<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                   For the fiscal year ended December 31, 1998

                          Commission file number 1-8594

                         PRESIDENTIAL REALTY CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              13-1954619
(State or other jurisdiction of                               (I.R.S. 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:

                                                     Name of each exchange on
  Title of each class                                    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)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes x  No
                                                      ---   ---
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]

         The aggregate market value of voting stock held by nonaffiliates of the
registrant was $22,610,000 at March 5, 1999.

         The number of shares outstanding of each of the registrant's classes of
common stock on March 5, 1999 was 478,940 shares of Class A common and 3,125,034
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, 1999,
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-K.
<PAGE>   2
                         PRESIDENTIAL REALTY CORPORATION

                                      INDEX


FACING PAGE                                                                    1

INDEX                                                                          2

PART I

         Item 1.  Business                                                     3
         Item 2.  Properties                                                  18
         Item 3.  Legal Proceedings                                           21
         Item 4.  Submission of Matters to a Vote of
                    Security Holders                                          21
PART II

         Item 5.  Market for the Registrant's Common Equity
                    and Related Stockholder Matters                           21
         Item 6.  Selected Financial Data                                     23
         Item 7.  Management's Discussion and Analysis of
                    Financial Condition and Results of
                    Operations                                                25
         Item 8.  Financial Statements and Supplementary Data                 37
         Item 9.  Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure                    37
PART III

         Item 10. Directors and Executive Officers of the
                    Registrant                                                37
         Item 11. Executive Compensation                                      38
         Item 12. Security Ownership of Certain Beneficial
                    Owners and Management                                     38
         Item 13. Certain Relationships and Related
                    Transactions                                              38


PART IV

         Item 14. Exhibits, Financial Statement Schedules, and
                    Reports on Form 8-K                                       38

Table of Contents to Consolidated Financial Statements                        43


                                       2
<PAGE>   3
ITEM 1.  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 operates in a single business segment, investments in real estate
related assets.

The Company's principal assets fall into the following three general categories:

         (i) The largest portion of the Company's assets consists of notes
         receivable, which are reflected on the Company's Consolidated Balance
         Sheet at December 31, 1998 as "Mortgage portfolio: sold properties
         (accrual and impaired)". The $61,029,702 aggregate principal amount of
         these notes have been reduced by $11,646,768 of discounts (which
         reflect either the difference between the stated interest rates on the
         notes and the market interest rates at the time the notes were accepted
         or discounts received on the purchase of notes) and $18,901,745 of
         gains on sales which have been deferred. See Notes 1-E and 1-F of Notes
         to Consolidated Financial Statements. Accordingly, the net carrying
         value of the Company's "Mortgage portfolio: sold properties" was
         $30,481,189 at December 31, 1998 which includes $4,668,462 of wrapped
         mortgage debt.

         Included in this category is a note having an outstanding principal
         balance of $17,176,884 at December 31, 1998 secured by a first mortgage
         on 997 condominium units at Fairfield Towers in Brooklyn, New York (the
         "Fairfield Towers First Mortgage"). At December 31, 1998 the net
         carrying value of this note was $14,095,063 after deducting a discount
         of $3,081,821. The Fairfield Towers First Mortgage was acquired by the
         Company in 1996 for a purchase price of $11,150,867 which reflected a
         $3,500,000 discount. In 1997, the Company advanced an additional
         $3,000,018 under the mortgage which was used by the owners of the
         property to pay a portion of unpaid real estate taxes on the unsold


                                       3
<PAGE>   4
         Fairfield Towers condominium units. See Loans and Investments below and
         Notes 2 and 21 of Notes to Consolidated Financial Statements. The
         Company also holds a subordinate note secured by the Fairfield Towers
         condominium units (the "Fairfield Towers Second Mortgage") which the
         Company received in 1984 when it sold the Fairfield Towers property to
         the present owner.

         All of the loans included in this category of assets were in good
         standing at December 31, 1998 with the exception of the Fairfield
         Towers Second Mortgage and the Grant House wraparound mortgage note.
         These loans are classified as impaired loans in accordance with
         Statement of Financial Accounting Standards ("SFAS") No. 114,
         "Accounting by Creditors for Impairment of a Loan". The Fairfield
         Towers Second Mortgage, which has an outstanding principal balance of
         $14,341,147 at December 31, 1998, has been in nonaccrual status since
         the fourth quarter of 1991. The net carrying value of this note is
         $1,404,764, after discount and deferred gain in the amount of
         $12,936,383. The Grant House wraparound mortgage note has an
         outstanding principal balance of $3,247,880 at December 31, 1998, and a
         net carrying value of $2,224,287 (which is equal to the first mortgage
         debt) after deducting a deferred gain of $1,023,593. Payments on the
         $1,023,593 equity portion of the wraparound note are only payable out
         of surplus cash from the operations of the property and are deferred if
         there is no surplus cash. The Company classified the Grant House
         wraparound mortgage note as an impaired loan at December 31, 1997. The
         property requires substantial capital improvements and the note was not
         repaid in accordance with its terms when it became due in November,
         1998. As a result, the Company has not recorded accrued interest on the
         equity portion of the wraparound note in the annual amount of $75,000
         since 1996. Interest for 1996, which was recorded in the amount of
         $75,000, has not been paid and is deferred in accordance with the terms
         of the mortgage. Income with respect to loans classified as impaired
         loans is recognized only to the extent that payments are actually
         received. See Loans and Investments.

         Subsequent to year end the Grant House wraparound mortgage note and
         substantially all of the Fairfield Towers First and Second Mortgage
         notes were sold. See Note 21 of Notes to Consolidated Financial
         Statements.

         While notes reflected under "Mortgage portfolio: sold properties
         (accrual and impaired)" consist primarily of notes received from sales
         of real properties previously owned by the Company, this category of
         assets also includes the $17,176,884 Fairfield Towers First


                                       4
<PAGE>   5
         Mortgage purchased in 1996 and notes in the aggregate principal amount
         of $1,236,410 which relate to sold cooperative apartments, the majority
         of which were either acquired by the Company in connection with the
         settlement agreement executed in November, 1991 (the "Settlement
         Agreement") with Ivy Properties, Ltd. and its affiliates (collectively
         "Ivy") or obtained as a result of sales of cooperative apartments which
         the Company received pursuant to the Settlement Agreement. See
         Relationship with Ivy Properties, Ltd. below.

         (ii) A smaller portion of the Company's assets consists of notes
         receivable in the aggregate principal amount of $1,698,982 from loans
         made to Ivy in connection with the conversion of apartment buildings to
         cooperative ownership or the sales in 1981 and 1984 by the Company to
         Ivy of two apartment projects. These loans are reflected on the
         Company's Consolidated Balance Sheet at December 31, 1998 as "Mortgage
         portfolio: related parties, accrual". The principal amounts of these
         notes have been reduced by discounts and valuation reserves of $149,685
         and deferred gains of $930,057 and, accordingly, these notes have a net
         carrying value at December 31, 1998 of $619,240. Management believes
         that it holds sufficient collateral to protect its interests in all of
         the outstanding loans to Ivy to the extent of the net carrying value of
         these loans. At December 31, 1998, all of the loans due from related
         parties were in good standing. See Relationship with Ivy Properties,
         Ltd., and Notes 2 and 18 of Notes to Consolidated Financial Statements.

         (iii) The Company owns equity interests in fourteen rental properties
         and one parcel of land. These properties have an historical cost of
         $34,703,657, less accumulated depreciation of $7,231,639, resulting in
         a net carrying value of $27,472,018. See Properties below.

Under the Internal Revenue Code of 1986, as amended (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 95%
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 1998 were $.63 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


                                       5
<PAGE>   6
to be taxed as a REIT, or 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 and Market for the
Registrant's Common Equity and Related Stockholder Matters.

At December 31, 1998, the Company employed twelve persons.

(b)      Investment Strategies

The Company's current overall investment strategy is to make investments in real
property which offer attractive current yields with 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 which it may invest in any one type of asset or the
percentage of securities of any one issuer which it may acquire. The investment
policy may, therefore, be changed by the Directors or Officers of the Company
without the concurrence of the holders of its outstanding stock. However, to
continue qualifying as a REIT, the Company must restrict its activities to those
permitted under the Code. See Qualification as a REIT.

The Company's current primary investment strategies are as follows:

         (i)      Holding of Long Term Notes

         The Company holds and expects to continue to hold long term mortgage
         notes obtained from the sales of real property previously owned by the
         Company. These notes 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.

         The capital gains from sales of real properties previously owned by the
         Company are recognized for income tax purposes on the installment
         method as principal payments are received. To the extent that such
         payments are received by Presidential, it may, as a REIT, either (i)
         elect to retain such payments, in which event it will be required to
         pay Federal and State income tax on the portion of the payments which
         represent capital gain, or (ii) distribute all or a portion of such
         payments to shareholders, in which event Presidential will not be
         required to pay taxes on the capital gain to the extent that it is
         distributed to shareholders. To the extent that Presidential retains
         such payments, the proceeds, after payment of any taxes, will be


                                       6
<PAGE>   7
         available for future 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. 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.

         (ii)     Equity Properties

         The Company's current investment policy is focused on acquiring
         additional equity interests in income producing properties, principally
         moderate income apartment properties in the eastern United States.
         Although the Company's present intention is to acquire additional
         moderate income apartment properties, Presidential has in the past
         invested in other commercial properties, including office buildings,
         shopping centers and light industrial properties, and may do so in the
         future. Geographically, the Company expects to invest primarily in the
         eastern United States, although Presidential has in the past invested
         in other locations and may do so in the future. However, the Company's
         plans to expand its portfolio of real estate equities may be adversely
         affected by limitations on its ability to obtain funds for investment
         on satisfactory terms from external sources.

         Notwithstanding the fact that the Company's current investment policy
         is and has been focused on acquiring additional equity interests in
         income producing properties, in 1996 the Company acquired the Fairfield
         Towers First Mortgage for a purchase price of $11,150,867, which
         reflected a discount of $3,500,000 from the $14,650,867 outstanding
         principal balance (see Loans and Investments). The Company decided to
         make such acquisition because management believed that the Company
         could obtain a substantial current return on the funds utilized for the
         acquisition of the Fairfield Towers First Mortgage and also protect its
         position as the holder of the Fairfield Towers Second Mortgage.

         (iii)    Cooperative/Condominium Conversion Loans

         The Company is not currently making loans in connection with
         cooperative/condominium conversion projects, but has made such loans in
         the past.

         Presidential made cooperative conversion loans during the 1980's and
         the majority of these loans were made to Ivy. In


                                       7
<PAGE>   8
         1991, the Company entered into a Settlement Agreement with Ivy with
         respect to the outstanding loans from Ivy, some of which were in
         default. As part of the settlement arrangement, Presidential received
         191 cooperative apartment units from Ivy in satisfaction of certain
         indebtedness due from Ivy, (see Relationship with Ivy Properties,
         Ltd.). Since 1991, Presidential has sold 141 of these cooperative
         apartments. The remaining cooperative apartments were reclassified from
         foreclosed properties to real estate as of January 1, 1997. Although it
         may from time to time sell individual or groups of occupied apartments,
         Presidential generally intends to continue to hold these apartments
         until they become vacant and may, in some circumstances, rerent
         apartments free from rent regulations after they have become vacant.

         (iv)     Funding of Investments

         In the past, the Company has obtained funds to make loans and
         investments from excess cash from operations or capital transactions,
         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. See Management's Discussion and
         Analysis of Financial Condition and Results of Operations - Liquidity
         and Capital Resources.

(c)      Loans and Investments

The Company's portfolio of investments consists of the three types of assets
described under General above. At December 31, 1998, all of the loans included
in "Mortgage portfolio: sold properties" were current except for the Fairfield
Towers Second Mortgage and the Grant House wraparound mortgage note. These loans
in the outstanding principal amount of $17,589,027 are classified as impaired
loans and have a net carrying value of $3,629,051 at December 31, 1998, after a
discount of $7,597,138 and deferred gains of $6,362,838. The Company has
determined that at this time no allowance for credit losses is required for
these loans because the net carrying value of these loans is less than the fair
value of the underlying collateral.

In the fourth quarter of 1996, the Company acquired the Fairfield Towers First
Mortgage, having an outstanding principal balance of $14,650,867, for a purchase
price of $11,150,867. In connection with the acquisition of the Fairfield Towers
First Mortgage, which was to become due in December of 1996, the maturity date
was extended to October 30, 2006. The Fairfield Towers First


                                       8
<PAGE>   9
Mortgage, which is nonrecourse except for certain limited personal guarantees
made by certain of the principals of the borrower, provides for principal
repayments prior to maturity upon the sale of individual condominium units in an
amount equal to substantially all of the net proceeds of sale, which principal
repayments have averaged approximately $25,000 per unit over the sale of the
first 155 units. All accrued interest on this mortgage has been paid to date.
During 1997, the Company advanced $3,000,018 to the owner to repay a portion of
unpaid real estate taxes on the unsold condominium units, which $3,000,018
advance was added to the $14,650,867 indebtedness secured by the Fairfield
Towers First Mortgage. The interest rate on this additional advance is the same
as the interest rate on the Fairfield Towers First Mortgage. See Notes 2 and 21
of Notes to Consolidated Financial Statements.

Presidential paid $2,500,867 of its $11,150,867 purchase price for the Fairfield
Towers First Mortgage in cash and executed an $8,650,000 note for the balance
(the "Fairfield Purchase Money Note"). During 1997, Presidential received
additional advances of $2,500,000 on this note to reimburse Presidential in part
for its $3,000,018 advance on the Fairfield Towers First Mortgage.

The Fairfield Purchase Money Note is secured by a collateral assignment of the
Fairfield Towers First Mortgage and, except for a guarantee of $1,398,479, is
nonrecourse to Presidential. All payments of principal received by Presidential
under the Fairfield Towers First Mortgage are utilized to make principal
repayments on the Fairfield Purchase Money Note. In addition, Presidential is
making principal payments on the Fairfield Purchase Money Note in amounts
sufficient to amortize it based on a 9.25% interest rate for a 25 year term,
with the entire outstanding principal balance due on October 30, 2001.

Presidential is also the holder of the Fairfield Towers Second Mortgage on the
condominium units, which it received in 1984 when it sold the Fairfield Towers
property to the present owner. The Fairfield Towers Second Mortgage, which is
nonrecourse, has an outstanding principal balance of $14,341,147 and a net
carrying value of $1,404,764. The cash flow from the rental operations of the
condominium units is not sufficient to pay more than a nominal amount of the
interest that is due on the Fairfield Towers Second Mortgage and, accordingly,
pursuant to a modification agreement executed in December, 1992, all unpaid
interest is deferred. Presidential only received $16,565 of interest payments on
the Fairfield Towers Second Mortgage in 1998. Interest payments on the Fairfield
Towers Second Mortgage will remain reduced in future years to the extent that
cash flow from the rental operations of the property is utilized to repay
accrued real estate taxes. Until the Fairfield Towers First Mortgage is repaid
in full, Presidential, as holder of the Fairfield Towers Second Mortgage,


                                       9
<PAGE>   10
only receives release payments of $3,000 per unit upon the sale of each
condominium apartment unit. By acquiring the Fairfield Towers First Mortgage at
a $3,500,000 discount, Presidential believes that, in addition to obtaining a
significant return on the funds utilized to make the acquisition, it has
protected its position as holder of the Fairfield Towers Second Mortgage since
that position could have been adversely affected upon the maturity of the First
Mortgage in December, 1996. Pursuant to the terms of the Fairfield Towers Second
Mortgage, Presidential has implemented substantial restrictions relating to the
operation and condominium conversion of the property and control of the funds
generated from operations and sales.

The Fairfield Towers Second Mortgage is classified as an impaired loan and the
Company recognizes interest income on this loan only to the extent that such
interest is actually received. During 1998, the Company received $16,565 of
interest on this note. Subsequent to December 31, 1998, substantially all of the
Fairfield Towers First and Second Mortgage notes were sold. See Note 21 of Notes
to Consolidated Financial Statements.

At December 31, 1997, the Company classified the Grant House wraparound mortgage
note as an impaired loan. Presidential's note wraps around and is subordinate to
a nonrecourse first mortgage with an outstanding principal balance of $2,224,287
at December 31, 1998. The outstanding balance of Presidential's wraparound note
at December 31, 1998 was $3,247,880 and the net carrying value was $2,224,287
(which is equal to the first mortgage debt) after deducting a deferred gain of
$1,023,593. Presidential had classified this loan as an impaired loan because
the property is in need of substantial capital improvements and Presidential
believed that the owner would not be able to repay the Grant House wraparound
note in accordance with its terms when it became due in November, 1998. Payments
on Presidential's equity portion of the wraparound mortgage note are payable
only out of surplus cash from the operations of the property and if not paid are
deferred until such cash is available or until maturity of the note. The annual
interest payment of $75,000 on Presidential's equity portion of the loan has not
been paid since 1995. The Company has not accrued the $75,000 interest payable
for 1997 and 1998. Payments on the balance of the wraparound mortgage note are
current and, accordingly, Presidential has made its payments on the underlying
first mortgage. The Company recognizes income on this loan only to the extent
that such income is actually received. Subsequent to December 31, 1998, the
Grant House wraparound mortgage note was sold. See Note 21 of Notes to
Consolidated Financial Statements.

The following tables set forth information as of December 31, 1998 with respect
to the mortgage loan portfolio resulting from the sale of properties and the
loan portfolio due from Ivy.


