UNITED
STATES


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


For
the fiscal year ended December 31, 2008





COMMISION FILE
NUMBER:  1-10104








UNITED CAPITAL
CORP.


(Exact
name of registrant as specified in its charter)


Delaware
            
            04-2294493(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)9
      Park Place, Great Neck, NY
            
            11021(Address
      of principal executive offices)
            
            (Zip
      Code)516-466-6464(Registrant’s
      telephone number, including area
code)


Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      Stock (Par Value $.10 Per Share)
            
            NYSE
      Alternext




Indicate by check
      mark if the registrant is awell-known seasoned
      issuer, as defined in Rule 405 of the Securities
      Act.
                  o Yes
                  xNoIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or 15(d) of the Act.
                  o Yes
                  xNoIndicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.
                  x Yes
                  oNo
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K x.
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
 Large accelerated
      filer  o
                Accelerated
      filer  o
                Non-accelerated
      filer o
                Smaller reporting
      company  x
  Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).
                oYes
                xNo
 The
aggregate market value of the shares of the voting stock held by nonaffiliates
of the registrant as of June 30, 2008 was approximately
$36,533,000.
 
 The
number of shares of the registrant’s $.10 par value common stock outstanding as
of March 11, 2009 was 9,077,971.


DOCUMENTS
INCORPORATED BY REFERENCE





The
information required by Part III of Form 10-K will be incorporated by reference
to certain portions of a definitive proxy statement which is expected to be
filed by the registrant pursuant to Regulation 14A within 120 days after the
close of its fiscal year.







PART
I





FORWARD-LOOKING
STATEMENTS





Certain
statements in this annual report on Form 10-K and other statements made by
United Capital Corp. (“we,” “our” or the “Company”) or its representatives that
are not strictly historical facts are “forward-looking” statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that should be
considered as subject to the many risks and uncertainties that exist in the
Company’s operations and business environment.  The forward-looking
statements are based on current expectations and involve a number of known and
unknown risks and uncertainties that could cause the actual results, performance
and/or achievements of the Company to differ materially from any future results,
performance or achievements, expressed or implied, by the forward-looking
statements.  Readers are cautioned not to place undue reliance on
these forward-looking statements, and that in light of the significant
uncertainties inherent in forward-looking statements the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be
achieved.  The Company also assumes no obligation to publicly update
or revise its forward-looking statements or to advise of changes in the
assumptions and factors on which they are based.





ITEM
      1.
              BUSINESS
 General





United
Capital Corp., incorporated in 1980 in the State of Delaware, currently has
three industry segments:





1.       Real
Estate Investment and Management.


2.       Hotel
Operations.


3.       Engineered
Products.





The
Company also invests excess available cash in marketable securities and other
financial instruments.





Description
of Business





Real Estate Investment and
Management





The
Company is engaged in the business of investing in and managing real estate
properties and the making of high-yield, short-term loans secured by desirable
properties.  Most real estate properties owned by the Company are
leased under net leases whereby the tenants are responsible for all expenses
relating to the leased premises, including taxes, utilities, insurance and
maintenance.  The Company owns properties that it manages which are
leased primarily as department stores, shopping centers, restaurants and office
buildings around the country.  The Company also owns day-care centers
located in New York City, which are primarily operated by the City of New
York.  In addition, the Company owns properties available for sale and
lease with the assistance of a consultant or realtor working in the locale of
the premises.





The
majority of properties are leased to single tenants.  As of December
31, 2008, 93.1% of the total square footage of the Company’s real estate
properties was leased.





Hotel Operations





The
Company’s hotel operations segment consists of three full and limited-service
hotels located in the United States which are managed by the
Company.





The hotel
industry is seasonal in nature.  However, the periods during which the
Company’s properties experience higher or lower levels of demand vary from
property to property and depend principally upon location.  Two of the
Company’s hotels are located in the vicinity of an airport which, during extreme
weather conditions, may be favorably impacted from transient
guests.  The properties also experience fluctuations in occupancy
levels based on economic conditions, which have recently been unfavorable due to
the declining economy.




1





Engineered Products





The
Company’s engineered products are manufactured through Metal Textiles
Corporation (“Metal Textiles”) and AFP Transformers Corporation (“AFP
Transformers”), wholly-owned subsidiaries of the Company.  The knitted
wire products and components manufactured by Metal Textiles must function in
adverse environments and meet rigid performance requirements.  The
principal areas in which these products have application are as high temperature
gaskets, seals, components for use in airbags, shock and vibration isolators,
noise reduction elements, EMI electronic shielding and air, liquid and solid
filtering devices serving the automotive, aerospace and general industrial
markets.





Metal
Textiles presently supplies many automobile manufacturers with exhaust seals and
components for use in airbag inflators.  Our manufacturing facilities
are ISO/TS 16949 certified, an essential qualification for supplying the
automotive industry.





The
Company also manufactures transformers marketed under the brand names of AFP
Transformers and EPOXYCASTTM for a wide variety of applications including
switchgear, motor starters, motor drive systems, machine tool power, rectifiers,
inverters, furnaces and a wide variety of custom applications.





Sales by
the engineered products segment to General Motors, its largest customer,
accounted for 10.8% and 14.6% of the segment’s sales for the years ended
December 31, 2008 and 2007, respectively.  No other customer exceeded
10% of the segment’s sales during last two years.





Approximately
13.3% and 13.7%, respectively, of 2008 and 2007 total sales generated from the
engineered products segment were to foreign customers.  Substantially
all assets held by the Company’s engineered products segment are located within
the United States or its leased warehouse in Tijuana, Mexico.





Summary Financial
Information





The
following table sets forth the revenues, operating income and identifiable
assets of each business segment of the Company.


Year
      Ended
                  December
      31,(In
      thousands)
              
              2008
              
              
              2007Net
      revenues and sales:Real
      estate investment and
      management
              
              $
              20,392
              
              
              $
              19,387Hotel
      operations
              
              $
              16,317
              
              
              $
              14,564Engineered
      products
              
              $
              36,212
              
              
              $
              37,820Operating
      income:Real
      estate investment and
      management
              
              $
              11,642
              
              
              $
              11,744Hotel
      operations
              
              $
              1,020
              
              
              $
              2,072Engineered
      products
              
              $
              264
              
              
              $
              2,083Identifiable
      assetsReal
      estate investment and management and corporate
      assets
              
              $
              220,222
              
              
              $
              227,854Hotel
      operations
              
              $
              30,586
              
              
              $
              31,867Engineered
      products
              
              $
              12,077
              
              
              $
              12,349





Distribution





The
Company’s manufactured products are distributed by a direct sales force and
through distributors to industrial consumers and original equipment
manufacturers.


2





Product Methods and Sources of Raw
Materials





The
Company’s products are manufactured at facilities owned by the Company and a
leased facility in Mexico.  Raw materials used in the Company’s
engineered products segment, which consist primarily of stainless steel wire,
steel-related products and copper, are typically purchased from multiple
suppliers throughout the world.  The price and availability of raw
materials can be volatile due to numerous factors beyond the Company’s control,
including general domestic and international economic conditions, labor costs,
supply and demand, competition, import duties and tariffs and currency exchange
rates.  Although these factors could significantly affect the
availability and cost of the Company’s raw materials, they are generally
purchased at levels that the Company believes will satisfy the anticipated needs
of the Company’s customers based upon contractual commitments, historical buying
practices and market conditions.  To date, the Company has limited
their exposure related to the effects that have arisen from these factors by
various methods including finding alternate sources or by having suppliers
and/or customers absorb any additional related costs.  Although
management does not expect such matters to adversely affect the Company’s
financial position in the future, it is uncertain what effect, if any, such
factors could have on the cost of such materials.  An interruption in
the supply, or a significant increase in the cost, of the Company’s raw
materials could have a material adverse effect on the Company’s revenues,
results of operations or cash flows.  The Company has not had and does
not expect to have any problems fulfilling its raw material requirements during
2009.





Patents and Trademarks





The
Company owns several patents, patent licenses and trademarks.  While
the Company considers that in the aggregate its patents, patent licenses and
trademarks used in the engineered products operations are significant to this
segment, it does not believe that any of them are of such importance that the
loss of one or more of them would materially affect its consolidated financial
condition or results of operations.  The Company is not currently
involved in any litigation regarding infringement upon its intellectual property
or of the Company’s infringement upon the intellectual property of
others.





Working Capital
Practices





The
Company believes its practices regarding inventories, receivables or other items
of working capital to be typical for the industries involved.  There
are no special practices or conditions affecting working capital items that are
significant to an understanding of the Company’s businesses.  Its
inventory levels, payment terms and return policies are in accordance with
general practices associated with the industries in which it operates and
standard business procedures.





The cash
needs of the Company have been satisfied from funds generated by current
operations.  In addition, the Company received additional financing
from mortgages obtained on two of its hotels in 2007.  It is expected
that future operational cash needs will also be satisfied from existing cash
balances, marketable securities, ongoing operations or
borrowings.  The primary source of capital to fund additional real
estate acquisitions and to make additional high-yield mortgage loans may come
from existing funds, the sale, financing and refinancing of the Company’s
properties and from third party mortgages and purchase money notes obtained in
connection with specific acquisitions.  For additional information on
working capital, see Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources,” which is
incorporated by reference herein.





Employees





At March
11, 2009, the Company employed approximately 370 persons, approximately 80 of
which are covered by a collective bargaining agreement that expires in February
2011.  The Company believes that its relationship with its employees
is good.





Competition





The
Company has established close relationships with a large number of major
national and regional real estate brokers and maintains a broad network of
industry contacts.  There are numerous regional and local commercial
developers, real estate companies, financial institutions and other investors
who compete with the Company for the acquisition of properties and
tenants.





The
Company’s hotels compete with national, regional and local hotels in each of
their geographic markets.  Competition is based on a number of
factors, most notably convenience of location, brand affiliation, price, range
of services and guest amenities offered, quality of customer service and the
overall condition of the property.




3





The
Company competes with at least 25 other companies in the sale of engineered
products.  The Company emphasizes product performance and service in
connection with the sale of these products.  The principal competition
faced by the Company results from the sales price of the products sold by its
competitors.





Backlog





The
dollar value of unfilled orders of the Company’s engineered products segment was
approximately $2.9 million and $3.1 million at December 31, 2008 and 2007,
respectively.  The decrease in backlog is principally due to slowdown
at both of the Company’s knitted wire and transformer product lines which is
related to the current economic conditions.  It is anticipated that
substantially all of the 2008 backlog will be filled in
2009.  Substantially all of the 2007 backlog was filled in
2008.  The order backlog referred to above does not include any order
backlog with respect to sales of knitted wire mesh components for exhaust
emission control devices, exhaust seals or airbag components because of the
manner in which customer orders are received.





Environmental
Regulations





Federal,
state and local requirements regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment have had
and will continue to have a significant impact upon the operations of the
Company.  It is the policy of the Company to manage, operate and
maintain its facilities in compliance, in all material respects, with applicable
standards for the prevention, control and abatement of environmental pollution
to prevent damage to the quality of air, land and resources.





The
Company has undertaken the completion of environmental studies and/or remedial
action at the Company’s two New Jersey facilities and has recorded a liability
for the estimated investigation, remediation and administrative costs associated
therewith.





The
process of remediation has begun at one facility pursuant to a plan filed with
the New Jersey Department of Environmental Protection
(“NJDEP”).  Environmental experts engaged by the Company estimate
that, under the most probable scenario, the remediation of this site is
anticipated to require initial expenditures of $860,000, including the cost of
capital equipment, and $86,000 in annual operating and maintenance costs over a
15 year period.





Environmental
studies at the second facility indicate that remediation may be
necessary.  Based upon the facts presently available, environmental
experts have advised the Company that, under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2.3 million in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10 year
period.  These estimated costs of future expenses for remediation
obligations are not discounted to their present value.  The Company
may revise such estimates in the future due to the uncertainty regarding the
nature, timing and extent of any remediation efforts that may be required at
this site, should an appropriate regulatory agency deem such efforts to be
necessary.





The
foregoing estimates may also be revised by the Company as new or additional
information in these matters becomes available or should the NJDEP or other
regulatory agencies require additional or alternative remediation efforts in the
future.  Although such events are not expected to change these
estimates, adverse decisions or events, particularly as to the merits of the
Company’s factual and legal basis, could cause the Company to change its
estimate of liability with respect to such matters in the future.  The
Company had approximately $9.3 million and $9.5 million recorded in accounts
payable and accrued liabilities and other long-term liabilities as of December
31, 2008 and 2007, respectively, to cover such matters.





Available
Information





The
Company’s filings with the Securities and Exchange Commission (“SEC”) may be
read and copied at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549.  Information on the operation of the Public
Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.  In addition, the SEC maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.  The SEC’s
Internet address is http://www.sec.gov.  The
Company’s SEC filing number is 1-10104.




4





A copy of
the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, if any, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, may be obtained as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the SEC
without charge from the Company’s website at http://www.unitedcapitalcorp.net
or by writing to Anthony J. Miceli, Chief Financial Officer and Secretary
of the Company, at its executive offices, United Capital Building, 9 Park Place,
Great Neck, NY 11021.  The Company’s website also contains a copy of
the Company’s Code of Business Conduct and Ethics, which was filed as Exhibit 14
to the Company’s report on Form 10-Q for the quarter ended June 30,
2006.





ITEM
      1A.
              RISK
      FACTORS
 The
following are some of the risks that could cause actual results to differ
significantly from those expressed or implied by such
statements:





The
recent economic downturn and financial crisis could negatively affect our
businesses, results of operations and financial condition.


Recent
worldwide economic conditions are unprecedented, challenging the Company’s
business prospects and are likely to continue in 2009.  Slower
economic activity, increased unemployment, the continued crisis in the financial
and credit markets, concerns about inflation and energy costs, decreased
business and consumer confidence, reduced corporate profits and capital
spending, adverse business conditions and liquidity concerns have and will
continue to have a negative affect on the Company’s business
segments.  If the economic and market conditions remain uncertain or
weaken further, the Company may experience material adverse impacts on its
businesses, financial condition and results of operations.





Our
performance is subject to risks associated with the real estate
industry.


Although
the Company’s leases are generally long-term and may be below market, real
property investments are subject to varying degrees of risk and are relatively
illiquid.  Among the factors that may impact our real estate property
values or the revenues derived from our portfolio are changes in the national,
regional and local economic climate, the attractiveness of our properties to
tenants, competition from other available property owners and changes in market
rental rates.  Our performance also depends on the financial condition
of our tenants and our ability to collect rent from tenants and to pay for
adequate maintenance, insurance and other operating costs, including real estate
taxes, which could increase over time.  Also, the expenses of owning
and operating a property are not necessarily reduced when circumstances such as
market factors and competition cause a reduction in income from the
property.





The
Company reviews the carrying value of its properties when circumstances, such as
adverse market conditions, indicate potential impairment may
exist.  If the evaluation indicates an inability to recover the
carrying value of a real estate investment, an impairment loss is
recorded.  Impairment charges could adversely affect our financial
condition, results of operations and cash flows.





Our
results could be negatively affected by delinquencies in our mortgage or
high-yield loan receivables.


On a
limited basis we provide high-yield, short-term mortgage loans that we believe
are collateralized by desirable properties at substantial value-to-loan
ratios.  In addition, we have provided purchase money notes to buyers
of certain real estate properties.  Although we believe that the
collateral for these loans is sufficient to recover its carrying value, changes
in the real estate market in the locale in which the property is located or
delinquencies by the borrower could negatively affect our carrying value for
these loans and, ultimately, our results of operations and cash
flows.





Off-balance
sheet obligations could deplete our liquidity and capital
resources.


We do not
have any off-balance sheet arrangements that we believe are reasonably likely to
have a material current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.  The debt of the joint
venture in which we currently have an ownership interest is a non-recourse
obligation and is collateralized by the entity’s real property.  We
believe that with each arrangement the value of the underlying property and its
operating cash flows are sufficient to satisfy its obligations.  In
addition, we are not obligated for the debts of the joint
venture.  However, we could decide to satisfy the debts of the joint
venture to protect our investment.  In such event, our capital
resources and financial condition would be reduced and, in certain instances,
the carrying value of our investment and our results of operations would be
negatively impacted.




