                                     |                                     |                                     |       |   |
| Liabilities:                                                                                                                                                             |        |                                     |                                     |                                     |                                     |       |   |
| Mortgage debt (Note                        7)                                                                                                                            |        | $                                        | 18,868,690                               |                                     | $                                        | 19,176,330 |   |
| Liabilities related to                        discontinued operations (Note 5)                                                                                           |        |                                     | —                                  |                                     |                                     | 2,911,677  |   |
| Contractual pension and                        postretirement benefits liabilities (Note 17)                                                                             |        |                                     | 2,169,408                                |                                     |                                     | 3,256,861  |   |
| Accrued                        liabilities                                                                                                                               |        |                                     | 2,431,698                                |                                     |                                     | 1,851,953  |   |
| Accounts                        payable                                                                                                                                  |        |                                     | 464,983                                  |                                     |                                     | 525,029    |   |
| Other                        liabilities                                                                                                                                 |        |                                     | 755,770                                  |                                     |                                     | 757,947    |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Total                        Liabilities                                                                                                                                 |        |                                     | 24,690,549                               |                                     |                                     | 28,479,797 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Minority Interest in                        Consolidated Partnership (Note 9)                                                                                            |        |                                     | —                                  |                                     |                                     | 35,318     |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
| Stockholders’                        Equity:                                                                                                                       |        |                                     |                                     |                                     |                                     |       |   |
| Common stock: par value                        $.10 per share (Note 14)                                                                                                  |        |                                     |                                     |                                     |                                     |       |   |
| Class A, authorized                        700,000 shares, issued 478,940 shares and 5,375 shares in 2007 and 100                        shares in 2006 held in treasury |        |                                     | 47,894                                   |                                     |                                     | 47,894     |   |
|                                                                                                                                                                     | Class B     |                                     | December 31,                        2007 |                                     | December 31,                        2006 |       |   |   | 352,155 |   |   | 346,232 |   |
|                                                                                                                                                                     |             |                                     |                                          |                                     |                                          |       |   |   |    |   |   |    |   |
|                                                                                                                                                                     | Authorized: |                                     | 10,000,000                               |                                     | 10,000,000                               |       |   |   |    |   |   |    |   |
|                                                                                                                                                                     | Issued:     |                                     | 3,521,547                                |                                     | 3,462,316                                |       |   |   |    |   |   |    |   |
|                                                                                                                                                                     | Treasury:   |                                     | 29,633                                   |                                     | 2,000                                    |       |   |   |    |   |   |    |   |
|                                                                                                                                                                     |        |                                     |                                     |                                     |                                     |       |   |
| Additional paid-in                        capital                                                                                                                        |        |                                     | 4,486,713                                |                                     |                                     | 4,116,326  |   |
| Retained                        earnings                                                                                                                                 |        |                                     | 6,959,104                                |                                     |                                     | 21,453,808 |   |
| Accumulated other                        comprehensive loss (Note 19)                                                                                                    |        |                                     | (1,331,097                               | )                                        |                                     | (2,358,827 | )      |
| Treasury stock (at                        cost)                                                                                                                          |        |                                     | (256,030                                 | )                                        |                                     | (22,163    | )      |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Total                        Stockholders’ Equity                                                                                                                  |        |                                     | 10,258,739                               |                                     |                                     | 23,583,270 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |
|                                                                                                                                                                     |
| Total Liabilities and                        Stockholders’ Equity                                                                                                  |        | $                                        | 34,949,288                               |                                     | $                                        | 52,098,385 |   |
|                                                                                                                                                                     |        |                                          |                                          |                                     |                                          |            |   |

See notes to consolidated            financial statements.

55

----

PRESIDENTIAL REALTY CORPORATION AND            SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                     |   |                                           |        |   |   |       |   |
|------------------------------------------------------------------------------------------|--------|------------------------------------------------|-------------|--------|--------|------------|--------|
|                                                                                     |   | YEAR                        ENDED DECEMBER 31, |        |
|                                                                                     |   |                                                |        |
|                                                                                     |
|                                                                                     |   | 2007                                           |        | 2006   |   |
|                                                                                     |   |                                                |        |        |   |
|                                                                                     |
| Revenues:                                                                                |   |                                           |        |   |   |       |   |
| Rental                                                                                   |   | $                                              | 5,865,986   |   | $      | 2,237,691  |   |
| Interest on mortgages -                        notes receivable                          |   |                                           | 1,187,047   |   |   | 1,295,040  |   |
| Interest on mortgages -                        notes receivable - related parties        |   |                                           | 267,575     |   |   | 207,875    |   |
| Other                        revenues                                                    |   |                                           | 13,771      |   |   | 162,845    |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Total                                                                                    |   |                                           | 7,334,379   |   |   | 3,903,451  |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Costs and                        Expenses:                                               |   |                                           |        |   |   |       |   |
| General and                        administrative                                        |   |                                           | 4,008,576   |   |   | 3,494,920  |   |
| Depreciation on                        non-rental property                               |   |                                           | 31,620      |   |   | 19,814     |   |
| Rental                        property:                                                  |   |                                           |        |   |   |       |   |
| Operating                        expenses                                                |   |                                           | 2,994,863   |   |   | 2,271,448  |   |
| Interest on mortgage                        debt                                         |   |                                           | 1,508,238   |   |   | 232,802    |   |
| Real estate                        taxes                                                 |   |                                           | 625,076     |   |   | 335,702    |   |
| Depreciation on real                        estate                                       |   |                                           | 483,801     |   |   | 132,924    |   |
| Amortization of                        in-place lease values and mortgage costs          |   |                                           | 365,091     |   |   | 11,525     |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Total                                                                                    |   |                                           | 10,017,265  |   |   | 6,499,135  |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Other Income                        (Loss):                                              |   |                                           |        |   |   |       |   |
| Investment                        income                                                 |   |                                           | 617,089     |   |   | 354,270    |   |
| Equity in the loss from                        joint ventures (Note 2)                   |   |                                           | (10,084,207 | )      |   | (2,083,113 | )      |
| Equity in the loss from                        partnership (Note 8)                      |   |                                           | —     |   |   | (227,510   | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Loss before minority                        interest                                     |   |                                           | (12,150,004 | )      |   | (4,552,037 | )      |
|                                                                                     |   |                                           |        |   |   |       |   |
| Minority                        interest                                                 |   |                                           | (2,194      | )      |   | (7,163     | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Loss from continuing                        operations                                   |   |                                           | (12,152,198 | )      |   | (4,559,200 | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Discontinued Operations                        (Note 5):                                 |   |                                           |        |   |   |       |   |
| Loss from discontinued                        operations                                 |   |                                           | (93,383     | )      |   | (317,757   | )      |
| Net gain from sales of                        discontinued operations                    |   |                                           | 735,705     |   |   | —    |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Total income (loss)                        from discontinued operations                  |   |                                           | 642,322     |   |   | (317,757   | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Net Loss                                                                                 |   | ($                                             | 11,509,876  | )      | ($     | 4,876,957  | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Earnings per Common                        Share (basic and diluted):                    |   |                                           |        |   |   |       |   |
| Loss from continuing                        operations                                   |   | ($                                             | 3.11        | )      | ($     | 1.17       | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Discontinued                        Operations:                                          |   |                                           |        |   |   |       |   |
| Loss from discontinued                        operations                                 |   |                                           | (0.02       | )      |   | (0.08      | )      |
| Net gain from sales of                        discontinued operations                    |   |                                           | 0.18        |   |   | —    |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Total income (loss)                        from discontinued operations                  |   |                                           | 0.16        |   |   | (0.08      | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Net Loss per Common                        Share - basic and diluted                     |   | ($                                             | 2.95        | )      | ($     | 1.25       | )      |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Cash Distributions per                        Common Share (Note 15)                     |   | $                                              | 0.64        |   | $      | 0.64       |   |
|                                                                                     |   |                                                |             |   |        |            |   |
|                                                                                     |   |                                           |        |   |   |       |   |
| Weighted Average Number                        of Shares Outstanding - basic and diluted |   |                                           | 3,903,895   |   |   | 3,911,405  |   |
|                                                                                     |   |                                                |             |   |        |            |   |

See notes to consolidated            financial statements.

56

----

PRESIDENTIAL REALTY CORPORATION            AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
|----------------------------------------------------------------------------------|--------|-------------------------------------|---------|--------------------------------------------------------------------------|--------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|-------------|---------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------------------------------------|----------|--------|--------|------------|--------|--------|-------------|--------|
|                                                                             |   | Common                        Stock |    | Additional                        Paid-in                        Capital |   | Retained                        Earnings |   | Accumulated                        Other                        Comprehensive                        (Loss) Income |        | Treasury                        Stock |   | Comprehensive                        (Loss) Income |   | Total                        Stockholders’                        Equity |     |
|                                                                             |   |                                     |    |                                                                          |   |                                          |   |                                                                                                                    |        |                                       |   |                                                    |   |                                                                                |     |
|                                                                             |
| Balance                        at January 1, 2006                                |   | $                                   | 387,590 |                                                                     | $      | 3,848,899                                |   | $                                                                                                                  | 28,833,713  |                                  | ($     | 1,513,364                                          | )      | ($                                                                             | 22,163   | )      |   |       |   | $      | 31,534,675  |   |
|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
| Net                        proceeds from dividend reinvestment plan              |   |                                | 3,336   |                                                                     |   | 214,407                                  |   |                                                                                                               | —     |                                  |   | —                                            |   |                                                                           | —  |   |   |       |   |   | 217,743     |   |
| Cash                        distributions ($.64 per share)                       |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | (2,502,948  | )                                     |   | —                                            |   |                                                                           | —  |   |   |       |   |   | (2,502,948  | )      |
| Issuance                        of stock (Note 16)                               |   |                                | 3,200   |                                                                     |   | 53,020                                   |   |                                                                                                               | —     |                                  |   |                                               |   |                                                                           | —  |   |   |       |   |   | 56,220      |   |
| Comprehensive                        loss:                                       |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
| Net                        loss                                                  |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | (4,876,957  | )                                     |   | —                                            |   |                                                                           | —  |   | ($     | 4,876,957  | )      |   | (4,876,957  | )      |
| Other                        comprehensive income-                               |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
| Net                        unrealized gain on securities available for sale      |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | —     |                                  |   | 4,364                                              |   |                                                                           | —  |   |   | 4,364      |   |   | 4,364       |   |
| Minimum                        pension liability adjustment                      |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | —     |                                  |   | 262,693                                            |   |                                                                           | —  |   |   | 262,693    |   |   | 262,693     |   |
|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |        |            |   |   |        |   |
| Comprehensive                        loss                                        |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   | ($     | 4,609,900  | )      |   |        |   |
|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |        |            |   |   |        |   |
| Adjustment                        for initial adoption of SFAS No. 158 (Note 17) |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | —     |                                  |   | (73,419                                            | )      |                                                                           | —  |   |   |       |   |   | (73,419     | )      |
| Adjustment                        for initial adoption of SFAS No. 158 (Note 18) |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | —     |                                  |   | (1,039,101                                         | )      |                                                                           | —  |   |   |       |   |   | (1,039,101  | )      |
|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
|                                                                             |   |                                     |         |                                                                     |        |                                          |   |                                                                                                                    |             |                                  |        |                                                    |   |                                                                                |          |   |   |       |   |        |             |   |
| Balance                        at December 31, 2006                              |   |                                | 394,126 |                                                                     |   | 4,116,326                                |   |                                                                                                               | 21,453,808  |                                  |   | (2,358,827                                         | )      |                                                                           | (22,163  | )      |   |       |   |   | 23,583,270  |   |
|                                                                             |   |                                |    |                                                                     |   |                                     |   |                                                                                                               |        |                                  |   |                                               |   |                                                                           |     |   |   |       |   |   |        |   |
| Cumulative                        effect of adoption of FIN 48 (Note 11)         |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | (460,800    | )                                     |   | —                                            |   |                                                                           | —  |   |   |       |   |   | (460,800    | )      |
| Net                        proceeds from dividend reinvestment plan              |   |                                | 4,373   |                                                                     |   | 271,422                                  |   |                                                                                                               | —     |                                  |   | —                                            |   |                                                                           | —  |   |   |       |   |   | 275,795     |   |
| Cash                        distributions ($.64 per share)                       |   |                                | — |                                                                     |   | —                                  |   |                                                                                                               | (2,524,028  | )                                     |   | —                                            |   |                                                                           | —  |   |   |       |   |   | (2,524,028  | )      |
| Issuance                        and vesting of restricted stock (Note 16)        |   |                                | 1,550   |                                                                     |   | 98,965                                   |   |                                                                                                               | —     |                                  |   |                                               |   |                                                                           | —  |   |   |       |   |   | 100,515     |   |
| Purchase                        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  |   |   | 1,204,437   |   |
| Adjustment                        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  | )      |   |       |   | $      | 10,258,739  |   |
|                                                                             |   |                                     |         |                                                                     |        |                                          |   |                                                                                                                    |             |                                  |        |                                                    |   |                                                                                |          |   |   |       |   |        |             |   |

See notes to consolidated            financial statements.