                                       10
<PAGE>   11
             MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
                                DECEMBER 31, 1998


<TABLE>
<CAPTION>

                                                                                                                   Effective
                                                                                           Net                      Interest 
                                             Notes                       Deferred        Carrying       Maturity      Rate
   Name of Property                        Receivable      Discount        Gain            Value         Dates        1998
   ----------------                        ----------      --------        ----            -----         -----        ----
<S>                          <C>          <C>            <C>            <C>             <C>             <C>         <C>
Crown Tower                  (1)(2)(3)    $ 6,532,198    $    66,107    $ 3,633,200     $ 2,832,891       1999        9.75%
  New Haven, CT

Fairfield Towers-1st mtg     (4)           17,176,884      3,081,821                     14,095,063       2006        9.85%
  Brooklyn, NY

Fairfield Towers-2nd mtg     (2)(5)(6)     14,341,147      7,597,138      5,339,245       1,404,764       1999        0.12%
  Brooklyn, NY

Grant House                  (1)(7)         3,247,880                     1,023,593       2,224,287       1998        0.00%
  White Plains, NY

Madison Towers               (1)(2)(3)      6,911,977         79,328      4,358,340       2,474,309       1999        9.75%
  New Haven, CT

Mark Terrace Associates      (2)(5)         2,244,000        282,988        558,250       1,402,762       1999        5.16%
  Bronx, NY

Mark Terrace Owners Corp.                      60,000                                        60,000       2000        9.00%
  Bronx, NY

Newcastle Apartments         (8)            6,150,000                     2,991,850       3,158,150       2006        8.50%
  Greece, NY

Pinewood I & II                               417,662                       218,534         199,128       2001       12.00%
  Des Moines, IA

Windsor at Arbors            (9)            1,175,500        277,472        684,991         213,037       2007        8.25%
  Alexandria, VA

Woodland Village             (10)             980,057        135,085                        844,972       2005        9.90%
  Hartford, CT

Woodland Village             (10)             555,987        109,790                        446,197       2005        9.90%
  Hartford, CT
                                          -----------    -----------    -----------     -----------
Subtotal                                   59,793,292     11,629,729     18,808,003      29,355,560
                                          -----------    -----------    -----------     -----------

<CAPTION>
                                                   "Wrapped Mortgage"         Notes
                                                     Senior Debt (1)        Receivable
                                   Interest        ------------------        Net of
                                     Rate         Interest    Balance        "Wrapped
   Name of Property                  Range          Rate      12/31/98       Mortgage"
   ----------------                  -----          ----      --------       ---------
<S>                              <C>              <C>        <C>            <C>
Crown Tower                              9.75%      5.25%    $ 1,532,198    $ 5,000,000
  New Haven, CT

Fairfield Towers-1st mtg         Prime plus 1%                               17,176,884
  Brooklyn, NY

Fairfield Towers-2nd mtg                 6.75%                               14,341,147
  Brooklyn, NY

Grant House                              7.33%      3.00%      2,224,287      1,023,593
  White Plains, NY

Madison Towers                           9.75%      5.25%        911,977      6,000,000
  New Haven, CT

Mark Terrace Associates                  5.16%                                2,244,000
  Bronx, NY

Mark Terrace Owners Corp.                9.00%                                   60,000
  Bronx, NY

Newcastle Apartments                7.50-8.50%                                6,150,000
  Greece, NY

Pinewood I & II                         12.00%                                  417,662
  Des Moines, IA

Windsor at Arbors                   8.25-9.25%                                1,175,500
  Alexandria, VA

Woodland Village                   9.00-10.25%                                  980,057
  Hartford, CT

Woodland Village                   9.00-10.25%                                  555,987
  Hartford, CT
                                                             -----------    -----------
Subtotal                                                       4,668,462     55,124,830
                                                             -----------    -----------
</TABLE>


                                       11
<PAGE>   12
             MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
                          DECEMBER 31, 1998 (CONTINUED)


<TABLE>
<CAPTION>


                                                                                               Net
                                             Notes                          Deferred         Carrying        Maturity
   Name of Property                        Receivable       Discount          Gain             Value           Dates
   ----------------                        ----------       --------          ----             -----           -----
<S>                           <C>         <C>             <C>             <C>              <C>               <C>
Sold Co-op Apartments:
Emily Towers                  (11)(12)    $    213,950    $        815    $      5,687     $    207,448      2002-2008
  Flushing, NY

330 W.72nd St                 (11)(13)          60,025           9,489                           50,536           2016
  New York, NY

330 W.72nd St. Purchasers     (11)             131,020                          49,089           81,931           2003
  New York, NY

Towne House                   (11)(12)         660,279           5,423          38,966          615,890      1998-2014
  New Rochelle, NY

6300 Riverdale Ave            (11)(12)          23,424             123                           23,301           2003
  Riverdale, NY

Mark Terrace                                    36,396                                           36,396           2003
  Bronx, NY

Sherwood House                (11)(14)          22,840           1,189                           21,651      2002-2010
  Long Beach, NY

Rye Colony                                      88,476                                           88,476      2009-2010
 Rye, NY
                                          ------------    ------------    ------------     ------------
Subtotal                                     1,236,410          17,039          93,742        1,125,629
                                          ------------    ------------    ------------     ------------

Total Notes Receivable-
  Sold Properties                         $ 61,029,702    $ 11,646,768    $ 18,901,745     $ 30,481,189
                                          ============    ============    ============     ============

<CAPTION>
                                                                    "Wrapped Mortgage"           Notes
                                    Effective                        Senior Debt (1)           Receivable
                                     Interest        Interest       --------------------         Net of
                                       Rate            Rate       Interest      Balance         "Wrapped
   Name of Property                    1998            Range        Rate        12/31/98        Mortgage"
   ----------------                    ----            -----        ----        --------        ---------
<S>                                 <C>             <C>           <C>         <C>             <C>
Sold Co-op Apartments:
Emily Towers                         7.00-9.50%      7.00-9.50%               $               $    213,950
  Flushing, NY

330 W.72nd St                             8.50%      8.50-8.75%                                     60,025
  New York, NY

330 W.72nd St. Purchasers                 8.75%           8.75%                                    131,020
  New York, NY

Towne House                          7.50-9.50%      7.50-9.50%                                    660,279
  New Rochelle, NY

6300 Riverdale Ave                   7.50-8.25%      7.50-8.25%                                     23,424
  Riverdale, NY

Mark Terrace                              9.00%           9.00%                                     36,396
  Bronx, NY

Sherwood House                       9.00-9.50%      9.00-9.50%                                     22,840
  Long Beach, NY

Rye Colony                          8.00-10.00%     8.00-10.00%                                     88,476
 Rye, NY
                                                                              ------------    ------------
Subtotal                                                                                         1,236,410
                                                                              ------------    ------------

Total Notes Receivable-
  Sold Properties                                                             $  4,668,462    $ 56,361,240
                                                                              ============    ============
</TABLE>


                                       12
<PAGE>   13
             MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
                          DECEMBER 31, 1998 (CONCLUDED)


(1)      This note is a wraparound mortgage note, whereby the Company holds a
         junior mortgage which secures a liability which includes the amount of
         the outstanding senior or underlying mortgage. The purchaser services
         the entire debt secured by the wraparound mortgage and Presidential
         services the senior debt from the proceeds of the wrap mortgage.

(2)      The discount on this note was computed at a yield of 14%.

(3)      The maturity dates of these notes may be extended at the option of the
         buyer from April 30, 1999 to April 30, 2009.

(4)      This note was purchased by the Company in 1996 at a discount of
         $3,500,000. In 1997, the Company advanced an additional $3,000,018
         under the mortgage to the owners of the property . The interest rate,
         currently 8.75% is a variable rate equal to 1% above the prime rate.
         Subsequent to December 31, 1998, this note was sold.

(5)      The maturity dates of the Fairfield Towers Second Mortgage and the Mark
         Terrace Associates note may be extended at the option of the buyers
         from November 29, 1999 to November 29, 2005.

(6)      This note is classified as an impaired loan and interest income is
         recorded on a cash basis. Subsequent to December 31, 1998,
         substantially all of this note was sold.

(7)      The Grant House wraparound mortgage note is classified as an impaired
         loan. The net carrying value of the loan is equal to the first
         mortgage debt of $2,224,287 which it wraps around. Interest income is
         recorded on a cash basis. Subsequent to December 31, 1998, this note
         was sold.

(8)      Interest is paid on this note at the rate of 6% per annum through July
         31, 1999 and a rate of not less than 7.5% per annum through July 31,
         2001 and thereafter at a rate equal to 150 basis points in excess of
         the yield on specified Treasury bills. In connection with the
         modification of the note in 1994, the borrower paid a $628,863 fee in
         order to increase the effective interest rate on the note to 8.5% per
         annum through July 31, 1999. In September, 1997, the Company extended
         the maturity date of the note to July 31, 2006 and the Company and the
         debtor agreed to substitute Newcastle Apartments in Greece, New York
         for Presidential Park Apartments in Columbus, Ohio as security for this
         note. However, the 33,400 square feet of commercial space adjacent to
         Presidential Park Apartments, which was part of the original
         collateral, remains as additional collateral for this note.

(9)      The discount on this note was computed at a yield of 12%. As a result
         of a modification of the note in July, 1997, the maturity date of the
         loan was changed from 2015 to 2007, with interest rates of 8.25%
         through 1999 and 9.25% thereafter. In addition, the Company and the
         debtor agreed to substitute Windsor at Arbors in Alexandria, Virginia
         for Woodgate Apartments in Wichita, Kansas, as security for this note.

(10)     The discounts on the Woodland Village notes were computed at a yield of
         25%. In January, 1997, the maturity dates of these loans were extended
         to 2005. The interest rate was 9% per annum through December 31, 2002
         and 9.25% per annum thereafter. As a result of the sale of the Woodland
         property and the assumption of the notes by the purchaser in 1998, the
         interest rate on the notes was increased from 9% to 10% through 2001
         and 10.25% thereafter. The notes are amortizing monthly based on a 20
         year term at the above rates, and have balloon payments due at
         maturity.

(11)     These notes were either assigned by Ivy as a result of the Settlement
         Agreement with Ivy or were received from purchasers of apartments which
         Presidential held as foreclosed property.

(12)     The amount under discount represents unamortized mortgage points
         received from purchasers.

(13)     The discount on this note was computed at 16% of face value.

(14)     The discount on this note was computed at 15% of face value.


                                       13
<PAGE>   14
             MORTGAGE PORTFOLIO: NOTES RECEIVABLE - RELATED PARTIES
                                DECEMBER 31, 1998


<TABLE>
<CAPTION>
                                                                                  Net          Final
                                 Notes                         Deferred        Carrying      Maturity       Interest
  Name of Property             Receivable       Discount         Gain            Value         Dates          Rate
  ----------------             ----------       --------         ----            -----         -----          ----
<S>                    <C>     <C>             <C>            <C>            <C>             <C>         <C>
UTB End Loans          (1)     $   183,900     $   115,094    $              $     68,806     Various           Various

Consolidated Loans     (2)          52,568                                         52,568        2016       Chase Prime

Overlook                           930,057                        930,057                        2003               6.0%
Alexandria, VA

University Towers      (3)         532,457          34,591                        497,866     Various    11.80 to 25.33%
New Haven, CT
                               -----------     -----------    -----------     -----------
                               $ 1,698,982     $   149,685    $   930,057     $   619,240
                               ===========     ===========    ===========     ===========
</TABLE>

(1)      Ivy's equity in these purchase money notes (which are secured by co-op
         apartment units at University Towers, New Haven, CT) was transferred to
         Presidential as part of the Settlement Agreement. Included in the
         $115,094 discount on these notes is a valuation reserve of $33,944.
         This valuation reserve was recorded by the Company in 1997 to reflect
         the decline in the estimated fair value of the underlying collateral.

(2)      As part of the Settlement Agreement with Ivy, certain of Presidential's
         outstanding nonrecourse loans (most of which had previously been
         written down to zero) were consolidated into two notes which currently
         have an aggregate outstanding principal balance of $4,822,618. The
         $52,568 represents Presidential's net carrying value of the notes.
         Presidential does not expect to recover any material amounts on these
         notes in excess of their net carrying value.

(3)      These notes represent a 100% interest in notes receivable held by UTB
         Associates, a partnership in which Presidential has a 66-2/3% interest.
         These notes are amortized over a period of approximately 28 years from
         the date of a co-op apartment sale. Included in the $34,591 discount on
         these notes is a valuation reserve of $9,849. This valuation reserve
         was recorded by the Company in 1997 to reflect the decline in the
         estimated fair value of the underlying collateral.


                                       14
<PAGE>   15
(d)      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 95% 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 8
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 which are permitted under the
Internal Revenue Code and to restrict itself to the holding of assets that a
REIT is permitted to hold.

It should be noted that 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, 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.

(e)      Relationship with Ivy Properties, Ltd.

From 1979 to 1989, Presidential made loans to Ivy Properties, Ltd. and its
affiliates ("Ivy") in connection with Ivy's cooperative conversions of apartment
properties in the New York metropolitan area. In 1981, UTB Associates, a
partnership controlled by Presidential, sold an apartment property to Ivy in
return for purchase money notes. In addition, in 1984, Presidential sold to Ivy
its 50% partnership interest in the partnership which owned Overlook Gardens, a
308 unit apartment complex in Alexandria, Virginia for a purchase money note.


                                       15
<PAGE>   16
Ivy is owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the "Ivy
Principals"), who are the sole partners of Pdl Partnership, which since 1991 has
owned 198,735 shares of the Company's Class A common stock. From 1985 through
1991, these 198,735 shares of Class A common stock were owned by BJV
Partnership, another partnership wholly owned by the Ivy Principals. As a result
of the ownership of the 198,735 shares of Class A common stock described above
and 24,601 additional shares of Class A common stock owned in the aggregate
individually by the Ivy Principals, Pdl Partnership and the Ivy Principals have,
and BJV Partnership and the Ivy Principals had, beneficial ownership of an
aggregate of approximately 47% 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.

Thomas Viertel is the son of Joseph Viertel, a Director and a former President
of Presidential, and the nephew of Robert E. Shapiro, Chairman of the Board of
Directors and a former President of Presidential. Steven Baruch is the cousin of
Robert E. Shapiro and Joseph Viertel.

As a result of the deterioration of the sales market for cooperative apartments
in the New York metropolitan area in 1989 and 1990, Ivy defaulted on certain of
its outstanding loans from Presidential in 1990 and 1991. In early 1990, Ivy
began negotiations with Presidential with respect to a workout of the loans then
in default. Because of the relationships described above between the Ivy
Principals and Presidential, the negotiations with Ivy were conducted on behalf
of Presidential by a committee of three members of the Board of Directors with
no affiliations with the Ivy Principals (the "Independent Committee") and an
officer of Presidential who was not affiliated with the Ivy Principals. On
November 14, 1991, Presidential and Ivy consummated a Settlement Agreement with
respect to various outstanding loans to Ivy, which was approved unanimously by
the Board of Directors of Presidential.

In connection with the Settlement Agreement, Presidential received, among other
things, a number of vacant and occupied cooperative apartment units in the New
York metropolitan area and certain third party promissory notes held by Ivy.
Presidential received these assets in exchange for (i) the satisfaction of all
of Ivy's recourse debt to Presidential and certain of its nonrecourse debt to
Presidential with respect to which Presidential held first priority security
interests and (ii) the release by Presidential of certain subordinate security
interests in collateral securing some of the defaulted loans.


                                       16
<PAGE>   17
Most of Ivy's remaining nonrecourse debt to Presidential was consolidated, on
modified terms, into two nonrecourse loans (collectively, the "Consolidated
Loans") which were collateralized by substantially all of Ivy's remaining
business assets with respect to which Presidential either did not previously
have any security interest or had a junior security interest (collectively, the
"Consolidated Collateral"). The terms of the Settlement Agreement permit Ivy to
use the proceeds of each sale of Consolidated Collateral to (1) pay existing
indebtedness of Ivy to its bank and trade creditors and certain operating
expenses and (2) create and fund specified reserves to provide for payment of
future obligations and potential liabilities. At December 31, 1998, the
Consolidated Loans had an outstanding principal balance of $4,822,618 and a net
carrying value of $52,568. Since, as permitted by the terms of the Consolidated
Loans, most of Ivy's assets have been sold with the sales proceeds used to pay
other recourse obligations of Ivy, Presidential does not expect to recover any
material amount on the Consolidated Loans in excess of their net carrying value.

In 1996, Presidential and the Ivy Principals agreed to a modification of the
Settlement Agreement to provide that the Ivy Principals will make 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 the Ivy Principals which acts as a producer of
theatrical productions. This agreement, and Presidential's decision not to
exercise an option (which it had received as part of the original Settlement
Agreement) to acquire the capital stock of Scorpio, was made pursuant to the
unanimous determination of the Independent Committee that such actions were in
the best interests of Presidential. During 1998, Presidential received $12,151
of principal payments and $176,124 of interest on the Consolidated Loans.

The table entitled "Mortgage portfolio: notes receivable - related parties" set
forth under Loans and Investments above reflects all loans to Ivy outstanding at
December 31, 1998. All of such loans are in good standing. Management believes
that it holds sufficient collateral to protect its interests in the loans that
remain outstanding to Ivy to the extent of the net carrying value of these
loans.

Jeffrey Joseph is the President and a Director of Presidential, Thomas Viertel
is an Executive Vice President and the Chief Financial Officer of Presidential
and Steven Baruch is an Executive Vice President of Presidential.

Any transactions relating to the implementation of the terms of the Settlement
Agreement, or otherwise involving the Ivy Principals, are subject to the
approval of the Independent Committee.


                                       17
<PAGE>   18
(f)      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, many of
whom will be larger and have greater financial resources than the Company. As a
result of such competition, there can be no assurance that the Company will be
able to obtain opportunities for new investments at attractive rates of return.


ITEM 2.  PROPERTIES

As of December 31, 1998, the Company had an ownership or leasehold interest in
790 apartment units, 645,900 square feet of commercial, industrial and
professional space and one parcel of land, all of which are carried on the
balance sheet at $27,472,018 (net of accumulated depreciation of $7,231,639).
The Company has mortgage debt on the majority of these properties in the
aggregate amount of $39,728,031, all of which is nonrecourse to Presidential
with the exception of $272,183 pertaining to the mortgage on the Mapletree
Industrial Center property.

On August 31, 1998, the Company purchased Sunwood Apartments, a 105 unit
apartment property in Miami, Florida for a purchase price of $6,504,638.

The chart below indicates the operating results of each of the properties owned
by the Company at December 31, 1998 in accordance with generally accepted
accounting principles ("GAAP") and, following that, in terms of cash flow from
operations.


                                       18
<PAGE>   19
                PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
                                   REAL ESTATE
                                DECEMBER 31, 1998


<TABLE>
<CAPTION>

                                                                      Vacancy
                                                Rentable               Rate           Mortgage         Maturity           Interest
        Property                             Space (approx.)          Percent          Balance           Date               Rate
        --------                             ---------------          -------          -------           ----               ----
<S>                                          <C>                    <C>              <C>              <C>                 <C>
Residential    
-----------
330 W. 72nd St.
  New York, NY                               3 Apt. Units                 0.00%      $

6300 Riverdale Ave.
  Riverdale, NY                              8 Apt. Units                 0.00%

Broad Park Lodge
  White Plains, NY                           3 Apt. Units                 0.00%

Cambridge Green
  Council Bluffs, IA                         201 Apt. Units               9.46%         3,121,942     October, 2029         8.50%

Continental Gardens
  Miami, FL                                  208 Apt. Units               7.89%         8,031,175     August, 2007          8.16%

Crown Court (3)                              105 Apt. Units
  New Haven, CT                              & 2,000 sq.ft.         (Net Lease)         2,792,718     November, 2021        7.00%
                                             of comml. space

Fairlawn Gardens (4)
 Martinsburg, WV                             112 Apt. Units              23.79%         2,286,622     April, 2008           7.06%

Sherwood House
  Long Beach, NY                             2 Apt. Units                 4.15%

Sunwood Apartments (5)
  Miami, FL                                  105 Apt. Units               5.43%         4,861,835     September, 2008       6.55%

Towne House
  New Rochelle, NY                           41 Apt. Units                2.03%

University Towers
  New Haven, CT                              2 Apt. Units                 0.00%

Commercial Buildings
--------------------
Building Industries Center
  White Plains, NY                           23,500 sq.ft.                2.54%           926,269     May, 2000            10.00%

Home Mortgage Plaza (6)
  Hato Rey, PR                               211,000 sq.ft.               4.00%        17,419,783     May, 2008             7.38%

Mapletree Industrial Center
  Palmer, MA                                 385,000 sq.ft.               4.06%           272,183     June, 2011            8.50%

University Towers Professional Space (6)
  New Haven, CT                              24,400 sq.ft.               14.27%

Other - Land
------------
Towers Shoppers Parcade,
  New Haven, CT                              1/4 acre               (Net Lease)            15,504     August, 2001          9.75%

                                                                                     ------------
                                                                                     $ 39,728,031
                                                                                     ============

<CAPTION>
                                                                  Cash Flow
                                                 Income          (Deficiency)
                                               (Loss) from           from
        Property                               Operations (1)    Operations (2)
        --------                               --------------    --------------
<S>                                            <C>               <C>
Residential
-----------
330 W. 72nd St.
  New York, NY                                 $      4,165      $      5,054

6300 Riverdale Ave.
  Riverdale, NY                                     (11,598)           (9,476)

Broad Park Lodge
  White Plains, NY                                   (5,131)           (4,852)

Cambridge Green
  Council Bluffs, IA                                (17,539)           50,118

Continental Gardens
  Miami, FL                                          86,170           270,215

Crown Court (3)
  New Haven, CT                                      51,197            43,435


Fairlawn Gardens (4)
 Martinsburg, WV                                     (9,156)           22,068

Sherwood House
  Long Beach, NY                                    (17,575)          (14,691)

Sunwood Apartments (5)
  Miami, FL                                          (3,225)           41,825

Towne House
  New Rochelle, NY                                   33,767            36,385

University Towers
  New Haven, CT                                       2,082             3,819

Commercial Buildings
--------------------
Building Industries Center
  White Plains, NY                                  (18,499)          (10,820)

Home Mortgage Plaza (6)
  Hato Rey, PR                                      150,215           212,700

Mapletree Industrial Center
  Palmer, MA                                        284,580           287,532

University Towers Professional Space (6)
  New Haven, CT                                      68,939            72,052

Other - Land
------------
Towers Shoppers Parcade,
  New Haven, CT                                       3,633            (1,222)

                                               ------------      ------------
                                               $    602,025      $  1,004,142
                                               ============      ============
</TABLE>

See notes on following page.


                                       19
<PAGE>   20
(1)      The results are calculated in accordance with GAAP and therefore
         reflect the deduction of noncash charges such as depreciation and
         amortization of mortgage costs.

(2)      Cash flow or deficiencies from operations as reflected in the above
         chart are calculated before deduction of depreciation, valuation
         adjustments, amortization of mortgage costs and property replacements
         and additions, but after deduction of mortgage amortization. These
         results should not be considered as an alternative to income or loss
         from operations on the GAAP basis as an indicator of the properties'
         performance or to cash flows presented in accordance with GAAP. These
         results do not reflect the cash available to fund cash requirements.

(3)      The Crown Court property is subject to a long-term net lease containing
         an option to purchase commencing in 1999 and a right to extend the net
         lease for an additional ten years.