5





Our
cash and cash equivalents could be adversely affected if the financial
institutions in which we hold our cash and cash equivalents fail.


Our cash
and cash equivalents are highly liquid investments with original maturities of
three months or less at the time of purchase.  We maintain the cash
and cash equivalents with reputable major financial
institutions.  Deposits with these banks exceed the Federal Deposit
Insurance Corporation (“FDIC”) insurance limits.  These balances could
be impacted if one or more of the financial institutions with which we deposit
fails or is subject to other adverse conditions in the financial or credit
markets.  To date, we have experienced no loss or lack of access to
our invested cash or cash equivalents, however, we can provide no assurance that
access to our invested cash and cash equivalents will not be impacted by adverse
conditions in the financial and credit markets.





Our
investments in marketable securities are subject to risks which may cause losses
and affect the liquidity of these investments.


We invest
funds in excess of those needed for working capital, purchasing real estate and
arranging financing for real estate acquisitions in corporate equity securities,
corporate notes, certificates of deposit, government securities and other
financial instruments.  In 2008, we realized losses on our marketable
security portfolio of ($24.1) million.  In addition, the Company had
($8.3) million in unrealized losses on its marketable security portfolio at
December 31, 2008 which are recorded, net of tax, in Accumulated Other
Comprehensive Loss in the accompanying Consolidated Balance
Sheet.  Significant declines in the value of these investments due to
operating performance of the companies we invest in or general economic or
market conditions may result in the recognition of additional realized or
impairment losses which could be material.





Operating
results of our hotel operations are subject to conditions common in the lodging
industry.


The
performance of the lodging industry has traditionally been closely linked with
the performance of the general economy.  As the global financial
crisis has broadened and intensified, other sectors of the global economy have
been adversely impacted and a severe global recession of uncertain length now
appears likely.  As the hotel business is dependent upon consumer and
business spending, significant reduction in lodging demand, as has been
experienced in the fourth quarter of 2008 and likely to continue throughout
2009, could have a material adverse impact on the operating results of our
hotels.





In
addition, changes in certain factors could adversely impact hotel room demand
and pricing and result in reduced occupancy or could otherwise adversely affect
our results of operations and financial condition.  These factors
include:




·
            local
      conditions such as an oversupply of, or a reduction in demand for, hotel
      rooms;


·
            the
      attractiveness of our hotels to consumers and competition from other
      hotels;


·
            the
      quality, philosophy and performance of the managers of our
      hotels;


·
            increases
      in operating costs due to inflation and other factors such as increases in
      the price of energy, healthcare or
insurance;


·
            changes
      in travel patterns, extreme weather conditions and cancellation of or
      changes in events scheduled to occur in our
  markets;


·
            seasonality,
      inherent in the hotel industry, may cause our results to fluctuate
      significantly between quarters; and


·
            other
      unpredictable external factors, such as acts of god, war, terrorist
      attacks, epidemics, airline strikes, transportation and fuel price
      increases and severe weather, may reduce business and leisure
      travel.





Our
engineered products segment relies on significant customers and has a
concentration of customers in the automotive industry.


The
Company sells its engineered products to many customers throughout the
world.  Historically, a small number of customers have accounted for
significant portions of these sales.  For the year ended December 31,
2008, sales by the engineered products segment to General Motors, its largest
customer, accounted for 10.8% of the segment’s sales.  Since our
engineered products segment accounted for 49.7% of our consolidated revenues in
2008, the loss of General Motors as a customer, or a significant decline in
sales to them, would adversely affect our revenues, cash flows and results of
operations.  In addition, automakers and their suppliers globally have
experienced significant difficulties from a weakened economy and tightening
credit markets.  The bankruptcy filing of any of the major automotive
companies could lead to similar filings by suppliers to the automotive industry,
many of whom are our customers, which could adversely impact the
Company.  The nature of that impact could not only be a reduction in
future sales, but also a loss associated with the potential inability to collect
all outstanding accounts receivables, which would negatively impact our
financial results and cash flows.




6





Our
engineered products segment could be adversely affected by technological and
regulatory changes.


Changes
in legislative, regulatory or industry requirements or competitive technologies
may render certain of our products obsolete. Our ability to anticipate changes
in technology and regulatory standards and to develop and introduce new and
enhanced products successfully on a timely basis will be a significant factor in
our ability to grow and to remain competitive. There can be no assurance that we
will be able to achieve the technological advances that may be necessary for the
Company to remain competitive or that certain of our products will not become
obsolete. We are also subject to the risks generally associated with new product
introductions and applications, including lack of market acceptance, delays in
product development and failure of products to operate properly.





Our
markets are highly competitive.


The
markets for our engineered products are highly competitive.  We
compete with a number of other manufacturers that produce and sell similar
products.  We cannot assure that we will be able to successfully
compete or that our competitors will not develop new technologies and products
that are more commercially effective than our own.  Some of our
competitors have financial, technical, marketing, sales and distribution
resources greater than ours.  In addition, the global economy has
entered a period of weak economic growth, led by the recession in the United
States and followed by declines in other major markets around the
world.  Uncertainty over the course of the economy, and hence, the
strength of the markets into which the engineered products segment sells its
products, both in the United States and around the world, have caused a
continuing decline in sales.  As a result, the Company expects 2009
sales of its engineered products segment to be significantly less than such
sales in 2008, which could negatively impact our financial results and cash
flows.





An
interruption in the supply, or a significant increase in the cost, of our raw
materials could have a material adverse effect on our revenues, results of
operations and cash flows.


The
principal raw materials used in the Company’s engineered products business are
stainless steel wire, steel-related products and copper, which are typically
purchased from multiple suppliers throughout the world.  The price and
availability of raw materials can be volatile due to numerous factors beyond our
control, including general domestic and international economic conditions, labor
costs, supply and demand, competition, import duties and tariffs and currency
exchange rates.  These factors could significantly affect the
availability and cost of our raw materials which are generally purchased at
levels that we believe will satisfy the anticipated needs of our customers based
upon contractual commitments, historical buying practices and market
conditions.  We may be unable to recover raw material cost increases
due to contractual or competitive conditions.  Conversely, reductions
in raw material prices could result in lower sales prices for our products and
lower margins as we utilize existing inventories.  Therefore, changing
raw material costs could significantly impact our revenues, gross margins,
operating and net income.  If, in the future, we are unable to obtain
sufficient amounts of stainless steel wire or other critical raw materials on a
timely basis and at competitive prices, we may be unable to fulfill our
customers’ requirements, which could have a material adverse effect on our
business, financial condition, results of operations and cash
flows.





Protection
of our intellectual property is limited; we are subject to the risk of third
party claims of infringement.


Our
engineered products business relies in large part upon our proprietary
scientific and engineering “know-how” and production
techniques.  Historically, patents have not been an important part of
our protection of our intellectual property rights.  We rely upon the
laws regarding unfair competition, restrictions in licensing agreements and
confidentiality agreements to protect our intellectual property.  We
limit access to and distribution of our proprietary information.





Our
ability to compete successfully and achieve future revenue growth will depend,
in part, on our ability to protect our proprietary technology and operate
without infringing upon the rights of others.  We are not currently
involved in any litigation regarding the infringement upon our intellectual
property or regarding our infringement upon the intellectual property of
others.





Our
operations are subject to environmental regulation and environmental problems
which are possible and can be costly.


Our
engineered products segment is subject to a variety of federal, state and local
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture our products.  We believe that we are currently in
compliance in all material respects with such regulations and that we have
obtained all necessary environmental permits to conduct our
business.  Nevertheless, the failure to comply with current or future
regulations could result in the imposition of fines, suspension of production,
alteration of our manufacturing processes or cessation of
operations.




7





Federal,
state and local laws and regulations relating to the protection of the
environment require a current or previous owner or operator of real estate to
investigate and clean up hazardous or toxic substances at such
property.





We have
undertaken the completion of environmental studies and/or remedial action at our
two New Jersey facilities and have recorded a liability for the estimated
investigation, remediation and administrative costs associated therewith (See
“Environmental Regulations” in Item 1 of Part I and Note 17, “Commitments and
Contingencies” of Notes to Consolidated Financial Statements).





The
Company may revise such estimates in the future due to the uncertainty regarding
the nature, timing and extent of any remediation efforts that may be required at
these sites, should an appropriate regulatory agency deem such efforts to be
necessary.  The estimates may also be revised as new or additional
information in these matters becomes available or should the NJDEP or other
regulatory agencies require additional or alternative remediation efforts in the
future.  Although we do not expect such events to significantly change
our estimates, adverse decisions or events, particularly as to the merits of our
factual and legal basis, could cause us to change our estimate of liability with
respect to such matters in the future.  Accordingly, we are unable to
predict whether our estimate of future remediation costs will materially
increase in the future.





Current
and future litigation could have an adverse effect on the Company.


The
Company is subject to various litigation, legal, regulatory and tax matters,
some of which could be considered frivolous, that arise in the ordinary course
of business activities.  These lawsuits and other legal proceedings
can involve substantial costs, including the costs associated with
investigation, litigation and possible settlement, judgment, penalty or
fine.  Although insurance is maintained to mitigate these costs, there
can be no assurance that costs associated with lawsuits or other legal
proceedings will be covered by insurance or will not exceed the limits of
insurance policies.  The Company’s results of operations could be
adversely affected if a judgment, penalty or fine is not fully covered by
insurance.





Our
stock price may be volatile.


The
market price of our common stock has been volatile in the past and may be
volatile in the future.  For example, during the twelve months ended
December 31, 2008, the sales price of our common stock fluctuated between $27.25
and $15.75 per share.  The stock market has experienced extreme
volatility that often has been unrelated to the performance of particular
companies.  These market fluctuations may cause our stock price to
fall regardless of our performance.





Mr.
A.F. Petrocelli can control the outcome of all matters requiring stockholder
approval.


As of the
date of this Annual Report on Form 10-K, Mr. A.F. Petrocelli, the
Company’s Chairman, President and Chief Executive Officer, beneficially owns, in
the aggregate, approximately 69.1% of the Company’s outstanding common stock
(exclusive of options).  Such amount includes shares held by his wife
but does not include shares held by the adult children or grandchildren of
Mr. Petrocelli.  Accordingly, Mr. Petrocelli is therefore
able to exercise considerable influence over the outcome of all matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions, such as mergers or other
business combinations.




ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS


None





ITEM
      2.
              PROPERTIES
 Real
Property Held for Rental or Sale





As of
March 11, 2009, the Company owned 152 properties throughout the United
States.  The properties are primarily leased under long-term net
leases.




8




The
Company’s classification and gross carrying value of its properties at December
31, 2008 are as follows:





(Dollars
      in thousands)
                
                Gross
                    Carrying
                    Value
                
                
                Percentage
                
                
                Number
      of
                    PropertiesShopping
      centers and retail
      outlets
                
                $
                69,868
                
                
                
                47.0
                %
                
                
                20Commercial
      properties
                
                
                41,694
                
                
                
                28.0
                
                
                
                84Day-care
      centers
                
                
                5,762
                
                
                
                3.9
                
                
                
                9Hotel
      properties
                
                
                27,969
                
                
                
                18.8
                
                
                
                3Other
                
                
                3,503
                
                
                
                2.3
                
                
                
                36$
                148,796
                
                
                
                100.0
                %
                
                
                152





The
following summarizes the Company’s properties by geographic area at December 31,
2008:





(Dollars
      in thousands)
                
                Gross
                    Carrying
                    Value
                
                
                Number
                    of
                    PropertiesNortheast
                
                $
                71,253
                
                
                
                95Southeast
                
                
                24,424
                
                
                
                18Midwest
                
                
                35,404
                
                
                
                25Southwest
                
                
                5,435
                
                
                
                4Pacific
      Coast
                
                
                9,146
                
                
                
                3Pacific
      Northwest
                
                
                861
                
                
                
                4Rocky
      Mountain
                
                
                2,273
                
                
                
                3$
                148,796
                
                
                
                152





Shopping Centers and Retail
Outlets





Shopping
centers and retail outlets include 12 department stores and miscellaneous other
properties, primarily leased under net leases.  The tenants are
responsible for taxes, maintenance and all other expenses of the
properties.  The leases for certain shopping centers and retail
outlets provide for additional rents based on sales volume and renewal options
at higher rents.  The department stores include eight properties
leased to Kmart Corporation (“Kmart”) and two Macy’s stores, with a total of
approximately 747,000 and 364,000 square feet, respectively.  The
Kmart stores are primarily located in the Midwest region of the United
States.  The Macy’s stores are located in the Pacific Coast and
Southwest regions of the United States.





Commercial Properties





Commercial
properties consist of properties leased as 49 restaurants, 8 Midas Muffler
Shops, two convenience stores, seven office buildings and miscellaneous other
properties.  These properties are primarily leased under net leases,
which in certain cases have renewal options at higher rents.  Certain
of these leases also provide for additional rents based on sales
volume.  The restaurants, located throughout the United States,
include properties leased as McDonald’s, Burger King, Dunkin’ Donuts, Pizza Hut,
Hardee’s, Wendy’s, Kentucky Fried Chicken and Boston Market.





Day-Care Centers





The
Company has nine day-care centers located in New York City, seven of which are
leased to the City of New York.  The City of New York is responsible
for real estate taxes and certain maintenance costs on those properties they
lease, while the Company maintains insurance and certain other maintenance
obligations.  All such leases provide for the reimbursement of
operating costs above base year levels, and certain leases include rental
increases and renewal options.





Hotel Properties





The
Company’s hotel properties are comprised of over 550 recently renovated rooms
available from its three full and limited-service hotels located in Connecticut,
Georgia and New York State.  The full-service hotels operate under
Doubletree and Radisson franchise agreements, while the limited-service hotel
operates as an independent hotel.  Each property is managed by the
Company with on-site managers responsible for all day-to-day
operations.




9





Manufacturing
Facilities





The
Company’s engineered products are manufactured at 970 New Durham Road, Edison,
New Jersey, in a one-story building having approximately 55,000 square feet of
floor space, and also in a second facility at 206 Talmadge Road, Edison, New
Jersey, which has approximately 55,000 square feet of floor
space.  These facilities are owned by a subsidiary of the
Company.  The engineered products segment also leases a manufacturing
facility in Tijuana, Mexico, with approximately 24,000 square feet of floor
space.





ITEM
      3.
              LEGAL
      PROCEEDINGS
 In May
2008, an insurance company for one of the Company’s subsidiaries, purchased as
part of a bankruptcy reorganization, filed suit in Supreme Court of the State of
New York against such entity’s other insurance companies seeking, among other
things, contribution for insurance settlements from carriers, some of which now
claim to be exhausted.  The complaint also names the Company’s
subsidiary and several underlying claimants with whom such settlements were
reached.  The action challenges the exhaustion of the underlying
policies and seeks contribution as well as a declaration of the rights, duties
and liabilities of the parties under the insurance policies.  In June
2008, the Company removed the action to the U.S. Court for the Southern District
of New York.  Plaintiffs and certain defendants contested the
removal.  In October 2008, a stipulation was reached to remand certain
issues to State Court while staying the remaining issues in Federal
Court.  Plaintiffs have also agreed to dismiss the underlying
claimants.  In February 2009, the Company succeeded on a motion for
summary judgment against one of the primary insurance companies who claimed
exhaustion. The insurance company was ordered to defend the underlying actions
and reimburse certain costs to the other carriers. It is expected that this
decision will be appealed by the carrier.  The Company intends to
vigorously defend this matter.  The Company is subject to various
other litigation, legal and regulatory matters that arise in the ordinary course
of business activities.  When management believes it is probable that
a liability has been incurred and such amounts are reasonably estimable, the
Company provides for amounts that include judgments and penalties that may be
assessed.  These liabilities are usually included in accounts payable
and accrued liabilities or other long-term liabilities in the Condensed
Consolidated Financial Statements, depending on the anticipated payment
date.  Based on the facts presently available, the Company does not
believe that the disposition of matters that are pending or asserted will have a
material adverse effect on the Company’s consolidated financial position or
results of operations.  However, new or additional facts or an adverse
judgment by a court, arbitrator or a settlement could adversely impact the
Company’s results of operations or financial condition in any given
period.


ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 None








PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





The
Company’s Common Stock, $.10 par value (the “Common Stock”), is traded on NYSE
Alternext under the symbol AFP.  The table below shows the high and
low sales prices as reported in the composite transactions for the NYSE
Alternext (previously the American Stock Exchange) for the quarterly periods
indicated.





2008
              
              
              2007High
              
              
              Low
              
              
              High
              
              
              LowFirst
      Quarter
              
              $
              24.50
              
              
              $
              21.00
              
              
              $
              36.00
              
              
              $
              29.25Second
      Quarter
              
              $
              25.40
              
              
              $
              19.20
              
              
              $
              35.50
              
              
              $
              27.35Third
      Quarter
              
              $
              27.25
              
              
              $
              17.58
              
              
              $
              29.80
              
              
              $
              25.00Fourth
      Quarter
              
              $
              26.50
              
              
              $
              15.75
              
              
              $
              26.50
              
              
              $
              22.50




10


As of
March 11, 2009, there were approximately 190 record holders of the Company’s
Common Stock.  The closing sales price for the Company’s Common Stock
on such date was $16.50.  The Company has not declared a dividend
during the past two years.  While the Company does not currently
expect to pay additional dividends, the Board of Directors could reevaluate this
position in the future.





Unregistered
Sales of Equity Securities and Use of Proceeds





The
following table details the Company’s repurchases of common stock during the
three months ended December 31, 2008:


Issuer
Purchases of Equity Securities


(Table in
thousands, except per share data)





Period
              
              Total
      Number of Shares Purchased
              
              
              Average
      Price Paid per Share
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
              
              
              Maximum
      Number of Shares that May Yet Be Purchased Under the Plans or
      ProgramsNovember
      1, 2008 — November 30, 2008
              
              
              1
              
              
              $
              16.18
              
              
              
              1
              
              
              
              487





As
previously announced, the Board of Directors have approved repurchase plans for
the Company’s Common Stock, which may be made from time to time in the open
market at prevailing market prices or in privately negotiated
transactions.  At December 31, 2008 approximately 487,000 shares
remain to be purchased under such plans.  These authorizations are
ongoing and have no expiration date.








Equity
      Compensation Plan Information





The
Company maintains two stock option plans.  Both plans provide for the
granting of incentive or non-qualified stock options.  The Company has
no outstanding warrants or rights or plans which provide for the grant or
issuance of warrants or rights.  The following table gives information
about stock option awards under these plans as of December 31,
2008.  See Note 9 of Notes to Consolidated Financial Statements for
further discussion on these plans.





Plan
      Category
              
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                  (a)
              
              
              Weighted-average
      exercise price of outstanding options, warrants and rights
                  (b)
              
              
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
                  (c)Equity
      compensation plans approved by security holders
              
              
              3,944,668
              
              
              $
              11.99
              
              
              
              —Equity
      compensation plans not approved  by security
    holders
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              
              3,944,668
              
              
              $
              11.99
              
              
              
              —





ITEM
      6.
              SELECTED
      FINANCIAL DATA
 Not
applicable, as the Company is a smaller reporting company.




11




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion of the Company’s financial condition and results of
operations should be read in conjunction with the description of the Company’s
business and properties contained in Items 1 and 2 of Part I and the
Consolidated Financial Statements and Notes thereto, included elsewhere in this
report.





Results
of Operations:  2008 and 2007





Total
revenues for the year ended December 31, 2008 were $72.9 million, compared to
$71.8 million for the year ended December 31, 2007.  Realized losses
on the Company’s marketable security portfolio of ($24.1) million resulted in a
loss from continued operations of ($5.1) million or ($.60) per basic
share.  Income from discontinued operations, which primarily reflects
the sale of properties from the Company’s real estate portfolio, were $6.7
million, on a net of tax basis, resulting in net income of $1.6 million or $.19
per basic share for the year ended December 31, 2008.  Net income for
the year ended December 31, 2007 was $27.5 million or $3.32 per basic share
which includes $10.0 million in gains on the sale of real estate, net of tax,
and $5.7 million from the taking of one of the Company’s New York City
properties.





The
ongoing weakness in the economy and the deteriorating credit market continue to
impact the results of the Company’s engineered products and hotel
segments.   These factors are expected to continue in
2009.  The Company’s strong balance sheet and diverse mix of
businesses should allow the Company to weather this downturn.





Real
Estate Operations





The
Company’s real estate operations consist of the real estate investment and
management and hotel operations segments.  The operating results for
these segments are as follows:





(In
      thousands)
                
                Year
      Ended
                    December
      31, 2008
                
                
                Year
      Ended
                    December
      31, 2007Real
      Estate
                
                
                Hotel
      Operations
                
                
                Total
                
                
                Real
      Estate
                
                
                Hotel
      Operations
                
                
                TotalRevenues
                
                $
                20,392
                
                
                $
                16,317
                
                
                $
                36,709
                
                
                $
                19,387
                
                
                $
                14,564
                
                
                $
                33,951Mortgage
      interest expense
                
                
                241
                
                
                
                1,874
                
                
                
                2,115
                
                
                
                247
                
                
                
                849
                
                
                
                1,096Depreciation
      expense
                
                
                2,450
                
                
                
                1,431
                
                
                
                3,881
                
                
                
                1,829
                
                
                
                1,279
                
                
                
                3,108Other
      operating expenses
                
                
                6,059
                
                
                
                11,992
                
                
                
                18,051
                
                
                
                5,567
                
                
                
                10,364
                
                
                
                15,931Operating
      income
                
                $
                11,642
                
                
                $
                1,020
                
                
                $
                12,662
                
                
                $
                11,744
                
                
                $
                2,072
                
                
                $
                13,816





Real Estate Investment and
Management





Revenues
from the real estate investment and management segment were $20.4 million for
the year ended December 31, 2008, an increase of $1.0 million or 5.2% from $19.4
million in 2007, primarily as the result of additional revenues ($1.0 million)
from two properties purchased in January 2008.  In general, rental
revenues from the Company’s real estate properties do not fluctuate
significantly due to the long-term nature of the Company’s
leases.  However, future rental revenues could be affected by lease
renewals, terminations and by the purchase or sale of additional
properties.





Mortgage
interest expense decreased $6,000 or 2.4% for the year ended December 31, 2008,
compared to 2007.  This decrease is a result of continuing mortgage
amortization, partially offset by interest from a new mortgage obtained in
connection with the purchase of a commercial property in July
2008.  The mortgage ($500,000) bears interest at 6.73% per annum, is
payable monthly based on a 25-year amortization and matures in July
2013.  At December 31, 2008, the outstanding mortgage balance on the
Company’s real estate investment properties was just $4.1
million.  Based on scheduled amortizations, including one mortgage
maturing in April 2009, mortgage interest expense on existing obligations of the
Company’s real estate investment and management segment should continue to
decline in 2009.





Depreciation
expense associated with real properties held for rental increased $621,000 for
the year ended December 31, 2008, compared to 2007, as the result of additions
to real estate assets during the current and prior years.  The Company
purchased three properties for approximately $14.3 million in 2008 and incurred
approximately $4.1 million and $457,000 in capital improvements during 2007 and
2008, respectively, adding $671,000 to 2008 depreciation
expense.  Unless the Company experiences significant expenditures for
capital improvements, it is expected that depreciation expense on the Company’s
properties in 2009 will not increase considerably over that reported in
2008.




12





Other
operating expenses associated with the management of real properties increased
$492,000 or 8.8% for the year ended December 31, 2008, compared to such expenses
incurred in 2007, primarily related to increases in personnel ($202,000) and
professional ($197,000) expenses.  Future operating expenses of the
Company’s real estate properties may vary as a result of property age, location
and vacancies.





Hotel Operations





Hotel
revenues were $16.3 million for the year ended December 31, 2008, an increase of
$1.8 million or 12% from $14.6 million for the year ended December 31, 2007,
primarily as the result of a full year of hotel revenues ($2.9 million) received
as a result of the May 2007 acquisition of a hotel located in Utica, New York
(the “Utica Hotel”).  This increase is offset by the decline in
revenues, especially in the fourth quarter of 2008, resulting from the overall
weakness in the U.S. economy.  Unless the economy dramatically
improves, the Company expects lodging demand, and therefore its revenues, to
continue to decline in 2009.





As a
result of mortgages secured on two of the Company’s hotels during 2007, mortgage
interest expense in this segment increased $1.0 million for the year ended
December 31, 2008, compared to that reported in 2007.  Without
refinancings or additional borrowings, mortgage interest expense of the
Company’s hotel operations will decline with scheduled principal
reductions.





Depreciation
expense associated with the Company’s hotel operations increased $152,000 for
the year ended December 31, 2008, compared to 2007, primarily attributable to
additional depreciation expense ($267,000) related to the Utica Hotel acquired
in May 2007.  This increase is offset by a reduction in depreciation
expense ($139,000) at one of the Company’s hotels associated with certain
improvements becoming fully depreciated in the current year.  As a
result of renovations and improvements currently occurring at two of the
Company’s hotels, depreciation expense for 2009 should increase slightly over
that reported in 2008.





Other
operating expenses related to the management of the Company’s hotels increased
$1.6 million to $12.0 million for the year ended December 31, 2008, compared to
$10.4 million in 2007, primarily related to the change in the composition of
hotels operated by the Company ($1.7 million), including the addition of the
Utica property, noted above.





The
ongoing weakness in the economy and the deteriorating credit market continue to
impact the results of the Company’s hotel operations and is expected to continue
to impact this segment throughout 2009.  As the global financial
crisis has broadened and intensified, other sectors of the global economy have been adversely impacted and a severe global
recession ofuncertain length now appears
likely.  As the hotel business is dependent upon consumer and business
spending, the Company’s hotel operations segment is expected to face an
extremely challenging 2009 because of these economic conditions.  The
Company is working to streamline operations, control expenses and maximize cash
flow from operations.  The extent to which management will be
successful in these efforts is uncertain.





Engineered
Products





The
operating results of the Company’s engineered products segment are as
follows:





(In
      thousands)
                
                Year
      Ended December 31,2008
                
                
                2007Net
      sales
                
                $
                36,212
                
                
                $
                37,820Cost
      of
      sales
                
                
                28,530
                
                
                
                28,868Selling,
      general and administrative
      expenses
                
                
                7,418
                
                
                
                6,869Operating
      income
                
                $
                264
                
                
                $
                2,083





Net sales
of the engineered products segment decreased $1.6 million or 4.3% for the year
ended December 31, 2008, to $36.2 million, down from $37.8 million in 2007 due
to a decrease in demand for the Company’s automotive product
line.  This decrease was partially offset by increases in demand for
the Company’s engineered products and, to a lesser extent, the transformer
product line in the first half of the year.  Each of these product
lines has experiencedsignificantly reduced
demand in the fourth quarter of 2008, which is continuing in
2009.  The global economy has entered a period of weak economic
growth, led by the recession in the United States and followed by declines in
other major markets around the world.  Uncertainty over the course of
the economy, and hence, the strength of the markets into which the engineered
products segment sells its products, both in the United States and around the
world, have caused a continuing decline in sales.  As a result, the
Company expects 2009 sales of its engineered products segment to be
significantly less than such sales in 2008.




13





Cost of
sales as a percentage of net sales increased 2.5% for the year ended December
31, 2008, compared to 2007.  This increase is primarily related to an
increase in payroll and payroll related expenses (1.5% as a percentage of net
sales) which primarily include certain salaried positions vacant during
2007.  The increase in costs of sales as a percentage of net sales was
also effected by an increase in the cost of raw materials (0.7% as a percentage
of net sales), primarily copper and steel components, and other fixed operating
costs (0.4% as a percentage of net sales) including utilities.  As a
result of the economic recession and its effects on net sales, as noted above,
the Company is attempting to reduce costs which include, among other things, the
reduction of certain salaried positions and the cutback of direct labor
hours.  The lower net sales and production levels expected in 2009
will lead to lower margins as fixed overhead will be absorbed over less items
produced.





Selling,
general and administrative expenses of the engineered products segment increased
$549,000 or 8.0% for the year ended December 31, 2008, compared to
2007.  The increase was primarily related to increases in payroll and
payroll related expenses ($378,000) associated with certain salaried positions
which were vacant during 2007, and the write-off from the uncertain
collectibility of customer accounts ($153,000), partially offset by a decrease
in professional fees ($201,000).  During the fourth quarter of 2008
and the start of 2009, the Company reduced certain salaried positions, including
those vacant in 2007, and is continuously working to streamline its operations
and control expenses.





Depending
on the length and severity of the economic recession, future operating results
of the engineered products segment could be adversely impacted.





General
and Administrative Expenses





General
and administrative expenses not associated with the manufacturing operations
increased $503,000 or 18.1% for the year ended December 31, 2008, compared to
such expenses incurred in 2007, primarily related to non-recurring transactions
($328,000) in 2007.





Other
Income and Expense, Net





Other
income and expense, net was ($16.7) million in 2008 as compared to $13.2 million
in 2007.  These amounts include realized losses on the Company’s
marketable security portfolio of ($24.1) million in 2008, and ($402,000) in
2007.  A litigation award received from a property condemnation of
$5.2 million resulted in more income recognized in 2007 along with $2.3 million
in additional interest and dividends generated on the Company’s cash and
marketable security portfolios.  These fluctuations were offset by
$1.0 million in additional realized and unrealized gains on derivative
instruments recognized in 2008.





Income
Taxes





In 2008,
the Company’s effective tax benefit from continuing operations was
(28.5%).  In 2007, the effective tax rate from continuing operations
was 33.9%.  These amounts differ from statutorily enacted rates as a
result of income or losses in certain state jurisdictions which are not
offsettable.  The amount of property gains in a given year, reported
net of tax at statuary rates, as discontinued operations, can also alter the
effective tax rate from continuing operations reported by the
Company.





Discontinued
Operations





Income
from operations on properties sold and accounted for as discontinued operations
was $113,000 and $118,000, on a net of tax basis, for the years ended December
31, 2008 and 2007, respectively.  Prior year amounts have been
reclassified to reflect results of operations of real properties disposed of
during 2008 and 2007, as discontinued operations.




14





During
2008, the Company divested itself of one of its shopping centers and retail
outlets which had a net book value of $1,537,000.  The aggregate
proceeds from this transaction were $12.5 million resulting in a gain of $6.6
million, on a net of tax basis.





During
2007, the Company divested itself of five commercial properties and two other
properties which had a net book value of $1.2 million.  The aggregate
proceeds from these transactions were $17.9 million resulting in a gain of $10.0
million, on a net of tax basis.





Liquidity
and Capital Resources





Net cash
provided by operating activities was $11.3 million for the year ended December
31, 2008, compared to $14.5 million for 2007.  The decrease in
operating cash flows results principally from decreases in operating income
before depreciation ($2.7 million) and interest and dividend income ($2.3
million), partially offset by the cash effect of current and deferred income
taxes ($2.1 million).  The losses on marketable securities realized in
the second half of 2008 resulted in federal income tax refunds of $4.2 million,
which the Company expects to receive in 2009.





In 2008,
net cash used in investing activities was $369,000.  This compares to
$26.2 million of net cash provided by investing activities in
2007.  The timing of the purchase or sale of available-for-sale
securities ($48.4 million) along with a litigation award received from a
property condemnation ($5.2 million) yielded additional cash from investing
activities in 2007.  These were offset by additional proceeds received
from the sale of real estate assets in 2008 ($24.6 million), including those
deferred in connection with tax deferred exchanges in 2007 and lower uses of
cash from the acquisition of/additions to real estate assets ($2.8 million) in
the current year.





In 2008,
the Company used $1.8 million to fund its financing activities.  In
2007, the Company’s financing activities generated $11.6 million in
cash.  This decrease primarily results from additional proceeds from
mortgages obtained during 2007 in excess of that obtained during 2008 ($19.0
million) and additional tax benefits related to the exercise of stock options
($1.2 million) recorded in the prior year.  These were offset by
additional cash flows from the exercise of stock options ($4.2 million) and
lower purchases of the Company’s common stock ($2.9 million) during the current
year.