57

----

PRESIDENTIAL REALTY CORPORATION            AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                     |   |                                           |       |   |   |       |   |
|------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|--------|--------|------------|--------|
|                                                                                     |   | YEAR                        ENDED DECEMBER 31, |       |
|                                                                                     |   |                                                |       |
|                                                                                     |   | 2007                                           |       | 2006   |   |
|                                                                                     |   |                                                |       |        |   |
|                                                                                     |
| Cash Flows from                        Operating Activities:                             |   |                                           |       |   |   |       |   |
| Cash received from                        rental properties                              |   | $                                              | 5,929,416  |   | $      | 3,161,533  |   |
| Interest                        received                                                 |   |                                           | 1,327,073  |   |   | 1,620,721  |   |
| Distributions received                        from joint ventures                        |   |                                           | 3,052,341  |   |   | 3,483,271  |   |
| Distributions received                        from other investments                     |   |                                           | 537,087    |   |   | 145,076    |   |
| Miscellaneous                        income                                              |   |                                           | 49,857     |   |   | 163,262    |   |
| Interest paid on rental                        property mortgage debt                    |   |                                           | (1,447,348 | )      |   | (425,822   | )      |
| Cash disbursed for                        rental property operations                     |   |                                           | (4,012,948 | )      |   | (2,719,129 | )      |
| Cash disbursed for                        general and administrative costs               |   |                                           | (3,282,225 | )      |   | (3,658,362 | )      |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Net cash provided by                        operating activities                         |   |                                           | 2,153,253  |   |   | 1,770,550  |   |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Cash Flows from                        Investing Activities:                             |   |                                           |       |   |   |       |   |
| Payments received on                        notes receivable                             |   |                                           | 171,254    |   |   | 2,907,164  |   |
| Loan advanced to                        partnership                                      |   |                                           | —    |   |   | (1,058,716 | )      |
| Loan advanced to joint                        venture                                    |   |                                           | —    |   |   | (335,000   | )      |
| Payments disbursed for                        additions and improvements                 |   |                                           | (813,366   | )      |   | (412,126   | )      |
| Proceeds from sales of                        properties                                 |   |                                           | 582,004    |   |   | —    |   |
| Purchase of other                        investments                                     |   |                                           | —    |   |   | (505,000   | )      |
| Repayments received on                        other investments                          |   |                                           | 1,000,000  |   |   | —    |   |
| Cash received from                        purchase of additional interest in partnership |   |                                           | —    |   |   | 555,209    |   |
| Purchase of additional                        interests in partnerships                  |   |                                           | (96,202    | )      |   | (1,049,439 | )      |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Net cash provided by                        investing activities                         |   |                                           | 843,690    |   |   | 102,092    |   |
|                                                                                     |   |                                                |            |   |        |            |   |
| Cash Flows from                        Financing Activities:                             |   |                                           |       |   |   |       |   |
| Principal payments on                        mortgage debt                               |   |                                           | (426,091   | )      |   | (183,390   | )      |
| Distributions to                        minority partners                                |   |                                           | (8,789     | )      |   | (18,750    | )      |
| Cash distributions on                        common stock                                |   |                                           | (2,524,028 | )      |   | (2,502,948 | )      |
| Purchase of treasury                        stock                                        |   |                                           | (233,867   | )      |   | —    |   |
| Proceeds from dividend                        reinvestment plan                          |   |                                           | 275,795    |   |   | 217,743    |   |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Net cash used in                        financing activities                             |   |                                           | (2,916,980 | )      |   | (2,487,345 | )      |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Net Increase (Decrease)                        in Cash and Cash Equivalents              |   |                                           | 79,963     |   |   | (614,703   | )      |
|                                                                                     |
| Cash and Cash                        Equivalents, Beginning of Year                      |   |                                           | 2,263,534  |   |   | 2,878,237  |   |
|                                                                                     |   |                                                |            |   |        |            |   |
|                                                                                     |
| Cash and Cash                        Equivalents, End of Year                            |   | $                                              | 2,343,497  |   | $      | 2,263,534  |   |
|                                                                                     |   |                                                |            |   |        |            |   |

See notes to consolidated            financial statements.

58

----

PRESIDENTIAL REALTY CORPORATION            AND SUBSIDIARIES            CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                                                                                                                                                                              |   |                                           |       |   |    |       |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|--------|---------|------------|--------|
|                                                                                                                                                                                                                                                                              |   | YEAR                        ENDED DECEMBER 31, |       |
|                                                                                                                                                                                                                                                                              |   |                                                |       |
|                                                                                                                                                                                                                                                                              |   | 2007                                           |       | 2006   |    |
|                                                                                                                                                                                                                                                                              |   |                                                |       |        |    |
|                                                                                                                                                                                                                                                                              |
| Reconciliation of Net                        Loss to Net Cash                        Provided by Operating Activities                                                                                                                                                             |   |                                           |       |   |    |       |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |    |       |   |
| Net Loss                                                                                                                                                                                                                                                                          |   | ($                                             | 11,509,876 | )      | ($      | 4,876,957  | )      |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |         |            |   |
| Adjustments to                        reconcile net loss to net cash provided by operating activities:                                                                                                                                                                            |   |                                           |       |   |    |       |   |
| Net gain from sales of                        discontinued operations                                                                                                                                                                                                             |   |                                           | (735,705   | )      |    | —    |   |
| Equity in the loss from                        joint ventures                                                                                                                                                                                                                     |   |                                           | 10,084,207 |   |    | 2,083,113  |   |
| Equity in the loss from                        partnership                                                                                                                                                                                                                        |   |                                           | —    |   |    | 227,510    |   |
| Depreciation and                        amortization                                                                                                                                                                                                                              |   |                                           | 881,499    |   |    | 166,311    |   |
| Amortization of                        discount on mortgage payable                                                                                                                                                                                                               |   |                                           | 110,322    |   |    | —    |   |
| Net change in revenue                        related to acquired lease rights/obligations and deferred rent                        receivable                                                                                                                                     |   |                                           | (86,507    | )      |    | —    |   |
| Amortization of                        discounts on notes and fees                                                                                                                                                                                                                |   |                                           | (244,565   | )      |    | (190,873   | )      |
| Minority                        interest                                                                                                                                                                                                                                          |   |                                           | 2,194      |   |    | 7,163      |   |
| Issuance of stock to                        directors and officers                                                                                                                                                                                                                |   |                                           | 100,515    |   |    | 56,220     |   |
| Distributions received                        from joint ventures                                                                                                                                                                                                                 |   |                                           | 3,052,341  |   |    | 3,483,271  |   |
|                                                                                                                                                                                                                                                                              |
| Changes in assets and                        liabilities:                                                                                                                                                                                                                         |   |                                           |       |   |    |       |   |
| Decrease in other                        receivables                                                                                                                                                                                                                              |   |                                           | 58,136     |   |    | 84,883     |   |
| Increase in accounts                        payable and accrued liabilities                                                                                                                                                                                                       |   |                                           | 150,869    |   |    | 474,514    |   |
| Increase in other                        liabilities                                                                                                                                                                                                                              |   |                                           | 51,927     |   |    | 29,496     |   |
| Decrease in prepaid                        expenses, deposits in escrow and deferred charges                                                                                                                                                                                      |   |                                           | 233,596    |   |    | 240,578    |   |
| Other                                                                                                                                                                                                                                                                             |   |                                           | 4,300      |   |    | (14,679    | )      |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |         |            |   |
|                                                                                                                                                                                                                                                                              |
| Total                        adjustments                                                                                                                                                                                                                                          |   |                                           | 13,663,129 |   |    | 6,647,507  |   |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |         |            |   |
|                                                                                                                                                                                                                                                                              |
| Net cash provided by                        operating activities                                                                                                                                                                                                                  |   |  $                                        | 2,153,253  |   |  $ | 1,770,550  |   |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |         |            |   |
|                                                                                                                                                                                                                                                                              |
| SUPPLEMENTAL NONCASH                        DISCLOSURES:                                                                                                                                                                                                                          |   |                                           |       |   |    |       |   |
|                                                                                                                                                                                                                                                                              |
| Satisfaction of                        mortgage debt as a result of assumption of the mortgage debt by the                        purchaser                                                                                                                                       |   |  $                                        | 2,856,452  |   |    |       |   |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |    |       |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |    |       |   |
| Note receivable from                        sale of property                                                                                                                                                                                                                      |   |  $                                        | 200,000    |   |    |       |   |
|                                                                                                                                                                                                                                                                              |   |                                                |            |   |    |       |   |
| Real estate, intangible                        assets and liabilities recorded on the Company’s consolidated balance                        sheet as a result of the purchase of an additional 25% partnership interest                        in the Hato Rey Partnership: |   |                                           |       |   |    |       |   |
| Real estate                                                                                                                                                                                                                                                                       |   |                                           |       |   |  $ | 13,984,860 |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |         |            |   |
| Intangible                        assets                                                                                                                                                                                                                                          |   |                                           |       |   |  $ | 570,596    |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |         |            |   |
| Mortgage                        payable                                                                                                                                                                                                                                           |   |                                           |       |   |  $ | 15,660,265 |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |         |            |   |
| Other                        liabilities                                                                                                                                                                                                                                          |   |                                           |       |   |  $ | 167,865    |   |
|                                                                                                                                                                                                                                                                              |   |                                           |       |   |         |            |   |

See notes to consolidated            financial statements.

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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. 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 fifty            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 is            amortized to mortgage interest expense over the term of the mortgage using the interest            method.

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, 2007 have been at            the

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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, 2007 and 2006, 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 at December 31, 2007 (see Note            8). The consolidated financial statements also included 100% of the account balances of            another partnership, UTB Associates, until its liquidation 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            2.

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.

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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.

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 adopted SFAS No. 123R, “Accounting for Stock-Based            Compensation”, on January 1, 2006, and applied the provisions of this statement            for stock awards granted in 2006 and 2007. During 2006 and 2007, the Company granted            shares of Class B common stock to directors, officers and employees. The shares granted            to the directors were fully vested upon the grant date and the shares granted to the            officers and employees will 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 2006 and 2007 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. Recent Accounting            Pronouncements – In July, 2006, the Financial Accounting Standards Board            (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in            Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN            48”). FIN 48 establishes new evaluation and measurement processes for all income            tax positions taken. FIN 48 also requires expanded disclosures of income tax            matters.

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, or a deficiency dividend            and related interest, for prior years. Should such an assessment require the Company to            pay a deficiency dividend in order to continue to qualify as a REIT, the

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Company would pay the deficiency            dividend to its shareholders and the related interest assessment to the taxing            authorities.

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 be required to pay a deficiency dividend. In addition, for the year            ended December 31, 2007, the Company recorded, under general and administrative            expenses, an interest expense of $356,780 for the interest related to these matters. As            of December 31, 2007, the tax years that remain open to examination by the federal,            state and local taxing authorities are the 2004 – 2006 tax years.

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 and interim periods within            those fiscal years. The adoption of this standard on January 1, 2008, is not expected            to 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 adoption of the requirement to            recognize the funded status of a benefit plan and the disclosure requirements as of            December 31, 2006 resulted in a $1,112,520 increase in accumulated other comprehensive            loss on the Company’s consolidated balance sheet. 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 is not expected to 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 is not            electing 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

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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            adoption of this standard is not expected to have a material effect on the            Company’s consolidated financial statements.

|   |                                                                 |
|--------|----------------------------------------------------------------------|
| 2.     | 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 the Company in 2004 and, subsequent to closing, the            Company 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 the entity owning the Martinsburg Mall, leaving the Company with a 29%            ownership interest.

During 2004 and 2005, the            Company made three mezzanine loans in the aggregate principal amount of $25,600,000 to            joint ventures controlled by David 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, 2007, the aggregate principal amount of loans to joint ventures controlled            by David Lichtenstein was $25,935,000.

The following table summarizes            information on the shopping mall properties and the mezzanine loans with respect            thereto:

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|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
|----------------------------------------------------------------------------------|--------|----------------------------------------|--------|-------------|--------|-----------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|-----------------------------------|--------|--------|--------|--------|
|                                                                             |   |                                   |   |        |   | Nonrecourse                        First            |   |
| Owning                                                                           |   |                                   |   |        |   | Mortgage and                        Mezzanine Loans |   |
| Entity                        and                                                |   | Mezzanine                        Loans |   | Approximate |   |  December 31,                        2007      |   |
| Property                                                                         |   | Advanced by                            |   | Square      |   |                                                |   | Maturity |   | Interest |    |
| Owned (1)                                                                        |   | the                        Company     |   | Feet        |   | Balance                                             |   | Date     |   | Rate     |    |
|                                                                                  |   |                                        |   |             |   |                                                     |        |          |   |
| (Amounts in                        thousands)                                    |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| PRC Member                        LLC                                            |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Martinsburg                        Mall                                          |   |                                   |   |        |   |                                                | 552    |     |   | $        | 29,860  |   |   | July,                        2016 |   |   | (2)    |   |
| Martinsburg,                        WV                                           |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Lightstone I                                                                     |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Four                        Malls                                                |   |                                   | $      | 8,600       |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Bradley Square Mall                        Cleveland, TN                         |   |                                   |   |        |   |                                                | 385    |     |   |     | 13,801  |   |   | July,                        2016 |   |   | (2)    |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Mount Berry Square                        Mall                        Rome, GA   |   |                                   |   |        |   |                                                | 478    |     |   |     | 22,477  |   |   | July,                        2016 |   |   | (2)    |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Shenango Valley                        Mall                        Hermitage, PA |   |                                   |   |        |   |                                                | 508    |     |   |     | 14,746  |   |   | July,                        2016 |   |   | (2)    |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| West Manchester                        Mall                        York, PA      |   |                                   |   |        |   |                                                | 733    |     |   |     | 29,600  |   |   | June,                        2008 |   |   | (2)    |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Lightstone                        II                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Shawnee/Brazos                        Malls                                      |   |                                   |   | 7,835       |   |                                                |   |     |   |     | 39,500  |   |   | Jan.,                        2009 |   |   | (3)    |   |
| Brazos Mall                        Lake Jackson, TX                              |   |                                   |   |        |   |                                                | 698    |     |   |     |    |   |   |                              |   |   |   |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Shawnee Mall                        Shawnee, OK                                  |   |                                   |   |        |   |                                                | 444    |     |   |     |    |   |   |                              |   |   |   |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Lightstone                        III                                            |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Macon/Burlington                        Malls                                    |   |                                   |   | 9,500       |   |                                                |   |     |   |     | 156,147 |   |   | June,                        2015 |   |   | 5.78%  |   |
| Burlington Mall                        Burlington, NC                            |   |                                   |   |        |   |                                                | 412    |     |   |     |    |   |   |                              |   |   |   |   |
|                                                                             |   |                                   |   |        |   |                                                |   |     |   |     |    |   |   |                              |   |   |   |   |
| Macon Mall                        Macon, GA                                      |   |                                   |   |        |   |                                                | 1,446  |     |   |     |    |   |   |                              |   |   |   |   |
|                                                                             |        |                                        |        |             |        |                                                     |        |          |        |          |         |        |        |                                   |        |        |        |        |
|                                                                             |   |                                   |        |             |   |                                                |        |     |   |          |         |   |   |                              |   |   |   |   |
|                                                                             |   |                                   | $      | 25,935      |   |                                                | 5,656  |     |   | $        | 306,131 |   |   |                              |   |   |   |   |
|                                                                             |   |                                   |        |             |   |                                                |        |     |   |          |         |   |   |                              |   |   |   |   |

(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 June, 2006, the original            $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the            Four Malls was refinanced with the following mortgage loans: a $73,900,000 nonrecourse            first mortgage loan with an interest rate of 5.93% per annum, maturing on July 1, 2016,            a $7,000,000 mezzanine loan with an interest rate of 12% per annum maturing on July 1,            2016 and a $29,600,000 nonrecourse first mortgage loan with an adjustable interest rate            based on the London Interbank Offered Rates (“LIBOR”) plus 232 basis points            (approximately 7.06% at December 31, 2007), with a minimum

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interest rate of 7.89%, maturing            on June 8, 2008. The $73,900,000 first mortgage loan and the $7,000,000 mezzanine loan            are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first            mortgage loan is secured by the West Manchester Mall.