(4)      The Fairlawn Gardens property (formerly Kent Terrace) had been 98%
         rented by the end of 1997. During 1998, as a result of several newly
         developed competitive properties opening in its market area, the
         vacancy rate increased at this property. The Company has aggressively
         reduced rents and sought new tenants through outreach programs. The
         vacancy rate has begun to improve and the Company will continue
         programs to improve the performance at the property.

(5)      The Sunwood Apartments property was purchased on August 31, 1998. The
         results presented on this schedule represent four months of operations
         and include initial start-up costs for operating the property.

(6)      These results are net of minority interest share of partnership income.
         Home Mortgage Plaza was formerly known as Metmor Plaza.

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 (except for the University
Towers professional space, which is held under a valid and existing long-term
lease), with title generally insured for the benefit of the Company by
respectable title insurance companies.

The mortgages on the Company's properties are self-liquidating at fixed rates of
interest with the exception of the mortgages on Home Mortgage Plaza, Building
Industries Center, Fairlawn Gardens, Continental Gardens and Sunwood Apartments.
These mortgages amortize monthly with balloon payments due at maturity.


                                       20
<PAGE>   21
ITEM 3.  LEGAL PROCEEDINGS

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

(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:

<TABLE>
<CAPTION>
                                                                             Dividends
                                             Stock Prices                   Declared Per
                               ----------------------------------------       Share on
                                   Class A                  Class B          Class A and
                               High       Low          High         Low        Class B
                               ----       ---          ----         ---        -------
<S>                           <C>        <C>          <C>         <C>       <C>
Calendar 1998

First Quarter                 $9 1/4     $9 1/8       $7 5/16     $6 11/16      $ .15
Second Quarter                 9 1/4      7 1/4        7 5/16      6 5/8          .16
Third Quarter                  7 1/2      6 1/4        7 1/4       6 3/16         .16
Fourth Quarter                 8 1/4      6 1/4        7 3/4       6 1/4          .16

Calendar 1997

First Quarter                 $7 3/4     $6 5/8       $7 1/2      $6            $ .15
Second Quarter                 9 3/4      7 5/8        7 1/8       6 1/4          .15
Third Quarter                 10 1/4      8 7/8        7 1/4       6 1/2          .15
Fourth Quarter                 9 1/4      8 7/8        6 7/8       6 1/8          .15
</TABLE>

(b)      The number of record holders for the Company's Common Stock at December
         31, 1998 was 141 for Class A and 726 for Class B.

(c)      Under the Internal Revenue Code of 1986, as amended, 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 95% 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


                                       21
<PAGE>   22
         the Company will, in fact, 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 Qualification as a REIT above.


                                       22
<PAGE>   23
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                      ---------------------------------------------------
                                                                       1998       1997       1996       1995       1994
                                                                      -------    -------    -------    -------    -------
                                                                      (Amounts in thousands, except per common share data)
<S>                                                                   <C>        <C>        <C>        <C>        <C>
Selected Data from Consolidated Statements of Operations:

  Revenues:
     Rental                                                           $ 9,716    $ 8,428    $ 8,451    $ 7,999    $ 6,388
     Interest on mortgages                                              5,490      5,568      4,117      3,766      3,722
     Investment and other                                                 207        240        371        406        343
                                                                      -------    -------    -------    -------    -------
   Total                                                              $15,413    $14,236    $12,939    $12,171    $10,453
                                                                      =======    =======    =======    =======    =======

  Income before net gain from sales of properties and securities
     and cumulative effect of change in accounting principles         $ 2,017    $ 2,135    $ 1,723    $ 1,874    $ 1,824
   Net gain from sales of properties and securities (1)                   756        596        845         71      2,669
   Cumulative effect of change in accounting for securities                                                            38
                                                                      -------    -------    -------    -------    -------
   Net Income                                                         $ 2,773    $ 2,731    $ 2,568    $ 1,945    $ 4,531
                                                                      =======    =======    =======    =======    =======

  Earnings per common share (basic and diluted):
    Income before net gain from sales of properties and securities
       and cumulative effect of change in accounting principles       $  0.56    $  0.60    $  0.49    $  0.53    $  0.52
     Net gain from sales of properties and securities                    0.21       0.17       0.24       0.02       0.76
    Cumulative effect of change in accounting for securities                                                         0.01
                                                                      -------    -------    -------    -------    -------
     Net Income                                                       $  0.77    $  0.77    $  0.73    $  0.55    $  1.29
                                                                      =======    =======    =======    =======    =======

   Cash distributions per common share                                $  0.63    $  0.60    $  0.60    $  0.60    $  0.60
                                                                      =======    =======    =======    =======    =======

   Weighted average number of shares outstanding                        3,593      3,564      3,539      3,517      3,500
                                                                      =======    =======    =======    =======    =======
</TABLE>

(1)      The net gain from sales of properties and securities for 1994 includes
         a net gain from fire insurance settlement of $1,817,000.


                                       23
<PAGE>   24
ITEM 6.  SELECTED FINANCIAL DATA (CONCLUDED)

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                          ---------------------------------------------------
                                                           1998       1997       1996       1995       1994
                                                          -------    -------    -------    -------    -------
                                                                         (Amounts in thousands)
<S>                                                       <C>        <C>        <C>        <C>        <C>
Selected Data from Consolidated Balance Sheets:

   Total mortgage portfolio (1)                           $62,729    $64,101    $63,726    $53,416    $54,735
                                                          =======    =======    =======    =======    =======

   Mortgage portfolio - net of discounts and
      deferred gains (1)                                  $31,100    $30,684    $28,389    $18,882    $18,781
                                                          =======    =======    =======    =======    =======

   Real estate (2)                                        $34,704    $27,691    $25,369    $23,872    $23,479
   Less: accumulated depreciation                           7,232      6,405      5,680      5,074      4,475
                                                          -------    -------    -------    -------    -------

   Net real estate                                        $27,472    $21,286    $19,689    $18,798    $19,004
                                                          =======    =======    =======    =======    =======

   Foreclosed properties                                                        $   589    $   601    $   727
                                                          =======    =======    =======    =======    =======

   Securities                                             $ 1,275    $   227    $   975    $ 2,390    $ 1,767
                                                          =======    =======    =======    =======    =======

   Total assets                                           $73,906    $60,009    $57,800    $49,513    $50,999
                                                          =======    =======    =======    =======    =======

   Mortgage debt - includes amounts due in one year:
       Properties owned (2)(3)                            $39,728    $26,271    $26,514    $26,978    $27,490
       Wrap mortgage debt on sold properties                4,668      5,149      5,613      6,061      6,492
                                                          -------    -------    -------    -------    -------

   Total                                                  $44,396    $31,420    $32,127    $33,039    $33,982
                                                          =======    =======    =======    =======    =======

   Note payable - includes amounts due in one year (1)    $10,395    $10,543    $ 8,643
                                                          =======    =======    =======    =======    =======

   Stockholders' equity                                   $12,851    $12,173    $11,438    $10,801    $10,574
                                                          =======    =======    =======    =======    =======
</TABLE>

(1)      In 1996, the Company purchased the $14,651,000 Fairfield Towers First
         Mortgage at a $3,500,000 discount for a net purchase price of
         $11,151,000. The Company paid $2,501,000 in cash and obtained an
         $8,650,000 bank loan for the balance of the purchase price. During
         1997, the Company advanced an additional $3,000,000 under the Fairfield
         Towers First Mortgage and borrowed an additional $2,500,000 under the
         bank loan. Subsequent to December 31, 1998, this mortgage was sold and
         the bank loan was repaid.

(2)      In August, 1998, the Company acquired Sunwood Apartments in Miami,
         Florida, for a purchase price of $6,505,000 and obtained a $4,875,000
         first mortgage loan on the property.

(3)      During 1998, the Company refinanced the mortgage on the Home Mortgage
         Plaza property, increasing the mortgage debt on that property by
         $6,711,000. The Company also obtained a $2,300,000 mortgage on the
         Fairlawn Gardens property .

See Notes to Consolidated Financial Statements.


                                       24
<PAGE>   25
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Results of Operations

         1998 vs 1997

Revenue for 1998 increased by $1,177,186 primarily as a result of increases in
rental income and interest on mortgages-related parties. These increases were
offset by decreases in interest on mortgages-sold properties.

Rental income increased by $1,288,604 primarily as a result of increases of
$553,846 at the Home Mortgage Plaza property (formerly Metmor Plaza), increases
of $202,879 at the Fairlawn Gardens property (formerly Kent Terrace) and the
acquisition in 1998 of a new apartment property. On August 31, 1998, the Company
purchased Sunwood Apartments, a 105 unit apartment property in Miami, Florida.
Rental income from this property was $325,183. In addition, rental income
increased at all other properties by $206,696.

Interest on mortgages-related parties increased by $203,293 primarily as a
result of increases in interest on the Consolidated Loans of $169,921 and
increases in interest on the Overlook loan of $38,844.

Interest on mortgages-sold properties decreased by $260,264 primarily due to the
$382,796 amortization of discount on the Cedarbrooke note in 1997 when it was
prepaid. In addition, there was a decrease of $50,168 of interest received on
the Fairfield Towers Second Mortgage. These decreases were offset by increases
of $57,878 in interest income from the Fairfield Towers First Mortgage and
$121,973 from the amortization of discounts on the mortgage portfolio.

Costs and expenses increased by $1,294,323 primarily due to increases in general
and administrative expenses, interest on mortgages, real estate tax expense,
depreciation expense and an increase in minority interest share of partnership
income. These increases were partially offset by a decrease in amortization of
mortgage costs.

General and administrative expenses increased by $340,682 primarily due to
increases in franchise tax expenses of $318,305, resulting from the partnership
distribution received from the proceeds of the mortgage refinancing on the Home
Mortgage Plaza property and the taxes thereon. In addition, there were increases
in salary expense of $36,885 (of which $21,482 pertains to increases in
executive bonuses).


                                       25
<PAGE>   26
Mortgage interest expense increased by $508,750 as a result of the refinancing
of the mortgage on the Home Mortgage Plaza property in April of 1998, the new
mortgage obtained on the Fairlawn Gardens property in March of 1998 and the
mortgage obtained on Sunwood Apartments, which was purchased in August of 1998.
Mortgage interest on the Home Mortgage Plaza property increased by $292,908.
Mortgage interest on the Fairlawn Gardens and Sunwood Apartments properties was
$129,094 and $107,180, respectively.

Real estate tax expense increased by $106,700 primarily as a result of increases
in real estate tax expense of $93,307 at the Crown Court, Home Mortgage Plaza
and Continental Gardens properties. Also, the addition of the Sunwood Apartments
property increased real estate tax expense by $31,385. These increases were
offset by a $24,468 decrease in real estate tax expense at the Cambridge Green
property. The 1997 real estate tax expense included refunds of $46,143 for prior
years' taxes at the Crown Court property.

Depreciation expense increased by $89,792 primarily as a result of the addition
of the Sunwood Apartments property in 1998, which increased depreciation expense
by $55,199. Additions and improvements made to other properties in 1997 and 1998
also increased depreciation expense.

Amortization of mortgage costs decreased by $91,452 as a result of the write-off
in 1997 of $146,097 of unamortized mortgage costs associated with the prior
mortgage on the Continental Gardens property, which was refinanced in July,
1997. This decrease was offset by the $107,412 write-off in 1998 of unamortized
mortgage costs associated with the prior mortgage on the Home Mortgage Plaza
property, which was refinanced in April, 1998. In addition, mortgage costs for
the refinanced mortgage on the Home Mortgage Plaza property were less than the
mortgage costs on the prior mortgage which resulted in a $67,604 decrease in
amortization of mortgage costs.

Minority interest share of partnership income increased by $111,137 as a result
of an increase in partnership income on the Home Mortgage Plaza property.

Net gain from sales of properties and securities are sporadic (as they depend on
the timing of sales or the receipt of installments or prepayments on purchase
money notes). In 1998, the net gain from sales of properties and securities was
$755,801 compared with $596,171 in 1997. In 1998, the Company recognized a gain
of $40,435 from the sale of a cooperative apartment unit at Sherwood House. In
addition, the Company recognized deferred gains of $613,285 and $69,217,
respectively, from principal payments received on the Overlook loan and the
Fairfield Towers Second Mortgage. In 1997, the Company recognized $472,497 of
deferred


                                       26
<PAGE>   27
gain from the sale of the Cedarbrooke property as a result of a $1,074,200
principal prepayment received on that note. In addition in 1997, the Company
recognized deferred gains of $24,058 and $80,651, respectively, from principal
payments received on the Overlook loan and the Fairfield Towers Second Mortgage
and a gain from the sale of securities of $18,965.

Balance Sheet

Real estate increased by $7,013,122 primarily as a result of the purchase of
Sunwood Apartments. The capitalized cost of this property was $1,680,000 for
land and $4,860,251 for buildings and improvements. Additions and improvements
to other properties were $472,871.

Minority partners' interest increased by $3,773,335 as a result of the
$3,929,400 distribution made to the minority partners of the Home Mortgage
Partnership from the proceeds from the refinancing of the mortgage on the Home
Mortgage Plaza property.

Prepaid expenses and deposits in escrow increased by $940,056 as a result of
increases of $320,410 in mortgagee real estate tax and insurance escrows and an
increase of $638,175 in replacement reserve mortgagee escrow funds. These
increases were a result of the mortgages obtained in 1998 on the Home Mortgage
Plaza, Fairlawn Gardens and the Sunwood Apartments properties.

Securities available for sale increased by $1,048,184 as a result of purchases
of marketable equity securities, primarily interest-bearing corporate preferred
stocks.

Cash and cash equivalents increased by $784,753 primarily as a result of the
$2,130,331 net mortgage proceeds obtained from the financing of the Fairlawn
Gardens property. The Company also received a $1,076,146 partnership
distribution (net of taxes paid) from the Home Mortgage Partnership as a result
of the refinancing of the mortgage on the property and principal payments of
$613,285 were received on the Overlook loan. The additions to cash and cash
equivalents were partially offset by the $1,834,214 of funds disbursed for the
purchase of Sunwood Apartments and the $1,054,562 paid for the purchase of
marketable equity securities.

Other assets increased by $847,550 primarily as a result of $591,252 in mortgage
costs for the mortgages obtained in 1998, partially offset by the $224,807
amortization of mortgage and loan acquisition costs. In addition, $274,814 of
tenant security deposits at the Home Mortgage Plaza property were transferred
from cash and cash equivalents to restricted funds, in accordance with the terms
of the refinanced mortgage and $94,290 of tenant security deposits were
deposited for the Sunwood Apartments.


                                       27
<PAGE>   28
Office furniture and equipment increased by $43,331 and deferred charges
increased by $109,793.

Mortgage debt on properties owned increased by $13,456,938 primarily as a result
of the refinancing of the Home Mortgage Plaza property, which increased the
mortgage debt on that property by $6,711,175, the new $2,300,000 mortgage on the
Fairlawn Gardens property and the $4,875,000 mortgage on the Sunwood Apartments
property. These increases were offset by principal payments of $429,237.

Accrued liabilities increased by $353,666 primarily as a result of the $212,376
amortization of discounts on commissions payable and increases in accrued
expenses for payroll, pension costs and professional fees of $128,947.

Deferred income increased by $291,616 primarily as a result of the $400,000
deposit received on the contract of sale for the Fairfield Towers Mortgages and
a $32,609 increase in deferred rental income. These increases were partially
offset by the recognition of deferred interest income of $140,294 received in
connection with the 1994 modification of the Presidential Park note.

Accounts payable decreased by $245,441 primarily as a result of a decrease in
rental property accounts payable.

Other liabilities increased by $107,747 primarily due to increases in security
deposit liabilities as a result of the addition of the Sunwood Apartments.

Treasury stock decreased by $40,620. During 1998, three directors of the Company
were each given 1,000 shares of the Company's Class B common stock as partial
payment for directors fees. Such shares had been held in treasury at an average
cost of $13.54 per share.

Results of Operations

         1997 vs 1996

Revenue for 1997 increased by $1,297,040 primarily as a result of increases in
interest on mortgages-sold properties, partially offset by decreases in rental
income and investment income.

Rental income decreased by $23,329 primarily as a result of decreases of
$585,801 at the Home Mortgage Plaza property, of which $122,642 is the result of
lease cancellation fees received in 1996, $292,406 is the result of increased
vacancy loss in 1997 and $169,819 pertains to decreases in office rental income
and rent escalations in 1997. In addition, rental income decreased by $50,634 at
the Cambridge Green property. These decreases were


                                       28
<PAGE>   29
partially offset by increases of $209,718 at the Fairlawn Gardens, Building
Industries Center and University Towers properties and increased rental income
of $402,246 as a result of the reclassification of the operations of foreclosed
properties into rental property operations in 1997.

Interest on mortgages-sold properties increased by $1,561,098 primarily due to
an increase in interest income of $1,334,023 from the Fairfield Towers First
Mortgage, which the Company purchased in the fourth quarter of 1996. In
addition, the 1997 period had an increase of $569,707 from amortization of
discounts on notes, of which $382,796 pertains to the Cedarbrooke note which was
prepaid in March, 1997 and $152,714 pertains to the Fairfield Towers First
Mortgage. These increases were partially offset by decreases in interest income
of $162,750 as a result of the prepayments in 1997 and 1996 on the Cedarbrooke,
Town House and Hoboken notes and a $160,268 decrease in interest income on the
Fairfield Towers Second Mortgage.

Investment income decreased by $176,892 primarily as a result of decreased
dividend income on securities available for sale.

Costs and expenses increased by $885,473 primarily due to increased interest on
note payable, rental property operating expenses, depreciation expense and
amortization of mortgage costs. These increases were partially offset by a
decrease in minority interest share of partnership income.

Interest on note payable and other increased by $784,096 primarily as a result
of a $753,885 increase in interest expense on the note payable to Fleet Bank,
N.A. ("Fleet") which was obtained in the fourth quarter of 1996.

Rental property operating expenses increased by $316,851 primarily as a result
of the reclassification of foreclosed properties operations to rental property
operations which resulted in an increase in rental property operating expenses
of $397,474. In addition, there were increases in operating expenses of $62,644
at the Fairlawn Gardens property and $40,180 at the Continental Gardens
property. These increases were partially offset by decreases in operating
expenses of $182,115 at the Mapletree Industrial Center property primarily as a
result of environmental expenses of $120,500 accrued in 1996 and the $46,697
reversal of that accrual in 1997.

Depreciation expense increased by $86,342 primarily as a result of the additions
and improvements made at the Fairlawn Gardens, Home Mortgage Plaza and
Continental Gardens properties.

Amortization of mortgage costs increased by $152,908 as a result of the write
off of $146,097 of unamortized mortgage costs


                                       29
<PAGE>   30
associated with the prior Continental Gardens mortgage. The mortgage on the
Continental Gardens property was refinanced in July, 1997 and the existing
mortgage was repaid from the proceeds of the new mortgage.

Minority interest share of partnership income decreased by $467,500 as a result
of a decrease in partnership income on the Home Mortgage Plaza property.

Net gain from sales of properties and securities are sporadic (as they depend on
the timing of sales or the receipt of installments or prepayments on purchase
money notes). In 1997, the net gain from sales of properties and securities was
$596,171 compared with $845,051 in 1996. In 1997, the Company recognized
$472,497 of deferred gain from the sale of the Cedarbrooke property as a result
of a $1,074,200 principal prepayment received on that note. In addition, the
Company recognized deferred gains of $80,651 and $24,058, respectively, from
principal payments received on the Fairfield Towers Second Mortgage and the
Overlook loan and a gain from the sale of securities of $18,965. The 1996 gain
is primarily a result of a $1,000,000 principal prepayment received on the Town
House loan, which resulted in the recognition of $773,258 of deferred gain. In
addition, the Company recognized deferred gains in 1996 of $71,996 and $56,573,
respectively, from principal payments received on the Overlook loan and the
Fairfield Towers Second Mortgage. These amounts were offset by a loss of $56,776
from the sale of securities.

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 which 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 or commercial space, availability and
creditworthiness of prospective tenants, lease rents 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 and acquisition; governmental actions and initiatives; and
environment/safety requirements.


                                       30
<PAGE>   31
Year 2000 Compliance

The Year 2000 issue occurred as a result of computer software programs
recognizing a two-digit date code instead of a four-digit code. Therefore, in
date sensitive software, the year 2000 would be recognized as the year 1900.
Many computer systems and software programs will have to be updated to comply
with the Year 2000 requirements.