Previous
purchases of the Company’s Common Stock have reduced the Company’s additional
paid-in capital to zero and have also reduced retained earnings by amounts in
excess of par value.  Any future purchases in excess of par value will
also reduce retained earnings.  Repurchases of the Company’s Common
Stock may be made from time to time in the open market at prevailing market
prices and may be made in privately negotiated transactions, subject to
available resources.  Future proceeds from the issuance of Common
Stock in excess of par value will be credited to retained earnings until such
time that previously recorded reductions have been recovered.





At
December 31, 2008, the Company’s cash and marketable securities were $147.3
million and working capital was $153.9 million, compared to cash and marketable
securities of $156.2 million and working capital of $172.5 million at December
31, 2007.  Included in the 2008 results are ($24.1) million in
realized losses on the Company’s marketable security portfolio.  In
addition, ($8.3) million in unrealized losses are recorded, net of tax, in
Accumulated Other Comprehensive Loss in the accompanying Consolidated Balance
Sheet at December 31, 2008.  Management does not believe that the
unrealized losses are other-than-temporary given recent market conditions and
the Company’s ability to hold such securities in order to allow sufficient time
for recovery, however, continuing market declines may cause this position to be
reexamined.





While
there has been a decline in the value of real estate properties in the United
States, the recession could cause real estate prices to drop even
further.  Management has limited acquisitions to those select
properties that meet the Company’s stringent financial
requirements.  Management believes that opportunities to acquire
additional properties at favorable prices may soon be available and the
Company’s available working capital provides a considerable advantage to fund
acquisitions and grow its portfolio, if and when attractive long-term
opportunities become available.  The tightened credit markets however,
could limit the Company’s the ability to leverage future
acquisitions.





The
equity method of accounting is used for investments in 20% to 50% owned joint
ventures in which the Company has the ability to exercise significant influence,
but not control.  These investments are recorded initially at cost and
subsequently adjusted for equity in earnings and cash contributions and
distributions.  The debt of the joint venture in which the Company
currently has an ownership interest is a non-recourse obligation and is
collateralized by the entity’s real property.  The Company believes
that the value of the underlying property and its operating cash flows are
sufficient to satisfy its obligations.  The Company is not obligated
for the debts of the joint venture, but could decide to satisfy them in order to
protect its investment.  In such event, the Company’s capital
resources and financial condition would be reduced and, in certain instances,
the carrying value of the Company’s investment and its results of operations
would be negatively impacted.




15





The cash
needs of the Company have been satisfied from funds generated by current
operations.  In addition, the Company received additional financing
from mortgages obtained on two of its hotels in 2007.  It is expected
that future operational cash needs will also be satisfied from existing cash
balances, marketable securities, ongoing operations or
borrowings.  The primary source of capital to fund additional real
estate acquisitions and to make additional high-yield mortgage loans may come
from existing funds, the sale, financing and refinancing of the Company’s
properties and from third party mortgages and purchase money notes obtained in
connection with specific acquisitions.





In
addition to the acquisition of properties for consideration consisting of cash
and mortgage financing proceeds, the Company may acquire real properties in
exchange for the issuance of the Company’s equity securities.  The
Company may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities.  The Company currently has no agreements,
commitments or understandings with respect to the acquisition of other companies
or the acquisition of real properties in exchange for equity or debt
securities.





Funds of
the Company in excess of those needed for working capital, purchasing real
estate and arranging financing for real estate acquisitions are invested by the
Company in corporate equity securities, corporate notes, certificates of
deposit, government securities and other financial
instruments.  Although these excess funds are invested in investment
grade securities, they are subject to significant fluctuations in fair value due
to the volatility of the stock market and changes in general economic
conditions.  The realized losses incurred during the second half of
2008, as noted above, resulted from the sudden decline in the stock market and
collapse of certain financial institutions in which the Company held an
interest.  Changes in U.S. interest rates affect the interest earned
on the Company’s cash and cash equivalent balances and other interest bearing
investments.  Given the level of cash and other interest bearing
investments held by the Company, declines in U.S. interest rates have adversely
impacted the Company’s earnings in 2008.





In
strategies designed to hedge overall market risk, the Company may sell common
stock short or participate in put and/or call options.  These
instruments do not qualify for hedge accounting and therefore changes in such
derivatives’ fair value are recognized in earnings.  These derivatives
are recorded as a component of accounts payable and accrued liabilities in the
Consolidated Balance Sheets.  In 2008, the Company recognized $1.4
million in net realized and unrealized gains on derivative
instruments.





The
Company sells its engineered products to many customers throughout the
world.  Historically, a small number of customers have accounted for
significant portions of these sales.  For the year ended December 31,
2008, sales by the engineered products segment to General Motors, its largest
customer, accounted for 10.8% of the segment’s sales.  Since our
engineered products segment accounted for 49.7% of our consolidated revenues in
2008, the loss of General Motors as a customer, or a significant decline in
sales to them, would adversely affect the Company’s revenues, cash flows and
results of operations.  Automakers and their suppliers globally have
experienced significant difficulties from a weakened economy and tightening
credit markets.  The bankruptcy filing of any of the major automotive
companies could lead to similar filings by suppliers to the automotive industry,
many of whom are customers of the Company, which could adversely impact the
engineered products segment.  The nature of that impact could not only
be a reduction in future sales, but also a loss associated with the potential
inability to collect all outstanding accounts receivables, which could
negatively impact the Company’s results of operations and cash
flows.





The
Company manufactures its products in the United States and Mexico and sells its
products in those markets as well as Europe, South America and
Asia.  As a result, the Company’s operating results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its
products.  Most of the Company’s sales are denominated in U.S.
dollars.  For the years ended December 31, 2008 and 2007, 7.9% and
8.2% of the net sales of the Company’s engineered products segment were
denominated in Euros, respectively.  As such, a portion of the
Company’s receivables are exposed to fluctuations with the U.S.
dollar.  However, the Company does not believe this risk to be
material to its overall financial position as the Company’s historical results
have not been significantly impacted by foreign exchange gains or
losses.  Accordingly, the Company has not entered into forward
exchange contracts to hedge this exposure.  If such exposure were to
increase in the future, the Company may reexamine this practice to minimize the
associated risks.




16





The
growing weakness in the economy, exacerbated by recent credit market turmoil,
together with higher year-over-year raw material, energy, freight and other
costs, has pressured the results of the Company’s engineered products and hotel
segments.  These factors are expected to continue to impact the
Company in 2009.  The Company is working to further streamline
operations, control expenses and maximize cash flow from
operations.  While the depth and duration of the current negative
economic environment and its impact on the Company are uncertain, management
believes that the Company’s strong balance sheet together with the significant
cash flow generated from its core real estate portfolio, should allow the
Company to weather this downturn.





In the
general course of its operations, the Company has from time to time restructured
the manner in which it holds its subsidiaries and the underlying assets of its
subsidiaries.  In 2008, a restructuring of the Company’s engineered
products segment took place.  Although there is no effect on the
Company’s consolidated financial results or its financial position, certain
assets of Metex Mfg. Corporation were transferred to new wholly-owned
subsidiaries of the Company.





The plan
assets of the Company’s defined benefit pension plan are valued at fair value
using quoted market prices.  Investments, in general, are subject to
various risks, including credit, interest and overall market
volatility.  During 2008, the equity markets saw a significant decline
in value.  As such, the fair value of plan assets decreased
significantly during the year.  The funded status of the plan
decreased by $3.7 million from December 31, 2007, due in large part to the
decrease in the fair value of plan assets.  This affected the amounts
reported in the Consolidated Balance Sheet at December 31, 2008.  It
also contributes to an expected increase in net periodic pension expense in
2009.  If the equity and bond markets continue to decline, the funded
status of the plan could continue to be materially affected.  This
could result in higher net periodic pension expense, as well as the need for
additional contributions to fund benefits, in the future.





The
Company has undertaken the completion of environmental studies and/or remedial
action at the Company’s two New Jersey facilities and has recorded a liability
for the estimated investigation, remediation and administrative costs associated
therewith.  See “Environmental Regulations” in Item 1 of Part I and
Note 17, “Commitments and Contingencies” of Notes to Consolidated Financial
Statements for further discussion on this matter.





The
Company is subject to various other litigation, legal, regulatory and tax
matters that arise in the ordinary course of business
activities.  When management believes it is probable that liabilities
have been incurred and such amounts are reasonably estimable, the Company
provides for amounts that include judgments and penalties that may be
assessed.  These liabilities are usually included in accounts payable
and accrued liabilities or other long-term liabilities in the Consolidated
Financial Statements, depending on the anticipated payment
date.  Based on the facts presently available, the Company does not
believe that the disposition of matters that are pending or asserted will have a
material adverse effect on the Company’s consolidated financial position or
results of operations.  However, new or additional facts or an adverse
judgment by a court, arbitrator or a settlement could adversely impact the
Company’s results of operations in any given period.





Related
Party Transactions





The
Company has a 50% interest in an unconsolidated limited liability corporation,
whose principal assets are two distribution centers leased to
Kmart.  A group that includes the wife of the Company’s Board
Chairman, two Directors of the Company and the wife of one of the Directors has
an 8% interest in this entity.  The Company’s share of income arising
from this investment, accounted for as a leveraged lease, was $92,000 and
$191,000 for the years ended December 31, 2008 and 2007,
respectively.





Critical
Accounting Policies and Management Estimates





The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to use judgment in making estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.  Certain of the
estimates and assumptions required to be made relate to matters that are
inherently uncertain as they pertain to future events.  While
management believes that the estimates and assumptions used were the most
appropriate, actual results could differ significantly from those estimates
under different assumptions and conditions.  The following is a
description of those accounting policies believed by management to require
subjective and complex judgments which could potentially affect reported
results.




17





Revenue Recognition and Accounts
Receivable – Real Estate Investment and Management





The
Company leases substantially all of its properties to tenants under net leases
which are accounted for as operating leases.  Under this type of
lease, the tenant is obligated to pay all operating costs of the property
including real estate taxes, insurance and repairs and
maintenance.  Revenue is recognized as earned and deemed
collectible.  The effect of stepped-rent increases on significant
leases are recorded, net of allowances, on a straight-line
basis.  Gains on sales of real estate assets and equity investments
are recorded when the gain recognition criteria under generally accepted
accounting principles in the United States of America have been
met.





The
Company does not generally have leases that include significant rent concessions
or provisions that require the lessee to fund capital improvements or to pay the
lessor any revenues based upon indexes or rates that are not explicitly stated
in the lease.





Reimbursements
of certain costs received from tenants are recognized as tenant reimbursement
revenues.





Certain
lease agreements provide for additional rent based on a percentage of tenants’
sales.  These percentage rents are recorded once the required sales
levels are achieved.





Income on
leveraged leases is recognized by a method that produces a constant rate of
return on the outstanding investment in the lease, net of the related deferred
tax liability, in the years in which the net investment is
positive.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  The Company makes estimates of the
uncollectibility of its accounts receivable related to base rents, tenant
escalations, expense reimbursements and other revenues.  The Company
analyzes accounts receivable, historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts.  In addition, tenants in bankruptcy
are analyzed and estimates are made in connection with the expected recovery of
pre-petition and post-petition claims.  The Company’s net income is
directly affected by management’s estimate of the collectibility of accounts
receivable.





Revenue Recognition and Accounts
Receivable – Hotel Operations





Revenues
from the Company’s hotel operations are generally recognized when
earned.  Hotel revenues primarily represent room rental and food and
beverage sales and are recognized at the time of the hotel stay or sale of
restaurant services.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  The Company determines the allowance for doubtful
accounts based on an assessment of the collectibility of specific customer
accounts which include the length of time the receivables are past due, the
financial health of the customer and historical experience.  The
Company’s net income is directly affected by management’s assessment of the
collectibility of accounts receivable.





Revenue Recognition and Accounts
Receivable – Engineered Products





In
general, sales are recorded when products are shipped, title has passed and
collection is reasonably assured.  Management believes that adequate
controls are in place to ensure compliance with contractual product
specifications, a substantial history of such performance has been established
and historical returns and allowances have not been significant.  If
actual sales returns and allowances exceed historical amounts, the Company’s
sales would be adversely affected.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  Estimates are used in determining the Company’s
allowance for doubtful accounts based on historical collections experience,
current economic trends and a percentage of its accounts receivable by aging
category.  In determining these percentages, the Company looks at
historical write-offs of its receivables.  The Company also looks at
the credit quality of its customer base as well as changes in its credit
policies.  The Company continuously monitors collections and payments
from its customers.  While credit losses have historically been within
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same credit loss rates that it has in the
past.  The Company’s net income is directly affected by management’s
estimate of the collectibility of accounts receivable.




18





Marketable Securities





The
Company determines the appropriate classification of marketable securities at
the time of purchase and reassesses the appropriateness of such classification
at each reporting date.  At December 31, 2008 and 2007, all marketable
securities held by the Company have been classified as available-for-sale and,
as a result, are stated at fair value, based on quoted market
prices.  Unrealized gains and losses on available-for-sale securities
are recorded as a separate component of stockholders’
equity.  Realized gains and losses on the sale of securities, as
determined on a first-in, first-out basis, are included in the Consolidated
Statements of Income.





The
Company reviews its investments on a regular basis to evaluate whether or not
each security has experienced an other-than-temporary decline in fair
value.  If it is believed that an other-than-temporary decline exists,
the Company will write down the investment to market value and record the
related write-down as a loss in the Consolidated Statements of
Income.





The
Company’s net income is directly affected by management’s classification of
marketable securities, as well as its determination of whether an
other-than-temporary decline in the value of its investments
exists.





Inventories





The
Company values inventory at the lower of cost or market, cost being determined
on a first-in, first-out basis.  The Company regularly reviews
inventory quantities on hand and records a provision for excess and obsolete
inventory based primarily on existing and anticipated design and engineering
changes to its products as well as forecasts of future product
demand.  The Company’s net income is directly affected by management’s
estimate of the realizability of inventories.





Real Estate





Land,
buildings and improvements and equipment are recorded at cost, less accumulated
depreciation and amortization.  Expenditures for maintenance and
repairs are charged to operations as incurred.  Significant
renovations and replacements, which improve the life of the asset, are
capitalized and depreciated over their estimated useful lives.





Depreciation
is computed utilizing the straight-line method over the estimated useful lives
of 19 to 39 years for buildings, five to 39 years for renovations and
improvements and five to 15 years for equipment and fixtures.





Assets
held for sale are reported at the lower of the carrying amount or fair value
less costs to sell and depreciation is discontinued.  Property sales
or dispositions are recorded when title transfers.  Upon disposition,
the related costs and accumulated depreciation are removed from the respective
accounts.  Any gain or loss on sale or disposition is recognized in
accordance with accounting principles generally accepted in the United States of
America.  In the normal course of business, the Company receives
offers for the sale of properties, either solicited or
unsolicited.  For those offers that are accepted, the prospective
buyer usually requires a due diligence period before consummation of the
transaction.  It is not unusual for matters to arise that result in
the withdrawal or rejection of the offer during this process.  If
circumstances arise that previously were considered unlikely and, as a result,
management decides not to sell a property classified as held for sale, the
property is reclassified as held for rental.  A property that is
reclassified is measured and recorded individually at the lower of its carrying
amount before being classified as held for sale, adjusted for any depreciation
expense that would have been recognized had the property been continuously
classified as held for rental or its fair market value at the date of the
subsequent decision not to sell.





The
Company is required to make subjective assessments as to the useful lives of its
properties for purposes of determining the amount of depreciation to reflect on
an annual basis with respect to those properties.  These assessments
have a direct impact on the Company’s net income.  Should the Company
adjust the expected useful life of a particular asset, it would be depreciated
over the adjusted years, and result in a revised depreciation expense and net
income.





Discontinued
Operations





The
Company is required to make certain subjective assessments utilizing the
provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”) in determining whether a long-lived asset to be
disposed of should be reclassified as discontinued operations.  The
Company considers real property to be held for sale and reported as discontinued
operations if management commits to a plan to sell the asset under usual and
customary terms and believes such sale will be completed within one
year.  In such event, the financial results associated with these
assets are reclassified as discontinued operations for all periods
presented.  Although operating income, income from continuing
operations and income from discontinued operations are directly affected by
management’s assessments, the reclassification has no impact on net
income.