(3) The interest rate is at the            30 day LIBOR rate plus 280 basis points (approximately 7.54% at December 31, 2007). The            loan matures in January, 2009, with an option to extend the loan for one year with an            extension fee of .125% of the outstanding principal.

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, 2007 is as follows:

|                                          |   |   |                                                                       |       |                                          |   |                                                                                                                               |   |                                                                       |        |   |   |      |   |
|-----------------------------------------------|--------|--------|----------------------------------------------------------------------------|------------|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|-------------|--------|--------|-----------|--------|
|                                          |   |   | Balance at                        December 31,                        2006 |       | Distributions                        Received |   | Equity                        in the                        Loss from                        Joint                        Ventures |   | Balance at                        December 31,                        2007 |        |
|                                          |   |   |                                                                            |       |                                               |   |                                                                                                                                    |   |                                                                            |        |
|                                          |   |   |                                                                       |       |                                          |   |                                                                                                                               |   |                                                                       |        |   |   |      |   |
| Martinsburg                        Mall       | (1)    |   | $                                                                          | 162,821    |                                          | $      | (159,868                                                                                                                           | )      | $                                                                          | (2,953      | )      | $      | —   |   |
| Four                        Malls             | (2)    |   |                                                                       | 4,534,578  |                                          |   | (959,139                                                                                                                           | )      |                                                                       | (2,886,704  | )      |   | 688,735   |   |
| Macon/Burlington                        Malls | (3)    |   |                                                                       | 7,354,426  |                                          |   | (1,059,514                                                                                                                         | )      |                                                                       | (6,294,912  | )      |   | —   |   |
| Shawnee/Brazos                        Malls   | (4)    |   |                                                                       | 6,007,924  |                                          |   | (873,820                                                                                                                           | )      |                                                                       | (899,638    | )      |   | 4,234,466 |   |
|                                          |   |   |                                                                            |            |                                          |        |                                                                                                                                    |   |                                                                            |             |   |        |           |   |
|                                          |   |   | $                                                                          | 18,059,749 |                                          | $      | (3,052,341                                                                                                                         | )      | $                                                                          | (10,084,207 | )      | $      | 4,923,201 |   |
|                                          |   |   |                                                                            |            |                                          |        |                                                                                                                                    |   |                                                                            |             |   |        |           |   |

Equity in the loss from joint            ventures is as follows:

|                                          |   |   |                                           |        |   |   |       |   |
|-----------------------------------------------|--------|--------|------------------------------------------------|-------------|--------|--------|------------|--------|
|                                          |   |   | Year                        Ended December 31, |        |
|                                          |   |   |                                                |        |
|                                          |   |   | 2007                                           |        | 2006   |   |
|                                          |   |   |                                                |        |        |   |
|                                          |   |   |                                           |        |   |   |       |   |
| Martinsburg                        Mall       | (1)    |   | $                                              | (2,953      | )      | $      | (480,159   | )      |
| Four                        Malls             | (2)    |   |                                           | (2,886,704  | )      |   | (1,200,518 | )      |
| Macon/Burlington                        Malls | (3)    |   |                                           | (6,294,912  | )      |   | (128,030   | )      |
| Shawnee/Brazos                        Malls   | (4)    |   |                                           | (899,638    | )      |   | (274,406   | )      |
|                                          |   |   |                                                |             |   |        |            |   |
|                                          |   |   | $                                              | (10,084,207 | )      | $      | (2,083,113 | )      |
|                                          |   |   |                                                |             |   |        |            |   |

(1) The Company’s share of            the 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 the second quarter of 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 future distributions received from the Martinsburg Mall will be recorded in            income.

(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 loss from joint ventures for the Four Malls. The Company recorded a $2,886,704 loss            for 2007 from the

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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).

(3) 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 loss from joint ventures for the Macon/Burlington Malls. In the fourth quarter            of 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 29% share of the impairment loss from the            Macon/Burlington Malls was $19,914,390. However, such losses may only be recorded to            the extent of the Company’s basis and, therefore, the impairment loss recorded by            the Company was $6,246,722. Any future distributions received from the Macon/Burlington            Malls will be recorded in income.

(4) 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.

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:

67

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|                                                                   |   |         |         |   |   |        |   |
|------------------------------------------------------------------------|--------|--------------|--------------|--------|--------|-------------|--------|
|                                                                   |   | December 31, |         |
|                                                                   |   |              |         |
|                                                                   |   | 2007         |         | 2006   |   |
|                                                                   |   |              |         |        |   |
| Condensed Combined                        Balance Sheets               |   |         |         |   |   |        |   |
| Net real                        estate                                 |   | $            | 235,595,000  |   | $      | 304,358,000 |   |
| In-place lease values                        and acquired lease rights |   |         | 11,569,000   |   |   | 16,147,000  |   |
| Prepaid expenses and                        deposits in escrow         |   |         | 18,145,000   |   |   | 14,844,000  |   |
| Cash and cash                        equivalents                       |   |         | 3,028,000    |   |   | 2,695,000   |   |
| Deferred financing                        costs                        |   |         | 2,505,000    |   |   | 1,766,000   |   |
| Other assets                                                           |   |         | 7,307,000    |   |   | 7,255,000   |   |
|                                                                   |   |              |              |   |        |             |   |
|                                                                   |   |         |         |   |   |        |   |
| Total Assets                                                           |   | $            | 278,149,000  |   | $      | 347,065,000 |   |
|                                                                   |   |              |              |   |        |             |   |
|                                                                   |   |         |         |   |   |        |   |
| Nonrecourse mortgage                        debt                       |   | $            | 306,131,000  |   | $      | 308,092,000 |   |
| Mezzanine notes                        payable                         |   |         | 49,994,000   |   |   | 31,670,000  |   |
| Other                        liabilities                               |   |         | 29,278,000   |   |   | 24,610,000  |   |
|                                                                   |   |              |              |   |        |             |   |
|                                                                   |   |         |         |   |   |        |   |
| Total                        Liabilities                               |   |         | 385,403,000  |   |   | 364,372,000 |   |
| Members’                        Deficit                          |   |         | (107,254,000 | )      |   | (17,307,000 | )      |
|                                                                   |   |              |              |   |        |             |   |
|                                                                   |   |         |         |   |   |        |   |
| Total Liabilities and                        Members’ Deficit    |   | $            | 278,149,000  |   | $      | 347,065,000 |   |
|                                                                   |   |              |              |   |        |             |   |

|                                                                                                                              |   |                                           |        |   |   |        |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-------------|--------|--------|-------------|--------|
|                                                                                                                              |   | Year                        Ended December 31, |        |
|                                                                                                                              |   |                                                |        |
|                                                                                                                              |   | 2007                                           |        | 2006   |   |
|                                                                                                                              |   |                                                |        |        |   |
| Condensed Combined                        Statements of Operations                                                                |   |                                           |        |   |   |        |   |
| Revenues (1)                                                                                                                      |   | $                                              | 59,813,000  |   | $      | 58,585,000  |   |
| Interest on mortgage                        debt and other debt                                                                   |   |                                           | (25,144,000 | )      |   | (25,112,000 | )      |
| Other                        expenses                                                                                             |   |                                           | (34,338,000 | )      |   | (31,302,000 | )      |
|                                                                                                                              |   |                                                |             |   |        |             |   |
| Income before                        depreciation and amortization and provision for losses on real                        estate |   |                                           | 331,000     |   |   | 2,171,000   |   |
| Depreciation and                        amortization                                                                              |   |                                           | (14,108,000 | )      |   | (16,102,000 | )      |
|                                                                                                                              |   |                                           |        |   |   |        |   |
| Provision for losses on                        real estate(2)                                                                     |   |                                           | (75,994,000 | )      |   | —     |   |
|                                                                                                                              |   |                                                |             |   |        |             |   |
| Net Loss                                                                                                                          |   | $                                              | (89,771,000 | )      | $      | (13,931,000 | )      |
|                                                                                                                              |   |                                                |             |   |        |             |   |

(1) Revenues for the year ended            December 31, 2007, include a settlement payment received in the amount of $4,146,000            from a former tenant at the Macon Mall relating to the amendment and termination of the            tenant’s lease.

(2) 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.

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 29% of the loss from the joint ventures. 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 29%            of noncash charges

68

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(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.

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, 2007, the Company received distributions from the joint ventures in the            amount of $3,052,341, which included payments of interest in the amount of $2,892,473            and return on investment in the amount of $159,868.

The equity in the loss from            joint ventures of $2,083,113 for the year ended December 31, 2006, is after deductions            in the aggregate amount of $4,669,588 for the Company’s 29% of noncash charges            (depreciation of $2,878,024 and amortization of deferred financing costs, in-place            lease values and other costs of $1,791,564). For the year ended December 31, 2006, the            Company received distributions from joint ventures in the amount of $3,483,271, which            included payments of interest in the amount of $2,871,592 and return on investment in            the amount of $611,679. The return on investment of $611,679 included a distribution of            $335,110 from Lightstone III and this distribution was utilized to fund the additional            $335,000 mezzanine loan to Lightstone II.

The Lightstone Group is            controlled by David Lichtenstein. At December 31, 2007, in addition to            Presidential’s investments of $4,923,201 in these joint ventures with entities            controlled by Mr. Lichtenstein, Presidential has three loans that are due from entities            that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount            of $7,449,994 with a net carrying value of $7,112,498. Two of the loans in the            outstanding principal amount of $5,375,000, with a net carrying value of $5,037,504,            are secured by interests in five apartment properties and are also personally            guaranteed by Mr. Lichtenstein up to a maximum amount of $3,137,500. The third loan in            the outstanding principal amount of $2,074,994 is secured by interests in nine            apartment properties. All of these loans are in good standing. While the Company            believes that all of these loans are adequately secured, a default on any or all of            these loans could have a material adverse effect on Presidential’s business and            operating results.

The $12,035,699 net carrying            value of investments in and advances to joint ventures with entities controlled by Mr.            Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein            constitute 34% of the Company’s total assets at December 31, 2007. Subsequent to            December 31, 2007, the Company received repayment of a $1,500,000 loan (included in the            $7,449,994 referred to above).

Subsequent to year end,            Lightstone III defaulted on its February and March, 2008 monthly payments of interest            on the Company’s $9,500,000 mezzanine loan relating to the Macon/Burlington            Malls. Lightstone III has also failed to make the February and March, 2008 payments due            on a portion of the first mortgage loan secured by Macon/Burlington. Lightstone III has            informed the Company that it is attempting to negotiate an agreement with the first            mortgagee, which would include a release of certain funds held in escrow accounts by            the first mortgagee and a deferment of interest payments on all of the outstanding            indebtedness on the Macon/Burlington Malls in order to provide funds for the            improvement of the properties. As a result the default on a portion of the first            mortgage loan secured by those properties, the Company may not receive the repayment of            its $9,500,000 loan. The Company is contractually due to receive annual interest            payments of $1,059,514 on its

69

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$9,500,000 loan. The carrying            value of this investment was reduced to zero at December 31, 2007.

|   |                                                              |
|--------|-------------------------------------------------------------------|
| 3.     | REAL                        ESTATE                                |
|   |                                                              |
|   | Real estate is                        comprised of the following: |

|                                           |   |         |       |   |   |       |   |
|------------------------------------------------|--------|--------------|------------|--------|--------|------------|--------|
|                                           |   | December 31, |       |
|                                           |   |              |       |
|                                           |   | 2007         |       | 2006   |   |
|                                           |   |              |       |        |   |
|                                           |   |
| Land                                           |   | $            | 2,309,930  |   | $      | 2,304,009  |   |
| Buildings                                      |   |         | 18,605,700 |   |   | 17,907,264 |   |
| Furniture and                        equipment |   |         | 125,419    |   |   | 121,907    |   |
|                                           |   |              |            |   |        |            |   |
|                                           |   |
| Total real                        estate       |   | $            | 21,041,049 |   | $      | 20,333,180 |   |
|                                           |   |              |            |   |        |            |   |

Two of the properties owned by            the Company represented 59% and 16% of  total rental revenue in 2007 and 37% and            23% of total rental revenue in 2006.

|   |                                      |
|--------|-------------------------------------------|
| 4.     | MORTGAGE                        PORTFOLIO |

The Company’s mortgage            portfolio includes notes receivable and notes receivable – related            parties.