Readiness

The Company's business and information technology systems ("IT") have been
assessed for Year 2000 compliance and the Company has completed the required
changes to its systems. The Company will have completed its testing of date
sensitivity by September, 1999. Presidential has also assessed its
non-information technology systems ("NIT") for Year 2000 problems. In addition,
the Company has contacted all third parties that have an effect on the Company's
business transactions for verification of their compliance with the Year 2000.

Phase I

The Company has completed its assessment of its headquarters IT system, which
includes accounts payable, accounts receivable, general ledger, spreadsheets and
financial information systems. All updates to systems are completed with the
exception of the date sensitivity testing, which will be completed by September,
1999. The telephone systems, communication systems and data collection systems
at the Company's headquarters are Year 2000 compliant.

Phase II

The Company has assessed its NIT systems. These systems are located at the
Company's properties and include elevators, heating and air conditioning
systems, lighting and security systems. The majority of the Company's properties
are apartment properties with limited technology systems. The assessment of
these systems has not indicated any year 2000 sensitive systems.

Phase III

The Company has sent requests to tenants, mortgagors, its property management
company, and all third party vendors for written verification that their systems
are Year 2000 compliant in relation to their activities with the Company.
Responses received by the Company to date have verified year 2000 compliance or
completion of compliance in a timely manner.

Costs

At December 31, 1998, the Company's costs related to the Year 2000 compliance
have been minimal. The Company has capitalized approximately $32,393 for
replacement of equipment and has expensed approximately $4,789 for the upgrading
of its systems.


                                       31
<PAGE>   32
Phase I is completed except for date sensitivity testing for which estimated
costs will be minimal. The assessment of Phase II has been completed and there
were no costs incurred for remedial action, as none was required. The estimated
costs to continue assessments of Phase III are minimal.

The assessment of Phase III is still in process. Second requests will be sent to
tenants, mortgagors and third party vendors that have not responded to our
initial written request. The management company that Presidential utilizes to
manage its properties is Year 2000 compliant with the exception of its accounts
receivable program. The management company has advised Presidential that they
will be installing a new system during 1999 and will be Year 2000 compliant by
the fall of 1999. The Company will closely monitor the progress of this
installation and testing to insure that all systems are Year 2000 compliant in a
timely manner. The Company does not anticipate any costs for remedial action for
Phase III.

Risk Factors and Contingency Plan

The Company does not anticipate any problems in the testing of its IT systems
and will be Year 2000 compliant. The responses that the Company has received
from Phase III of the program indicate that the financial institutions, utility
companies and major suppliers of services which are utilized by the Company are
or will be Year 2000 compliant. However, the Company's business operations could
be affected if these third party vendors fail to become Year 2000 compliant. The
effect of non-compliance by these third party vendors is not determinable at
this time. If a supplier of goods or services were to fail to become Year 2000
compliant, the Company would obtain these goods or services from another source.
However, the failure of utility companies (electric, gas, water and telephone)
to become Year 2000 compliant could have an adverse effect on the operations of
the Company's properties. These services are not readily available from other
sources but should be available in some form. The Company does not anticipate
that the Year 2000 issue will have an adverse effect on the ability of its
mortgagors or tenants to make payments due to the Company in a timely fashion.

As a result of the Company's evaluation of Phase II and Phase III, no formal
contingency plan is required.

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. The Company is seeking to expand its portfolio of real
estate equities and plans to utilize for this purpose a portion of its available
funds and


                                       32
<PAGE>   33
additional funds that the Company may receive from balloon payments due on the
Company's notes receivable as they mature, as well as funds that may be
available from external sources. However, the Company's plans to expand its
portfolio of real estate equities may be adversely affected by limitations on
its ability to obtain funds for investment on satisfactory terms from external
sources.

Presidential obtains funds for working capital and investment from its available
cash and cash equivalents, from securities available for sale, from operating
activities, from refinancing of mortgage loans on its real estate equities, and
from the sales of or 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, 1998, Presidential had $1,764,465 in available cash and cash
equivalents, an increase of $784,753 from the $979,712 at December 31, 1997.
This increase in cash and cash equivalents was due to cash provided by operating
activities of $1,755,553 and financing activities of $5,303,618, offset by cash
used in investing activities of $6,274,418.

         Operating Activities

Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $3,321,936 in 1998, net of
interest payments on wrap mortgage debt and note payable. In 1998, net cash
received from rental property operations was $771,068, which is net of
distributions from partnership operations to minority partners but before
additions and improvements and mortgage amortization. The net cash received from
rental property operations includes an expenditure of $274,814 for the funding
of security deposits for the Home Mortgage Plaza property in accordance with the
terms of the refinanced mortgage on that property.

         Investing Activities

Presidential holds a portfolio of mortgage notes receivable, which consist
primarily of notes arising from sales of real properties previously owned by the
Company. Some of these notes wrap around underlying mortgage debt (the
"Underlying Debt") which is paid by Presidential only out of funds received on
its mortgage portfolio relating to the Underlying Debt. During 1998, the Company
received principal payments of $939,751 on its mortgage portfolio (net of any
principal payments attributable to the Underlying Debt), of which $797,089
represented prepayments, which are sporadic and cannot be relied upon as a
regular source of liquidity.


                                       33
<PAGE>   34
On August 31, 1998, the Company purchased Sunwood Apartments, a 105 unit
apartment property in Miami, Florida. The purchase price of the property was
$6,504,638 and the Company obtained a new $4,875,000 first mortgage loan secured
by the property. While the Company has only operated the property since August
31, the property has a stable operating history and the Company believes that
operations from this property will contribute to the Company's cash flow in 1999
and subsequent years.

During 1998, the Company invested $529,261 in additions and improvements to its
properties.

The Company also holds a portfolio of marketable equity securities which
increased by $1,048,184 primarily as a result of the purchase of
interest-bearing corporate preferred stocks.

         Financing Activities

The Company's indebtedness at December 31, 1998, includes $44,396,493 of
mortgage debt (including $4,668,462 of underlying indebtedness on properties not
owned by the Company but on which the Company holds wraparound mortgages). The
mortgage debt, which is secured by individual properties, is nonrecourse to the
Company with the exception of the $272,183 Mapletree Industrial Center mortgage,
which is secured by the property and a guarantee of repayment by Presidential.
In addition, some of the Company's mortgages provide for personal 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
1998, the Company made $429,237 of principal payments on mortgage debt on
properties which it owns.

The Company obtained a $2,300,000 mortgage on its Fairlawn Gardens property in
March of 1998. The mortgage matures in April, 2008 with a balloon payment of
$2,012,668 due at maturity. The mortgage requires monthly payments of principal
and interest of $15,395 and has an interest rate of 7.06% per annum. In April of
1998, the Company completed the refinancing of the mortgage on the Home Mortgage
Plaza property and the prior mortgage balance of $10,788,825 was paid from the
proceeds of the new $17,500,000 mortgage. The new mortgage bears interest at the
rate of 7.38% per annum for the first ten years, requires monthly payments of
principal and interest of $120,928 until the anticipated repayment date of May
11, 2008 at which time the then outstanding principal balance of $15,445,099 is
expected to be repaid. However, the maturity date of the mortgage is May 11,
2028 and if the mortgage is not repaid in 2008, the interest rate will be
increased by 2% and additional repayments will be required from the surplus cash
flows from the operations of the property (after payment of operating expenses)
which will be applied to the outstanding


                                       34
<PAGE>   35
principal amount. In August, 1998, Presidential obtained a $4,875,000 mortgage
in connection with its acquisition of Sunwood Apartments. The mortgage bears
interest at the rate of 6.55% per annum, requires monthly payments of principal
and interest of $30,974 and matures on September 1, 2008 with a $4,146,349
balloon payment due at maturity.

The mortgages on the Company's properties are self-liquidating at fixed rates of
interest with the exception of the mortgages on Fairlawn Gardens, Home Mortgage
Plaza and Sunwood Apartments (which are all mentioned above). In addition, the
following mortgages are not self-liquidating. The Building Industries Center
mortgage in the outstanding amount of $926,269 amortizes monthly with a $908,515
balloon payment due at maturity in May, 2000 and has an interest rate of 10%.
The Continental Gardens mortgage, in the outstanding amount of $8,031,175, has
an interest rate of 8.16% per annum and has a balloon payment of $7,158,323 due
at maturity in August, 2007.

The Company's indebtedness at December 31, 1998 also includes a $10,395,361 bank
loan payable to Fleet, which was repaid in 1999 when the Fairfield Towers First
Mortgage Note was sold (see below).

During 1998 Presidential declared and paid cash distributions of $2,263,235 to
its shareholders and received proceeds from its dividend reinvestment and share
purchase plan of $150,687.

Other than as described herein, management is not aware of any other trends,
events, commitments or uncertainties that will or are likely to materially
impact the Company's liquidity.

         Fairfield Towers

On February 22, 1999, Presidential consummated the sale of its First and Second
Mortgage Notes (excluding a $4,000,000 portion of the Second Mortgage Note,
which it retained) secured by 990 Sponsor owned condominium units at Fairfield
Towers Apartments in Brooklyn, New York.

The First Mortgage Note, which had an outstanding principal balance at the date
of sale of $17,002,695, was acquired by Presidential in October, 1996 at a
discount of $3,500,000. The Second Mortgage Note, which had an outstanding
principal balance at the date of sale of $14,206,895, was obtained by
Presidential when it sold the Fairfield Towers apartment property in 1984.

The aggregate purchase price for the First Mortgage Note and the Second Mortgage
Note (excluding the $4,000,000 interest retained by Presidential) was
$21,350,000.


                                       35
<PAGE>   36
In connection with this transaction, the $4,000,000 portion of the Second
Mortgage Note retained by Presidential was modified to provide for a ten-year
maturity date and interest at the rate of 9.625% for the first three years and
at 10.5% for the remaining seven years. To secure this obligation, Presidential
obtained subordinate security interests in three apartment properties located in
New Jersey (having an estimated equity value of approximately $7,000,000) as
collateral for the Note.

Presidential repaid the $10,195,442 outstanding principal balance of its note
payable to Fleet Bank, which had been secured by Presidential's interest in the
First Mortgage Note. After payment of the bank loan and expenses related to the
transaction, but before payment of any income tax on the capital gain,
Presidential will retain approximately $10,275,000 from the sale. Presidential
expects to pay approximately $1,700,000 of taxes on the retained capital gain
and invest the balance of approximately $8,575,000 in rental apartment
properties. In addition, Presidential will receive interest on its $4,000,000
retained note in the amount of $385,000 per annum for the first three years and
$420,000 per annum for the remaining seven years of the term of the Note.

As a result of the transaction, in 1999, Presidential will, for financial
reporting purposes, recognize a gain on sale (before taxes) of approximately
$7,800,000.

During the years ended December 31, 1998 and 1997, the Company reported income
(net of deductions of interest and amortization of loan acquisition costs on the
Fleet note payable) of $985,387 and $1,000,695, respectively, from the First and
Second Mortgage Notes. On a cash flow basis, Presidential received in the years
ended December 31, 1998 and 1997, $738,712 and $753,758, respectively, from this
investment, net of the note payable expenses.

         Environmental Matters

The Company has completed its environmental project for the investigation and
removal of potentially hazardous drums found at one site on its Mapletree
Industrial Center property in Palmer, Massachusetts. The total cost of this
project was approximately $90,000 and no further costs are expected. The Company
is not aware of any environmental issues at any of its other properties. The
presence, with or without the Company's knowledge, of hazardous substances at
any of its properties could have an adverse effect on the Company's operating
results and financial condition.


                                       36
<PAGE>   37
         Grant House

In January, 1999, the Company sold its equity portion in the $3,235,833
wraparound mortgage note secured by the Grant House apartment building located
in White Plains, New York. Presidential assigned the $2,212,240 nonrecourse
first mortgage note to the purchaser and received $500,000 for the sale of its
$1,023,593 equity portion of the wraparound mortgage note. In the first quarter
of 1999, the Company wrote off the $2,212,240 outstanding balance on the first
mortgage and the related $2,212,240 mortgage debt, and recognized a gain on sale
of $425,000.

For the years ended December 31, 1998 and 1997, the $75,000 annual interest
payment due on the equity portion of the note was not accrued. The annual
interest due for 1996 was accrued in 1996, but had not been paid and the Company
has applied $75,000 from the sales proceeds of the note to this accrued and
unpaid interest.

At December 31, 1998, the outstanding principal balance on the wraparound
mortgage note was $3,247,880 and the net carrying value was $2,224,287 after
deducting a deferred gain of $1,023,593. The note wraps around and is
subordinate to a nonrecourse first mortgage with an outstanding principal
balance of $2,224,287 at December 31, 1998. At December 31, 1997, Presidential
had classified this loan as an impaired loan because the property was in need of
extensive capital improvements and Presidential believed that the owner would
not be able to repay the Grant House wraparound note in accordance with its
terms when it became due in November, 1998.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Table of Contents to Consolidated Financial Statements.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Reference is made to the Company's definitive Proxy Statement for its
         Annual Meeting of Shareholders to be held June 16, 1999, which Proxy
         Statement will be filed with the Securities and Exchange Commission
         pursuant to Regulation 14A and which is incorporated herein by
         reference.


                                       37
<PAGE>   38
ITEM 11. EXECUTIVE COMPENSATION

         Reference is made to the Company's definitive Proxy Statement for its
         Annual Meeting of Shareholders to be held June 16, 1999, which Proxy
         Statement will be filed with the Securities and Exchange Commission
         pursuant to Regulation 14A and which is incorporated herein by
         reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Reference is made to the Company's definitive Proxy Statement for its
         Annual Meeting of Shareholders to be held June 16, 1999, which Proxy
         Statement will be filed with the Securities and Exchange Commission
         pursuant to Regulation 14A and which is incorporated herein by
         reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Reference is made to the Company's definitive Proxy Statement for its
         Annual Meeting of Shareholders to be held June 16, 1999, which Proxy
         Statement will be filed with the Securities and Exchange Commission
         pursuant to Regulation 14A and which is incorporated herein by
         reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a) and (d) A Table of Contents to Consolidated Financial Statements
         and Schedules is included in this report.

         (b) No report on Form 8-K was filed during the calendar quarter ended
         December 31, 1998.

         (c) 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).


                                       38
<PAGE>   39
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 1993 Stock Option Plan for 250,000 shares of Class B common stock
(incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, Commission File No. 1-8594).

10.2 Employment Agreement dated as of November 1, 1982 between the Company and
Robert E. Shapiro, as amended by Amendments dated March 1, 1983, November 25,
1985, February 23, 1987 and January 4, 1988, (incorporated herein by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-8594).

10.3 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
and 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).

10.4 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).

10.5 Presidential Realty Corporation Defined Benefit Plan dated December 16,
1994, (incorporated herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, Commission File No.
1-8594).

10.6 Employment Agreement dated January 1, 1997 between the Company and Jeffrey
F. Joseph, (incorporated herein by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).

10.7 Employment Agreement dated January 1, 1997 between the Company and Steven
Baruch, (incorporated herein by reference to Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).


                                       39
<PAGE>   40
10.8 Employment Agreement dated January 1, 1997 between the Company and Thomas
Viertel, (incorporated herein by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).

10.9 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).

21. List of Subsidiaries of Registrant dated December 31, 1998.

27. Financial Data Schedule for the year ended December 31, 1998.


                                       40
<PAGE>   41
                                   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: THOMAS VIERTEL
                                            ---------------------------------
                                            Thomas Viertel
                                            Chief Financial Officer
                                            March 24, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


         Signature and Title                                          Date
         -------------------                                          ----

By: ROBERT E. SHAPIRO                                             March 24, 1999
    ---------------------------------
    Robert E. Shapiro
    Chairman of the Board of
    Directors and Director

By: JEFFREY F. JOSEPH                                             March 24, 1999
    ---------------------------------
    Jeffrey F. Joseph
    President and Director

By: THOMAS VIERTEL                                                March 24, 1999
    ---------------------------------
    Thomas Viertel
    Executive Vice President
    (Chief Financial Officer)

By: ELIZABETH DELGADO                                             March 24, 1999
    ---------------------------------
    Elizabeth Delgado
    Treasurer
    (Principal Accounting Officer)

By: RICHARD BRANDT                                                March 24, 1999
    ---------------------------------
    Richard Brandt
    Director

By: MORTIMER M. CAPLIN                                            March 24, 1999
    ---------------------------------
    Mortimer M. Caplin
    Director


                                       41
<PAGE>   42
SIGNATURES (Continued)


         Signature and Title                                          Date
         -------------------                                          ----

By: ROBERT FEDER                                                  March 24, 1999
    ---------------------------------
    Robert Feder
    Director


By: JOSEPH VIERTEL                                                March 24, 1999
    ---------------------------------
    Joseph Viertel
    Director


                                       42
<PAGE>   43
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Independent Auditors' Report                                                  44

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets - December 31, 1998
   and 1997                                                                   45

Consolidated Statements of Operations for the
  Years Ended December 31, 1998, 1997 and 1996                                47

Consolidated Statements of Stockholders' Equity for
  the Years Ended December 31, 1998, 1997 and 1996                            48

Consolidated Statements of Cash Flows for the
  Years Ended December 31, 1998, 1997 and 1996                                49

Notes to Consolidated Financial Statements                                    51

CONSOLIDATED SCHEDULES:

II.   Valuation and Qualifying Accounts for the Years
        Ended December 31, 1998, 1997 and 1996                                82

III.  Real Estate and Accumulated Depreciation at
        December 31, 1998                                                     83

IV.   Mortgage Loans on Real Estate at December 31, 1998                      85


NOTE:    All schedules, other than those indicated above, are omitted because of
         the absence of the conditions under which they are required or because
         the required information is included in the consolidated financial
         statements or the notes to the consolidated financial statements.


                                       43
<PAGE>   44
INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
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, 1998 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedules listed in the
foregoing Table of Contents. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Presidential Realty Corporation and
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.