19





Long-Lived
Assets





On a
periodic basis, management assesses whether there are any indicators that the
value of its long-lived assets may be impaired.  An asset’s value is
considered impaired only if management’s estimate of current and projected
operating cash flows (undiscounted and without interest charges) of the asset
over its remaining useful life is less than the net carrying value of the
asset.  Such cash flow projections consider factors such as expected
future operating income, trends and prospects, as well as the effects of demand,
competition and other factors.  To the extent impairment has occurred,
the carrying amount of the asset would be written down to an amount to reflect
the fair value of the asset.





The
Company is required to make subjective assessments as to whether there are
impairments in the value of its long-lived assets and other
investments.  The Company’s net income is directly affected by
management’s estimate of impairments.  In determining impairment, if
any, the Company has adopted SFAS 144.





Pension
Plan





Pension
plans can be a significant cost of doing business, but represent obligations
that will ultimately be settled far in the future and therefore are subject to
estimates.  Pension accounting is intended to reflect the recognition
of future benefit costs over the employee’s approximate service period based on
the terms of the plan and the investment and funding decisions made by the
Company.  The Company is required to make assumptions regarding such
variables as the expected long-term rate of return on assets and the discount
rate applied to determine service cost and interest cost to arrive at pension
income or expense for the year.  These assumptions are used in
actuarial calculations to estimate pension costs as well as pension assets or
liabilities included in the Company’s Consolidated Financial
Statements.  While the Company believes that the assumptions used are
appropriate, significant differences in actual experience or significant changes
in assumptions would affect the Company’s pension costs and
obligations.





The
Company has assumed the expected long-term rate of return on plan assets to be
8% in each of the last two years.  Based on the Company’s existing and
forecasted asset allocation and related long-term investment performance
results, the Company believes that its assumption of future returns of 8% is
reasonable.  The assumed long-term rate of return on assets is applied
to a calculated value of plan assets, which recognizes changes in the fair value
of plan assets in a systematic manner.  This produces the expected
return on plan assets that is included in net periodic pension income
(expense).  The difference between this expected return and the actual
return on plan assets is deferred.  The net deferral of past asset
gains (losses) affects the calculated value of plan assets and, ultimately,
future net periodic pension income (expense).  A 100 basis point
change in the expected long-term rate of return on plan assets would have
changed fiscal 2008 net periodic pension expense by $99,000.





The plan
assets of the Company’s defined benefit pension plan are valued at fair value
using quoted market prices.  Investments, in general, are subject to
various risks, including credit, interest and overall market
volatility.  During 2008, the equity markets saw a significant decline
in value.  As such, the fair value of plan assets decreased
significantly during the year.  The funded status of the plan
decreased by $3.7 million from December 31, 2007, due in large part to the
decrease in the fair value of plan assets.  This affected the amounts
reported in the Consolidated Balance Sheet at December 31, 2008.  It
also contributes to an expected increase in net periodic pension expense in
2009.  If the equity and bond markets continue to decline, the funded
status of the plan could continue to be materially affected.  This
could result in higher net periodic pension expense, as well as the need for
additional contributions to fund benefits, in the future.





Recent
Accounting Pronouncements





See Note
1 of Notes to Consolidated Financial Statements for a full description of recent
accounting pronouncements including the respective dates of adoption and effects
on results of operations and financial condition.




20


ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 Not
applicable, as the Company is a smaller reporting company.





ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA


The
financial statements and supplementary information filed as part of this Item 8
are listed under Item 15, “Exhibits and Financial Statement Schedules” and are
contained in this Form 10-K, beginning on page 26.








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





None





ITEM
      9A(T).
              CONTROLS
      AND PROCEDURES
 Evaluation
of Disclosure Controls and Procedures





The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures
pursuant to Securities Exchange Act Rule 13a-15(e) and 15d-15(e) as of the end
of the period covered by this report.  Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company’s periodic
reports.





Management’s
Annual Report on Internal Control Over Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Securities
Exchange Act Rule 13a-15(f).  Under the supervision and with the
participation of Company’s management, including the Chief Executive Officer and
Chief Financial Officer, an evaluation was performed of the effectiveness of the
Company's internal control over financial reporting. The evaluation was based on
the framework in “Internal Control—Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”).  Management’s assessment included an evaluation of the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of its internal control over financial
reporting.  There are inherent limitations in the effectiveness of any
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even effective internal controls over
financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions, the
effectiveness of internal control may vary over time.  Based on the
evaluation under the framework in “Internal Control—Integrated Framework,” the
Company’s management concluded that the Company’s internal control over
financial reporting was effective at the reasonable assurance level as of
December 31, 2008.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting,
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





Changes
in Internal Control Over Financial Reporting





The
Company has made no significant changes in its internal controls over financial
reporting, or in other factors that could significantly affect these controls
during the three months ended December 31, 2008 that have materially affected or
are reasonably likely to materially affect the Company’s internal control over
financial reporting.




21


ITEM
      9B.
              OTHER
      INFORMATION





The
salary of A.F. Petrocelli, the Company’s Chairman, President and Chief
Executive Officer, is set forth in his employment agreement, as amended from
time to time by the Company’s Compensation and Stock Option Committee (the
“Committee”).  The employment agreement was filed as an exhibit to the
Company’s Form 10-K for the fiscal year ended December 31, 2003.  Per
Mr. Petrocelli’s employment agreement, the Committee determines the amount
of salary and bonus paid to him annually.  The Committee, in
consultation with Mr. Petrocelli, determines the salaries and bonuses of
Michael T. Lamoretti and Michael J. Weinbaum, who are both Vice Presidents
of the Company’s real estate operations, and Anthony J. Miceli, the
Company’s Vice President and Chief Financial Officer.  Messrs.
Lamoretti, Weinbaum and Miceli do not have written employment agreements with
the Company.  In December 2008, the Committee approved bonuses for
Messrs. Petrocelli, Lamoretti, Weinbaum and Miceli payable in
2009.  Such bonuses were consistent with the bonuses paid in prior
years.








PART III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





This
information will be contained in the Proxy Statement of the Company for the 2009
Annual Meeting of Stockholders under the caption “Election of Directors” and is
incorporated herein by reference.








ITEM
      11.
            EXECUTIVE
      COMPENSATION





This
information will be contained in the Proxy Statement of the Company for the 2009
Annual Meeting of Stockholders under the caption “Executive Compensation” and is
incorporated herein by reference.








ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





This
information will be contained in the Proxy Statement of the Company for the 2009
Annual Meeting of Stockholders under the caption “Security Ownership” and is
incorporated herein by reference.





ITEM
      13.
              CERTAIN
      RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
    INDEPENDENCE
 This
information will be contained in the Proxy Statement of the Company for the 2009
Annual Meeting of Stockholders under the caption “Certain Relationships, Related
Transactions and Director Independence” and is incorporated herein by
reference.  Also see “Related Party Transactions” in Item 7 and Note
11, “Transactions with Related Parties,” of Notes to Consolidated Financial
Statements, contained elsewhere in this report.





ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES


This
information will be contained in the Proxy Statement of the Company for the 2009
Annual Meeting of Stockholders under the caption “Independent Auditors” and is
incorporated herein by reference.




22





PART
IV





ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(a)
            (1)
            Consolidated Financial Statements.  The
      following Consolidated Financial Statements and Consolidated Financial
      Statement Schedules of the Company are included in this Form 10-K on the
      pages indicated:





Index
      to Consolidated Financial Statements
                PageReport
      of Independent Registered Public Accounting Firm – Holtz Rubenstein
      Reminick LLP
                26Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                27Consolidated
      Statements of Income for the Years Ended December 31, 2008 and
      2007
                28Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income
      (Loss) for the Years Ended December 31, 2008 and
      2007
                29Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                30-31Notes
      to Consolidated Financial Statements
                32-48


(2)
            Consolidated
      Financial Statements Schedules.





Schedules
      not included, as the Company is a smaller reporting
    company.





(b)
Exhibits




3.1
              Amended
      and Restated Certificate of Incorporation of the Company (incorporated by
      reference to exhibit 3.1 filed with the Company’s report on Form 10-K for
      the fiscal year ended December 31, 1993).3.2
              Amendment
      to the Amended and Restated Certificate of Incorporation of the Company
      (incorporated by reference to exhibit 3.2 filed with the Company’s report
      on Form 10-K for the fiscal year ended December 31,
  2003).3.3
              By-laws
      of the Company (incorporated by reference to exhibit 3.2 filed with the
      Company’s report on Form 8-K dated April 14, 2005).10.1
              Incentive
      and Non-Qualified Stock Option Plan of the Company, as amended
      (incorporated by reference to exhibit 10.1 filed with the Company’s report
      on Form 10-K for the fiscal year ended December 31,
  2000).10.2
              Additional
      amendment to Incentive and Non-Qualified Stock Option Plan of the Company
      (incorporated by reference to exhibit 4.2 filed with the Company’s report
      on Form S-8 dated August 23, 2002).10.3
              1988
      Joint Incentive and Non-Qualified Stock Option Plan, as amended
      (incorporated by reference to exhibit 10.2 filed with the Company’s report
      on Form 10-K for the fiscal year ended December 31,
  1998).10.4
              Amended
      and Restated Employment Agreement dated as of November 17, 2003 by and
      between the Company and A. F. Petrocelli (incorporated by
      reference to exhibit 10.4 filed with the Company’s report on Form 10-K for
      the fiscal year ended December 31, 2003).14.
              Code
      of Business Conduct and Ethics (incorporated by reference to exhibit 14
      filed with the Company’s report on Form 10-Q for the quarter ended June
      30, 2006).*21.
              Subsidiaries
      of the Company.*23.1
              Consent
      of Independent Registered Public Accounting Firm – Holtz Rubenstein
      Reminick LLP.*31.1.
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-15(e) and
      15d-15(e).








23




*31.2
                Certification
      of the Chief Financial Officer pursuant to Rule 13a-15(e) and
      15d-15(e).*32.1
                Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.*32.2.
                Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





* Filed
herewith





24


SIGNATURES
 
 
 
 
 Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
  UNITED
      CAPITAL CORP.Dated:  March
      26, 2009
                By:
                /s/
      A. F. PetrocelliA.
      F. PetrocelliChairman,
      President andChief
      Executive Officer
 
 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 Company
in the capacities and on the date indicated.
 
 Dated:  March
      26, 2009
              By:
              /s/
      A. F. PetrocelliA.
      F. PetrocelliChairman,
      President andChief
      Executive OfficerDated:  March
      26, 2009
              By:
              /s/
      Michael T. LamorettiMichael
      T. LamorettiVice
      President – Real Estate Operationsand
      DirectorDated:  March
      26, 2009
              By:
              /s/
      Howard M. LorberHoward
      M. LorberDirectorDated:  March
      26, 2009
              By:
              /s/
      Robert M. MannRobert
      M. MannDirectorDated:  March
      26, 2009
              By:
              /s/
      Anthony J. MiceliAnthony
      J. MiceliChief
      Financial Officer,Chief
      Accountant, Secretary and DirectorDated:  March
      26, 2009
              By:
              /s/
      Arnold S. PennerArnold
      S. PennerDirectorDated:  March
      26, 2009
              By:
              /s/
      Michael J. WeinbaumMichael
      J. WeinbaumVice
      President – Real Estate Operationsand
      Director
 
 25




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















To the
Board of Directors


and
Stockholders of


United
Capital Corp.








We have
audited the accompanying consolidated balance sheets of United Capital Corp. and
Subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of income, stockholders’ equity and comprehensive income
(loss), and cash flows for the years then ended.  These financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audit.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of United Capital Corp.
and Subsidiaries as of December 31, 2008 and 2007 and the consolidated results
of its operations and its consolidated cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.





As
described in Note 2 to the consolidated financial statements, the Company has
reclassified the 2007 consolidated financial statements to reflect certain
discontinued operations.











/s/ Holtz Rubenstein
Reminick
LLP


HOLTZ
RUBENSTEIN REMINICK LLP





Melville,
New York


March 6,
2009




26


UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except per share data)








As
      of December 31,2008
              
              
              2007AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              138,142
              
              
              $
              129,003Marketable
      securities
              
              
              9,178
              
              
              
              27,191Notes
      and accounts receivable, net
              
              
              7,427
              
              
              
              24,209Income
      taxes receivable
              
              
              4,163
              
              
              
              —Inventories
              
              
              5,624
              
              
              
              5,458Prepaid
      expenses and other current assets
              
              
              1,732
              
              
              
              1,787Deferred
      income taxes
              
              
              4,011
              
              
              
              1,143Total
      current assets
              
              
              170,277
              
              
              
              188,791Property,
      plant and equipment, net
              
              
              5,591
              
              
              
              6,249Real
      property held for rental, net
              
              
              77,202
              
              
              
              64,936Investment
      in joint venture
              
              
              5,440
              
              
              
              6,125Noncurrent
      notes receivable
              
              
              1,058
              
              
              
              352Other
      assets
              
              
              3,317
              
              
              
              4,059Noncurrent
      assets of discontinued operations
              
              
              —
              
              
              
              1,558Total
      assets
              
              $
              262,885
              
              
              $
              272,070Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              2,717
              
              
              $
              1,002Accounts
      payable and accrued liabilities
              
              
              10,036
              
              
              
              10,934Income
      taxes payable
              
              
              3,629
              
              
              
              4,343Total
      current liabilities
              
              
              16,382
              
              
              
              16,279Long-term
      debt
              
              
              30,146
              
              
              
              32,334Other
      long-term liabilities
              
              
              18,076
              
              
              
              15,233Deferred
      income taxes
              
              
              8,314
              
              
              
              9,615Total
      liabilities
              
              
              72,918
              
              
              
              73,461Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $.10 par value, authorized 17,500 shares; issued
                and outstanding 8,483 and
      8,286 shares, respectively
              
              
              848
              
              
              
              829Retained
      earnings
              
              
              197,056
              
              
              
              196,817Accumulated
      other comprehensive (loss) income, net of tax
              
              
              (7,937
              )
              
              
              963Total
      stockholders’ equity
              
              
              189,967
              
              
              
              198,609Total
      liabilities and stockholders’ equity
              
              $
              262,885
              
              
              $
              272,070





























The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.




27


UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


(In
thousands, except per share data)








For
      the years ended
                  December
      31,2008
              
              
              2007Revenues:Net sales
              
              $
              36,212
              
              
              $
              37,820Revenues from real estate
      operations
              
              
              36,709
              
              
              
              33,951Total revenues
              
              
              72,921
              
              
              
              71,771Costs
      and expenses:Cost of sales
              
              
              28,530
              
              
              
              28,868Real estate
      operations:Mortgage interest
      expense
              
              
              2,115
              
              
              
              1,096Depreciation
      expense
              
              
              3,881
              
              
              
              3,108Other operating
      expenses
              
              
              18,051
              
              
              
              15,931General and administrative
      expenses
              
              
              6,626
              
              
              
              6,220Selling
expenses
              
              
              4,071
              
              
              
              3,425Total costs and
      expenses
              
              
              63,274
              
              
              
              58,648Operating
    income
              
              
              9,647
              
              
              
              13,123Other income
      (expense):Interest and dividend
      income
              
              
              5,355
              
              
              
              7,605Other income and (expense),
      net
              
              
              (22,096
              )
              
              
              5,617Total other income
      (expense)
              
              
              (16,741
              )
              
              
              13,222(Loss) income from continuing
      operations before income taxes
              
              
              (7,094
              )
              
              
              26,345(Benefit) provision for income
      taxes
              
              
              (2,019
              )
              
              
              8,929(Loss) income from continuing
      operations
              
              
              (5,075
              )
              
              
              17,416Discontinued
      operations:Income from discontinued
      operations, net of tax provision of $76 and $79,
    respectively
              
              
              113
              
              
              
              118Net gain on disposal of
      discontinued operations, net of tax provision of $4,385 and $6,668,
      respectively
              
              
              6,578
              
              
              
              10,002Income from discontinued
      operations
              
              
              6,691
              
              
              
              10,120Net income
              
              $
              1,616
              
              
              $
              27,536Basic
      earnings per share:(Loss) income from continuing
      operations
              
              $
              (.60
              )
              
              $
              2.10Income from discontinued
      operations
              
              
              .79
              
              
              
              1.22Net income per
      share
              
              $
              .19
              
              
              $
              3.32Diluted
      earnings per share:(Loss) income from continuing
      operations
              
              $
              (.60
              )
              
              $
              1.71Income from discontinued
      operations
              
              
              .79
              
              
              
              .99Net income per share assuming
      dilution
              
              $
              .19
              
              
              $
              2.70























The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.