Notes receivable consist            of:

|                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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.                                 |
|                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                      |
| Notes receivable                        – related parties are all due from Ivy Properties, Ltd. or its                        affiliates (collectively “Ivy”) and consist of: |
|                                                                                                                                                                                            |
| (1)                                                                                                                                                                                             | Purchase money notes                        resulting from sales of property to Ivy.                                                                                                                                                                                                                      |
|                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                      |
| (2)                                                                                                                                                                                             | Notes receivable                        relating to loans made by the Company to Ivy in connection with Ivy’s                        cooperative conversion business.                                                                                                                               |

At December 31, 2007, 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 mortgage portfolio:

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MORTGAGE            PORTFOLIO

|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
|--------------------------------------------|--------|---------------------------------------------------------------------------|-----------|---------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|---------|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|--------|---------|------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
|                                       |   | Notes                        Receivable                                   |      | Notes                        Receivable - Related Parties (1) |   |                                                                      |   |
|                                       |   |                                                                           |      |                                                               |   |                                                                           |   |
|                                       |   | Properties                        previously                        owned |      | Originated                        loans                       |   | Cooperative                        apartment                        units |   | Total  |    | Properties                        previously                        owned |   | Cooperative                        conversion                        loans |   | Total  |    | Total                        mortgage                        portfolio |   |
|                                       |   |                                                                           |      |                                                               |   |                                                                           |   |        |    |                                                                           |   |                                                                            |   |        |    |                                                                        |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |
| December 31,                        2007   |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Notes                        receivable    |   | $                                                                         | 4,285,000 |                                                          | $      | 3,574,994                                                                 |   | $      | 191,348 |                                                                      | $      | 8,051,342                                                                  |   | $      | — |                                                                   | $      | — |   | $      | — |   | $      | 8,051,342 |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Less:                        Discounts     |   |                                                                      | 337,496   |                                                          |   | —                                                                   |   |   | 54,621  |                                                                      |   | 392,117                                                                    |   |   | — |                                                                   |   | — |   |   | — |   |   | 392,117   |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Net                                        |   | $                                                                         | 3,947,504 |                                                          | $      | 3,574,994                                                                 |   | $      | 136,727 |                                                                      | $      | 7,659,225                                                                  |   | $      | — |                                                                   | $      | — |   | $      | — |   | $      | 7,659,225 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Due within one                        year |   | $                                                                         | 410,000   |                                                          | $      | —                                                                   |   | $      | 45,827  |                                                                      | $      | 455,827                                                                    |   | $      | — |                                                                   | $      | — |   | $      | — |   | $      | 455,827   |   |
| Long-term                                  |   |                                                                      | 3,537,504 |                                                          |   | 3,574,994                                                                 |   |   | 90,900  |                                                                      |   | 7,203,398                                                                  |   |   | — |                                                                   |   | — |   |   | — |   |   | 7,203,398 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Net                                        |   | $                                                                         | 3,947,504 |                                                          | $      | 3,574,994                                                                 |   | $      | 136,727 |                                                                      | $      | 7,659,225                                                                  |   | $      | — |                                                                   | $      | — |   | $      | — |   | $      | 7,659,225 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| December 31,                        2006   |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Notes                        receivable    |   | $                                                                         | 4,170,000 |                                                          | $      | 3,574,994                                                                 |   | $      | 58,450  |                                                                      | $      | 7,803,444                                                                  |   | $      | 155,232 |                                                                   | $      | 39,769  |   | $      | 195,001 |   | $      | 7,998,445 |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Less:                        Discounts     |   |                                                                      | 563,833   |                                                          |   | —                                                                   |   |   | 5,372   |                                                                      |   | 569,205                                                                    |   |   | 14,216  |                                                                   |   | 32,569  |   |   | 46,785  |   |   | 615,990   |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Net                                        |   | $                                                                         | 3,606,167 |                                                          | $      | 3,574,994                                                                 |   | $      | 53,078  |                                                                      | $      | 7,234,239                                                                  |   | $      | 141,016 |                                                                   | $      | 7,200   |   | $      | 148,216 |   | $      | 7,382,455 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Due within one                        year |   | $                                                                         | 195,000   |                                                          | $      | —                                                                   |   | $      | 18,157  |                                                                      | $      | 213,157                                                                    |   | $      | 20,974  |                                                                   | $      | 6,402   |   | $      | 27,376  |   | $      | 240,533   |   |
| Long-term                                  |   |                                                                      | 3,411,167 |                                                          |   | 3,574,994                                                                 |   |   | 34,921  |                                                                      |   | 7,021,082                                                                  |   |   | 120,042 |                                                                   |   | 798     |   |   | 120,840 |   |   | 7,141,922 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |
|                                       |   |                                                                      |      |                                                          |   |                                                                      |   |   |    |                                                                      |   |                                                                       |   |   |    |                                                                   |   |    |   |   |    |   |   |      |   |
| Net                                        |   | $                                                                         | 3,606,167 |                                                          | $      | 3,574,994                                                                 |   | $      | 53,078  |                                                                      | $      | 7,234,239                                                                  |   | $      | 141,016 |                                                                   | $      | 7,200   |   | $      | 148,216 |   | $      | 7,382,455 |   |
|                                       |   |                                                                           |           |                                                          |        |                                                                           |   |        |         |                                                                      |        |                                                                            |   |        |         |                                                                   |        |         |   |        |         |   |        |           |   |

(1) In 2007, the Company            purchased an aggregate of 25% limited partnership interests in the UTB Associates            partnership and subsequently liquidated the partnership. The partnership held a small            portfolio of purchase money notes which it had acquired from Ivy from the sale of            property to Ivy and such notes were collateralized by individual cooperative            apartments. The Company now owns 100% of this note portfolio and the portfolio has been            reclassified from Notes receivable - related parties to Notes receivable.

71

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New Loan

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 has an interest rate of 7% per annum, payment of which is deferred            until maturity. At December 31, 2007, the accrued deferred interest was $11,083 which            was recognized in interest income. In March, 2008, the Company agreed to extend the            maturity date of the loan to December 31, 2008 and received a $25,000 payment of            principal and interest.

Prepayments and            Modifications

The Company has a $1,500,000            loan receivable collateralized by ownership interests in Reisterstown Square            Associates, LLC, which owns Reisterstown Apartments in Baltimore, Maryland, and by a            personal guarantee from the borrower. The loan matured on January 31, 2008. The loan            had an annual interest rate that changed every six months to a rate equal to 825 basis            points above the six month LIBOR rate, with a minimum rate of 10.50% per annum. At            December 31, 2007, the annual interest rate was 13.58%. The loan and interest due            thereon were repaid in 2008.

On March 8, 2006, the Company            received a partial prepayment on one of the loans outstanding to entities controlled by            Mr. Lichtenstein. The Company had a $4,500,000 loan secured by ownership interests in            entities owning nine apartment properties in the Commonwealth of Virginia. The first            mortgages on these properties were refinanced and 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 will be deferred and payable on October 23, 2008, in accordance with 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 refinancing of the            properties.

Under the terms of the Mark            Terrace note, the borrower had annual options to extend the maturity date from November            29, 2005 to November 29, 2008 at an interest rate of 9.16% per annum until maturity. In            2005 and 2006, the borrower exercised his option to extend the note for one year            periods, and the Company received principal payments of $100,000 for each extension.            The outstanding principal balance of $110,000 was due on November 29, 2007, and in lieu            of another one year extension and a principal payment of $100,000, the Company agreed            to extend the maturity of the note to March 31, 2008. The interest rate was increased            from 9.16% per annum to 11% per annum. As of December 31, 2007, the note is            collateralized by 75 unsold cooperative apartments at the Mark Terrace property. During            2007 and 2006, the Company received $85,000 and $395,000, respectively, in principal            payments on the Mark Terrace note.

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|   |                                           |
|--------|------------------------------------------------|
| 5.     | DISCONTINUED                        OPERATIONS |

For the years ended December 31,            2007 and 2006, income (loss) from discontinued operations is from the Cambridge Green            property, which was sold in March, 2007, and one cooperative apartment unit which was            sold in June, 2007.

The following table summarizes            income (loss) for the properties sold.

|                                               |   |                                           |    |   |   |      |   |
|----------------------------------------------------|--------|------------------------------------------------|---------|--------|--------|-----------|--------|
|                                               |   | Year                        ended December 31, |    |
|                                               |   |                                                |    |
|                                               |   | 2007                                           |    | 2006   |   |
|                                               |   |                                                |    |        |   |
| Revenues:                                          |   |                                           |    |   |   |      |   |
| Rental                                             |   | $                                              | 113,185 |   | $      | 895,398   |   |
|                                               |   |                                                |         |   |        |           |   |
| Rental property                        expenses:   |   |                                           |    |   |   |      |   |
| Operating                        expenses          |   |                                           | 148,213 |   |   | 856,260   |   |
| Interest on mortgage                        debt   |   |                                           | 31,684  |   |   | 192,151   |   |
| Real estate                        taxes           |   |                                           | 27,685  |   |   | 168,934   |   |
| Depreciation on real                        estate |   |                                           | 987     |   |   | 2,048     |   |
|                                               |   |                                                |         |   |        |           |   |
| Total                                              |   |                                           | 208,569 |   |   | 1,219,393 |   |
|                                               |   |                                                |         |   |        |           |   |
|                                               |   |                                           |    |   |   |      |   |
| Other                        income:               |   |                                           |    |   |   |      |   |
| Investment                        income           |   |                                           | 2,001   |   |   | 6,238     |   |
|                                               |   |                                                |         |   |        |           |   |
|                                               |   |                                           |    |   |   |      |   |
| Loss from                                          |   |                                           |    |   |   |      |   |
| discontinued                        operations     |   |                                           | (93,383 | )      |   | (317,757  | )      |
|                                               |   |                                           |    |   |   |      |   |
| Net gain from sales                        of      |   |                                           |    |   |   |      |   |
| discontinued                        operations     |   |                                           | 735,705 |   |   | —   |   |
|                                               |   |                                                |         |   |        |           |   |
| Total income (loss)                        from    |   |                                           |    |   |   |      |   |
| discontinued                        operations     |   | $                                              | 642,322 |   | $      | (317,757  | )      |
|                                               |   |                                                |         |   |        |           |   |

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 matures in one year and has 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 includes the $200,000 note receivable. The Company recognized a gain            from the sale for financial reporting purposes of $646,759.

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 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.

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The assets and liabilities of            the Cambridge Green property were segregated in the consolidated balance sheet at            December 31, 2006. The components were as follows:

|                                                  |   |         |       |   |   |
|-------------------------------------------------------|--------|--------------|------------|--------|--------|
|                                                  |   | December 31, |       |   |
|                                                  |   | 2006         |       |   |
|                                                  |   |              |       |   |
| Assets related                        to              |   |         |       |   |   |
| discontinued                        operations:       |   |         |       |   |   |
| Land                                                  |   | $            | 200,000    |   |   |
| Buildings                                             |   |         | 4,214,988  |   |   |
| Furniture and                        equipment        |   |         | 39,851     |   |   |
| Less: accumulated                        depreciation |   |         | (1,634,161 | )      |   |
|                                                  |   |              |            |   |   |
| Net real                        estate                |   |         | 2,820,678  |   |   |
| Other assets                                          |   |         | 101,815    |   |   |
|                                                  |   |              |            |   |   |
| Total                                                 |   | $            | 2,922,493  |   |   |
|                                                  |   |              |            |   |   |
|                                                  |   |         |       |   |   |
| Liabilities related                        to         |   |         |       |   |   |
| discontinued                        operations:       |   |         |       |   |   |
| Mortgage                        debt                  |   | $            | 2,865,433  |   |   |
| Other                        liabilities              |   |         | 46,244     |   |   |
|                                                  |   |              |            |   |   |
| Total                                                 |   | $            | 2,911,677  |   |   |
|                                                  |   |              |            |   |   |

|   |                                     |
|--------|------------------------------------------|
| 6.     | OTHER                        INVESTMENTS |

Other investments are composed            of:

|                                      |   |         |      |   |   |      |   |   |
|-------------------------------------------|--------|--------------|-----------|--------|--------|-----------|--------|--------|
|                                      |   | December 31, |      |   |
|                                      |   |              |      |   |
|                                      |   | 2007         |      | 2006   |   |      |
|                                      |   |              |      |        |   |      |
| Broadway                        Partners  |   | $            | —   |   | $      | 520,000   |   |   |
| Broadway Fund                        A    |   |         | —   |   |   | 890,000   |   |   |
| Broadway Fund A                        II |   |         | 1,000,000 |   |   | 590,000   |   |   |
|                                      |   |              |           |   |        |           |   |   |
|                                      |   |         |      |   |   |      |   |   |
| Total                                     |   | $            | 1,000,000 |   | $      | 2,000,000 |   |   |
|                                      |   |              |           |   |        |           |   |   |

In 2005, the Company agreed to            advance $1,000,000 from time to time to Broadway Partners Parallel Fund A            (“Broadway Fund A”), a blind pool of investment capital sponsored by            Broadway Real Estate Partners, LLC (“Broadway Partners”). In connection            with such agreement, the Company advanced $1,000,000 to Broadway Partners and received            interest on these funds at the rate of 11.43% per annum through September 30, 2006 and            5% per annum thereafter until such funds were used to fund the Company’s            commitment to Broadway Fund A. In 2006, the Company made an additional commitment to            fund an additional $1,000,000 to Broadway Partners Feeder Fund A II (“Broadway            Fund A II”), another blind pool of investment capital sponsored by Broadway            Partners. The Company retained the right to fund its commitments to Broadway Fund A and            Broadway Fund A II with the $1,000,000 advanced to Broadway Partners or with other            funds available to the Company.

As of December 31, 2006,            Presidential had advanced $890,000 of its $1,000,000 commitment to Broadway Fund A. In            September, 2007, the $890,000 was returned to Presidential. Presidential has no further            commitment to Broadway Fund A.

Also in 2006, Presidential            advanced $590,000 of its $1,000,000 commitment to Broadway Fund A II. The remaining            $410,000 balance to Presidential’s commitment to Broadway Fund A II was funded in            January, 2007.

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At December 31, 2006, Broadway            Partners still held $520,000 of funds previously advanced to it by Presidential, of            which $420,000 was used in January, 2007 to fund Broadway Fund A II above and the            $110,000 balance was returned to Presidential in September, 2007.

In 2007 and 2006, the Company            received distributions of $537,087 and $145,076, respectively, from Broadway Fund A            resulting from the proceeds of sales and recorded the distributions in investment            income. In addition, for the years ended December 31, 2007 and 2006, the Company earned            interest income of $5,243 and $94,097, respectively, on the funds held by Broadway            Partners.