Deloitte & Touche LLP




Stamford, Connecticut
March 12, 1999


                                       44
<PAGE>   45
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
Assets                                                December 31,   December 31,
                                                         1998           1997
                                                      -----------    -----------
<S>                                                   <C>            <C>
Mortgage portfolio (Note 2):
  Sold properties, accrual                            $43,440,675    $43,871,400
  Related parties, accrual                              1,698,982      2,350,899
  Sold properties, impaired                            17,589,027     17,878,458
                                                      -----------    -----------

  Total mortgage portfolio                             62,728,684     64,100,757
                                                      -----------    -----------

Less discounts:
  Sold properties, accrual                              4,049,630      5,055,574
  Related parties, accrual                                149,685        160,735
  Sold properties, impaired                             7,597,138      7,675,111
                                                      -----------    -----------

  Total discounts                                      11,796,453     12,891,420
                                                      -----------    -----------

Less deferred gains:
  Sold properties, accrual                             12,538,907     12,550,333
  Related parties, accrual                                930,057      1,543,342
  Sold properties, impaired                             6,362,838      6,432,055
                                                      -----------    -----------

  Total deferred gains                                 19,831,802     20,525,730
                                                      -----------    -----------

Net mortgage portfolio                                 31,100,429     30,683,607
                                                      -----------    -----------


Real estate (Note 3)                                   34,703,657     27,690,535
  Less: accumulated depreciation                        7,231,639      6,404,797
                                                      -----------    -----------

Net real estate                                        27,472,018     21,285,738
                                                      -----------    -----------


Minority partners' interest (Note 4)                    7,552,743      3,779,408
Prepaid expenses and deposits in escrow                 2,130,214      1,190,158
Other receivables (net of valuation allowance of
  $120,102 in 1998 and $129,484 in 1997)                  623,521        723,694
Securities available for sale (Note 5)                  1,274,734        226,550
Cash and cash equivalents                               1,764,465        979,712
Other assets                                            1,988,121      1,140,571
                                                      -----------    -----------

Total Assets                                          $73,906,245    $60,009,438
                                                      ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       45
<PAGE>   46
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>
                                                                    December 31,   December 31,
                                                                       1998           1997
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
Liabilities:
  Mortgage debt (Note 6):
    Properties owned                                                $39,728,031    $26,271,093
    Wrap mortgage debt on sold properties                             4,668,462      5,149,217
                                                                    -----------    -----------

  Total (of which $905,305 in 1998 and $1,133,721
    in 1997 are due within one year)                                 44,396,493     31,420,310

  Note payable to bank (of which $159,803 in 1998
    and $147,190 in 1997 are due within one year) (Note 7)           10,395,361     10,542,552
  Executive pension plan liability (Note 15)                          1,496,357      1,601,411
  Accrued liabilities                                                 2,630,564      2,276,898
  Accrued postretirement costs (Note 16)                                562,167        574,637
  Deferred income                                                       565,713        274,097
  Accounts payable                                                      235,807        481,248
  Other liabilities                                                     772,949        665,202
                                                                    -----------    -----------

Total Liabilities                                                    61,055,411     47,836,355
                                                                    -----------    -----------


Stockholders' Equity:
  Common stock; par value $.10 per share (Note 11)
    Class A, authorized 700,000 shares, issued and
      outstanding 478,940 shares                                         47,894         47,894

    Class B       December 31, 1998   December 31, 1997                 313,609        311,377
    -----------   -----------------   -----------------
    Authorized:          10,000,000          10,000,000
    Issued:               3,136,092           3,113,773
    Treasury:                11,224              14,224

  Additional paid-in capital                                          2,172,368      2,043,653
  Retained earnings                                                  10,453,253      9,943,241
  Net unrealized gain on securities available for sale (Note 5)          15,677         19,505
  Class B, treasury stock (at cost) (Note 13)                          (151,967)      (192,587)
                                                                    -----------    -----------

Total Stockholders' Equity                                           12,850,834     12,173,083
                                                                    -----------    -----------

Total Liabilities and Stockholders' Equity                          $73,906,245    $60,009,438
                                                                    ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       46
<PAGE>   47
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                    -----------------------------------------
                                                                       1998           1997           1996
                                                                    -----------    -----------    -----------
<S>                                                                 <C>            <C>            <C>
Income:
  Rental                                                            $ 9,716,096    $ 8,427,492    $ 8,450,821
  Interest on mortgages - sold properties                             3,773,830      4,034,094      2,472,996
  Interest on wrap mortgages                                          1,277,474      1,299,147      1,395,038
  Interest on mortgages - related parties                               438,040        234,747        248,851
  Investment income                                                     168,307        135,406        312,298
  Other                                                                  39,018        104,693         58,535
                                                                    -----------    -----------    -----------
Total                                                                15,412,765     14,235,579     12,938,539
                                                                    -----------    -----------    -----------
Costs and Expenses:
  General and administrative                                          2,668,922      2,328,240      2,260,927
  Interest on note payable and other                                  1,128,453      1,055,969        271,873
  Interest on wrap mortgage debt                                        205,216        226,889        247,780
  Amortization of  loan acquisition costs                                32,459         30,062         22,301
  Depreciation on non-rental property                                    24,594         23,689         24,986
  Rental property:
    Operating expenses                                                4,272,234      4,097,633      3,780,782
    Interest on mortgages                                             2,648,016      2,139,266      2,201,104
    Real estate taxes                                                   905,781        799,081        777,353
    Depreciation on real estate                                         827,786        737,994        651,652
    Amortization of mortgage costs                                      192,348        283,800        130,892
    Minority interest share of partnership income                       489,510        378,373        845,873
                                                                    -----------    -----------    -----------
Total                                                                13,395,319     12,100,996     11,215,523
                                                                    -----------    -----------    -----------

Income before net gain from sales of properties and securities        2,017,446      2,134,583      1,723,016

Net gain from sales of properties and securities                        755,801        596,171        845,051
                                                                    -----------    -----------    -----------
Net Income                                                          $ 2,773,247    $ 2,730,754    $ 2,568,067
                                                                    ===========    ===========    ===========

Earnings per Common Share (basic and diluted) (Note 1-I):
  Income before net gain from sales of properties and securities    $      0.56    $      0.60    $      0.49

  Net gain from sales of properties and securities                         0.21           0.17           0.24
                                                                    -----------    -----------    -----------

Net Income per Common Share                                         $      0.77    $      0.77    $      0.73
                                                                    ===========    ===========    ===========

Cash Distributions per Common Share (Note 12)                       $      0.63    $      0.60    $      0.60
                                                                    ===========    ===========    ===========

Weighted Average Number of Shares Outstanding                         3,592,543      3,563,851      3,538,667
                                                                    ===========    ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       47
<PAGE>   48
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                                    Additional                         Other
                                                      Common         Paid-in         Retained      Comprehensive     Treasury
                                                      Stock          Capital         Earnings         Income           Stock
                                                   ------------    ------------    ------------    ------------     ------------
<S>                                                <C>             <C>             <C>             <C>              <C>
Balance at January 1, 1996                         $    354,300    $  1,744,933    $  8,905,779    $    (11,205)    $   (192,568)

Net proceeds from dividend reinvestment
  and share purchase plan                                 2,269         129,408
Cash distributions ($.60 per share)                                                  (2,123,045)
Comprehensive income:
      Net income                                                                      2,568,067
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                                                                  60,219

Comprehensive income

                                                   ------------    ------------    ------------    ------------     ------------
Balance at December 31, 1996                            356,569       1,874,341       9,350,801          49,014         (192,568)

Net proceeds from dividend reinvestment
  and share purchase plan                                 2,702         169,312
Cash distributions ($.60 per share)                                                  (2,138,314)
Purchase of treasury stock                                                                                                   (19)
Comprehensive income:
      Net income                                                                      2,730,754
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                                                                 (29,509)

Comprehensive income


                                                   ------------    ------------    ------------    ------------     ------------
Balance at December 31, 1997                            359,271       2,043,653       9,943,241          19,505         (192,587)

Net proceeds from dividend reinvestment
  and share purchase plan                                 2,232         148,455
Cash distributions ($.63 per share)                                                  (2,263,235)
Issuance of treasury stock (Note 13)                                    (19,740)                                          40,620
Comprehensive income:
      Net income                                                                      2,773,247
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                                                                  (3,828)

Comprehensive income

                                                   ------------    ------------    ------------    ------------     ------------
Balance at December 31, 1998                       $    361,503    $  2,172,368    $ 10,453,253    $     15,677     $   (151,967)
                                                   ============    ============    ============    ============     ============

<CAPTION>

                                                                                 Total
                                                         Comprehensive        Stockholders'
                                                             Income              Equity
                                                          ------------        ------------
<S>                                                      <C>                  <C>
Balance at January 1, 1996                                                    $ 10,801,239

Net proceeds from dividend reinvestment
  and share purchase plan                                                          131,677
Cash distributions ($.60 per share)                                             (2,123,045)
Comprehensive income:
      Net income                                          $  2,568,067           2,568,067
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                         60,219              60,219
                                                          ------------
Comprehensive income                                      $  2,628,286
                                                          ============
                                                                              ------------
Balance at December 31, 1996                                                    11,438,157

Net proceeds from dividend reinvestment
  and share purchase plan                                                          172,014
Cash distributions ($.60 per share)                                             (2,138,314)
Purchase of treasury stock                                                             (19)
Comprehensive income:
      Net income                                          $  2,730,754           2,730,754
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                        (29,509)            (29,509)
                                                          ------------
Comprehensive income                                      $  2,701,245
                                                          ============

                                                                              ------------
Balance at December 31, 1997                                                    12,173,083

Net proceeds from dividend reinvestment
  and share purchase plan                                                          150,687
Cash distributions ($.63 per share)                                             (2,263,235)
Issuance of treasury stock (Note 13)                                                20,880
Comprehensive income:
      Net income                                          $  2,773,247           2,773,247
      Other comprehensive income-
        Change in net unrealized gain (loss) on
          securities available for sale                         (3,828)             (3,828)
                                                          ------------
Comprehensive income                                      $  2,769,419
                                                          ============
                                                                              ------------
Balance at December 31, 1998                                                  $ 12,850,834
                                                                              ============
</TABLE>

See notes to consolidated financial statements.


                                       48
<PAGE>   49
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                  ----------------------------------------------
                                                                      1998             1997            1996
                                                                  ------------     ------------     ------------
<S>                                                               <C>              <C>              <C>
Cash Flows from Operating Activities:
  Cash received from rental properties                            $  9,645,206     $  8,431,167     $  8,389,399
  Interest received                                                  4,447,382        4,180,370        3,426,291
  Miscellaneous income                                                  34,522          116,782          218,998
  Interest paid on rental property mortgages                        (2,608,842)      (2,131,785)      (2,221,872)
  Interest paid on wrap mortgage debt                                 (205,216)        (226,889)        (247,780)
  Interest paid on note payable                                       (920,230)        (863,446)         (69,558)
  Cash disbursed for rental and foreclosed property operations      (5,931,851)      (4,814,072)      (4,308,676)
  Cash disbursed for general and administrative costs               (2,705,418)      (2,345,167)      (2,368,704)
                                                                  ------------     ------------     ------------
Net cash provided by operating activities                            1,755,553        2,346,960        2,818,098
                                                                  ------------     ------------     ------------

Cash Flows from Investing Activities:
  Payments received on notes receivable                              1,420,506        2,573,682        3,055,900
  Deposit received on contract of sale of notes receivable             400,000
  Payments disbursed for investments in notes receivable               (60,000)      (3,011,698)     (11,176,563)
  Payments disbursed for additions and improvements                   (529,261)      (1,596,480)        (956,584)
  Purchase of property                                              (6,549,637)
  Proceeds from sales of securities                                     23,986          817,316        2,650,059
  Purchases of securities                                           (1,054,562)         (79,202)      (1,231,478)
  Other                                                                 74,550          (60,000)          73,902
                                                                  ------------     ------------     ------------
Net cash used in investing activities                               (6,274,418)      (1,356,382)      (7,584,764)
                                                                  ------------     ------------     ------------
Cash Flows from Financing Activities:
  Principal payments on mortgage debt:
    Properties owned                                                  (429,237)        (590,826)        (526,351)
    Wrap mortgage debt on sold properties                             (480,755)        (463,824)        (447,496)
  Mortgage debt payment from proceeds of mortgage refinancing      (10,788,825)      (7,771,546)        (238,181)
  Mortgage proceeds                                                 24,675,000        8,120,000          300,000
  Mortgage refinancing repairs and replacement escrows                (558,730)
  Mortgage costs                                                      (591,251)        (248,875)        (182,059)
  Note payable proceeds                                                               2,500,000        8,650,000
  Principal payments on note payable                                  (147,191)        (600,048)          (7,400)
  Cash distributions on common stock                                (2,263,235)      (2,138,314)      (2,123,045)
  Proceeds from dividend reinvestment and share purchase plan          150,687          172,014          131,677
  Distributions to minority partners                                (4,262,845)        (381,582)        (704,849)
                                                                  ------------     ------------     ------------
Net cash provided by (used in) financing activities                  5,303,618       (1,403,001)       4,852,296
                                                                  ------------     ------------     ------------

Net Increase (Decrease) in Cash and Cash Equivalents                   784,753         (412,423)          85,630

Cash and Cash Equivalents, Beginning of Year                           979,712        1,392,135        1,306,505
                                                                  ------------     ------------     ------------
Cash and Cash Equivalents, End of Year                            $  1,764,465     $    979,712     $  1,392,135
                                                                  ============     ============     ============
</TABLE>

See notes to consolidated financial statements.


                                       49
<PAGE>   50
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                         -------------------------------------------
                                                            1998            1997            1996
                                                         -----------     -----------     -----------
<S>                                                      <C>             <C>             <C>
Reconciliation of Net Income to Net Cash
  Provided by Operating Activities

Net Income                                               $ 2,773,247     $ 2,730,754     $ 2,568,067
                                                         -----------     -----------     -----------

Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                          1,077,187       1,075,545         829,831
    Gain from sales of properties and securities            (755,801)       (596,171)       (845,051)
    Issuance of treasury stock                                20,880
    Amortization of discounts on notes and fees           (1,094,967)     (1,369,026)       (802,857)
    Decrease (increase) in accounts receivable               100,173         (77,737)         55,569
    Increase (decrease) in accounts payable
      and accrued liabilities                                 (9,299)        261,627          90,753
    Decrease in deferred income                             (108,385)       (121,580)       (164,487)
    Decrease (increase) in prepaid expenses,
      deposits in escrow and deferred charges               (491,120)        (66,886)        244,121
    Increase in security deposit restricted funds           (352,573)
    Increase in security deposit liabilities                 112,243          76,447          10,419
    Minority share of partnership income                     489,510         378,373         845,873
    Other                                                     (5,542)         55,614         (14,140)
                                                         -----------     -----------     -----------

Total adjustments                                         (1,017,694)       (383,794)        250,031
                                                         -----------     -----------     -----------


Net cash provided by operating activities                $ 1,755,553     $ 2,346,960     $ 2,818,098
                                                         ===========     ===========     ===========


Supplemental noncash disclosures:

    Property received in satisfaction of debt            $    11,569     $    45,765     $   329,212
                                                         ===========     ===========     ===========

    Net carrying value of foreclosed properties
      reclassified to real estate                                        $   588,683
                                                                         ===========
</TABLE>

See notes to consolidated financial statements.


                                       50
<PAGE>   51
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. General - Presidential Realty Corporation ("Presidential" or the "Company"),
a Real Estate Investment Trust ("REIT"), is engaged principally in the holding
of notes and mortgages secured by real estate and in the ownership of income
producing real estate. Presidential operates in a single business segment,
investments in real estate related assets.

B. 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 leaseholds 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 at
least annually, and more frequently if circumstances warrant. 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.

The determination of impairment value is based not only upon future cash flows,
which rely upon estimates and assumptions including expense growth, occupancy
and rental rates, but also upon market capitalization and discount rates as well
as other market indicators. Management believes that the estimates and
assumptions used are appropriate in evaluating the carrying amounts of the
Company's properties. However, changes in market conditions and circumstances
may occur in the near term which would cause these estimates and assumptions to
change, which, in turn, could cause the amounts ultimately realized upon the
sale or other disposition of the properties to differ materially from their
estimated fair value. Such changes may also require write-downs in future years.

C. Mortgage Portfolio - Net mortgage portfolio represents the outstanding
principal amounts of notes receivable reduced by discounts and/or deferred
gains. Real estate is the primary form of collateral on all notes receivable.
The Company periodically evaluates the collectibility of both 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


                                       51
<PAGE>   52
contractual terms of the loan. When the 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, for
practical purposes, at the estimated fair value of the real estate
collateralizing the loan.

D. Securities Available for Sale - The Company's investments are in marketable
equity securities consisting of common and preferred stocks of listed
corporations. Disposition of such securities may be appropriate for either
liquidity management or in response to changing economic conditions, so they are
classified as securities available for sale.

Securities available for sale are reported at fair value with unrealized gains
and losses reported as other comprehensive income in the statement of
stockholders' equity until realized. Gains and losses on sales of securities are
determined using the specific identification method.

E. Sale of Real Estate - Presidential complies with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real
Estate". Accordingly, the gains on certain transactions are deferred and are
being recognized on the installment method until such transactions have complied
with the criteria for full profit recognition.

F. 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 of acceptance. In addition, discounts on notes receivable include discounts
received from the purchase of notes. Such discounts are being amortized using
the interest method.

G. 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 UTB Associates and PDL, Inc. and Associates Limited
Co-Partnership ("Home Mortgage Partnership" formerly known as Metmor Plaza
Associates), partnerships in which Presidential or PDL, Inc., a wholly owned
subsidiary of Presidential, is the General Partner and owns a 66-2/3% interest
and an aggregate 26% interest, respectively (see Note 4).

All significant intercompany balances and transactions have been eliminated.


                                       52
<PAGE>   53
H. Rental Income Recognition - Rental income is recorded on the accrual method.
Contingent rents are recognized as income when determinable. Recognition of
rental income is generally discontinued when the rental is delinquent for ninety
days or more, or earlier if management determines that collection is doubtful.

I. Net Income Per Share - Basic net income per share data is computed by
dividing the net income by the weighted average number of shares of Class A and
Class B common stock outstanding and common stock equivalents during each year.
Basic net income per share and diluted income per share are the same in 1996,
1997 and 1998. The dilutive effect of stock options is calculated using the
treasury stock method.

J. Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand,
cash in banks and money market funds.

K. Benefits - The Company follows SFAS Nos. 87, 106 and 132 in accounting for
pension and postretirement benefits (see Notes 15 and 16).

L. Management Estimates - The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. 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.

M. Environmental Liabilities and Expenditures - Accruals for environmental
matters are recorded in operating expenses when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Accrued liabilities are exclusive of claims against third parties and are not
discounted (see Note 9).

N. Accounting for Stock Options - The Company complies with the additional
disclosures required by SFAS No. 123 "Accounting for Stock-Based Compensation"
but has elected to continue to account for employee stock-based compensation as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Additional disclosures are not required because no new
options were granted in 1996, 1997 and 1998.

O. New Pronouncement - The Financial Accounting Standards Board has issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments, including


                                       53
<PAGE>   54
certain derivative instruments embedded in other contracts, and for hedging
activities. It is effective for the Company beginning with the first quarter of
2000. Management does not anticipate that implementation of this statement will
have a material effect on the Company's financial statements.

P. Reclassification - Certain prior year amounts have been reclassified to
conform with the 1998 presentation.

2. MORTGAGE PORTFOLIO

The Company's mortgage portfolio includes notes receivable - sold properties and
notes receivable - related parties and includes both accrual and impaired loans.

Notes receivable - sold properties consist of:

(1)      Long-term purchase money notes from sales of properties previously
         owned by the Company or notes purchased by the Company. These purchase
         money notes 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 or partnership
         interests 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, 1998, all of the notes in the Company's mortgage portfolio are
current with the exception of those notes which are classified as impaired
loans.

The following table summarizes the components of the mortgage portfolio:


                                       54
<PAGE>   55
MORTGAGE PORTFOLIO

<TABLE>
<CAPTION>
                                         Sold Properties                                         Related Parties
                       -----------------------------------------------------   ---------------------------------------
                         Accrual       Impaired      Accrual                                   Accrual
                        Properties    Properties   Cooperative                   Accrual     Cooperative                   Total
                        previously    previously    apartment                     Sold       conversion                   mortgage
                          owned         owned         units         Total      properties       loans         Total       portfolio
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                    <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
December 31, 1998
-----------------
Notes receivable       $42,204,265   $17,589,027   $ 1,236,410   $61,029,702   $ 1,462,514   $   236,468   $ 1,698,982   $62,728,684

Less: Discounts          4,032,591     7,597,138        17,039    11,646,768        34,591       115,094       149,685    11,796,453
      Deferred gains    12,445,165     6,362,838        3,742     18,901,745       930,057                     930,057    19,831,802
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
Net                    $25,726,509   $ 3,629,051   $ 1,125,629   $30,481,189   $   497,866   $   121,374   $   619,240   $31,100,429
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========

Due within one year    $   692,613   $   146,567   $    48,219   $   887,399   $    14,027   $    29,967   $    43,994   $   931,393
Long-term               25,033,896     3,482,484     1,077,410    29,593,790       483,839        91,407       575,246    30,169,036
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
Net                    $25,726,509   $ 3,629,051   $ 1,125,629   $30,481,189   $   497,866   $   121,374   $   619,240   $31,100,429
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========

December 31, 1997
-----------------
Notes receivable       $42,519,184   $17,878,458   $ 1,352,216   $61,749,858   $ 2,087,958   $   262,941   $ 2,350,899   $64,100,757

Less: Discounts          5,036,716     7,675,111        18,858    12,730,685        35,156       125,579       160,735    12,891,420
      Deferred gains    12,445,165     6,432,055       105,168     18,982,388     1,543,342                  1,543,342    20,525,730
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
Net                    $25,037,303   $ 3,771,292   $ 1,228,190   $30,036,785   $   509,460   $   137,362   $   646,822   $30,683,607
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========

Due within one year    $   379,385   $   289,430   $    47,171   $   715,986   $    12,158   $    28,607   $    40,765   $   756,751
Long-term               24,657,918     3,481,862     1,181,019    29,320,799       497,302       108,755       606,057    29,926,856
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
Net                    $25,037,303   $ 3,771,292   $ 1,228,190   $30,036,785   $   509,460   $   137,362   $   646,822   $30,683,607
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


                                       55
<PAGE>   56
Prepayments

During 1998, the Company received $590,000 in prepayments from two mortgages
which had been assigned by Ivy to the Company as security for the Overlook loan.
In connection with this transaction, the Company recognized a deferred gain on
sale of $590,000.

In March, 1997, the Company received prepayment of its $1,074,200 Cedarbrooke
note receivable resulting in the recognition of income from the amortization of
discount of $382,796 and recognition of a deferred gain on sale of $472,497.