28


UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


AND
COMPREHENSIVE INCOME (LOSS)


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(In
thousands)








Accumulated
                          Other
                          Comprehensive
                        
                        
                        Total
                        
                        
                        ComprehensiveCommon
      Stock Issued
                        
                        
                        Retained
                        
                        
                        Income
      (Loss),
                        
                        
                        Stockholders’
                        
                        
                        IncomeShares
                        
                        
                        Amount
                        
                        
                        Earnings
                        
                        
                        Net
      of Tax
                        
                        
                        Equity
                        
                        
                        (Loss)Balance
      – January 1, 2007
                        
                        
                        8,278
                        
                        
                        $
                        828
                        
                        
                        $
                        176,520
                        
                        
                        $
                        2,125
                        
                        
                        $
                        179,473Purchase
      and retirement of common shares
                        
                        
                        (542
                        )
                        
                        
                        (54
                        )
                        
                        
                        (16,146
                        )
                        
                        
                        —
                        
                        
                        
                        (16,200
                        )Proceeds
      from the exercise of stock options
                        
                        
                        550
                        
                        
                        
                        55
                        
                        
                        
                        4,924
                        
                        
                        
                        —
                        
                        
                        
                        4,979Tax
      benefit from employee stock options
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        3,983
                        
                        
                        
                        —
                        
                        
                        
                        3,983Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        27,536
                        
                        
                        
                        —
                        
                        
                        
                        27,536
                        
                        
                        $
                        27,536Other
      comprehensive income, net of tax:Change
      in net unrealized loss on available for sale securities, net of tax effect
      of $783
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (1,455
                        )
                        
                        
                        (1,455
                        )
                        
                        
                        (1,455
                        )Reclassification
      adjustment for net loss realized in net income, net of tax effect of
      $191
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        356
                        
                        
                        
                        356
                        
                        
                        
                        356Amortization
      of unrecognized net loss from pension plan, net of tax effect of
      $34
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (63
                        )
                        
                        
                        (63
                        )
                        
                        
                        (63
                        )Comprehensive
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        26,374Balance
      – December 31, 2007
                        
                        
                        8,286
                        
                        
                        
                        829
                        
                        
                        
                        196,817
                        
                        
                        
                        963
                        
                        
                        
                        198,609Purchase
      and retirement of common shares
                        
                        
                        (607
                        )
                        
                        
                        (61
                        )
                        
                        
                        (13,270
                        )
                        
                        
                        —
                        
                        
                        
                        (13,331
                        )Proceeds
      from the exercise of stock options
                        
                        
                        804
                        
                        
                        
                        80
                        
                        
                        
                        9,144
                        
                        
                        
                        —
                        
                        
                        
                        9,224Tax
      benefit from employee stock options
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        2,749
                        
                        
                        
                        —
                        
                        
                        
                        2,749Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,616
                        
                        
                        
                        —
                        
                        
                        
                        1,616
                        
                        
                        $
                        1,616Other
      comprehensive loss, net of tax:Change
      in net unrealized loss on available for sale securities, net of tax effect
      of $6,532
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (12,131
                        )
                        
                        
                        (12,131
                        )
                        
                        
                        (12,131
                        )Reclassification
      adjustment for net loss realized in net income, net of tax effect of
      $3,494
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        6,489
                        
                        
                        
                        6,489
                        
                        
                        
                        6,489Amortization
      of unrecognized net loss from pension plan, net of tax effect of
      $1,754
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (3,258
                        )
                        
                        
                        (3,258
                        )
                        
                        
                        (3,258
                        )Comprehensive
      loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        (7,284
                        )Balance
      – December 31, 2008
                        
                        
                        8,483
                        
                        
                        $
                        848
                        
                        
                        $
                        197,056
                        
                        
                        $
                        (7,937
                        )
                        
                        $
                        189,967



















The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.




29




UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)





For
      the years ended
                  December
      31,2008
              
              
              2007Cash flows from operating
      activities:Net
      income
              
              $
              1,616
              
              
              $
              27,536Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              4,294
              
              
              
              3,542Gain
      on disposal of discontinued operations, net of tax
              
              
              (6,578
              )
              
              
              (10,002
              )Litigation
      award from prior condemnation
              
              
              (457
              )
              
              
              (5,665
              )Net
      loss on sale of available-for-sale securities
              
              
              24,079
              
              
              
              402Net
      realized and unrealized gain on derivative instruments
              
              
              (1,418
              )
              
              
              (371
              )Income
      from equity investments
              
              
              (92
              )
              
              
              (191
              )Deferred
      income taxes
              
              
              623
              
              
              
              (87
              )Other,
      net
              
              
              157
              
              
              
              246Changes
      in assets and liabilities:Notes
      and accounts receivable, net
              
              
              1,030
              
              
              
              (417
              )Inventories
              
              
              (166
              )
              
              
              (564
              )Prepaid
      expenses and other current assets
              
              
              55
              
              
              
              (128
              )Other
      assets
              
              
              (1,674
              )
              
              
              (1,499
              )Accounts
      payable and accrued liabilities
              
              
              (889
              )
              
              
              1,396Income
      taxes payable
              
              
              (9,262
              )
              
              
              325Net
      cash provided by operating activities of continuing
    operations
              
              
              11,318
              
              
              
              14,523Operating
      activities of discontinued operations
              
              
              21
              
              
              
              (26
              )Net
      cash provided by operating activities
              
              
              11,339
              
              
              
              14,497Cash flows from investing
      activities:Purchase
      of available-for-sale securities
              
              
              (27,242
              )
              
              
              (19,862
              )Proceeds/maturities
      from sale of available-for-sale securities
              
              
              12,553
              
              
              
              53,548Proceeds
      from sale of real estate assets
              
              
              12,500
              
              
              
              17,855Escrowed
      proceeds from sale of real estate assets
              
              
              15,000
              
              
              
              (15,000
              )Net
      proceeds from litigation award from prior condemnation
              
              
              457
              
              
              
              5,665Proceeds
      from sale of derivative instruments
              
              
              1,433
              
              
              
              366Purchases
      of derivative instruments
              
              
              (24
              )
              
              
              —Principal
      payments on notes receivable
              
              
              46
              
              
              
              1,382Acquisition
      of property, plant and equipment
              
              
              (561
              )
              
              
              (421
              )Acquisition
      of/additions to real estate assets
              
              
              (15,308
              )
              
              
              (18,150
              )Distributions
      from joint ventures
              
              
              777
              
              
              
              777Net
      cash (used in) provided by investing activities of continuing
      operations
              
              
              (369
              )
              
              
              26,160Investing
      activities of discontinued operations
              
              
              —
              
              
              
              15Net
      cash (used in) provided by investing activities
              
              
              (369
              )
              
              
              26,175























Continued




30





UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)


(In
thousands)











For
      the years ended
                  December
      31,2008
              
              
              2007Cash flows from financing
      activities:Proceeds
      from mortgage obligations
              
              
              500
              
              
              
              19,500Principal
      payments on mortgage obligations
              
              
              (973
              )
              
              
              (619
              )Purchase
      and retirement of common stock
              
              
              (13,331
              )
              
              
              (16,200
              )Proceeds
      from the exercise of stock options
              
              
              9,224
              
              
              
              4,979Tax
      benefit from exercise of employee stock options
              
              
              2,749
              
              
              
              3,983Net
      cash (used in) provided by financing activities
              
              
              (1,831
              )
              
              
              11,643Net
      increase in cash and cash equivalents
              
              
              9,139
              
              
              
              52,315Cash
      and cash equivalents, beginning of year
              
              
              129,003
              
              
              
              76,688Cash
      and cash equivalents, end of year
              
              $
              138,142
              
              
              $
              129,003Supplemental disclosures of
      cash flow information:Cash
      paid during the year for:Interest
              
              $
              2,112
              
              
              $
              1,089Taxes
              
              $
              3,880
              
              
              $
              4,520Non-cash
      investing and financing activities:Mortgage
      obligation assumed in connection with acquisition of hotel property (see
      Note 2)
              
              $
              —
              
              
              $
              2,315



























































The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.




31




UNITED
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007


(In
thousands, except per share data)





1. Nature of
Business and Summary of Significant Accounting Policies





Nature
of Business





United
Capital Corp. (the “Company”) and its subsidiaries are engaged in the investment
and management of real estate, including the operation of full and
limited-service hotels, and in the manufacture and sale of engineered
products.  The Company also invests excess available cash in
marketable securities and other financial instruments.





Principles
of Consolidation





The
Consolidated Financial Statements include the accounts of the Company and its
wholly-owned subsidiaries.  All significant intercompany accounts and
transactions have been eliminated.  The equity method of accounting is
used for investments in 20% to 50% owned joint ventures in which the Company has
the ability to exercise significant influence, but not control.  These
investments are recorded initially at cost and subsequently adjusted for equity
in earnings and cash contributions and distributions.





In the
general course of its operations, the Company has from time to time restructured
the manner in which it holds its subsidiaries and the underlying assets of its
subsidiaries.  In 2008, a restructuring of the Company’s engineered
products segment took place.  Although there is no effect on the
Company’s consolidated financial results or its financial position, certain
assets of Metex Mfg. Corporation were transferred to new wholly-owned
subsidiaries of the Company.





Revenue
Recognition and Accounts Receivable – Real Estate Investment and
Management





The
Company leases substantially all of its properties to tenants under net leases
which are accounted for as operating leases.  Under this type of
lease, the tenant is obligated to pay all operating costs of the property
including real estate taxes, insurance and repairs and
maintenance.  Revenue is recognized as earned and deemed
collectible.  The effect of stepped-rent increases on significant
leases are recorded, net of allowances, on a straight-line
basis.  Gains on sales of real estate assets and equity investments
are recorded when the gain recognition criteria under generally accepted
accounting principles in the United States of America have been
met.





The
Company does not generally have leases that include significant rent concessions
or provisions that require the lessee to fund capital improvements or to pay the
lessor any revenues based upon indexes or rates that are not explicitly stated
in the lease.





Reimbursements
of certain costs received from tenants are recognized as tenant reimbursement
revenues.





Certain
lease agreements provide for additional rent based on a percentage of tenants’
sales.  These percentage rents are recorded once the required sales
levels are achieved.





Income on
leveraged leases is recognized by a method that produces a constant rate of
return on the outstanding investment in the lease, net of the related deferred
tax liability, in the years in which the net investment is
positive.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  The Company makes estimates of the
uncollectibility of its accounts receivable related to base rents, tenant
escalations, expense reimbursements and other revenues.  The Company
analyzes accounts receivable, historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts.  In addition, tenants in bankruptcy
are analyzed and estimates are made in connection with the expected recovery of
pre-petition and post-petition claims.




32





Revenue
Recognition and Accounts Receivable – Hotel Operations





Revenues
from the Company’s hotel operations are generally recognized when
earned.  Hotel revenues primarily represent room rental and food and
beverage sales and are recognized at the time of the hotel stay or sale of
restaurant services.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  The Company determines the allowance for doubtful
accounts based on an assessment of the collectibility of specific customer
accounts which include the length of time the receivables are past due, the
financial health of the customer and historical experience.





Revenue
Recognition and Accounts Receivable – Engineered Products





In
general, sales are recorded when products are shipped, title has passed and
collection is reasonably assured.  Management believes that adequate
controls are in place to ensure compliance with contractual product
specifications, a substantial history of such performance has been established
and historical returns and allowances have not been significant.  If
actual sales returns and allowances exceed historical amounts, the Company’s
sales would be adversely affected.





Accounts
receivable are recorded at the outstanding amounts, net of allowances for
doubtful accounts.  Estimates are used in determining the Company’s
allowance for doubtful accounts based on historical collections experience,
current economic trends and a percentage of its accounts receivable by aging
category.  In determining these percentages, the Company looks at
historical write-offs of its receivables.  The Company also looks at
the credit quality of its customer base as well as changes in its credit
policies.  The Company continuously monitors collections and payments
from its customers.  While credit losses have historically been within
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same credit loss rates that it has in the
past.





Cash
and Cash Equivalents





Cash
equivalents of $133 and $16,122 at December 31, 2008 and 2007, respectively,
consisted of certificates of deposit.  The Company considers all
highly liquid investments with a maturity, at the purchase date, of three months
or less to be cash equivalents.  The Company maintains balances with
various financial institutions which, at times, exceed federally insured
limits.





Marketable
Securities





The
Company determines the appropriate classification of securities at the time of
purchase and reassesses the appropriateness of such classification at each
reporting date.  At December 31, 2008 and 2007, all marketable
securities held by the Company have been classified as available-for-sale and,
as a result, are stated at fair value, based on quoted market
prices.  Unrealized gains and losses on available-for-sale securities
are recorded as a separate component of stockholders’
equity.  Realized gains and losses on the sale of securities, as
determined on a first-in, first-out basis, are included in the Consolidated
Statements of Income.





The
Company reviews its investments on a regular basis to evaluate whether or not
each security has experienced an other-than-temporary decline in fair
value.  If it is believed that an other-than-temporary decline exists,
the Company will write down the investment to market value and record the
related write-down in the Consolidated Statements of Income.




33





Notes
and Accounts Receivable, Net





Notes and
accounts receivable, net consist of the following:


December
      31,2008
              
              
              2007Trade
      receivables
              
              $
              5,357
              
              
              $
              5,494Rental
      receivables
              
              
              1,788
              
              
              
              2,185Other
      receivables (see Note 2)
              
              
              689
              
              
              
              16,032Current
      portion of notes receivable
              
              
              43
              
              
              
              795Total
              
              
              7,877
              
              
              
              24,506Less:  Allowance
      for doubtful accounts
              
              
              450
              
              
              
              297$
              7,427
              
              
              $
              24,209





Inventories





Inventories
are stated at the lower of cost or market and include material, labor and
manufacturing overhead.  The first-in, first-out (FIFO) method is used
to determine the cost of inventories.  Inventories consist of the
following:





December
      31,2008
              
              
              2007Raw
      materials
              
              $
              2,607
              
              
              $
              2,446Work
      in process
              
              
              458
              
              
              
              542Finished
      goods
              
              
              2,559
              
              
              
              2,470$
              5,624
              
              
              $
              5,458





Depreciation
and Amortization





Depreciation
and amortization are provided on a straight-line basis over the estimated useful
lives of the related assets as follows:





Real
      property held for rental:Buildings
                19
      to 39 yearsBuilding
      renovations and improvements
                5
      to 39 yearsEquipment
      and fixtures
                5
      to 15 yearsProperty,
      plant and equipment:Buildings
      and improvements
                18
      to 39 yearsFurniture,
      fixtures and equipment
                3
      to 15 yearsIntangible
      assets with definite lives:Patents
      and trademarks
                17
      to 20 years




Real
Estate





Land,
buildings and improvements, and equipment and fixtures are recorded at cost,
less accumulated depreciation.  Expenditures for maintenance and
repairs are charged to operations as incurred.  Significant
renovations and replacements, which improve the life of the asset, are
capitalized and depreciated over their estimated useful lives.





Assets
held for sale are reported at the lower of the carrying amount or fair value
less costs to sell and depreciation is discontinued.  Property sales
or dispositions are recorded when title transfers.  Upon disposition,
the related costs and accumulated depreciation are removed from the respective
accounts.  Any gain or loss on sale or disposition is recognized in
accordance with accounting principles generally accepted in the United States of
America.





Property,
Plant and Equipment





Property,
plant and equipment is recorded at cost, less accumulated
depreciation.  Major improvements are capitalized and maintenance and
repairs are expensed as incurred.