The Company accounts for these            investments under the cost method.

|   |                                 |
|--------|--------------------------------------|
| 7.     | MORTGAGE                        DEBT |

At December 31, 2007, mortgage            debt on the consolidated balance sheet was $18,868,690, which was discounted by $48,254            relating to the Hato Rey Center property mortgage and the partial step acquisition (see            Note 1-A). The aggregate outstanding mortgage debt at December 31, 2007 is            $18,916,944.

All mortgage debt is secured by            individual properties. The $15,541,000 mortgage on the Hato Rey Center property in Hato            Rey, Puerto Rico and the $2,174,747 mortgage on the Crown Court property in New Haven,            Connecticut are nonrecourse to the Company, whereas the $1,101,578 mortgage on the            Building Industries Center property in White Plains, New York and the $99,619 mortgage            on the Mapletree Industrial Center property in Palmer, Massachusetts are recourse to            Presidential.

Amortization requirements of all            mortgage debt as of December 31, 2007 are summarized as follows:

Year ending December 31:

|       |   |   |       |   |
|------------|--------|--------|------------|--------|
| 2008       |   | $      | 445,130    |   |
| 2009       |   |   | 1,524,693  |   |
| 2010       |   |   | 486,476    |   |
| 2011       |   |   | 507,114    |   |
| 2012       |   |   | 525,424    |   |
| Thereafter |   |   | 15,428,107 |   |
|       |   |        |            |   |
|       |   |   |       |   |
| TOTAL      |   | $      | 18,916,944 |   |
|       |   |        |            |   |

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

Interest rates:

|                              |   |   |       |   |
|-----------------------------------|--------|--------|------------|--------|
| 5.45%                             |   | $      | 1,101,578  |   |
| 7% -                        7.38% |   |   | 17,715,747 |   |
| 8.25%                             |   |   | 99,619     |   |
|                              |   |        |            |   |
|                              |   |   |       |   |
| TOTAL                             |   | $      | 18,916,944 |   |
|                              |   |        |            |   |

The first mortgage loan on the            Hato Rey Center property is due on May 11, 2028 but provides that if it is not repaid            on or before May 11, 2008, the interest rate on the loan will be increased by two            percentage points (to

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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 outstanding principal balance of the loan on May 11, 2008 will be            approximately $15,445,000. The Company is attempting to refinance the existing first            mortgage but has not yet obtained a commitment to do so. Failure to repay the existing            mortgage loan on May 11, 2008 does not constitute a default under the loan.

|   |                                        |
|--------|---------------------------------------------|
| 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. had an aggregate 33% general and limited partner interest in            the Hato Rey Partnership at March 31, 2006. During the second quarter of 2006, the            Company purchased an additional 1% limited partnership interest. In addition, during            2006 the Company purchased an additional 25% limited partnership interest, which            purchase was effective as of December 31, 2006. At December 31, 2006, Presidential and            PDL, Inc. owned an aggregate 59% general and limited partner interest.

In January, 2007, the Company            purchased an additional 1% limited partnership interest for a purchase price of            $53,694. At December 31, 2007, Presidential and PDL, Inc. owned an aggregate 60%            general and limited partner interest in the Hato Rey Partnership.

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.

Prior to the purchase of the            additional 25% limited partnership interest, the Company accounted for its investment            in this partnership under the equity method.

As a result of the purchase of            the additional 25% limited partnership interest at December 31, 2006, the Company owns            the majority of the partnership interests in the partnership, is the general partner of            the partnership, and exercises effective control over the partnership through its            ability to manage the affairs of the partnership in the ordinary course of            business.

The purchase of the additional            limited partnership interests were recorded as partial step acquisitions in accordance            with the provisions of ARB No. 51 and SFAS No. 141.

The purchase price of the            additional 25% limited partnership interest purchased in 2006, was $950,000 and            additional costs of purchase were $54,439 for a total purchase price of            $1,004,439.

The Company allocated the            transaction’s value, the negative basis of the minority partners and the            Company’s negative basis, to the tangible and intangible assets acquired and            liabilities assumed based on the increase in their estimated fair values over            historical costs in a partial step acquisition as follows:

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|                                                       |   |   |       |   |
|------------------------------------------------------------|--------|--------|------------|--------|
| Land                                                       |   | $      | 1,899,170  |   |
| Building and                        improvements           |   |   | 12,085,690 |   |
| Intangible assets                        (in other assets) |   |   | 570,596    |   |
| Mortgage                        payable                    |   |   | 15,660,265 |   |
| Other                        liabilities                   |   |   | 167,865    |   |

The purchase price of the            additional 1% limited partnership interest purchased in 2007, was $53,694 and the            Company recorded $50,669 to land, building and improvements and $3,025 to intangible            assets, mortgage payable and other liabilities.

For the year ended December 31,            2007, the Company consolidated the results of operations of the Hato Rey Partnership on            the Company’s consolidated statement of operations.

At December 31, 2006, the            Company consolidated the Hato Rey Partnership on the Company’s consolidated            balance sheet. The results of operations of the Hato Rey Partnership were not            consolidated on the Company’s consolidated statement of operations for the year            ended December 31, 2006, because the Company only had a 34% ownership interest in the            partnership during the year, and, accordingly, the Company’s share of the loss            from the partnership for 2006 was recorded in Equity in the loss from partnership,            under the equity method of accounting.

Summary statement of operations            information for the Hato Rey Partnership for the year ended December 31, 2006 and the            amount recorded by the Company in Equity in the loss from partnership are as            follows:

|                                                                                |   |                                                                                              |       |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|------------|--------|
|                                                                                |   | Year                        Ended                        December 31,                        2006 |       |
|                                                                                |   |                                                                                                   |            |   |
| Condensed Statement                        of Operations                            |   |                                                                                              |       |   |
| Revenues                                                                            |   | $                                                                                                 | 3,046,533  |   |
| Interest on mortgage                        debt                                    |   |                                                                                              | (1,192,948 | )      |
| Depreciation and                        amortization                                |   |                                                                                              | (382,753   | )      |
| Other                        expenses                                               |   |                                                                                              | (2,174,568 | )      |
| Investment                        income                                            |   |                                                                                              | 25,108     |   |
|                                                                                |   |                                                                                                   |            |   |
|                                                                                |   |                                                                                              |       |   |
| Net Loss                                                                            |   | $                                                                                                 | (678,628   | )      |
|                                                                                |   |                                                                                                   |            |   |
|                                                                                |   |                                                                                              |       |   |
| On the Company’s                        Consolidated Statement of Operations: |   |                                                                                              |       |   |
| Equity in the loss from                        partnership                          |   | $                                                                                                 | (227,510   | )      |
|                                                                                |   |                                                                                                   |            |   |

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            $795,000 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, bears            interest at the rate of 11% per annum, with interest and principal to be paid out of            the first positive cash flow from the

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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 would be            at the rate of 13% per annum and that the interest rate on the entire loan would be            increased to 13% per annum to the extent that the loan was not repaid in May, 2008. At            December 31, 2007, the Company had advanced $1,999,275 of the loan to the Hato Rey            Partnership. The $1,999,275 loan and accrued interest in the amount of 235,239 have            been eliminated in consolidation.

For the year ended December 31,            2007, the Hato Rey Partnership had a loss of $521,102. 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            $208,441. Therefore, the Company recorded 100% of the loss from the partnership of            $521,102 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.

|   |                                                                 |
|--------|----------------------------------------------------------------------|
| 9.     | MINORITY INTEREST IN                        CONSOLIDATED PARTNERSHIP |

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. The minority interest reflects 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 is a portfolio            of notes receivable that amortize monthly and have various interest rates. At June 30,            2007, the notes had an outstanding principal balance of $142,757 and a net carrying            value of $114,889. 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 2007 and there are no amounts outstanding            under the line of credit at December 31, 2007.

|   |                                |
|--------|-------------------------------------|
| 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

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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, or a deficiency dividend            and related interest, for prior years. Should such an assessment require the Company to            pay a deficiency dividend in order to continue to qualify as a REIT, the Company would            pay the deficiency dividend to its shareholders and the related interest assessment to            the taxing authorities.

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 be required to pay a deficiency dividend. In addition, for the year            ended December 31, 2007, the Company recorded interest expense of $356,780 for the            interest related to these matters. The Company recognizes this interest expense in            general and administrative expenses in its consolidated statements of operations. As of            December 31, 2007, the Company had accrued $817,580 of interest related to these            matters, which is included in accrued liabilities in its consolidated balance sheet. As            of December 31, 2007, the tax years that remain open to examination by the federal,            state and local taxing authorities are the 2004 – 2006 tax years.

Upon filing the Company’s            income tax return for the year ended December 31, 2006, the Company reported a tax loss            of approximately $1,412,000 ($.36 per share), which is comprised of capital gains of            approximately $225,000 ($.06 per share) and an ordinary loss of approximately            $1,637,000 ($.42 per share).

For the year ended December 31,            2007, the Company had taxable income (before distributions to shareholders) of            approximately $3,015,000 ($0.76 per share), which is comprised of capital gains of            $4,208,000 ($1.06 per share) and an ordinary loss of $1,193,000 ($0.30 per share). The            Company will apply its 2007 distributions and a portion of its 2006 loss carryforward            to reduce its 2007 taxable income to zero, therefore no provision for income taxes was            required at December 31, 2007.

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 2007,            there is no requirement to make a distribution in 2008.

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 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

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Palmer, Massachusetts. The land            area involved is approximately 1.25 acres and the depth of the contamination is at this            time undetermined. 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 depth of which is yet to be determined). The Company estimates that            the costs of the cleanup will not exceed $1,000,000. The remediation will comply with            the requirements of the Massachusetts Department of Environmental Protection            (“MADEP”). The MADEP has agreed that the Company may complete the            remediation over the next fifteen years, but the Company expects to complete the            project over the next ten years. The Company is currently waiting for regulations to be            finalized by MADEP and will begin remediation thereafter. This estimate is based on            hazard waste regulation 310 CMR 30 being passed in Massachusetts. If this regulation is            not adopted, the costs could be materially different.

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. The expected cash payments and            undiscounted amount to be recognized in the Company’s consolidated financial            statements are as follows:

|      |   |                                           |    |   |                                                                                                        |   |   |                                                                                                                                                  |   |   |                                                                                                                                                                       |   |   |
|-----------|--------|------------------------------------------------|---------|--------|-------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|      |   |                                           |    |   |                                                                                                        |   |   |                                                                                                                                                  |   |   | Discount                        Amount                        Recognized                        as Expense                        December 31,                        2007 |   |
|      |   |                                           |    |   |                                                                                                        |   |   |                                                                                                                                                  |   |   |                                                                                                                                                                       |
|      |   |                                           |    |   |                                                                                                        |   |   | Estimated                        Undiscounted                        Amount to be                        Recognized                        as Expense |   |   |
|      |   |                                           |    |   |                                                                                                        |   |   |                                                                                                                                                  |   |
|      |   |                                           |    |   | Actual                        Cash Payments                        December 31,                        2007 |   |   |                                                                                                                                                  |
|      |   | Estimated                        Cash Payments |    |   |                                                                                                        |   |
| Year      |   |                                           |    |   |                                                                                                        |
|           |   |                                                |    |        |                                                                                                        |        |   |                                                                                                                                                       |   |
|      |
| 2007      |   | $                                              | 200,000 |   | $                                                                                                           | 36,663 |   | $                                                                                                                                                     | 8,841  |   | $                                                                                                                                                                          | 1,621  |   |
| 2008      |   |                                           | 200,000 |   |                                                                                                        |   |   |                                                                                                                                                  | 16,934 |   |                                                                                                                                                                       |   |   |
| 2009      |   |                                           | 150,000 |   |                                                                                                        |   |   |                                                                                                                                                  | 18,277 |   |                                                                                                                                                                       |   |   |
| 2010      |   |                                           | 100,000 |   |                                                                                                        |   |   |                                                                                                                                                  | 15,612 |   |                                                                                                                                                                       |   |   |
| 2011      |   |                                           | 100,000 |   |                                                                                                        |   |   |                                                                                                                                                  | 18,781 |   |                                                                                                                                                                       |   |   |
| 2012-2016 |   |                                           | 250,000 |   |                                                                                                        |   |   |                                                                                                                                                  | 67,101 |   |                                                                                                                                                                       |   |   |

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 unless regulation 310 CMR 30 is not            adopted.

In addition to the $854,454            charged to operations for environmental expense, the Company incurred costs in 2006 of            $225,857 for environmental site testing and removal of soil. The total amounts charged            to operations for environmental expense for 2006 were $1,080,311. For the year ended            December 31, 2007, the Company incurred environmental expenses of $41,493 for further            excavation and testing of the site.

|   |                                                 |
|--------|------------------------------------------------------|
| 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.

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The Company’s mortgage            portfolio consists of long-term notes receivable collateralized by real estate located            in eight states (primarily Virginia, New Jersey and Maryland). 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, 2007 are three collateralized loans made to different            companies, all of which are controlled by the same individual, David Lichtenstein.            Some, but not all, of these loans, are guaranteed in whole or in part by Mr.            Lichtenstein. The aggregate net carrying value of all of the outstanding loans made by            Presidential to companies controlled by Mr. Lichtenstein is approximately $7,112,000            and all of such loans are 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.

Furthermore, the $29,600,000            nonrecourse first mortgage loan secured by one of the shopping mall properties and the            $39,500,000 nonrecourse first mortgage loan secured by two of the shopping mall            properties carry interest rates which change monthly based on the London Interbank            Offered Rate and mature in June, 2008 and January, 2009, respectively, subject to the            borrower’s right to extend the maturity date of the $39,500,000 loan for one            additional year. As a result, any material increase in interest rates could adversely            affect the operating results of the joint ventures and their ability to make the            required interest payments on the Company’s $8,600,000 and $7,835,000 mezzanine            loans to those entities. The interest rate on the first mortgage secured by the West            Manchester Mall was 7.89% per annum at December 31, 2006 and December 31, 2007. The            interest rate on the first mortgages secured by the Shawnee/Brazos Malls decreased from            7.93% per annum at December 31, 2006 to 7.54% per annum at December 31,            2007.