In June of 1996, the Company received principal prepayments on two of its
long-term purchase money notes, the Hoboken, New Jersey property note in the
amount of $1,188,787 and the Town House, Memphis, Tennessee property note in the
amount of $1,000,000. As a result, the Company recognized income on the Town
House note from the amortization of discount of $76,473 and gain on sale of
$773,258.

Modifications

In January, 1997, the Company modified its Woodland notes receivable, extending
the maturity date from 2000 to 2005, with interest rates increasing in 2002 from
9% to 9.25%. In March, 1998, the Company further modified these notes as a
result of the sale of the property and the assumption of the notes by the
purchaser. The interest rate on the notes was increased from 9% to 10% through
2001 and will increase to 10.25% thereafter.

In July, 1997, the Company modified its $1,175,500 Woodgate note receivable,
changing the maturity date from 2015 to 2007, with interest rates of 8.25%
through 1999 and 9.25% thereafter. In addition, the Company and the debtor
agreed to substitute Windsor at Arbors in Alexandria, Virginia for Woodgate
Apartments in Wichita, Kansas, as security for this note.

In September of 1997, the Company extended and modified its $6,250,000
Presidential Park note receivable. This note, which had previously been modified
and extended in August of 1994 and which was due to mature on July 31, 2001, was
extended until July 31, 2006. The interest rate will remain at 6% per annum
through July 31, 1999. Thereafter, the interest rate will be at a rate equal to
two hundred basis points in excess of the yield on specified Treasury bills, but
not less than 7-1/2% per annum from August 1, 1999 through July 31, 2001. From
August 1, 2001 through maturity the interest rate will be at a rate equal to one
hundred fifty basis points in excess of the yield on specified Treasury bills.
In accordance with the terms of this note, the Company and the debtor agreed to
substitute Newcastle Apartments in Greece,


                                       56
<PAGE>   57
New York for Presidential Park Apartments in Columbus, Ohio as security for this
note. However, the 33,400 square feet of commercial space adjacent to
Presidential Park Apartments, which was a part of the original collateral,
remains as additional collateral for this note. In connection with the
modification, the borrower made a $100,000 principal payment on the note
reducing the outstanding principal balance to $6,150,000.

Valuation Reserves

In the fourth quarter of 1997, the Company recorded a valuation reserve of
$43,793 on the University Towers purchase money notes to reflect the decline in
the estimated fair value of the University Towers cooperative apartments in New
Haven, Connecticut that secure the notes. The valuation reserve was recorded to
discounts on notes receivable and an expense of $43,793 was recorded to bad
debts.

Impaired Loans

The Fairfield Towers Second Mortgage and the Grant House wraparound mortgage
note are classified as impaired loans at December 31, 1998. These two loans are
in the aggregate amount of $17,589,027 and have a net carrying value of
$3,629,051 after deducting discounts of $7,597,138 and deferred gains of
$6,362,838. The Company has determined that no allowances for credit losses are
required for these loans because the net carrying value of these loans is less
than the estimated fair value of the underlying collateral.

The Company recognizes income on the impaired loans only to the extent that such
income is actually received. The average recorded investment in impaired loans
during the years ended December 31, 1998, 1997 and 1996 was $17,734,991,
$16,277,793 and $16,510,530, respectively.

Subsequent to December 31, 1998, the Grant House wraparound mortgage note was
sold and substantially all of the Fairfield Towers First and Second Mortgage
Notes were sold (see Note 21).

         Grant House

At December 31, 1997, the Company classified the Grant House wraparound mortgage
note as an impaired loan. The note is secured by a wraparound mortgage on the
Grant House apartment building (181 apartment units) located in White Plains,
New York. The outstanding principal balance of the note at December 31, 1998 was
$3,247,880 and the net carrying value was $2,224,287 (which is equal to the
outstanding principal amount of the underlying nonrecourse first mortgage debt)
after deducting a deferred gain of $1,023,593. Presidential classified this loan
as an impaired


                                       57
<PAGE>   58
loan because the property is in need of extensive physical repairs and capital
improvements and Presidential believed that the owner would not be able to repay
the Grant House wraparound note in accordance with its terms when it became due
in November, 1998. Payments on Presidential's equity portion of the wraparound
mortgage note are payable only out of surplus cash from the operations of the
property and if not paid are deferred until such cash is available or until
maturity of the note. The annual interest payment of $75,000 on Presidential's
equity portion of the loan was not paid for 1996. The Company has not accrued
the $75,000 interest payable for 1998 and 1997. Payments on the balance of the
wraparound mortgage note are current and, accordingly, Presidential has made its
payments on the underlying first mortgage. Subsequent to December 31, 1998, the
Grant House wraparound mortgage note was sold (see Note 21).

         Fairfield Towers

Presidential is the holder of the Fairfield Towers Second Mortgage on the unsold
condominium units. It obtained this mortgage in 1984 when it sold the Fairfield
Towers property to the present owner. This nonrecourse note has been in default
since March of 1991. At December 31, 1998, the note has a $14,341,147
outstanding principal balance and a net carrying value of $1,404,764, after a
discount of $7,597,138 and a deferred gain of $5,339,245. Presidential's basic
interest on this loan of 6.75% per annum is payable only out of cash flow from
the rental operations of the unsold units and to the extent not so paid is
deferred. Presidential only received $16,565 of interest payments on the
Fairfield Towers Second Mortgage in 1998.

Until the Fairfield Towers First Mortgage, which is not classified as impaired,
is repaid in full, Presidential, as holder of the Fairfield Towers Second
Mortgage, will continue to receive release payments of only $3,000 per unit upon
the sale of each condominium apartment unit.

At December 31, 1998, a total of 155 condominium units have been sold and 997
units remain as security for the First and Second mortgages. Except for a
limited number of apartments kept vacant for sale, these unsold apartments are
rented.

In the fourth quarter of 1996, the Company acquired the Fairfield Towers First
Mortgage, having an outstanding principal balance of $14,650,867, for a purchase
price of $11,150,867. The Fairfield Towers First Mortgage, which is nonrecourse
except for certain limited personal guarantees made by certain of the principals
of the borrower, provides for principal repayments prior to maturity upon the
sale of individual condominium units in an amount equal to substantially all of
the net proceeds of sale, which principal repayments have averaged approximately
$25,000 per unit over the


                                       58
<PAGE>   59
sale of the first 155 units. All accrued interest on this mortgage has been paid
to date. During 1997, the Company advanced $3,000,018 to the owner of the
property to pay a portion of unpaid real estate taxes outstanding on the unsold
condominium units. The $3,000,018 was added to the indebtedness secured by the
Fairfield Towers First Mortgage and the interest rate thereon is the same as the
interest rate on the mortgage. The outstanding principal balance on the
Fairfield Towers First Mortgage at December 31, 1998 was $17,176,884.

Subsequent to December 31, 1998, the Company sold substantially all of the
Fairfield Towers First and Second Mortgages (see Note 21).

The following table reflects the activity in impaired loans:


                                       59
<PAGE>   60
IMPAIRED LOANS

<TABLE>
<CAPTION>
                                              Impaired                     Impaired      Discount                        Net
                                                Loan                         Loan           on          Deferred       Carrying
                                               Balance      Payments        Balance        Loans          Gain          Value
Loan Description                              12/31/97        1998         12/31/98      12/31/98       12/31/98       12/31/98
----------------                             -----------   -----------    -----------   -----------    -----------    -----------
<S>                                          <C>           <C>            <C>           <C>            <C>            <C>
Notes receivable-sold properties:
  Properties previously owned-
      Fairfield Towers Second Mortgage (1)   $14,488,337   $  (147,190)   $14,341,147   $(7,597,138)   $(5,339,245)   $ 1,404,764
      Grant House (1)(2)                       3,390,121      (142,241)     3,247,880                   (1,023,593)     2,224,287
                                             -----------   -----------    -----------   -----------    -----------    -----------

Total                                        $17,878,458   $  (289,431)   $17,589,027   $(7,597,138)   $(6,362,838)   $ 3,629,051
                                             ===========   ===========    ===========   ===========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                        --------------------------------------
                                                                          1998           1997          1996
                                                                        ----------    ----------    ----------
<S>                                                                     <C>           <C>           <C>
Reported Interest Income and
Amortization of Discount (Cash Basis)
-------------------------------------

Fairfield Towers Second Mortgage - interest income (1)                  $   16,565    $   66,733    $  227,001
Fairfield Towers Second Mortgage - amortization of discount (1)             77,973        90,853        63,730
Grant House - interest income (1)(2)                                        68,695        72,904
Overlook - interest income (3)                                                                          97,176
Overlook - additional interest income (3)                                                               33,727
                                                                        ----------    ----------    ----------
Total                                                                   $  163,233    $  230,490    $  421,634
                                                                        ==========    ==========    ==========

Recognized Gain from Sale of Property
-------------------------------------
Fairfield Towers Second Mortgage (1)                                    $   69,217    $   80,651    $   56,573
Overlook (3)                                                                                            71,996
                                                                        ----------    ----------    ----------
Total                                                                   $   69,217    $   80,651    $  128,569
                                                                        ==========    ==========    ==========

Nonreported Interest Income and Amortization of Discount
--------------------------------------------------------
The following additional amounts would have been reported
if these loans had been fully performing:

Fairfield Towers Second Mortgage - interest income (1)                  $  980,011    $  930,918    $  774,945
Fairfield Towers Second Mortgage - additional interest income (1)                         83,670       191,537
Fairfield Towers Second Mortgage - amortization of discount (1)          1,266,869     1,051,071       905,894
Grant House - interest income (1)(2)                                        75,000        75,000
                                                                        ----------    ----------    ----------
Total                                                                   $2,321,880    $2,140,659    $1,872,376
                                                                        ==========    ==========    ==========
</TABLE>

(1)      Subsequent to December 31, 1998, substantially all of the Fairfield
         Towers First and Second Mortgages and all of the Grant House mortgage
         were sold (see Note 21).

(2)      Grant House was not impaired until 1997 and, as a result, no amounts
         are listed for 1996. The net carrying value of this wraparound mortgage
         note is equal to the first mortgage debt of $2,224,287 which it wraps
         around.

(3)      The Overlook loan was reclassified to accrual status at December 31,
         1997.


                                       60
<PAGE>   61
3. REAL ESTATE

   Real estate is comprised of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                 -------------------------------
                                                    1998                1997
                                                 -----------         -----------
<S>                                              <C>                 <C>
Land                                             $ 5,454,549         $ 3,774,779
Buildings and leaseholds                          29,008,677          23,729,409
Furniture and equipment                              240,431             186,347
                                                 -----------         -----------
Total real estate                                $34,703,657         $27,690,535
                                                 ===========         ===========
</TABLE>

In August, 1998, the Company purchased Sunwood Apartments, a 105 unit apartment
building complex in Miami, Florida, for a purchase price of $6,504,638.
Presidential obtained a $4,875,000 first mortgage loan on the property.

4. MINORITY PARTNERS' INTEREST

Presidential is the General Partner of UTB Associates and PDL, Inc., a wholly
owned subsidiary of Presidential, is the General Partner of Home Mortgage
Partnership. Presidential has a 66-2/3% interest in UTB Associates, and
Presidential and PDL, Inc. have an aggregate 26% interest in Home Mortgage
Partnership. As the General Partner of these partnerships, Presidential and PDL,
Inc., respectively, exercise effective control over the business of these
partnerships, and, accordingly, Presidential consolidates these partnerships in
the accompanying financial statements. The minority partners' interest reflects
the minority partners' equity in the partnerships.

The minority partners' interest in the Home Mortgage Partnership is a negative
interest and therefore, minority partners' interest is a net asset on the
Company's financial statements. The negative basis for each partner's interest
in the Home Mortgage Partnership is due to the refinancing of the mortgage on
the property and the distribution of the proceeds to the partners. The mortgage
debt, which is included in the Company's financial statements, is substantially
in excess of the net carrying amount of the property, but the estimated fair
value of the property is significantly greater than the mortgage debt. Thus, the
asset recorded as minority partners' interest should be realized upon sale of
the property.


                                       61
<PAGE>   62
Minority partners' interest is comprised of the following:


<TABLE>
<CAPTION>
                                                          December 31,
                                                 ------------------------------
                                                    1998               1997
                                                 -----------        -----------
<S>                                              <C>                <C>
Home Mortgage Partnership                        $ 7,735,342        $ 3,963,378

UTB Associates                                      (182,599)          (183,970)
                                                 -----------        -----------
Total minority partners' interest                $ 7,552,743        $ 3,779,408
                                                 ===========        ===========
</TABLE>


5. SECURITIES AVAILABLE FOR SALE

The cost and fair value of securities available for sale are as follows:

<TABLE>
<CAPTION>
                                                         December 31,
                                               --------------------------------
                                                  1998                 1997
                                               -----------          -----------
<S>                                            <C>                  <C>
Cost                                           $ 1,259,057          $   207,045
Gross unrealized gains                              23,433               19,612
Gross unrealized losses                             (7,756)                (107)
                                               -----------          -----------
Fair value                                     $ 1,274,734          $   226,550
                                               ===========          ===========
</TABLE>


Sales activity results for securities available for sale are as follows:

<TABLE>
<CAPTION>
                                            Year Ended December 31,
                                  ---------------------------------------------
                                     1998             1997             1996
                                  -----------      -----------      -----------
<S>                               <C>              <C>              <C>
Gross sales proceeds              $    23,986      $   822,073      $ 2,667,350
                                  ===========      ===========      ===========
Gross realized gains              $    21,436      $    58,418      $    12,975
Gross realized losses                                  (39,453)         (69,751)
                                  -----------      -----------      -----------
Net realized gain (loss)          $    21,436      $    18,965      $   (56,776)
                                  ===========      ===========      ===========
</TABLE>


                                       62
<PAGE>   63
6. MORTGAGE DEBT

All mortgage debt is secured by individual properties and is nonrecourse to the
Company with the exception of the $272,183 mortgage on the Mapletree Industrial
Center property in Palmer, Massachusetts, which is guaranteed by Presidential.

In March, 1998, the Company obtained a $2,300,000 mortgage on its Fairlawn
Gardens property (formerly Kent Terrace). The mortgage bears interest at the
rate of 7.06% per annum, requires monthly payments of principal and interest of
$15,395 and matures on April 1, 2008 with a $2,012,668 balloon payment due at
maturity.

In April, 1998, the Company refinanced the mortgage on the Home Mortgage Plaza
property (formerly Metmor Plaza). The prior mortgage balance of $10,788,825 was
paid from the proceeds of the new $17,500,000 mortgage. The new mortgage bears
interest at the rate of 7.38% per annum for the first ten years and requires
monthly payments of principal and interest of $120,928 until the anticipated
repayment date of May 11, 2008, at which time the then outstanding principal
balance of $15,445,099 is expected to be repaid. However, the maturity date of
the mortgage is May 11, 2028 and if the mortgage is not repaid in 2008, the
interest rate will be increased by 2% and additional repayments will be required
from the surplus cash flows from the operations of the property (after payment
of operating expenses) which will be applied to the outstanding principal
amount.

In connection with its acquisition of Sunwood Apartments in August, 1998,
Presidential obtained a $4,875,000 first mortgage. The mortgage bears interest
at the rate of 6.55%, requires monthly payments of principal and interest of
$30,974 and matures on September 1, 2008 with a $4,146,349 balloon payment due
at maturity.

Mortgage debt-wrap mortgage debt on sold properties in the amount of $4,668,462
at December 31, 1998 and $5,149,217 at December 31, 1997, relates to mortgage
debt on properties sold by Presidential. Payments of principal and interest on
these mortgages will be paid from the proceeds (principal and interest) on the
wraparound notes receivable from the buyers of these properties. Interest income
and interest expense related to wrap mortgages are shown as gross amounts in the
consolidated statements of operations. (See Note 21).


                                       63
<PAGE>   64
Amortization requirements of all mortgage debt as of December 31, 1998, are
summarized as follows:

<TABLE>
<CAPTION>
                                                  FHA Insured           Other
                                 Total             Mortgages          Mortgages
                               -----------        -----------        -----------
<S>                            <C>                <C>                <C>
Year ending December 31:

1999                           $   905,305        $   520,177        $   385,128
2000                             1,850,052            540,315          1,309,737
2001                               990,470            561,296            429,174
2002                             1,040,765            583,162            457,603
2003                               926,514            433,693            492,821
2004 - 2029                     38,683,387          5,151,761         33,531,626
                               -----------        -----------        -----------
TOTAL                          $44,396,493        $ 7,790,404        $36,606,089
                               ===========        ===========        ===========
</TABLE>


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

<TABLE>
<CAPTION>
                                                  FHA Insured          Other
                                  Total            Mortgages          Mortgages
                               -----------        -----------        -----------
<S>                            <C>                <C>                <C>
Interest rates:

3%                             $ 2,224,287        $ 2,224,287        $
5.25%                            2,444,175          2,444,175
6.55%                            4,861,835                             4,861,835
7%-7.50%                        22,499,123                            22,499,123
8%-8.50%                        11,425,300          3,121,942          8,303,358
9%-10%                             941,773                               941,773
                               -----------        -----------        -----------
TOTAL                          $44,396,493        $ 7,790,404        $36,606,089
                               ===========        ===========        ===========
</TABLE>

7. NOTE PAYABLE TO BANK

In connection with the Company's purchase of the Fairfield Towers First Mortgage
in 1996, the Company obtained a bank loan from Fleet Bank, N.A. ("Fleet"). The
note, which matures on October 30, 2001, is secured by a collateral assignment
of the Fairfield Towers First Mortgage and is nonrecourse to Presidential except
for a limited guarantee, the amount of which reduces as the principal balance is
repaid. This limited guarantee was $1,398,479 at December 31, 1998. The interest
rate is variable and is based at the Company's election on either the bank's
prime rate plus 1%, a cost of funds rate plus 3%, or various LIBOR rates plus
3%. The note amortizes monthly based on a 9.25% interest rate for a 25 year
term. In addition, upon the sale of condominium units, the Company is required
to make principal payments to Fleet in an amount equal to the amount of
principal payments received by the Company on the Fairfield Towers First
Mortgage. This note was repaid in 1999 (see Note 21).


                                       64
<PAGE>   65
The Company has an unsecured $250,000 line of credit from a lending institution.
The interest rate is 1% above the prime rate and the line of credit expires in
February, 2000. Presidential pays a 1% annual fee for the line of credit. At
December 31, 1998, no advances are outstanding on this line of credit.


8. INCOME TAXES

Presidential has elected to qualify as a Real Estate Investment Trust under the
Internal Revenue Code. A REIT which distributes at least 95% of its real estate
investment trust taxable income to its shareholders each year by the end of the
following year and which meets certain other conditions will not be taxed on
that portion of its taxable income which is distributed to its shareholders.

Upon filing the Company's income tax return for the year ended December 31,
1997, Presidential applied its available 1997 stockholders' distributions and
elected to apply (under Section 858 of the Internal Revenue Code) all but
approximately $199,000 of its 1998 stockholders' distributions to reduce its
taxable income for 1997 to zero.

For the year ended December 31, 1998, the Company had taxable income (before
distributions to stockholders) of approximately $1,738,000 ($.48 per share),
which included approximately $777,000 ($.21 per share) of capital gains. This
amount will be reduced by the $199,000 ($.06 per share) of its 1998
distributions that were not utilized in reducing the Company's 1997 taxable
income and by any eligible 1999 distributions that the Company may elect to
utilize as a reduction of its 1998 taxable income.

As previously stated, in order to retain REIT status, Presidential is required
to distribute 95% of its REIT taxable income ($.26 per share exclusive of
capital gains). Presidential will apply the available 1998 distributions
(approximately $.06 per share) and will be required to pay additional
distributions of not less than $.20 per share in 1999 to maintain REIT status,
which it intends to do. In addition, although no assurances can be given, it is
the Company's present intention to distribute all of its 1998 taxable income
during 1998 and 1999 so that it will not have to pay Federal income taxes for
1998. Therefore, no provision for income taxes has been made at December 31,
1998.

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


                                       65
<PAGE>   66
9. COMMITMENTS AND CONTINGENCIES

The Company has incurred costs for environmental site investigations and the
related response action outcome for potentially hazardous drums found on its
Mapletree Industrial Center property in Palmer, Massachusetts. The total cost of
this project was approximately $90,000 and no further costs are expected. The
Company is not aware of any environmental issues at any of its other properties.
The presence, with or without the Company's knowledge, of hazardous substances
at any of its properties could have an adverse effect on the Company's operating
results and financial condition.