34





Long-Lived
Assets





On a
periodic basis, management assesses whether there are any indicators that the
value of its long-lived assets may be impaired.  An asset’s value is
considered impaired only if management’s estimate of current and projected
operating cash flows (undiscounted and without interest charges) of the asset
over its remaining useful life is less than the net carrying value of the
asset.  Such cash flow projections consider factors such as expected
future operating income, trends and prospects, as well as the effects of demand,
competition and other factors.  To the extent impairment has occurred,
the carrying amount of the asset would be written down to an amount to reflect
the fair value of the asset.





Pension
Plan





Pension
plans can be a significant cost of doing business, but represent obligations
that will ultimately be settled far in the future and therefore are subject to
estimates.  Pension accounting is intended to reflect the recognition
of future benefit costs over the employee’s approximate service period based on
the terms of the plan and the investment and funding decisions made by the
Company.  The Company is required to make assumptions regarding such
variables as the expected long-term rate of return on assets and the discount
rate applied to determine service cost and interest cost to arrive at net
periodic pension income or expense for the year.  These assumptions
are used in actuarial calculations to estimate net periodic pension costs as
well as pension assets or liabilities included in the Company’s Consolidated
Financial Statements.  While the Company believes that the assumptions
used are appropriate, significant differences in actual experience or
significant changes in assumptions would affect the Company’s pension costs and
obligations.





Research
and Development





The
Company expenses research, development and product engineering costs as
incurred.  Approximately $58 and $46 of such costs were incurred by
the Company in 2008 and 2007, respectively.





Shipping
and Handling Costs





Shipping
and handling costs billed to a customer are included in net sales and the
related costs are included in cost of sales or selling expenses.  For
the years ended December 31, 2008 and 2007, shipping and handling costs included
in selling expenses were $470 and $430, respectively.





Earnings
Per Share





Basic
earnings per share is calculated by dividing net income by the weighted-average
number of shares outstanding.  Diluted earnings per share gives effect
to all potentially dilutive shares that were outstanding during the period,
unless the effect would be antidilutive.  Dilutive shares used in the
computation of diluted earnings per share result from the assumed exercise of
stock options, using the treasury stock method.





Derivative
Financial Instruments





The
Company recognizes all derivative financial instruments, such as put and/or call
options, in the Consolidated Financial Statements at fair value regardless of
the purpose or intent for holding the instrument.  Changes in the fair
value of derivative financial instruments are either recognized periodically in
income or in stockholders’ equity as a component of accumulated other
comprehensive income depending on whether the derivative financial instrument
qualifies for hedge accounting and, if so, whether it qualifies as a fair value
or cash flow hedge.  Generally, changes in the fair value of
derivatives accounted for as fair value hedges are recorded in income along with
the portions of the changes in the fair values of the hedged items that relate
to the hedged risks.  Changes in the fair value of derivatives
accounted for as cash flow hedges, to the extent they are effective as hedges,
are recorded in accumulated other comprehensive income, net of
tax.  Changes in the fair value of derivatives not qualifying as
hedges are reported in income.





In
strategies designed to hedge overall market risks and manage its interest rate
exposure, the Company may sell common stock short, participate in put and/or
call options or enter into interest rate swap agreements.




35





Management
maintains a diversified portfolio of cash equivalents and investments in a
variety of securities, primarily U.S. investments in both common and preferred
equity issues, as well as corporate bonds, and participates on a limited basis
in transactions involving derivative financial instruments, including short
stock sales and put and/or call options.  At December 31, 2008 and
2007, the fair value of such derivatives was ($5) and ($15), respectively, which
are recorded as a component of accounts payable and accrued liabilities in the
Consolidated Balance Sheets.  These instruments do not qualify for
hedge accounting, and therefore changes in the derivatives’ fair value are
recognized in earnings.  The Company recognized $1,418 and $371 in net
realized and unrealized gains from derivative instruments for the years ended
December 31, 2008 and 2007, respectively, which are included in other income and
(expense), net in the Consolidated Statements of Income.





Reclassifications





Certain
prior year amounts have been reclassified to present them on a basis consistent
with the current year.





Use
of Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to use judgment in making estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses and related
disclosure of contingent assets and liabilities.  Certain of the
estimates and assumptions required to be made relate to matters that are
inherently uncertain as they pertain to future events.  While
management believes that the estimates and assumptions used were the most
appropriate, actual results could differ significantly from those estimates
under different assumptions and conditions.





Recent
Accounting Pronouncements





The
Company adopted Statement of Financial Accounting Standards (“SFAS”)
No. 157, “Fair Value Measurements” (“SFAS 157”), on January 1,
2008.  SFAS 157 applies to all assets and liabilities that are being
measured and reported on a fair value basis.  As defined in SFAS 157,
fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.  Although the adoption of SFAS 157 did not
materially impact the Company’s financial condition, results of operations, or
cash flows, additional disclosures are now required as part of the financial
statements (see Note 8).





In
February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff
Position No. 157-2, which delays the effective date of SFAS 157 for one year for
all nonfinancial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis.  Based on this guidance, the Company will adopt the provisions
of SFAS 157 as they relate to long-lived assets effective January 1, 2009 and it
is not expected to have a material impact on the Company’s financial
statements.





On
January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115” (“SFAS 159”).  The Statement permits entities to
choose to measure many financial instruments and certain other items at fair
value.  The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.  This Statement is expected to
expand the use of fair value measurement, which is consistent with the FASB’s
long-term measurement objectives for accounting for financial
instruments.  SFAS 159 became effective for fiscal years beginning
after November 15, 2007.  The Company has elected not to implement the
fair value option with respect to any additional financial instruments (other
than those previously required under other GAAP rules or standards); therefore,
the adoption of SFAS 159 had no impact on the Company’s financial position or
results of operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business
Combinations” (“SFAS 141R”).  SFAS 141R establishes principles and
requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the
acquiree.  SFAS 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  SFAS
141R is effective for the Company beginning January 1, 2009 and will apply to
business combinations occurring after December 31, 2008.  Adoption of
SFAS 141R will not affect the Company’s consolidated financial statements, but
will have an effect on accounting for future business combinations.




36





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements–an amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 establishes accounting and reporting standards for
parent company’s noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS 160 is effective for the
Company beginning January 1, 2009 and is not expected to have a material impact
on the its consolidated financial position or results of
operations.





2. Real
Estate





The
Company is the lessor of real estate under operating leases which expire in
various years through 2078.  The following is a summary of real
property held for rental:


December
      31,2008
              
              
              2007Land
              
              $
              16,077
              
              
              $
              15,296Buildings
              
              
              114,164
              
              
              
              100,630Building
      renovations and improvements
              
              
              14,832
              
              
              
              13,991Equipment
      and fixtures
              
              
              3,723
              
              
              
              3,571148,796
              
              
              
              133,488Less:  Accumulated
      depreciation
              
              
              71,594
              
              
              
              68,552$
              77,202
              
              
              $
              64,936





As of
December 31, 2008, total minimum future rentals to be received under
noncancelable leases for each of the next five years and thereafter are as
follows:





Years
      ending December 31,2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalMinimum
      future rentals
              
              $
              19,543
              
              
              $
              16,121
              
              
              $
              11,659
              
              
              $
              9,954
              
              
              $
              8,244
              
              
              $
              50,347
              
              
              $
              115,868





Minimum
future rentals do not include amounts for renewals, tenant reimbursement or
additional rentals that may be received under certain leases which provide for
such rentals based upon a percentage of lessees’ sales.  Percentage
rents included in net income from real properties held for rental for 2008 and
2007 were approximately $186 and $299, respectively.





Property
Acquisitions





During
2008, the Company purchased two shopping centers and retail outlets located in
Michigan for approximately $13,600.  These properties were purchased
using proceeds from a 2007 property sale which were held in escrow in connection
with a Section 1031 tax-deferred exchange.  In addition, the Company
purchased a commercial property located in Connecticut for approximately $700
which was partially financed by a $500 mortgage (see Note 7).





During
2007, the Company purchased a hotel located in Utica, New York (the “Utica
Hotel”) for approximately $16,000 plus closing costs, including the assumption
of an underlying mortgage of $2,315 (see Note 7), of which $872 of the purchase
price was allocated to furniture, fixtures and equipment and is included in
property, plant and equipment in the Consolidated Balance Sheet.  The
total cost of acquisition, less the assumption of the mortgage is reflected in
acquisition of/additions to real estate assets in the Consolidated Statements of
Cash Flows.





Property
Sales





During
2008, the Company divested itself of one of its shopping centers and retail
outlets which had a net book value of $1,537 from its real estate investment and
management segment.  The aggregate proceeds from this transaction were
$12,500 resulting in a gain of $6,578, on a net of tax basis.





During
2007, the Company divested itself of five commercial properties and two other
properties which had a net book value of $1,185 from its real estate investment
and management segment.  The aggregate proceeds from these
transactions were $17,855 resulting in a gain of $10,002, on a net of tax
basis.




37





At the
time of the sale, proceeds from one of the other properties, amounting to
$15,000, were placed in escrow with a third-party to facilitate a Section 1031
tax-deferred exchange.  This escrow was included in notes and accounts
receivable, net in the accompanying Consolidated Balance Sheet at December 31,
2007 (see Note 1).  In January 2008, the Company utilized
approximately $13,600 of the amount held to purchase a qualified
property.  The remaining balance, plus interest, was remitted to the
Company.





The
results of operations for properties sold have been reclassified to discontinued
operations, on a net of tax basis, for each of the years
presented.  In addition, the assets and liabilities associated with
those properties sold in 2008 have been reclassified to discontinued operations
in the Consolidated Balance Sheet at December 31, 2007.  These amounts
primarily consist of real property, net of accumulated depreciation, rents
receivable, prepaid or accrued charges and mortgage obligations, if
any.





Summarized
financial information for properties sold and accounted for as discontinued
operations is as follows:





For
      the years ended
                  December
      31,2008
              
              
              2007Revenues
      from real estate operations
              
              $
              210
              
              
              $
              310Depreciation
      expense
              
              
              21
              
              
              
              52Other
      operating expenses
              
              
              —
              
              
              
              61Operating
      income
              
              $
              189
              
              
              $
              197





Properties
Held for Sale





As of
December 31, 2008, there were no properties considered by the Company to be held
for sale.





3. Property,
Plant and Equipment





Property,
plant and equipment, including furniture, fixtures and equipment related to the
Company’s hotel operations segment, consists of the following:





December
      31,2008
              
              
              2007Land
              
              $
              28
              
              
              $
              28Buildings
      and improvements
              
              
              1,428
              
              
              
              1,428Furniture,
      fixtures and equipment
              
              
              19,145
              
              
              
              18,58420,601
              
              
              
              20,040Less:
      Accumulated depreciation
              
              
              15,010
              
              
              
              13,791$
              5,591
              
              
              $
              6,249





4.Marketable
Securities





The cost,
gross unrealized gains, gross unrealized losses and fair market value of
available-for-sale securities are as follows:




Cost
              
              
              Gross
                  Unrealized
                  Gains
              
              
              Gross
                  Unrealized
                  Losses
              
              
              Fair
                  Market
                  ValueDecember
      31, 2008:Equity
      securities
              
              $
              16,440
              
              
              $
              1,050
              
              
              $
              (9,184
              )
              
              $
              8,306Bonds
              
              
              1,031
              
              
              
              4
              
              
              
              (163
              )
              
              
              872$
              17,471
              
              
              $
              1,054
              
              
              $
              (9,347
              )
              
              $
              9,178December
      31, 2007:Equity
      securities
              
              $
              24,900
              
              
              $
              1,988
              
              
              $
              (1,577
              )
              
              $
              25,311Bonds
              
              
              1,904
              
              
              
              1
              
              
              
              (25
              )
              
              
              1,880$
              26,804
              
              
              $
              1,989
              
              
              $
              (1,602
              )
              
              $
              27,191




38




The
following table shows the fair value and unrealized losses, aggregated by
investment type and length of time that individual securities have been in a
continuous unrealized loss position:





Less
      Than 12 Months
              
              
              12
      Months or More
              
              
              TotalFair
                  Value
              
              
              Unrealized
      Losses
              
              
              Fair
                  Value
              
              
              Unrealized
      Losses
              
              
              Fair
                  Value
              
              
              Unrealized
      LossesDecember
      31, 2008:Equity
      Securities
              
              $
              3,643
              
              
              $
              (7,804
              )
              
              $
              1,120
              
              
              $
              (1,380
              )
              
              $
              4,763
              
              
              $
              (9,184
              )Bonds
              
              
              684
              
              
              
              (143
              )
              
              
              29
              
              
              
              (20
              )
              
              
              713
              
              
              
              (163
              )$
              4,327
              
              
              $
              (7,947
              )
              
              $
              1,149
              
              
              $
              (1,400
              )
              
              $
              5,476
              
              
              $
              (9,347
              )December
      31, 2007:Equity
      securities
              
              $
              7,858
              
              
              $
              (1,577
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              7,858
              
              
              $
              (1,577
              )Bonds
              
              
              24
              
              
              
              (25
              )
              
              
              —
              
              
              
              —
              
              
              
              24
              
              
              
              (25
              )$
              7,882
              
              
              $
              (1,602
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              7,882
              
              
              $
              (1,602
              )





The
Company continuously reviews its investment portfolio to identify and evaluate
investments that have indications of possible impairment.  The Company
does not believe that its investments in marketable securities with unrealized
losses at December 31, 2008 are other-then-temporary due to market volatility of
the security’s fair value, analysts’ expectations and the Company’s ability to
hold the securities for a period of time sufficient to allow for any anticipated
recoveries in market value.





Proceeds/maturities
from the sale of available-for-sale securities as well as the gains and losses
recognized in earnings on available for-sale-securities included in the
determination of net income are as follows:




For
      the years ended
                  December
      31,2008
              
              
              2007Proceeds/maturities
              
              $
              12,553
              
              
              $
              53,548Gains
      recognized in earnings
              
              $
              106
              
              
              $
              2,954Losses
      recognized in earnings
              
              $
              (24,185
              )
              
              $
              (3,356
              )





5. Investment in
Joint Ventures





The
Company has a 50% interest in a limited partnership whose principal assets are
two distribution centers leased to Kmart Corporation (“Kmart”), which are
accounted for as leveraged leases (see Note 11).





The
following represents the components of the net investment in the leveraged
leases:




December
      31,2008
              
              
              2007Rents
      receivable
              
              $
              53,381
              
              
              $
              57,410Residual
      values
              
              
              10,000
              
              
              
              10,000Nonrecourse
      debt service
              
              
              (42,093
              )
              
              
              (45,345
              )Unearned
      income
              
              
              (15,848
              )
              
              
              (15,940
              )5,440
              
              
              
              6,125Less:
      Deferred taxes arising from leveraged leases
              
              
              5,504
              
              
              
              5,837$
              (64
              )
              
              $
              288





The
Company’s share of income arising from this investment was $92 and $191 for the
years ended December 31, 2008 and 2007, respectively, and is included in
revenues from real estate operations in the Consolidated Statements of
Income.




39




6. Accounts
Payable and Accrued Liabilities





Accounts
payable and accrued liabilities consist of the following:




December
      31,2008
              
              
              2007Accounts
      payable
              
              $
              3,932
              
              
              $
              4,072Accrued
      wages and benefits
              
              
              1,817
              
              
              
              1,942Other
      accrued expenses
              
              
              4,287
              
              
              
              4,920$
              10,036
              
              
              $
              10,934





7. Long-term
Debt





Long-term
debt consists of the following:




December
      31,2008
              
              
              2007Mortgages
      on real property
              
              $
              32,863
              
              
              $
              33,336Less:  Current
      maturities
              
              
              2,717
              
              
              
              1,002$
              30,146
              
              
              $
              32,334





Mortgages
bear interest at rates ranging from 5.3% to 8% per annum and are collateralized
by the related real property which had a net carrying value at December 31, 2008
of $29,344, exclusive of hotel furniture, fixtures and
equipment.  Such amounts are scheduled to mature at various dates from
April 2009 through January 2018.





The
commercial property purchased in July 2008 (see note 2), was partially financed
by a $500 mortgage which bears interest at 6.73% per annum, is payable monthly
based on a 25-year amortization and matures in July 2013.