The $29,600,000 first mortgage            loan secured by the West Manchester Mall property is due in June of 2008. An affiliate            of Lightstone has guaranteed repayment of a total of $10,360,000 of the first mortgage.            Lightstone is attempting to obtain a refinancing of the first mortgage or an extension            of its maturity date. However, there can be no assurance that such a refinancing or            modification can be obtained and if it is not, the holder of the first mortgage could            foreclose on the property and Presidential would lose its interest in the property. The            carrying value of the West Manchester property was written down to its estimated fair            value by the owning joint venture at December 31, 2007.

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.

81

----

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                        Ordinary                        Income |                                | Taxable                        Capital                        Gain |   |   |   |   |
|   |   | Total                        Distribution |   |   |                                                                  | Non-                        Taxable |                                                               |
| Year   |   |                                      |   |   |                                                                  |
|   |        |                                           |        |        |                                                                       |                                     |                                                                    |        |        |        |        |        |        |
| 2007   |   | $                                         | 0.64   |   | $                                                                     | 0.00                                |                                                               | $      | 0.64   |   | $      | 0.00   |   |
| 2006   |   | $                                         | 0.64   |   | $                                                                     | 0.00                                |                                                               | $      | 0.52   |   | $      | 0.12   | (1)    |

(1)          The            non-taxable distribution of $0.12 per share in 2006 is a return of capital.

|   |                                      |
|--------|-------------------------------------------|
| 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.

In 2006 and 2007, stock granted            to directors was fully vested upon the grant date. Stock granted to officers and            employees will vest 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 2006 and 2007:

82

----

|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|----------------------------------------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------|--------|--------|--------|--------|--------|
| Date                        of                        Issuance |   | Shares                        Issued |   | Market                        Value at                        Date of                        Grant |   | Vested                        Shares |   | Unvested                        Shares |   | Class                        B                        Common                        Stock - Par                        Value $.10                        Per Share |   | Additional                        Paid-in                        Capital |   | Directors’                        Fees |   | Salary                        Expense |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |
| **Activity for                        2006**                   |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
| Unvested shares as                        of December 31, 2005 |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |
|                                                           |   | 11,000                               |   |                                                                                               |   | 2,200                                |   | 8,800                                  |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
| **Shares issued in                        2006**               |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |
| Jan., 2006                                                     |   | 3,000                                |   | 7.64                                                                                               |   | 3,000                                |   |                                   |   | $                                                                                                                                                                  | 300    |                                                                     | $      | 22,620                                       |   | $                                     | 22,920 |   |   |   |   |
| Jan., 2006                                                     |   | 22,500                               |   | 7.40                                                                                               |   | 4,500                                |   | 18,000                                 |   |                                                                                                                                                               | 2,250  |                                                                     |   | 31,050                                       |   |                                  |   |   | $      | 33,300 |   |
| Dec., 2006                                                     |   | 6,500                                |   | 7.05                                                                                               |   |                                 |   | 6,500                                  |   |                                                                                                                                                               | 650    |                                                                     |   | (650                                         | )      |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   | 32,000                               |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                      |   |                                        |   |                                                                                                                                                                    |        |                                                                     |        |                                              |   |                                       |        |   |        |        |   |
|                                                           |   | 43,000                               |   |                                                                                               |   | 9,700                                |   | 33,300                                 |   | $                                                                                                                                                                  | 3,200  |                                                                     | $      | 53,020                                       |   | $                                     | 22,920 |   | $      | 33,300 |   |
|                                                           |   |                                      |   |                                                                                               |   |                                      |   |                                        |   |                                                                                                                                                                    |        |                                                                     |        |                                              |   |                                       |        |   |        |        |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
| **Activity for                        2007**                   |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
| Unvested shares as                        of December 31, 2006 |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |
|                                                           |   | 33,300                               |   |                                                                                               |   | 8,000                                |   | 25,300                                 |   |                                                                                                                                                               |   |                                                                     | $      | 42,465                                       |   |                                  |   |   | $      | 42,465 |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
| **Shares issued in                        2007**               |   |                                 |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |
| Jan., 2007                                                     |   | 3,000                                |   | 6.95                                                                                               |   | 3,000                                |   |                                   |   | $                                                                                                                                                                  | 300    |                                                                     |   | 20,550                                       |   | $                                     | 20,850 |   |   |   |   |
| May, 2007                                                      |   | 10,000                               |   | 7.44                                                                                               |   | 5,000                                |   | 5,000                                  |   |                                                                                                                                                               | 1,000  |                                                                     |   | 36,200                                       |   |                                  |   |   |   | 37,200 |   |
| Dec., 2007                                                     |   | 2,500                                |   | 5.80                                                                                               |   |                                 |   | 2,500                                  |   |                                                                                                                                                               | 250    |                                                                     |   | (250                                         | )      |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   | 15,500                               |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                 |   |                                   |   |                                                                                                                                                               |   |                                                                     |   |                                         |   |                                  |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                               |   |                                      |   |                                        |   |                                                                                                                                                                    |        |                                                                     |        |                                              |   |                                       |        |   |        |        |   |
|                                                           |   | 48,800                               |   |                                                                                               |   | 16,000                               |   | 32,800                                 |   | $                                                                                                                                                                  | 1,550  |                                                                     | $      | 98,965                                       |   | $                                     | 20,850 |   | $      | 79,665 |   |
|                                                           |   |                                      |   |                                                                                               |   |                                      |   |                                        |   |                                                                                                                                                                    |        |                                                                     |        |                                              |   |                                       |        |   |        |        |   |

83

----

|   |                                                                   |
|--------|------------------------------------------------------------------------|
| 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.

Effective December 31, 2006, the            Company adopted SFAS No. 158, which required employers to recognize the overfunded and            underfunded status for contractual pension benefit and postretirement benefit plans,            measured as the difference between the fair value of plan assets and the benefit            obligation, as an asset or liability in its statement of financial condition. The            benefit obligation is defined as the accumulated benefit obligation for the contractual            benefit plans. Upon adoption, SFAS No. 158 requires an entity to recognize previously            unrecognized actuarial gains and losses and prior service costs within accumulated            other comprehensive loss. The final net minimum pension liability adjustments are            recognized prior to adoption of SFAS No. 158. SFAS No. 158 also requires the            contractual benefit plan assets and the contractual benefit obligations to be measured            as of the date of the entity’s fiscal year end. The Company has historically used            a December 31 measurement date, which coincides with its fiscal year end, so this            provision, which becomes effective for fiscal years ending after December 15, 2008,            will not have any impact on the Company’s consolidated financial            statements.

84

----

CONTRACTUAL PENSION AND            POSTRETIREMENT BENEFITS

The following table illustrates            the incremental effect of the application of SFAS No. 158 at December 31,            2006:

|                                                                                                                                                                   |   |                                               |   |                                                       |   |   |   |   |    |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|------------------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|
|                                                                                                                                                                   |   | Contractual Pension                        Benefit |   | Contractual                        Postretirement Benefits |   |
|                                                                                                                                                                   |   |                                                    |   |                                                            |   |
| Liability balance                        before net minimum pension liability adjustment and SFAS No. 158                        adjustment                            |   |                                               | $      | 2,837,440                                                  |   |   |   | $      | 608,695 |   |   |
| Final net minimum                        pension liability adjustment                                                                                                  |   |                                               |   | (262,693                                                   | )      |   |   |   | — |   |   |
| SFAS No. 158                        adjustment                                                                                                                         |   |                                               |   | —                                                    |   |   |   |   | 73,419  |   |   |
|                                                                                                                                                                   |   |                                               |        |                                                            |   |   |   |        |         |   |   |
| Ending                        balance                                                                                                                                  |   |                                               | $      | 2,574,747                                                  |   |   |   | $      | 682,114 |   |   |
|                                                                                                                                                                   |   |                                               |        |                                                            |   |   |   |        |         |   |   |
|                                                                                                                                                                   |   |                                               |   |                                                       |   |   |   |   |    |   |   |
| Balance accumulated                        other comprehensive loss before net minimum pension liability adjustment                        and SFAS No. 158 adjustment |   |                                               | $      | 1,522,794                                                  |   |   |   | $      | — |   |   |
| Final net minimum                        pension liability adjustment                                                                                                  |   |                                               |   | (262,693                                                   | )      |   |   |   | — |   |   |
| SFAS No. 158                        adjustment                                                                                                                         |   |                                               |   | —                                                    |   |   |   |   | 73,419  |   |   |
|                                                                                                                                                                   |   |                                               |        |                                                            |   |   |   |        |         |   |   |
| Ending                        balance                                                                                                                                  |   |                                               | $      | 1,260,101                                                  |   |   |   | $      | 73,419  |   |   |
|                                                                                                                                                                   |   |                                               |        |                                                            |   |   |   |        |         |   |   |

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

|                                                            |   |                                                                                              |    |                                                                                                      |   |    |   |   |    |   |   |    |   |
|-----------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                            |   | Contractual Pension                        Benefit                        Year Ended December 31, |    | Contractual                        Postretirement Benefits                        Year Ended December 31, |   |
|                                                            |   |                                                                                                   |    |                                                                                                           |   |
|                                                            |   | 2007                                                                                              |    | 2006                                                                                                      |   | 2007    |   | 2006   |    |
|                                                            |   |                                                                                                   |    |                                                                                                           |   |         |   |        |    |
| Components of net                        periodic benefit cost: |   |                                                                                              |    |                                                                                                      |   |    |   |   |    |   |   |    |   |
| Service                        cost                             |   | $                                                                                                 | — |                                                                                                      | $      | 16,479  |   | $      | 1,946   |   | $      | 12,827  |   |
| Interest                        cost                            |   |                                                                                              | 132,727 |                                                                                                      |   | 127,436 |   |   | 44,180  |   |   | 37,309  |   |
| Amortization of                        prior service cost       |   |                                                                                              | (46,376 | )                                                                                                         |   | (46,376 | )      |   | (11,779 | )      |   | (50,848 | )      |
| Amortization of                        actuarial loss           |   |                                                                                              | 422,362 |                                                                                                      |   | 384,340 |   |   | 21,782  |   |   | 53,153  |   |
|                                                            |   |                                                                                                   |         |                                                                                                      |        |         |   |        |         |   |        |         |   |
| Net periodic benefit                        cost                |   | $                                                                                                 | 508,713 |                                                                                                      | $      | 481,879 |   | $      | 56,129  |   | $      | 52,441  |   |
|                                                            |   |                                                                                                   |         |                                                                                                      |        |         |   |        |         |   |        |         |   |

The recorded contractual pension            and postretirement benefits liability of $2,169,408 at December 31, 2007 is comprised            of $1,409,448 for pension benefits and $759,960 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                        December 31, |      | Contractual                        Postretirement Benefits                        December 31, |   |
|                                                                                   |   |                                                                                        |      |                                                                                                |   |
|                                                                                   |   | 2007                                                                                   |      | 2006                                                                                           |   | 2007      |   | 2006   |    |
|                                                                                   |   |                                                                                        |      |                                                                                                |   |           |   |        |    |
| Change in benefit                        obligation:                                   |   |                                                                                   |      |                                                                                           |   |      |   |   |    |   |   |     |   |
| Benefit obligation                        at beginning of year                         |   | $                                                                                      | 2,574,747 |                                                                                           | $      | 2,835,963 |   | $      | 682,114 |   | $      | 890,896  |   |
| Service                        cost                                                    |   |                                                                                   | —   |                                                                                           |   | 16,479    |   |   | 1,946   |   |   | 12,827   |   |
| Interest                        cost                                                   |   |                                                                                   | 132,727   |                                                                                           |   | 127,436   |   |   | 44,180  |   |   | 37,309   |   |
| Amendments                                                                             |   |                                                                                   | —   |                                                                                           |   | —   |   |   | 19,399  |   |   | (61,523  | )      |
| Actuarial (gain)                        loss                                           |   |                                                                                   | (828,451  | )                                                                                              |   | 75,271    |   |   | 72,745  |   |   | (132,946 | )      |
| Benefits                        paid                                                   |   |                                                                                   | (469,575  | )                                                                                              |   | (480,402  | )      |   | (60,424 | )      |   | (64,449  | )      |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |
| Benefit obligation                        at end of year                               |   | $                                                                                      | 1,409,448 |                                                                                           | $      | 2,574,747 |   | $      | 759,960 |   | $      | 682,114  |   |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |
|                                                                                   |   |                                                                                   |      |                                                                                           |   |      |   |   |    |   |   |     |   |
| Change in plan                        assets:                                          |   |                                                                                   |      |                                                                                           |   |      |   |   |    |   |   |     |   |
| Employer                        contributions                                          |   | $                                                                                      | 469,575   |                                                                                           | $      | 480,402   |   | $      | 60,424  |   | $      | 64,449   |   |
| Benefits                        paid                                                   |   |                                                                                   | (469,575  | )                                                                                              |   | (480,402  | )      |   | (60,424 | )      |   | (64,449  | )      |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |
| Fair value of plan                        assets at end of year                        |   | $                                                                                      | —   |                                                                                           | $      | —   |   | $      | — |   | $      | —  |   |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |
|                                                                                   |   |                                                                                   |      |                                                                                           |   |      |   |   |    |   |   |     |   |
| Funded                        status                                                   |   | ($                                                                                     | 1,409,448 | )                                                                                              | ($     | 2,574,747 | )      | ($     | 759,960 | )      | ($     | 682,114  | )      |
| Unrecognized net                        actuarial loss                                 |   |                                                                                   | —   |                                                                                           |   | —   |   |   | — |   |   | 88,900   |   |
| Unrecognized prior                        service cost                                 |   |                                                                                   | —   |                                                                                           |   | —   |   |   | — |   |   | (15,481  | )      |
| Transitional adjustment                        to accumulated other comprehensive loss |   |                                                                                   | —   |                                                                                           |   | —   |   |   | — |   |   | (73,419  | )      |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |
| Funded                        status                                                   |   | ($                                                                                     | 1,409,448 | )                                                                                              | ($     | 2,574,747 | )      | ($     | 759,960 | )      | ($     | 682,114  | )      |
|                                                                                   |   |                                                                                        |           |                                                                                           |        |           |   |        |         |   |        |          |   |