10. CONCENTRATIONS OF CREDIT RISK

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

The Company's mortgage portfolio consists of long-term notes receivable
collateralized by real estate located in five states (primarily New York and
Connecticut). At December 31, 1998, the aggregate principal amount of these
notes was $62,728,684 with a net carrying value of $31,100,429. The real estate
securing 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 Company's mortgage portfolio are the Fairfield Towers First and
Second Mortgages with a net carrying value of $15,499,827.

Subsequent to December 31, 1998, the Company sold substantially all of the
Fairfield Towers First and Second Mortgage Notes (excluding a $4,000,000 portion
of the Second Mortgage Note, which it retained). (See Note 21).

The mortgage portfolio also includes notes receivable due from a related party,
Ivy, with a net carrying value of $619,240 at December 31, 1998.

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 has not
experienced any losses.


                                       66
<PAGE>   67
The Company also invests its funds in marketable equity securities available for
sale. Such investments are reflected on the Company's consolidated balance
sheets at their fair value.


11. 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 Class B common stock are entitled
to elect one-third of the Board of Directors.

Other than as described in Note 14, no shares of common stock of Presidential
are reserved for officers, employees, warrants or other rights.


12. DISTRIBUTIONS ON COMMON STOCK

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

<TABLE>
<CAPTION>
                                 Total             Taxable           Taxable
Year                          Distribution     Ordinary Income     Capital Gain
----                          ------------     ---------------     ------------
<S>                           <C>              <C>                 <C>
1998                             $0.63              $0.22             $0.41
1997                              0.60               0.19              0.41
1996                              0.60               0.50              0.10
</TABLE>

13. TREASURY STOCK

In March, 1998, three directors of the Company were each given 1,000 shares of
the Company's Class B common stock as partial payment for directors fees for the
1998 year. Such shares had been held in treasury at an average cost of
approximately $13.54 per share. The average market value for the previous month
of the Class B common stock, on which the fees were based, was $6.96 per share.
As a result of this transaction, the Company recorded $20,880 for directors fees
based on the average market value of the stock. Treasury stock was reduced by a
cost of $40,620 and additional paid-in capital was charged $19,740 for the
excess of the cost over the market value.

14. STOCK OPTION PLANS

In 1993, the Company adopted a Nonqualified Stock Option Plan (the "1993 Stock
Option Plan"). The 1993 Stock Option Plan provides that options to purchase up
to 250,000 shares of the Company's Class B common stock may be issued prior to
December


                                       67
<PAGE>   68
31, 1998 to the Company's key employees at exercise prices equal to the market
value on the date the option is granted. On November 17, 1993, options to
purchase 60,000 shares were granted to three employees at an exercise price of
$6.125 per share. All of the options are exercisable at December 31, 1998 and
expire on November 17, 1999. No other options have been granted, exercised or
cancelled under this plan from inception to December 31, 1998. The Company has
agreed that to the extent that any of the existing stock options held by these
key employees are either exercised or lapse, the Company will grant new options
in the amount of the stock options that have either been exercised or lapse,
which new options will have an exercise price equal to the closing price of the
Class B common stock on the date that the new option is actually granted, will
have a term of six years from the date such new option is granted and will be
otherwise subject to the terms of the 1993 Stock Option Plan or any successor
plan.

15. PENSION PLANS

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)
6.5% 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.
Periodic pension costs are reflected in general and administrative expenses in
the Company's consolidated statements of operations.

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                           -------------------------------------
                                             1998          1997          1996
                                           ---------     ---------     ---------
<S>                                        <C>           <C>           <C>
Components of net periodic benefit cost
  Service cost                             $ 324,374     $ 297,908     $ 279,493
  Interest cost                               79,370        55,484        37,379
  Expected return on plan assets             (96,438)      (66,209)      (65,817)
  Amortization and deferrals                  (8,950)                     21,885
                                           ---------     ---------     ---------
Net periodic benefit cost                  $ 298,356     $ 287,183     $ 272,940
                                           =========     =========     =========
</TABLE>


                                       68
<PAGE>   69
The following sets forth the plan's funded status and amount recognized in the
Company's consolidated balance sheets:

<TABLE>
<CAPTION>
                                                         December 31,
                                                ------------------------------
                                                   1998               1997
                                                -----------        -----------
<S>                                             <C>                <C>
Change in benefit obligation
Benefit obligation at beginning
  of year                                       $ 1,133,852        $   792,634
Service cost                                        324,374            297,908
Interest cost                                        79,370             55,484
Actuarial loss (gain)                                76,311            (12,174)
                                                -----------        -----------
Benefit obligation at end
  of year                                         1,613,907          1,133,852
                                                -----------        -----------

Change in plan assets
Fair value of plan assets at
  beginning of year                               1,296,290            794,735
Actual return on plan assets                        263,017            238,102
Employer contributions                              245,175            263,453
                                                -----------        -----------
Fair value of plan assets at
  end of year                                     1,804,482          1,296,290
                                                -----------        -----------

Funded status actuarial                             190,575            162,438
Unrecognized gain                                  (366,681)          (286,965)
                                                -----------        -----------
Net amount recognized                           $  (176,106)       $  (124,527)
                                                ===========        ===========

Weighted-average assumptions as of
  December 31
Discount rate                                             7%                 7%
Expected return on plan assets                            7%                 7%
Rate of compensation increase                             5%                 5%
</TABLE>

<TABLE>
<CAPTION>
                                                            December 31,
                                                    ----------------------------
                                                       1998               1997
                                                    ----------        ----------
<S>                                                 <C>               <C>
Plan Assets
Cash and cash equivalents                           $   65,215        $  179,091
Securities available for sale                        1,739,267         1,117,199
                                                    ----------        ----------
Total plan assets                                   $1,804,482        $1,296,290
                                                    ==========        ==========
</TABLE>


Executive Pension Plan

Presidential has employment contracts with several active and retired key
officers and employees. Such contracts are being accounted for as constituting
pension agreements. The contracts generally provide for annual benefits in
specified amounts for each participant for life, commencing upon retirement,
with an annual adjustment for an increase in the consumer price index. Periodic
pension costs are reflected in general and


                                       69
<PAGE>   70
administrative expenses in the Company's consolidated statements of operations.

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                           -------------------------------------
                                             1998          1997           1996
                                           ---------     ---------     ---------
<S>                                        <C>           <C>           <C>
Components of net periodic benefit cost
  Service cost                             $  15,127     $  14,137     $  13,856
  Interest cost                              166,262       187,983       189,213
  Amortization of prior service cost          (4,079)       (4,079)       (4,365)
  Recognized actuarial loss                  121,490        87,297        70,321
                                           ---------     ---------     ---------
Net periodic benefit cost                  $ 298,800     $ 285,338     $ 269,025
                                           =========     =========     =========
</TABLE>

Presidential has elected not to fund expenses accrued under these contracts. The
following sets forth the pension liability included in Presidential's
consolidated balance sheets:

<TABLE>
<CAPTION>
                                                          December 31,
                                                  ----------------------------
                                                     1998             1997
                                                  -----------      -----------
<S>                                               <C>              <C>
Change in benefit obligation
Benefit obligation at beginning of year           $ 2,779,019      $ 2,885,486
Service cost                                           15,127           14,137
Interest cost                                         166,262          187,983
Actuarial loss                                        325,291           91,452
Benefits paid                                        (403,854)        (400,039)
                                                  -----------      -----------
Benefit obligation at end of year                   2,881,845        2,779,019
                                                  -----------      -----------
Change in plan assets
Employer contributions                                403,854          400,039
Benefits paid                                        (403,854)        (400,039)
                                                  -----------      -----------
Fair value of plan assets at end of year                    0                0
                                                  -----------      -----------

Funded status                                      (2,881,845)      (2,779,019)
Unrecognized net actuarial loss                     1,413,127        1,209,326
Unrecognized prior service cost                       (27,639)         (31,718)
                                                  -----------      -----------
Net amount recognized                             $(1,496,357)     $(1,601,411)
                                                  ===========      ===========

Weighted-average assumptions as of December 31
Discount rate                                               7%               7%
Expected return on plan assets                              7%               7%
Rate of compensation increase                               5%               5%
</TABLE>

16. POSTRETIREMENT BENEFITS

Presidential has employment contracts with several active and retired key
officers and employees which provide for postretirement benefits other than
pensions (such as health care benefits). The Company accrues the estimated cost
of retiree benefit payments during the years the employee provides services.


                                       70
<PAGE>   71
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% for participants age 65 and over and
15% for participants under age 65, decreasing linearly each successive year
until it reaches 6% in 2002, after which it remains constant.

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                         --------------------------------------
                                           1998           1997           1996
                                         --------       --------       --------
<S>                                      <C>            <C>            <C>
Components of net period
  benefit cost
Service cost                             $  6,711       $  6,272       $  5,861
Interest cost                              34,241         35,484         36,520
Recognized net actuarial gain              (9,196)        (8,069)        (8,459)
                                         --------       --------       --------
Net periodic benefit cost                $ 31,756       $ 33,687       $ 33,922
                                         ========       ========       ========
</TABLE>

The accumulated postretirement benefit obligation and recorded liability, none
of which has been funded, was as follows:

<TABLE>
<CAPTION>
                                                            December 31,
                                                      ------------------------
                                                        1998           1997
                                                      ---------      ---------
<S>                                                   <C>            <C>
Change in benefit obligation
Benefit obligation at beginning of year               $ 518,570      $ 535,184
Service cost                                              6,711          6,272
Interest cost                                            34,241         35,484
Actuarial gain                                          (16,450)        (6,868)
Benefits paid                                           (44,226)       (51,502)
                                                      ---------      ---------
Benefit obligation at end of year                       498,846        518,570
                                                      ---------      ---------

Change in plan assets
Employer contributions                                   44,226         51,502
Benefits paid                                           (44,226)       (51,502)
                                                      ---------      ---------
Fair value of plan assets at end of year                      0              0
                                                      ---------      ---------

Funded status                                          (498,846)      (518,570)
Unrecognized actuarial gain                             (63,321)       (56,067)
                                                      ---------      ---------
Net amount recognized                                 $(562,167)     $(574,637)
                                                      =========      =========

Weighted-average assumptions as of December 31
Discount rate                                                 7%             7%
Expected return on plan assets                                7%             7%
</TABLE>


                                       71
<PAGE>   72
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                               1-Percentage-     1-Percentage-
                                               Point Increase    Point Decrease
                                               --------------    --------------
<S>                                            <C>               <C>
Effect on total service and
  interest cost components                        $  8,190          $ (7,371)
Effect on postretirement
  benefit obligation                                99,769           (89,792)
</TABLE>

17. DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

Presidential maintains a Dividend Reinvestment and Share Purchase Plan (the
"Plan"). Under the Plan, stockholders may reinvest cash dividends and make
optional cash payments 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 will be 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.

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

<TABLE>
<CAPTION>
                                                                    Net Proceeds
                                                       Shares         Received
                                                     ----------      ----------
<S>                                                  <C>            <C>
Total shares issued at December 31, 1996                300,731      $2,058,044
Shares issued during the year ended
  December 31, 1997                                      27,023         172,014
                                                     ----------      ----------
Total shares issued at December 31, 1997                327,754       2,230,058
Shares issued during the year ended
  December 31, 1998                                      22,319         150,687
                                                     ----------      ----------
Total shares issued at December 31, 1998                350,073      $2,380,745
                                                     ==========      ==========
</TABLE>

18. RELATED PARTY TRANSACTIONS

Ivy Properties, Ltd. and various affiliated companies (collectively "Ivy") are
owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the "Ivy
Principals"), who are also 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 the 198,735 shares of Class A common stock described above and
24,601 additional shares of Class A common stock owned in the aggregate
individually by the Ivy Principals, Pdl Partnership and the Ivy Principals have
beneficial ownership of an aggregate of approximately 47% of the outstanding
shares of Class A common


                                       72
<PAGE>   73
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.

Thomas Viertel is the son of Joseph Viertel, a Director and a former President
of Presidential, and the nephew of Robert E. Shapiro, Chairman of the Board of
Directors and a former President of Presidential. Steven Baruch is the cousin of
Robert E. Shapiro and Joseph Viertel.

From 1979 to 1989, Presidential made loans to Ivy in connection with Ivy's
cooperative conversions of apartment properties in the New York metropolitan
area. In 1981, UTB Associates, a partnership controlled by Presidential, sold an
apartment property to Ivy in return for purchase money notes. In addition, in
1984, Presidential sold to Ivy its 50% partnership interest in the partnership
which owned Overlook Gardens, a 308 unit apartment complex in Alexandria,
Virginia for a purchase money note. During 1989 and 1990 the sales market for
cooperative apartments in the New York metropolitan area deteriorated and as a
result in 1990 and 1991 Ivy defaulted on certain of its outstanding loans from
Presidential. In early 1990, Ivy began negotiations with Presidential with
respect to a workout of the loans then in default. Because of the relationships
described above between the Ivy Principals and Presidential, the negotiations
with Ivy were conducted on behalf of Presidential by a committee of three
members of the Board of Directors with no affiliations with the Ivy Principals
(the "Independent Committee") and an officer of Presidential who was not
affiliated with the Ivy Principals. On November 14, 1991, Presidential and Ivy
consummated a settlement agreement (the "Settlement Agreement") with respect to
various outstanding loans to Ivy, which was approved unanimously by the Board of
Directors of Presidential.

In connection with the Settlement Agreement, Presidential received, among other
things, a number of vacant and occupied cooperative apartment units in the New
York metropolitan area and certain third party promissory notes held by Ivy.
Presidential received these assets in exchange for (i) the satisfaction of all
of Ivy's recourse debt to Presidential and certain of its nonrecourse debt to
Presidential with respect to which Presidential held first priority security
interests and (ii) the release by Presidential of certain subordinate security
interests in collateral securing some of the defaulted loans.


                                       73
<PAGE>   74
Most of Ivy's remaining nonrecourse debt to Presidential was consolidated, on
modified terms, into two nonrecourse loans (collectively, the "Consolidated
Loans") which were collateralized by substantially all of Ivy's remaining
business assets with respect to which Presidential either did not previously
have any security interest or had a junior security interest (collectively, the
"Consolidated Collateral"). The terms of the Settlement Agreement permit Ivy to
use the proceeds of each sale of Consolidated Collateral to (1) pay existing
indebtedness of Ivy to its bank and trade creditors and certain operating
expenses and (2) create and fund specified reserves to provide for payment of
future obligations and potential liabilities. At December 31, 1998, the
Consolidated Loans have an outstanding principal balance of $4,822,618 and a net
carrying value of $52,568. Since, as permitted by the terms of the Consolidated
Loans, most of Ivy's assets have been sold with the sales proceeds used to pay
other recourse obligations of Ivy, Presidential does not expect to recover any
material amount on the Consolidated Loans in excess of their net carrying value.

In 1996, Presidential and the Ivy Principals agreed to a modification of the
Settlement Agreement to provide that the Ivy Principals will make 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 the Ivy Principals which acts as a producer of
theatrical productions. This agreement, and Presidential's decision not to
exercise an option (which it had received as part of the original Settlement
Agreement) to acquire the capital stock of Scorpio, was made pursuant to the
unanimous determination of the Independent Committee that such actions were in
the best interests of Presidential. During 1998, Presidential received $12,151
of principal payments and $176,124 of interest on the Consolidated Loans.

All outstanding loans from Ivy at December 31, 1998 are current. Management
believes that Presidential holds sufficient collateral to protect its interests
in the loans that remain outstanding from Ivy to the extent of the net carrying
value of these loans.

Presidential received interest of $426,990, $223,402 and $242,225 from Ivy
during 1998, 1997 and 1996, respectively, on the loans referred to above. In
addition, in 1998, 1997 and 1996, Presidential recognized $11,050, $11,345 and
$6,626, respectively, of income representing the amortization of discounts on
notes receivable.


                                       74
<PAGE>   75
Jeffrey Joseph is the President and a Director of Presidential, Thomas Viertel
is an Executive Vice President and the Chief Financial Officer of Presidential
and Steven Baruch is an Executive Vice President of Presidential.

Any transactions relating to the implementation of the terms of the Settlement
Agreement, or otherwise involving the Ivy Principals, are subject to the
approval of the Independent Committee.

All outstanding loans from Ivy are set forth in the table below:


                                       75
<PAGE>   76
MORTGAGE PORTFOLIO:  NOTES RECEIVABLE - RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                                          Loan Balance
              Original                                                                                    December 31,
                Loan                                                               Basic           ---------------------------
Date          Advanced                  Description                            Interest Rate          1998             1997
----          --------                  -----------                            -------------       ----------       ----------
<S>          <C>            <C>                                                <C>                 <C>              <C>
1981         $5,285,000     UTB Associates, a partnership in                   11.8 to 25.33%      $  532,457       $  544,616
                            which Presidential owns a 66-2/3%
                            interest, sold an apartment property in
                            New Haven, CT to Ivy for long-term,
                            nonrecourse purchase money notes.

1984          4,305,500     Sale by Presidential to Ivy of                     6.0%                   930,057        1,543,342
                            50% interest in a partnership
                            which owns an apartment complex
                            in Alexandria, VA (Overlook loan)

1991            526,454     UTB End Loans:  Purchase money notes               Various                183,900          198,222
                            on co-op apts. These notes were transferred
                            to Presidential as part of the Ivy settlement.

1991            155,084     Consolidated Loans:  Replaced previously           Chase Prime             52,568 (1)       64,719
                            defaulted loans.
                                                                                                   ----------       ----------

                            Total Loans                                                             1,698,982        2,350,899

                            Less: Discounts                                                           149,685 (2)      160,735
                                  Deferred gain on Overlook loan                                      930,057        1,543,342
                                                                                                   ----------       ----------

                            Net Carrying Value                                                     $  619,240       $  646,822
                                                                                                   ==========       ==========
</TABLE>

(1)      The Consolidated Loans have a net carrying value of $52,568 and an
         outstanding principal balance of $4,822,618.

(2)      Included in the $149,685 discount is a valuation reserve of $43,793.
         This valuation reserve was recorded by the Company in 1997 to reflect
         the decline in the estimated fair value on the University Towers co-op
         apartments held as security for the UTB Associates and the UTB End Loan
         notes.


                                       76
<PAGE>   77
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values of the Company's financial instruments as of December 31,
1998 and 1997 have been determined using available market information and
various valuation estimation methodologies. Considerable judgement 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:


                                       77
<PAGE>   78
FINANCIAL INSTRUMENTS

<TABLE>
<CAPTION>
                                           December 31, 1998             December 31, 1997
                                       --------------------------    --------------------------
                                          Net          Estimated        Net          Estimated
                                        Carrying         Fair         Carrying         Fair
                                        Value (1)        Value        Value (1)        Value
                                       -----------    -----------    -----------    -----------
<S>                                    <C>            <C>            <C>            <C>
Assets:
  Cash and cash equivalents            $ 1,764,465    $ 1,764,465    $   979,712    $   979,712
  Securities available for sale          1,274,734      1,274,734        226,550        226,550
  Notes receivable-sold properties-
    accrual                             26,852,138     39,975,890     26,265,493     41,228,900
  Notes receivable-sold properties-
     impaired (2)                        3,629,051     10,720,562      2,366,528      2,229,346
  Notes receivable-related parties-
    accrual                                619,240      1,688,873        646,822      2,414,444

Liabilities:
  Mortgage debt on properties owned     39,728,031     39,728,031     26,271,093     24,255,964
  Wrap mortgage debt                     4,668,462      4,668,462      5,149,217      4,599,052
  Note payable to bank                  10,395,361     10,395,361     10,542,552     10,351,397
</TABLE>

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

(2)      The 1997 notes receivable-sold properties-impaired only reflects the
         fair value of the wrapped portion of the first mortgage receivable and
         not the equity portion of the impaired loans. The fair value of the
         equity portion of the impaired loans having a net carrying value of
         $1,404,764 at December 31, 1997 was not included in the 1997 table
         because at that time it was not practical to reasonably assess the
         timing of cash flows or the credit adjustment that would have applied
         in the market place for such notes receivable. The fair value of the
         impaired loans at December 31, 1998 includes all impaired loans. As a
         result of the sale of these notes in the first quarter of 1999, the
         fair value of these notes was assessed by discounting the cash flows
         received or to be received for these notes.


                                       78
<PAGE>   79
The fair value estimates presented above are based on pertinent information
available to management as of December 31, 1998 and 1997. 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, 1998 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.