85

----

|                                                                               |   |                                                                                              |      |                                                                                                      |   |      |   |   |    |   |   |    |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|-----------|-----------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|---------|--------|--------|---------|--------|
|                                                                               |   | Contractual Pension                        Benefit                        Year Ended December 31, |      | Contractual                        Postretirement Benefits                        Year Ended December 31, |   |
|                                                                               |   |                                                                                                   |      |                                                                                                           |   |
|                                                                               |   | 2007                                                                                              |      | 2006                                                                                                      |   | 2007      |   | 2006   |    |
|                                                                               |   |                                                                                                   |      |                                                                                                           |   |           |   |        |    |
| Net amount recognized                        in the consolidated balance sheet:    |   |                                                                                              |      |                                                                                                      |   |      |   |   |    |   |   |    |   |
|                                                                               |   |                                                                                              |      |                                                                                                      |   |      |   |   |    |   |   |    |   |
| Accrued benefit                        liability                                   |   | ($                                                                                                | 1,409,448 | )                                                                                                         | ($     | 2,574,747 | )      | ($     | 759,960 | )      | ($     | 682,114 | )      |
|                                                                               |   |                                                                                                   |           |                                                                                                      |        |           |   |        |         |   |        |         |   |
|                                                                               |
| Amounts recognized in                        accumulated other comprehensive loss: |   |                                                                                              |      |                                                                                                      |   |      |   |   |    |   |   |    |   |
| Net loss                                                                           |   | $                                                                                                 | 132,961   |                                                                                                      | $      | 1,383,774 |   | $      | 72,745  |   | $      | 88,900  |   |
| Prior service                        cost                                          |   |                                                                                              | (77,297   | )                                                                                                         |   | (123,673  | )      |   | 19,399  |   |   | (15,481 | )      |
| 2007 amortization of                        unrecognized amounts                   |   |                                                                                              |      |                                                                                                      |   |      |   |   | (10,004 | )      |   | N/A     |   |
|                                                                               |   |                                                                                                   |           |                                                                                                      |        |           |   |        |         |   |        |         |   |
|                                                                               |   | $                                                                                                 | 55,664    |                                                                                                      | $      | 1,260,101 |   | $      | 82,140  |   | $      | 73,419  |   |
|                                                                               |   |                                                                                                   |           |                                                                                                      |        |           |   |        |         |   |        |         |   |

|                                                                                                           |   |   |      |   |   |      |   |   |    |   |   |    |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|---------|--------|--------|---------|--------|
| Additional                        disclosure items for the plans at December 31,                               |
|                                                                                                           |   | 2007   |      | 2006   |   | 2007      |   | 2006   |    |
|                                                                                                           |   |        |      |        |   |           |   |        |    |
| Accumulated benefit                        obligation                                                          |   | $      | 1,409,448 |   | $      | 2,574,747 |   | $      | 759,960 |   | $      | 682,114 |   |
| Projected benefit                        obligation                                                            |   |   | 1,409,448 |   |   | 2,574,747 |   |   | 759,960 |   |   | 682,114 |   |
| Fair value of plan                        assets                                                               |   |   | N/A       |   |   | N/A       |   |   | N/A     |   |   | N/A     |   |
| Increase (decrease) in                        minimum liability included in other comprehensive income or loss |   | ($     | 1,204,437 | )      | ($     | 262,693   | )      |   | N/A     |   |   | N/A     |   |

|                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|
| Unrecognized amounts                        and                        amortization amounts following year: |   | 2007   |   | 2006   |   | 2007   |   | 2006   |    |
|                                                                                                        |   |        |   |        |   |        |   |        |    |
| Unrecognized                        amounts:                                                                |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Prior year service                        cost                                                              |   |   | N/A    |   |   | N/A    |   | $      | 15,697  |   | ($     | 15,481 | )      |
| Net actuarial                        loss                                                                   |   |   | N/A    |   |   | N/A    |   |   | 139,862 |   |   | 88,900 |   |
|                                                                                                        |   |        |        |   |        |        |   |        |         |   |        |        |   |
| Total                                                                                                       |   |   | N/A    |   |   | N/A    |   | $      | 155,559 |   | $      | 73,419 |   |
|                                                                                                        |   |        |        |   |        |        |   |        |         |   |        |        |   |

|                                                                                   |   |   |    |   |   |    |   |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| Amortization amounts in                        the following year (estimate):          |   | 2007   |    | 2006   |   | 2007    |   | 2006   |   |
|                                                                                   |   |        |    |        |   |         |   |        |   |
| Prior year service                        cost                                         |   | ($     | 46,376  | )      | ($     | 46,376  | )      | ($     | 11,779 | )      | ($     | 15,481 | )      |
| Net actuarial                        loss                                              |   |   | — |   |   | 422,362 |   |   | 11,805 |   |   | 20,689 |   |
|                                                                                   |   |        |         |   |        |         |   |        |        |   |        |        |   |
| Total                                                                                  |   | ($     | 46,376  | )      | $      | 375,986 |   | $      | 26     |   | $      | 5,208  |   |
|                                                                                   |   |        |         |   |        |         |   |        |        |   |        |        |   |
|                                                                                   |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Transitional adjustment                        to accumulated other comprehensive loss |   |   | N/A     |   |   | N/A     |   |   | N/A    |   | ($     | 73,419 | )      |
|                                                                                   |   |        |         |   |        |         |   |        |        |   |        |        |   |

|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Weighted-average                        assumptions used to determine benefit obligations at December                        31: |
|                                                                                                                             |   | 2007   |   | 2006   |   | 2007   |   | 2006   |   |
|                                                                                                                             |   |        |   |        |   |        |   |        |   |
| Discount                        rate                                                                                             |   |   | 6.00   | %      |   | 5.72   | %      |   | 6.06   | %      |   | 5.72   | %      |
| Expected return on                        plan assets                                                                            |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |
| Rate 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, |
|                                                                                                                                                    |   | 2007   |   | 2006   |   | 2007   |   | 2006   |   |
|                                                                                                                                                    |   |        |   |        |   |        |   |        |   |
| Discount                        rate                                                                                                                    |   |   | 5.72   | %      |   | 5.41   | %      |   | 5.72   | %      |   | 5.41   | %      |
| Expected return on                        plan assets                                                                                                   |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |
| Rate of compensation                        increase                                                                                                    |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |   | N/A    |   |

The assumed health care cost            trend rate at December 31, 2007 was 9.5% for medical and 12% for prescription drugs and            10% for medical and 13% for prescription drugs at December 31, 2006. 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-                        Point Increase |   | 1-Percentage-                        Point Decrease |   |
|                                                                        |   |                                                     |   |                                                     |   |
|                                                                        |   |                                                |   |                                                |   |   |   |   |   |   |   |
| Effect on total                        service and interest cost components |   |                                                | $      | 2,968                                               |   |   |   | ($     | 5,592  | )      |   |
| Effect on                        postretirement benefit obligation          |   |                                                | $      | 52,424                                              |   |   |   | ($     | 46,315 | )      |   |

86

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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 recently passed legislation.

Cash Flows

The contractual pension and            postretirement benefit plans are non-funded plans, employer contributions equal benefit            payments. The Company estimates that the contractual payments for 2008 will be as            follows:

|                                                               |   |   |    |   |
|--------------------------------------------------------------------|--------|--------|---------|--------|
| Contractual pension                        benefit payments        |   | $      | 216,700 |   |
| Contractual                        postretirement benefit payments |   |   | 35,000  |   |

Estimated Future Benefit            Payments

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

|                                                                   |   |   |                                               |   |                                                       |   |   |   |   |    |   |
|------------------------------------------------------------------------|--------|--------|----------------------------------------------------|--------|------------------------------------------------------------|--------|--------|--------|--------|---------|--------|
| Year                        Ending                        December 31, |   |   | Contractual                        Pension Benefit |   | Contractual                        Postretirement Benefits |   |
|                                                                        |   |   |                                                    |   |                                                            |   |
|                                                                   |
| 2008                                                                   |   |   |                                               | $      | 216,700                                                    |   |   |   | $      | 35,000  |   |   |
| 2009                                                                   |   |   |                                               |   | 186,194                                                    |   |   |   |   | 33,665  |   |   |
| 2010                                                                   |   |   |                                               |   | 158,758                                                    |   |   |   |   | 107,066 |   |   |
| 2011                                                                   |   |   |                                               |   | 132,924                                                    |   |   |   |   | 30,650  |   |   |
| 2012                                                                   |   |   |                                               |   | 109,249                                                    |   |   |   |   | 54,956  |   |   |
| 2013                        – 2017                               |   |   |                                               |   | 676,589                                                    |   |   |   |   | 247,740 |   |   |

|   |                                        |
|--------|---------------------------------------------|
| 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 December 31, 2006, the            Company adopted SFAS No. 158, which required employers to recognize the overfunded and            underfunded status of a defined benefit pension, measured as the difference between the            fair value of plan assets and the benefit obligation, as an asset or liability in its            statement of financial condition. The benefit obligation is defined as the projected            benefit obligation for defined benefit pension plans. Upon adoption, SFAS No. 158            requires an entity to recognize previously unrecognized actuarial gains and losses and            prior service costs within accumulated other comprehensive loss. SFAS No. 158 also            requires defined benefit plan assets and defined benefit obligations to be measured as            of the date of the entity’s fiscal year end. The Company has historically used a            December 31 measurement date, which coincides with its fiscal year end, so this            provision, which

87

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becomes effective for fiscal            years ending after December 15, 2008, will not have any impact on the Company’s            consolidated financial statements.

The following table illustrates            the incremental effect of the application of SFAS No. 158 at December 31,            2006:

|                                                          |   |                                                                             |   |       |                                                                                                      |   |   |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|------------|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                          |   | Prepaid                        Defined Benefit                        Plan Costs |   |       | Accumulated                        Other                        Comprehensive                        Loss |   |
|                                                          |   |                                                                                  |   |       |                                                                                                           |   |
|                                                          |
| Balance before SFAS                        No. 158 adjustment |   |                                                                             | $      | 1,621,495  |                                                                                                      |   |   | $      | — |   |   |
| SFAS No. 158                        adjustment                |   |                                                                             |   | (1,039,101 | )                                                                                                         |   |   |   | 1,039,101 |   |   |
|                                                          |   |                                                                             |        |            |                                                                                                      |   |   |        |  |   |   |
|                                                          |   |                                                                             | $      | 582,394    |                                                                                                      |   |   | $      | 1,039,101 |   |   |
|                                                          |   |                                                                             |        |            |                                                                                                      |   |   |        |  |   |   |

Periodic pension costs are            reflected in general and administrative expenses.

|                                                            |   |                                           |     |   |   |     |   |
|-----------------------------------------------------------------|--------|------------------------------------------------|----------|--------|--------|----------|--------|
|                                                            |   | Year                        Ended December 31, |     |
|                                                            |   |                                                |     |
|                                                            |   | 2007                                           |     | 2006   |   |
|                                                            |   |                                                |     |        |   |
| Components of net                        periodic benefit cost: |   |                                           |     |   |   |     |   |
| Service                        cost                             |   | $                                              | 233,983  |   | $      | 379,970  |   |
| Interest                        cost                            |   |                                           | 431,249  |   |   | 399,096  |   |
| Expected return on                        plan assets           |   |                                           | (568,520 | )      |   | (531,879 | )      |
| Amortization of                        prior service cost       |   |                                           | 12,616   |   |   | 12,616   |   |
| Amortization of                        accumulated loss         |   |                                           | 9,612    |   |   | 67,169   |   |
|                                                            |   |                                                |          |   |        |          |   |
|                                                            |
| Net periodic benefit                        cost                |   | $                                              | 118,940  |   | $      | 326,972  |   |
|                                                            |   |                                                |          |   |        |          |   |

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

88

----

|                                                                                                    |   |         |      |   |   |       |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|--------|------------|--------|
|                                                                                                    |   | December 31, |      |
|                                                                                                    |   |              |      |
|                                                                                                    |   | 2007         |      | 2006   |   |
|                                                                                                    |   |              |      |        |   |
| Change in benefit                        obligation:                                                    |   |         |      |   |   |       |   |
| Benefit obligation at                        beginning of year                                          |   | $            | 7,539,315 |   | $      | 7,377,008  |   |
| Service cost                                                                                            |   |         | 233,983   |   |   | 379,970    |   |
| Interest                        cost                                                                    |   |         | 431,249   |   |   | 399,096    |   |
| Actuarial                        gain                                                                   |   |         | (344,198  | )      |   | (56,966    | )      |
| Benefits                        paid                                                                    |   |         | —   |   |   | (559,793   | )      |
|                                                                                                    |   |              |           |   |        |            |   |
| Benefit obligation at                        end of year                                                |   | $            | 7,860,349 |   | $      | 7,539,315  |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |   |         |      |   |   |       |   |
| Change in plan                        assets:                                                           |   |         |      |   |   |       |   |
| Fair value of plan                        assets at beginning of year                                   |   | $            | 8,121,709 |   | $      | 7,453,100  |   |
| Actual return on plan                        assets                                                     |   |         | 110,582   |   |   | 1,062,496  |   |
| Employer                        contributions                                                           |   |         | —   |   |   | 165,906    |   |
| Benefits                        paid                                                                    |   |         | —   |   |   | (559,793   | )      |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |
| Fair value of plan                        assets at end of year                                         |   | $            | 8,232,291 |   | $      | 8,121,709  |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |   |         |      |   |   |       |   |
| Funded                        status                                                                    |   | $            | 371,942   |   | $      | 582,394    |   |
| Unrecognized net                        actuarial loss                                                  |   |         | —   |   |   | 933,127    |   |
| Unrecognized prior                        service cost                                                  |   |         | —   |   |   | 105,974    |   |
| Transitional adjustment                        to accumulated other comprehensive loss                  |   |         | —   |   |   | (1,039,101 | )      |
|                                                                                                    |   |              |           |   |        |            |   |
| Funded                        status                                                                    |   | $            | 371,942   |   | $      | 582,394    |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |   |         |      |   |   |       |   |
| Net amount recognized                        in the consolidated balance sheet:                         |   |         |      |   |   |       |   |
| Prepaid benefit                        cost                                                             |   | $            | 371,942   |   | $      | 582,394    |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |   |         |      |   |   |       |   |
| Amounts recognized in                        accumulated other comprehensive loss:                      |   |         |      |   |   |       |   |
| Net loss                                                                                                |   | $            | 1,037,255 |   | $      | 933,127    |   |
| Prior service                        cost                                                               |   |         | 93,358    |   |   | 105,974    |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |   | $            | 1,130,613 |   | $      | 1,039,101  |   |
|                                                                                                    |   |              |           |   |        |            |   |
|                                                                                                    |
| Additional                        disclosure items for the plan at December 31:                         |   |         |      |   |   |       |   |
|                                                                                                    |
|                                                                                                    |   | 2007         |      | 2006   |   |
|                                                                                                    |   |              |      |        |   |
| Accumulated benefit                        obligation                                                   |   | $            | 7,828,898 |   | $      | 7,509,168  |   |
| Projected benefit                        obligation                                                     |   |         | 7,860,349 |   |   | 7,539,315  |   |
| Fair value of plan                        assets                                                        |   |         | 8,232,291 |   |   | 8,121,709  |   |
| Increase (decrease)                        in minimum liability in accumulated other comprehensive loss |   |         | 91,512    |   |   | 1,039,101  |   |

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 $18,087 and $12,616, respectively.

89

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Assumptions

Weighted-average assumptions            used to determine benefit obligations at

|                                                 |   |         |   |   |   |   |   |
|------------------------------------------------------|--------|--------------|--------|--------|--------|--------|--------|
|                                                 |   | December 31, |   |
|                                                 |   |              |   |
|                                                 |   | 2007         |   | 2006   |   |
|                                                 |   |              |   |        |   |
| Discount                        rate                 |   |         | 6.24   | %      |   | 5.72   | %      |
| Rate of compensation                        increase |   |         | 5      | %      |   | 5      | %      |

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

|                                                  |   |         |   |   |   |   |   |
|-------------------------------------------------------|--------|--------------|--------|--------|--------|--------|--------|
|                                                  |   | December 31, |   |
|                                                  |   |              |   |
|                                                  |   | 2007         |   | 2006   |   |
|                                                  |   |              |   |        |   |
| Discount                        rate                  |   |         | 5.72   | %      |   | 5.41   | %      |
| 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, |      |
|                                                 |   |              |      |
|                                                 |   | 2007         |      | 2006   |   |
|                                                 |   |              |      |        |   |
| Plan                        Assets:                  |   |         |      |   |   |      |   |
| Cash and cash                        equivalents     |   | $            | 354,498   |   | $      | 200,158   |   |
| Securities available                        for sale |   |         | 7,877,793 |   |   | 7,921,551 |   |
|                                                 |   |              |           |   |        |           |   |
| Total plan                        assets             |   | $            | 8,232,291 |   | $      | 8,121,709 |   |
|                                                 |   |              |           |   |        |           |   |

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

|                                                                      |   |         |   |   |   |   |   |
|---------------------------------------------------------------------------|--------|--------------|--------|--------|--------|--------|--------|
|                                                                      |   | December 31, |   |
|                                                                      |   |              |   |
|                                                                      |   | 2007         |   | 2006   |   |
|                                                                      |   |              |   |        |   |
| Equities                                                                  |   |         | 61     | %      |   | 60     | %      |
| Fixed                        income                                       |   |         | 27     | %      |   | 28     | %      |
| Professionally                        managed futures contracts portfolio |   |         | 8      | %      |   | 10     | %      |
| Cash and money                        market funds                        |   |         | 4      | %      |   | 2      | %      |
|                                                                      |   |              |        |   |        |        |   |
| 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 not required to make any contributions in            2008.

90

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Estimated Future Benefit            Payments

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

|                                            |   |   |                                    |   |      |      |   |
|-------------------------------------------------|--------|--------|-----------------------------------------|--------|-----------|-----------|--------|
| Year Ending                        December 31, |   |   | Pension                        Benefits |   |
|                                                 |   |   |                                         |        |           |           |   |
|                                            |   |   |                                    |   |      |      |   |
| 2008                                            |   |   |                                    | $      | 5,493,762 |  (1) |   |
| 2009                                            |   |   |                                    |   | 1,130,887 |      |   |
| 2010                                            |   |   |                                    |   | 128,762   |      |   |
| 2011                                            |   |   |                                    |   | 246,750   |      |   |
| 2012                                            |   |   |                                    |   | —   |      |   |
| 2013 –                        2017        |   |   |                                    |   | —   |      |   |

(1) Three 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 2008.

|   |                                                        |
|--------|-------------------------------------------------------------|
| 19.    | ACCUMULATED OTHER                        COMPREHENSIVE LOSS |

The components of accumulated            other comprehensive loss are as follows:

|                                                                        |   |                                     |       |                                     |   |       |   |
|-----------------------------------------------------------------------------|--------|------------------------------------------|------------|------------------------------------------|--------|------------|--------|
|                                                                        |   | December 31,                        2007 |       | December 31,                        2006 |   |
|                                                                        |   |                                          |            |                                     |        |            |   |
|                                                                        |   |                                     |       |                                     |   |       |   |
| Minimum contractual                        pension benefit liability        |   | $                                        | (55,664    | )                                        | $      | (1,260,101 | )      |
| Net unrealized gain on                        securities available for sale |   |                                     | 10,739     |                                     |   | 13,794     |   |
| Defined benefit plan                        liability                       |   |                                     | (1,130,613 | )                                        |   | —    |   |
| Postretirement benefits                        liability                    |   |                                     | (155,559   | )                                        |   | —    |   |
| Adjustments for initial                        adoption of SFAS No. 158:    |   |                                     |       |                                     |   |       |   |
| Defined benefit                        plan                                 |   |                                     | —    |                                     |   | (1,039,101 | )      |
| Contractual                        postretirement benefits                  |   |                                     | —    |                                     |   | (73,419    | )      |
|                                                                        |   |                                          |            |                                     |        |            |   |
|                                                                        |   |                                     |       |                                     |   |       |   |
| Total accumulated other                        comprehensive loss           |   | $                                        | (1,331,097 | )                                        | $      | (2,358,827 | )      |
|                                                                        |   |                                          |            |                                     |        |            |   |

|   |                                              |
|--------|---------------------------------------------------|
| 20.    | DIVIDEND                        REINVESTMENT PLAN |

Presidential maintained a            Dividend Reinvestment Plan (formerly a Dividend Reinvestment and Share Purchase 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.

91

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On December 31, 2007, the            Company notified Plan participants that it was terminating the Plan effective January            31, 2008. The provisions of the Plan relating to the purchase of shares was previously            terminated in April, 2006.

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

|                                                            |   |                                |   |                         |   |
|-----------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------|--------|
|                                                            |   | Net                        Proceeds |   |
|                                                            |   | Shares                              |   | Received                     |   |
|                                                            |   |                                     |   |                              |   |
| Total shares issued at                        January 1, 2006   |   | 497,942                             |   | $   3,419,666 |   |
| Shares issued during                        2006                |   | 33,355                              |   | 217,743                      |   |
|                                                            |   |                                     |   |                              |   |
| Total shares issued at                        December 31, 2006 |   | 531,297                             |   | 3,637,409                    |   |
| Shares issued during                        2007                |   | 43,731                              |   | 275,795                      |   |
|                                                            |   |                                     |   |                              |   |
| Total shares issued at                        December 31, 2007 |   | 575,028                             |   | $   3,913,204 |   |
|                                                            |   |                                     |   |                              |   |

|   |                                       |
|--------|--------------------------------------------|
| 21.    | 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 $9,140 contribution to the plan in February, 2008 for            the 2007 plan year and a $10,937 contribution to the plan in January, 2007 for the 2006            plan year. Contributions are charged to general and administrative expense.

|   |                                              |
|--------|---------------------------------------------------|
| 22.    | 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, 2007. 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 $256,000 and $186,500 during 2007 and            2006, 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, 2007, the            unpaid and unaccrued interest was $3,420,554. The outstanding loans to Ivy at December            31, 2007 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 48% 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,

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and subject to approval, by a            committee of three members of the Board of Directors with no affiliations with the            owners of Ivy.

|   |                                                                 |
|--------|----------------------------------------------------------------------|
| 23.    | ESTIMATED FAIR VALUE                        OF FINANCIAL INSTRUMENTS |

Estimated fair values of the            Company’s financial instruments as of December 31, 2007 and 2006 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:

|                                                    |   |                                                                 |    |                                                               |   |                                                                 |   |                                                               |   |   |   |   |   |
|---------------------------------------------------------|--------|----------------------------------------------------------------------|---------|--------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                    |   | December 31,                        2007                             |    | December 31,                        2006                           |   |
|                                                    |   |                                                                      |    |                                                                    |   |
|                                                    |   | (Amounts in                        thousands)                        |    |
|                                                    |   | Net                        Carrying                        Value (1) |    | Estimated                        Fair                        Value |   | Net                        Carrying                        Value (1) |   | Estimated                        Fair                        Value |   |
|                                                    |   |                                                                      |    |                                                                    |   |                                                                      |   |                                                                    |   |
| Assets:                                                 |   |                                                                 |    |                                                               |   |                                                                 |   |                                                               |   |   |   |   |   |
| Cash and cash                        equivalents        |   | $                                                                    | 2,343   |                                                               | $      | 2,343                                                                |   | $                                                                  | 2,264  |   | $      | 2,264  |   |
| Notes                        receivable                 |   |                                                                 | 7,659   |                                                               |   | 8,218                                                                |   |                                                               | 7,234  |   |   | 8,137  |   |
| Notes                        receivable-related parties |   |                                                                 | — |                                                               |   | —                                                              |   |                                                               | 148    |   |   | 168    |   |
|                                                    |
| Liabilities:                                            |   |                                                                 |    |                                                               |   |                                                                 |   |                                                               |   |   |   |   |   |
| Mortgage                        debt                    |   |                                                                 | 18,869  |                                                               |   | 21,251                                                               |   |                                                               | 19,176 |   |   | 18,509 |   |

|   |   |                                                                            |
|--------|--------|---------------------------------------------------------------------------------|
|   | (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, 2007 and 2006. 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, 2007 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.

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|   |                                                    |
|--------|---------------------------------------------------------|
| 24.    | FUTURE MINIMUM                        ANNUAL BASE RENTS |

Future minimum annual base            rental revenue for the next five years for commercial real estate owned at December 31,            2007, and subject to non-cancelable operating leases is as follows:

Year Ending December            31,

|       |   |   |      |   |
|------------|--------|--------|-----------|--------|
| 2008       |   | $      | 3,672,723 |   |
| 2009       |   |   | 2,375,045 |   |
| 2010       |   |   | 1,588,918 |   |
| 2011       |   |   | 834,981   |   |
| 2012       |   |   | 244,453   |   |
| Thereafter |   |   | 154,035   |   |
|       |   |        |           |   |
| Total      |   | $      | 8,870,155 |   |
|       |   |        |           |   |

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.

|   |                                                                            |
|--------|---------------------------------------------------------------------------------|
| 25.    | QUARTERLY FINANCIAL                        INFORMATION – UNAUDITED        |
|   | (Amounts in thousands,                        except earnings per common share) |

|                                                                 |   |     |   |                                     |   |                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------|--------|----------|--------|------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Year                        Ended                        December 31 |   | Revenues |   | Net                        Income (Loss) |   | Earnings                        Per                        Common                        Share (1) |   |   |
|                                                                      |   |          |   |                                          |   |                                                                                                    |        |   |
|                                                                 |   |     |   |                                     |   |                                                                                               |   |   |   |   |   |
| 2007                                                                 |   |     |   |                                     |   |                                                                                               |   |   |   |   |   |
| First                                                                |   |     | $      | 1,868                                    |   |                                                                                               |   | $      | (523   | )      |   |   | $      | (0.13  | )      |   |   |
| Second                                                               |   |     |   | 1,810                                    |   |                                                                                               |   |   | (1,214 | )      |   |   |   | (0.31  | )      |   |   |
| Third                                                                |   |     |   | 1,849                                    |   |                                                                                               |   |   | (129   | )      |   |   |   | (0.03  | )      |   |   |
| Fourth                                                               |   |     |   | 1,807                                    |   |                                                                                               |   |   | (9,644 | ) (2)  |   |   |   | (2.47  | ) (2)  |   |   |
|                                                                 |   |     |   |                                     |   |                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| 2006                                                                 |   |     |   |                                     |   |                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| First                                                                |   |     | $      | 932                                      |   |                                                                                               |   | $      | (1,278 | )      |   |   | $      | (0.33  | )      |   |   |
| Second                                                               |   |     |   | 948                                      |   |                                                                                               |   |   | (916   | )      |   |   |   | (0.23  | )      |   |   |
| Third                                                                |   |     |   | 1,013                                    |   |                                                                                               |   |   | (480   | )      |   |   |   | (0.12  | )      |   |   |
| Fourth                                                               |   |     |   | 1,010                                    |   |                                                                                               |   |   | (2,203 | ) (3)  |   |   |   | (0.56  | ) (3)  |   |   |

|   |   |                                                                                                                                                                                                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)    | Earnings per common                        share are computed independently for each of the quarters presented.                        Therefore, the sum of quarterly earnings per share may not equal the total                        computed for the year, as is the case in 2007 and 2006.        |
|   |   |                                                                                                                                                                                                                                                                                                    |
|   | (2)    | Net loss for the                        fourth quarter of 2007 includes $8,370,725 for the Company’s share of                        the impairment loss recorded by the joint ventures.                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
|   | (3)    | Net loss for the                        fourth quarter of 2006 includes $854,454 charged to expense as a result of                        an accrued liability established for an environmental remediation process                        at the Company’s Mapletree Industrial Center property. |

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