Securities Available for Sale - The fair value of securities available for sale
is estimated based on quoted market prices or dealer quotes, if available. If a
quote is not available, fair value is estimated using quoted market prices for
similar securities.

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 on Properties Owned, Wrap Mortgage Debt and Note Payable to Bank -
At December 31, 1998, the fair value of mortgage debt on properties owned, wrap
mortgage debt and note payable to bank has been estimated at their net carrying
value. At December 31, 1997, the fair value of these liabilities was estimated
by discounting projected cash flows using current rates for similar debt.


                                       79
<PAGE>   80
20. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
    (Amounts in thousands, except earnings per common share)

<TABLE>
<CAPTION>
                                      Income Before
                                      Net Gain from                     Earnings
Year                                    Sales of                          Per
Ended                                  Properties                        Common
December 31              Revenues     and Securities     Net Income      Share
-----------              --------     --------------     ----------      -----
<S>                      <C>          <C>                <C>            <C>

1998

First                     $3,830          $  633           $  696       $  0.19
Second                     3,777             451            1,069          0.30
Third                      3,869             538              582          0.16
Fourth                     3,937             395              426          0.12

1997

First                     $3,784          $  863           $1,352       $  0.38
Second                     3,328             413              431          0.12
Third                      3,462             236              292          0.08
Fourth                     3,662             623              656          0.19
</TABLE>

21. SUBSEQUENT EVENTS

Grant House

On January 28, 1999, the Company sold its equity interest in the $3,235,833
Grant House wraparound mortgage note. The Company's underlying second mortgage
in the outstanding principal amount of $1,023,593 was sold to the purchaser for
a purchase price of $500,000. The nonrecourse first mortgage which
Presidential's second mortgage wrapped around was assigned to the purchaser. As
a result of this transaction, in 1999, Presidential wrote off the $2,212,240
balance on the first mortgage and the related $2,212,240 mortgage debt, $75,000
of the sales proceeds was applied to accrued and unpaid interest and the Company
recognized a gain on sale of $425,000.

Fairfield Towers

On February 22, 1999, Presidential consummated the sale of its Fairfield Towers
First and Second Mortgage Notes (excluding a $4,000,000 portion of the Second
Mortgage Note, which it retained).


                                       80
<PAGE>   81
The aggregate purchase price for the First Mortgage Note and the Second Mortgage
Note (excluding the $4,000,000 interest retained by Presidential) was
$21,350,000.

In connection with this transaction, the $4,000,000 portion of the Second
Mortgage Note retained by Presidential was modified to provide for a ten-year
maturity date and interest at the rate of 9.625% for the first three years and
at 10.5% for the remaining seven years. To secure this obligation, Presidential
obtained subordinate security interests in three apartment properties located in
New Jersey (having an estimated equity value of approximately $7,000,000) as
collateral for the Note.

As a result of this transaction, Presidential repaid the $10,195,442 outstanding
principal balance of its note payable to Fleet Bank, which had been secured by
Presidential's interest in the First Mortgage Note. Presidential will recognize
a gain on sale (before taxes) of approximately $7,800,000 in 1999.


                                       81
<PAGE>   82
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996                 SCHEDULE II


<TABLE>
<CAPTION>
                                                          ADDITIONS
                                                   -------------------------
                                                                   CHARGED
                                    BALANCE AT     CHARGED           TO                              BALANCE
                                    BEGINNING         TO            OTHER                            AT END
CLASSIFICATION                       OF YEAR       EXPENSES        ACCOUNTS        DEDUCTIONS (1)    OF YEAR
--------------                       -------       --------        --------        --------------    -------
<S>                                 <C>            <C>            <C>              <C>              <C>
1998
Discount on mortgage
portfolio and valuation
allowance for other receivables     $13,020,904    $ 46,799                         $ 1,151,148     $11,916,555
                                    ===========    ========       ==========        ===========     ===========

1997
Discount on mortgage
portfolio and valuation
allowance for other receivables     $14,419,071    $ 68,042                         $ 1,466,209     $13,020,904
                                    ===========    ========       ==========        ===========     ===========

1996
Discount on mortgage
portfolio and valuation
allowance for other receivables     $11,691,101    $110,936       $3,500,000 (2)    $   882,966     $14,419,071
                                    ===========    ========       ==========        ===========     ===========
</TABLE>

(1)      Represents amortization of discount on mortgages and notes using the
         interest method and also includes write-off of discounts on notes due
         to prepayments on notes.

(2)      Represents the discount received on the purchase of the Fairfield
         Towers First Mortgage.


                                       82
<PAGE>   83
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998                                                   SCHEDULE III

<TABLE>
<CAPTION>
                                                       INITIAL COST TO
                                                           COMPANY                   COSTS
                                                  ---------------------------     CAPITALIZED
                                                                   BUILDING       SUBSEQUENT TO
                                  AMOUNT OF                          AND           ACQUISITION
        PROPERTIES               ENCUMBRANCES       LAND         IMPROVEMENTS    IMPROVEMENTS (1)
        ----------               ------------     ----------     ------------      ----------
<S>                               <C>             <C>            <C>             <C>
Office and Commercial except
where otherwise indicated:

Building Industries Center,
  White Plains, NY                $   926,269     $   61,328     $    496,198      $  573,169

*Cambridge Green,
  Council Bluffs, IA                3,121,942        200,000        2,034,315       1,106,829

*Continental Gardens,
  Miami, FL                         8,031,175      2,448,000        7,389,786         354,622

*Crown Court,
  New Haven, CT                     2,792,718        168,000        3,077,445          58,481

*Fairlawn Gardens
  Martinsburg, WV                   2,286,622         71,408          657,805       1,183,950

Home Mortgage Plaza,
  Hato Rey, Puerto Rico            17,419,783        636,712        5,070,769       1,552,456

Mapletree Industrial Center,
  Palmer, MA                          272,183         79,100                          131,558

*Sunwood Apartments
  Miami, FL                         4,861,835      1,680,000        4,860,251          19,020

Towers Shoppers Parcade,
  New Haven, CT                        15,504                           7,000

University Towers,
  New Haven, CT                                                                        74,886

Cooperative Apartment Shares:

330 W.72nd St.,
  New York, NY                                        20,891           28,013

6300 Riverdale Ave.,
  Riverdale, NY                                       10,164           66,032             760

Broad Park Lodge,
  White Plains, NY                                     1,203            8,797

Sherwood House,
  Long Beach, NY                                       7,316           51,930         (33,395)(2)

Towne House,
  New Rochelle, NY                                    61,051          343,286          88,411

University Towers,
  New Haven, CT                                        1,375           54,735

                                  -----------     ----------     ------------      ----------
TOTAL                             $39,728,031     $5,446,548     $ 24,146,362      $5,110,747
                                  ===========     ==========     ============      ==========

<CAPTION>
                                                                                                                       YEARS ON
                                                                                                                       WHICH DE-
                                        GROSS AMOUNT AT WHICH CARRIED                                                  PRECIATION
                                             AT CLOSE OF YEAR                                                          IN LATEST
                                 ------------------------------------------                                             INCOME
                                                 BUILDING                                                               STATE-
                                                   AND                         ACCUMULATED      DATE OF       DATE      MENT IS
        PROPERTIES                  LAND       IMPROVEMENTS        TOTAL       DEPRECIATION   CONSTRUCTION   ACQUIRED   COMPUTED
        ----------               ----------     -----------     -----------     ----------    ------------   --------   --------
<S>                              <C>           <C>              <C>            <C>            <C>            <C>       <C>
Office and Commercial except
where otherwise indicated:

Building Industries Center,
  White Plains, NY               $   61,328     $ 1,069,367     $ 1,130,695     $  895,285          1956       1966          25

*Cambridge Green,
  Council Bluffs, IA                200,000       3,141,144       3,341,144        612,169          1974       1992          50

*Continental Gardens,
  Miami, FL                       2,448,000       7,744,408      10,192,408        875,385          1971       1994      27-1/2

*Crown Court,
  New Haven, CT                     168,000       3,135,926       3,303,926      2,529,337          1973       1973          40

*Fairlawn Gardens
  Martinsburg, WV                    71,408       1,841,755       1,913,163         86,587          1964       1996          50

Home Mortgage Plaza,
  Hato Rey, Puerto Rico             636,712       6,623,225       7,259,937      2,074,319     1966-1967       1966          40

Mapletree Industrial Center,
  Palmer, MA                         79,100         131,558         210,658         15,700     1902-1966       1974          20

*Sunwood Apartments
  Miami, FL                       1,680,000       4,879,271       6,559,271         55,199          1976       1998          30

Towers Shoppers Parcade,
  New Haven, CT                                       7,000           7,000          7,000          1962       1962      33-1/3

University Towers,
  New Haven, CT                                      74,886          74,886         45,331

Cooperative Apartment Shares:

330 W.72nd St.,
  New York, NY                       20,891          28,013          48,904          1,778                     1997      31-1/2

6300 Riverdale Ave.,
  Riverdale, NY                      10,164          66,792          76,956          4,219                     1997      31-1/2

Broad Park Lodge,
  White Plains, NY                    1,203           8,797          10,000            558                     1995      31-1/2

Sherwood House,
  Long Beach, NY                      3,129          22,722          25,851          1,564                     1997      31-1/2

Towne House,
  New Rochelle, NY                   73,239         419,509         492,748         24,994                     1997      31-1/2

University Towers,
  New Haven, CT                       1,375          54,735          56,110          2,214                     1997      31-1/2

                                 ----------     -----------     -----------     ----------
TOTAL                            $5,454,549     $29,249,108     $34,703,657     $7,231,639
                                 ==========     ===========     ===========     ==========
</TABLE>

* Apartments

(1) Includes furniture and equipment of $240,431.

(2) Includes a 1998 sale of a cooperative apartment.


                                       83
<PAGE>   84
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES


REAL ESTATE AND ACCUMULATED DEPRECIATION                            SCHEDULE III
DECEMBER 31, 1998                                                    (CONCLUDED)

(3) The aggregate cost of real estate for Federal income tax purposes is
    $33,766,169 at December 31, 1998.

(4) The reconciliations of the total cost of real estate at the beginning of
    each year with the total cost at the end of each year are as follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                          -----------------------------------------
                                             1998           1997           1996
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
Balance at the beginning of year          $27,690,535    $25,369,405    $23,871,618
Additions during the year:
  Acquisitions through foreclosure             11,569        101,875        729,213
  Additions and improvements                7,036,611      1,643,877        790,610
  Reclassed from foreclosed properties                       588,683
                                          -----------    -----------    -----------

                                           34,738,715     27,703,840     25,391,441

Deductions during the year:
   Dispositions                                35,058         13,305         22,036(6)
                                          -----------    -----------    -----------

Balance at end of year                    $34,703,657    $27,690,535    $25,369,405
                                          ===========    ===========    ===========
</TABLE>

(5) The reconciliations of the accumulated depreciation at the beginning of each
    year with the total shown at the end of each year are as follows:


<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                          -----------------------------------------
                                             1998           1997           1996
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
Balance at the beginning of year          $ 6,404,797    $ 5,680,108    $ 5,073,887
Additions during the year:
  Depreciation charged to income              827,786        737,994        651,652
                                          -----------    -----------    -----------

                                            7,232,583      6,418,102      5,725,539
Deductions during the year:
  Dispositions and replacements                   944         13,305         45,431
                                          -----------    -----------    -----------

Balance at end of year                    $ 7,231,639    $ 6,404,797    $ 5,680,108
                                          ===========    ===========    ===========
</TABLE>


(6) Write-off of undeveloped land.


                                       84
<PAGE>   85
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998                                                    SCHEDULE IV

<TABLE>
<CAPTION>
                                                                       PERIODIC                                    CARRYING
                                     INTEREST         MATURITY          PAYMENT      PRIOR        FACE AMOUNT      AMOUNT OF
    DESCRIPTION                        RATE             DATE             TERMS     MORTGAGES      OF MORTGAGE     MORTGAGE (1)
    -----------                        ----             ----             -----     ---------      -----------     ------------
<S>                                <C>              <C>                <C>        <C>             <C>             <C>
First Mortgages:
  Apartment buildings:
    Brooklyn, NY                   Prime plus 1%    2006       (2)       (3)                      $ 17,176,884    $14,095,063
    Greece, NY                        7.50-8.50%    2006       (4)       (5)                         6,150,000      3,158,150
    Hartford, CT                     9.00-10.25%    2005       (6)       (6)                         1,536,044      1,291,169

  Sold Co-op Apartments:
    Bronx, NY (2 notes)                    9.00%    2003                 (7)                            36,396         36,396
    Flushing, NY (8 notes)            7.00-9.50%    2002-2008            (7)(8)                        213,950        207,448
    Long Beach, NY (2 notes)          9.00-9.50%    2002-2010            (7)(8)                         22,840         21,651
    New Rochelle, NY (23 notes)       7.50-9.50%    1998-2014            (7)(8)                        660,279        615,890
    New York, NY (3 notes)            8.50-8.75%    2003-2016            (7)(8)                        191,045        132,467
    Riverdale, NY (3 notes)           7.50-8.25%    2003                 (8)                            23,424         23,301
    Rye, NY (2 notes)                8.00-10.00%    2009-2010            (8)                            88,476         88,476
                                                                                  ------------    ------------    -----------
Total First Mortgage Loans                                                                          26,099,338     19,670,011
                                                                                  ------------    ------------    -----------

Junior Mortgages:
  Apartment buildings:
    Alexandria, VA                    8.25-9.25%    2007       (9)       (3)      $ 20,265,360       1,175,500        213,037
    Bronx, NY                         5.16-9.00%    1999-2000  (10)      (3)         2,655,275       2,304,000      1,462,762
    Brooklyn, NY                           6.75%    1999       (10)      (3)        17,176,884      14,341,147      1,404,764
    Des Moines, IA                        12.00%    2001                 (3)         5,833,001         417,662        199,128
    New Haven, CT                          9.75%    1999       (10)      (11)        2,444,175      13,444,175      5,307,200
    White Plains, NY                       7.33%    1998                 (12)        2,224,287       3,247,880      2,224,287
                                                                                  ------------    ------------    -----------

Total Junior Mortgage Loans                                                         50,598,982      34,930,364     10,811,178
                                                                                  ------------    ------------    -----------

Total Mortgage Loans                                                              $ 50,598,982    $ 61,029,702    $30,481,189
                                                                                  ============    ============    ===========

<CAPTION>
                                     PRINCIPAL AMT. OF LOANS
                                      SUBJECT TO DELINQUENT
    DESCRIPTION                       PRINCIPAL OR INTEREST
    -----------                       ---------------------
<S>                                  <C>
First Mortgages:
  Apartment buildings:
    Brooklyn, NY
    Greece, NY
    Hartford, CT

  Sold Co-op Apartments:
    Bronx, NY (2 notes)
    Flushing, NY (8 notes)
    Long Beach, NY (2 notes)
    New Rochelle, NY (23 notes)
    New York, NY (3 notes)
    Riverdale, NY (3 notes)
    Rye, NY (2 notes)
                                            -----------
Total First Mortgage Loans
                                            -----------

Junior Mortgages:
  Apartment buildings:
    Alexandria, VA
    Bronx, NY
    Brooklyn, NY
    Des Moines, IA
    New Haven, CT
    White Plains, NY                        $ 3,247,880
                                            -----------

Total Junior Mortgage Loans                   3,247,880
                                            -----------

Total Mortgage Loans                        $ 3,247,880
                                            ===========
</TABLE>


                                       85
<PAGE>   86
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

MORTGAGE LOANS ON REAL ESTATE                                        SCHEDULE IV
DECEMBER 31, 1998                                                    (CONCLUDED)

<TABLE>
<CAPTION>
                                                                               YEAR ENDED
                                      -----------------------------    ----------------------------    ----------------------------
                                            December 31, 1998               December 31, 1997               December 31, 1996
                                      -----------------------------    ----------------------------    ----------------------------
<S>                                   <C>              <C>             <C>             <C>             <C>             <C>
Balance at beginning of year                           $ 30,036,785                    $ 27,558,691                    $ 17,953,611
  Additions during the year:
    New mortgage loans                $     60,000                     $  3,011,698                    $ 14,676,563
  Less:
    Discounts on additions                                                                                3,500,000
                                      ------------                     ------------                    ------------

  Net addition to carrying amount                            60,000                       3,011,698                      11,176,563

  Deductions during the year:
    Reclass of loan foreclosed              11,569                           45,765                         329,212
    Collections of principal               768,587                        2,398,668                       2,879,524
  Less:
    Amortization of discounts            1,083,917                        1,357,681                         796,230
    Deferred gains recognized               80,643                          553,148                         841,023
                                      ------------                     ------------                    ------------

  Net reduction of carrying amount                         (384,404)                        533,604                       1,571,483
                                                       ------------                    ------------                    ------------

Balance at end of year                                 $ 30,481,189                    $ 30,036,785                    $ 27,558,691
                                                       ============                    ============                    ============
</TABLE>

(1)      Carrying value is net of discounts and deferred gains. The aggregate
         net carrying value of this portfolio for tax purposes at December 31,
         1998, is $24,912,000.

(2)      The interest rate on this note, currently 8.75%, is a variable rate
         equal to 1% above the prime rate. Subsequent to December 31, 1998, this
         note was sold.

(3)      Entire principal due at Final Maturity Date.

(4)      Interest is paid on this note at the rate of 6% per annum through July
         31, 1999 and a rate of not less than 7.5% per annum through July 31,
         2001 and thereafter at a rate equal to 150 basis points in excess of
         the yield on specified Treasury bills. In connection with the
         modification of the note in 1994, the borrower paid a $628,863 fee in
         order to increase the effective interest rate on the note to 8.5% per
         annum through July 31, 1999. In September, 1997 the Company extended
         the maturity date of the note to July 31, 2006 and the Company and the
         debtor agreed to substitute Newcastle Apartments in Greece, New York
         for Presidential Park Apartments in Columbus, Ohio as security for this
         note. However, the 33,400 square feet of commercial space adjacent to
         Presidential Park Apartments, which was part of the original
         collateral, remains as additional collateral for this note.

(5)      $150,000 due in 1999 and a balloon of $6,000,000 due in 2006.

(6)      In January, 1997, the maturity dates of these loans were extended to
         2005. The interest rate was 9% per annum through December 31, 2002 and
         9.25% per annum thereafter. As a result of the sale of the property and
         the assumption of the notes by the purchaser in 1998, the interest rate
         on the notes was increased from 9% to 10% through 2001 and 10.25%
         thereafter. The notes are amortizing monthly, based on a 20 year term
         at the above rates, and have balloon payments of $1,234,813 due at
         maturity.

(7)      Principal amortization each year with a balloon payment in the year of
         maturity.

(8)      Principal amortization each year through maturity.

(9)      As a result of a modification of the note in July, 1997, the maturity
         date of this loan was changed from 2015 to 2007, with interest rates of
         8.25% through 1999 and 9.25% thereafter. In addition, the Company and
         the debtor agreed to substitute Windsor at Arbors in Alexandria,
         Virginia for Woodgate Apartments in Wichita, Kansas, as security for
         this note.

(10)     The maturity dates of these notes may be extended at the option of the
         buyer for periods ranging up to ten years.

(11)     Varying amounts to 1999 and balloon of $13,328,421 due in 1999.

(12)     Varying amounts to 1998 and balloon of $3,259,897 due in 1998.
         Subsequent to December 31, 1998 this note was sold.


                                       86
<PAGE>   87
                                EXHIBIT INDEX

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 1993 Stock Option Plan for 250,000 shares of Class B common stock
(incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, Commission File No. 1-8594).

10.2 Employment Agreement dated as of November 1, 1982 between the Company and
Robert E. Shapiro, as amended by Amendments dated March 1, 1983, November 25,
1985, February 23, 1987 and January 4, 1988, (incorporated herein by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-8594).

10.3 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
and 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).

10.4 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).

10.5 Presidential Realty Corporation Defined Benefit Plan dated December 16,
1994, (incorporated herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, Commission File No.
1-8594).

10.6 Employment Agreement dated January 1, 1997 between the Company and Jeffrey
F. Joseph, (incorporated herein by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).

10.7 Employment Agreement dated January 1, 1997 between the Company and Steven
Baruch, (incorporated herein by reference to Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).

10.8 Employment Agreement dated January 1, 1997 between the Company and Thomas
Viertel, (incorporated herein by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).

10.9 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).

21. List of Subsidiaries of Registrant dated December 31, 1998.

27. Financial Data Schedule for the year ended December 31, 1998.