In
connection with the acquisition of the Utica Hotel (see Note 2), the Company
assumed a mortgage in the amount of $2,315 which bears interest at 7.5% per
annum, with monthly installments of interest and principal of $30 through
December 2015.  In August 2007, the Company obtained an additional
mortgage on the Utica Hotel in the amount of $12,000.  This mortgage
bears interest at 6.18% per annum, is payable monthly based on a 25-year
amortization and matures in August 2017.





During
December 2007, the Company obtained a mortgage on its hotel located in Atlanta,
Georgia in the amount of $7.5 million, which bears interest at 6.57%, is payable
monthly based on a 30-year amortization and matures in January
2018.





The
approximate aggregate maturities of these obligations at December 31, 2008 are
as follows:





Years
      ending December 31,2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalAggregate
      maturities
              
              $
              2,717
              
              
              $
              1,025
              
              
              $
              1,027
              
              
              $
              1,097
              
              
              $
              1,623
              
              
              $
              25,374
              
              
              $
              32,863





8. Fair Value
Measurement





As
discussed in Note 1, effective January 1, 2008, the Company adopted SFAS 157
which requires financial assets and liabilities to be measured and reported at
fair value on a recurring basis.  As defined in SFAS 157, fair value
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  SFAS 157 also establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair
value.  The statement requires that assets and liabilities carried at
fair value be classified and disclosed in one of the following three
categories:





Level 1:  Quoted market
prices in active markets for identical assets or liabilities.


Level 2:  Observable market
based inputs or unobservable inputs that are corroborated by market
data.


Level 3:  Unobservable
inputs reflecting the reporting entity’s own assumptions.




40





SFAS 157
establishes a hierarchy which requires an entity to maximize the use of quoted
market prices and minimize the use of unobservable inputs.  An asset
or liability’s level is based on the lowest level of input that is significant
to the fair value measurement.





The
following table sets forth the Company’s financial assets and liabilities that
were measured at fair value on a recurring basis, by level within the fair value
hierarchy:




Fair
      Value Measurements at December 31, 2008Total
              
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3Marketable
      securities
              
              $
              9,178
              
              
              $
              9,144
              
              
              $
              34
              
              
              $
              —Derivative
      financial instruments
              
              $
              (5
              )
              
              $
              (5
              )
              
              $
              —
              
              
              $
              —





The
carrying amounts of financial instruments such as cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate their
fair value due to the short maturity of such items. The estimated fair values of
our other financial assets and liabilities not measured at fair value on a
recurring basis at December 31, 2008 and 2007 are as follows:




December
      31, 2008
              
              
              December
      31, 2007Carrying
              
              
              Fair
              
              
              Carrying
              
              
              FairAmount
              
              
              Value
              
              
              Amount
              
              
              ValueNotes
      receivable
              
              $
              1,101
              
              
              $
              1,169
              
              
              $
              1,147
              
              
              $
              1,190Long-term
      debt, including current portion
              
              $
              32,863
              
              
              $
              29,435
              
              
              $
              33,336
              
              
              $
              29,968





The fair
value of notes receivable is estimated using discounted cash flow analyses, with
interest rates comparable to loans with similar terms and borrowers of similar
credit quality.  The fair value of long-term debt is estimated based
on interest rates available for debt with terms and due dates similar to the
Company’s existing debt arrangements.





9. Stockholders’
Equity





Previous
purchases of the Company’s common stock have reduced the Company’s additional
paid-in capital to zero and have also reduced retained earnings by amounts in
excess of par value.  Any future purchases in excess of par value will
also reduce retained earnings.





Repurchases
of the Company’s common stock may be made from time to time in the open market
at prevailing market prices and may be made in privately negotiated
transactions, subject to available resources.  Future proceeds from
the issuance of common stock in excess of par value will be credited to retained
earnings until such time that previously recorded reductions have been
recovered.  During the years ended December 31, 2008 and 2007, the
Company purchased and retired 607 and 542 shares of common stock for an
aggregated purchase price of $13,331 and $16,200, respectively.





Stock
Options





The
Company has two stock option plans, the Incentive and Non-Qualified Stock Option
Plan (the “Incentive Plan”) and the 1988 Joint Incentive and Non-Qualified Stock
Option Plan (the “Joint Plan”), under which qualified and nonqualified options
may be granted to key employees to purchase the Company’s common stock at the
fair market value on the date of grant.  Under both plans, the options
typically become exercisable in three equal installments, beginning one year
from the date of grant.  Stock options generally expire ten years from
the date of grant.  The number of authorized shares reserved for
issuance is 3,650 under the Incentive Plan and 2,650 under the Joint
Plan.





At
December 31, 2008, there were options to purchase 1,138 and 2,807 shares
outstanding under the Joint Plan and Incentive Plan, respectively.  At
December 31, 2007, there were options to purchase 1,917 and 2,832 shares
outstanding under the Joint Plan and Incentive Plan, respectively.




41





Outstanding
stock options as of December 31, 2008, and changes during the year then ended
are summarized below:





Shares
                
                
                Weighted-Average
                    Exercise
      Price
                
                Weighted-Average
                    Remaining
                    Contractual
      Life
                
                Aggregate
                    Intrinsic
                    ValueOutstanding
      at January 1, 2008
                
                
                4,749
                
                
                $
                11.91Exercised
                
                
                (804
                )
                
                $
                11.47Outstanding
      and exercisable at December 31, 2008
                
                
                3,945
                
                
                $
                11.99
                
                2.5
      years
                
                $
                26,955





The
aggregate intrinsic value of options outstanding and exercisable at December 31,
2008 represents the difference between the Company’s closing stock price at the
end of the year ($18.14) and the exercise price of each option, multiplied by
the number of “in-the-money” options.  This amount changes based upon
the fair market value of the Company’s common stock.  The total
intrinsic value of options exercised during the years ended December 31, 2008
and 2007 was $17,549 and $11,530, respectively, based on the market price on the
date of exercise.





10.        
Earnings Per Share





The
following table sets forth the computation of basic and diluted (loss) earnings
per share from continuing operations:





For
      the years ended
                  December
      31,2008
              
              
              2007Numerator:(Loss)
      income from continuing operations
              
              $
              (5,075
              )
              
              $
              17,416Denominator:Basic
      -
      weighted-average shares outstanding
              
              
              8,418
              
              
              
              8,290Dilutive
      effect of employee stock options
              
              
              —
              
              
              
              1,895Diluted
      -
      weighted-average shares outstanding
              
              
              8,418
              
              
              
              10,185Basic
      (loss) earnings per share - continuing
      operations
              
              $
              (.60
              )
              
              $
              2.10Diluted
      (loss) earnings per share - continuing
      operations
              
              $
              (.60
              )
              
              $
              1.71





As a
result of the loss from continuing operations, 1,301 incremental shares, related
to outstanding employee stock options calculated under the treasury stock
method, were excluded from the computation of diluted loss per share in 2008
because their inclusion would have been anti-dilutive.  Potentially
dilutive securities include outstanding options to purchase 3,945 share of
common stock, including 740 shares whose exercise price was greater than the
average fair value of the Company’s common stock in 2008.





11.        
Transactions with Related Parties





The
Company has a 50% interest in an unconsolidated limited liability corporation,
whose principal assets are two distribution centers leased to
Kmart.  A group that includes the wife of the Company’s Board
Chairman, two Directors of the Company and the wife of one of the Directors have
an 8% interest in this entity (see Note 5).





12.        
Income Taxes





Deferred
income taxes are determined on the liability method in accordance with SFAS
No. 109, “Accounting for Income Taxes” (“SFAS 109”).  Under SFAS
109, deferred tax assets and liabilities are determined based on the difference
between the tax basis of an asset or liability and its reported amount in the
Consolidated Financial Statements using enacted tax rates.  Future tax
benefits attributable to these differences are recognized to the extent that
realization of such benefits are more likely than not.




42





The
components of the net deferred tax liability are as follows:




December
      31,2008
              
              
              2007Realization
      allowances related to accounts receivable and inventories
              
              $
              378
              
              
              $
              449Net
      unrealized loss (gain) on available-for-sale securities
              
              
              2,903
              
              
              
              (125
              )Basis
      differences relating to real property
              
              
              (5,976
              )
              
              
              (5,676
              )Accrued
      expenses, deductible when paid
              
              
              4,384
              
              
              
              4,470Deferred
      profit
              
              
              (430
              )
              
              
              (481
              )Basis
      differences relating to business acquisitions
              
              
              (223
              )
              
              
              (223
              )Leveraged
      lease
              
              
              (5,504
              )
              
              
              (5,837
              )Property,
      plant and equipment
              
              
              (731
              )
              
              
              (731
              )Pensions
              
              
              997
              
              
              
              (309
              )Stock-based
      compensation
              
              
              267
              
              
              
              267Other,
      net
              
              
              (368
              )
              
              
              (276
              )Net
      deferred tax liability
              
              
              (4,303
              )
              
              
              (8,472
              )Less:  Current
      portion – asset
              
              
              4,011
              
              
              
              1,143Noncurrent
      portion
              
              $
              (8,314
              )
              
              $
              (9,615
              )





The
income tax (benefit) provision from continuing operations reflected in the
Consolidated Statements of Income is as follows:




For
      the years ended
                  December
      31,2008
              
              
              2007Current:Federal
              
              $
              (6,506
              )
              
              $
              2,215State
              
              
              1,206
              
              
              
              725Deferred
              
              
              3,281
              
              
              
              5,989$
              (2,019
              )
              
              $
              8,929





A
reconciliation of the tax (benefit) provision from continuing operations
computed at statutory rates to the amounts shown in the Consolidated Statements
of Income are as follows:




For
      the years ended
                  December
      31,2008
              
              
              2007Computed
      federal income tax (benefit) provision at statutory rates
              
              $
              (2,412
              )
              
              $
              9,221State
      tax, net of federal tax effect
              
              
              803
              
              
              
              413Other,
      net
              
              
              (410
              )
              
              
              (705
              )$
              (2,019
              )
              
              $
              8,929





The
losses on marketable securities realized in the second half of 2008 resulted in
federal tax refunds of $4,163, which the Company expects to receive in
2009.





On
January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN
48”), which clarifies the accounting for uncertainty in tax positions by
prescribing a recognition threshold for positions taken or expected to be taken
in a tax return that result in a benefit.





At the
date of the adoption, the Company had a total of $4,324 of gross unrecognized
tax benefits.  The adoption of FIN 48 did not result in a cumulative
effect adjustment to retained earnings.  FIN 48 also requires
companies to reclassify uncertain tax positions not expected to be settled
within one year to long-term liabilities.  Therefore upon adoption of
FIN 48, the Company reclassed $1,128 from income taxes payable to other
long-term liabilities.  As of December 31, 2008 and 2007, the Company
had a total of $4,685 and $4,700 of gross unrecognized tax benefits,
respectively.  A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:




43





2008
              
              
              2007Balance,
      beginning of year
              
              $
              4,700
              
              
              $
              4,324Additions
      based on tax positions related to the current year
              
              
              512
              
              
              
              560Lapse
      of statute of limitations
              
              
              (527
              )
              
              
              (184
              )Balance,
      end of year
              
              $
              4,685
              
              
              $
              4,700





Substantially
the entire amount, if recognized, would favorably effect the Company’s effective
tax rate in future periods.





The
Company recognizes interest and penalties related to unrecognized tax positions
as a component of income tax expense.  As of December 31, 2008 and
2007, the Company had approximately $2,471 and $2,268 of accrued interest and
penalties related to uncertain tax positions, respectively.  During
the years ended December 31, 2008 and 2007, the Company recognized $203 and $352
of interest and penalties within income tax expense, respectively.





The
Company is subject to U.S. federal income tax, as well as income tax in multiple
states.  For all major taxing jurisdictions, the tax years 2005
through 2007 remain open to examination.  As of December 31, 2008, the
Company does not anticipate that total unrecognized tax benefits will
significantly change during the next twelve months.





13.        
Other Income and Expense, Net





The
components of other income and expense, net in the Consolidated Statements of
Income are as follows:





For
      the years ended
                  December
      31,2008
              
              
              2007Net
      loss on the sale of available-for-sale securities
              
              $
              (24,079
              )
              
              $
              (402
              )Net
      realized and unrealized gain on derivative instruments
              
              
              1,418
              
              
              
              371Litigation
      award from prior condemnation
              
              
              457
              
              
              
              5,665Other,
      net
              
              
              108
              
              
              
              (17
              )$
              (22,096
              )
              
              $
              5,617





14.        
Pension Plan





The
Company has a noncontributory defined benefit pension plan that covers
substantially all full-time employees of the engineered products and real estate
investment and management segments.  The plan provides defined
benefits based on years of service and compensation level.





The plan
assets of the Company’s defined benefit pension plan are valued at fair value
using quoted market prices.  Investments, in general, are subject to
various risks, including credit, interest and overall market
volatility.  During 2008, the equity markets saw a significant decline
in value.  As such, the fair value of plan assets decreased
significantly during the year.  The funded status of the plan
decreased by approximately $3,700 from December 31, 2007, due in large part to
the decrease in the fair value of plan assets.  This affected the
amounts reported in the Consolidated Balance Sheet at December 31,
2008.  It also contributes to an expected increase in net periodic
pension expense in 2009.  If the equity and bond markets continue to
decline, the funded status of the plan could continue to be materially
affected.  This could result in higher net periodic pension expense,
as well as the need for additional contributions to fund benefits, in the
future.




44





Changes
in benefit obligation, plan assets and funded (unfunded) status of the plan are
as follows:




December
      31,2008
              
              
              2007Change
      in benefit obligation:Benefit
      obligation, beginning of year
              
              $
              9,416
              
              
              $
              8,906Service
      cost
              
              
              290
              
              
              
              315Interest
      cost
              
              
              723
              
              
              
              683Actuarial
      loss
              
              
              161
              
              
              
              241Benefits
      paid
              
              
              (757
              )
              
              
              (729
              )Benefit
      obligation, end of year
              
              
              9,833
              
              
              
              9,416Change
      in plan assets:Fair
      value of plan assets, beginning of year
              
              
              10,299
              
              
              
              9,457Actual
      return on plan assets
              
              
              (4,057
              )
              
              
              871Contributions
              
              
              1,500
              
              
              
              700Benefits
      paid
              
              
              (757
              )
              
              
              (729
              )Fair
      value of plan assets, end of year
              
              
              6,985
              
              
              
              10,299Funded
      (unfunded) status
              
              $
              (2,848
              )
              
              $
              883





The
unfunded status at December 31, 2008 is included in other long-term liabilities
while the funded status at December 31, 2007 is included in other assets in the
Consolidated Balance Sheets.  At December 31, 2008 and 2007, the
accumulated benefit obligation was $9,605 and $9,185, respectively.





Amounts
recognized in accumulated other comprehensive (loss) income, before income
taxes, consist of the following:





December
      31,2008
              
              
              2007Unrecognized
      net actuarial gain
              
              $
              438
              
              
              $
              599Unrecognized
      net (loss) gain
              
              
              (4,355
              )
              
              
              496$
              (3,917
              )
              
              $
              1,095





Net
periodic pension expense consists of the following:




For
      the years ended
                  December
      31,2008
              
              
              2007Service
      cost
              
              $
              (290
              )
              
              $
              (315
              )Interest
      cost
              
              
              (723
              )
              
              
              (683
              )Expected
      return on plan assets
              
              
              794
              
              
              
              727Net
      periodic pension expense
              
              $
              (219
              )
              
              $
              (271
              )





In
determining the projected benefit obligation and net periodic pension cost, the
weighted-average assumed discount rate and expected long-term rate of return on
plan assets was 8%, while the rate of expected increases in future compensation
was 3.5%, in all periods presented.  A 100 basis point change in the
expected long-term rate of return on plan assets would have changed fiscal 2008
pension expense by $99.





The
expected long-term rate of return on plan assets is determined by considering
historical rates of return, the current return trends, the mix of investments
that comprise plan assets and forecasts of future long-term investment
returns.





The
Company estimates approximately $245 of unrecognized net losses from accumulated
other comprehensive loss to be recognized as a component of net periodic pension
expense during 2009.




45





The
allocations of plan assets by category are as follows:




December
      31,2008
              
              
              2007Equity
      securities
              
              
              39.5
              %
              
              
              88.2
              %Debt
      securities
              
              
              50.9
              
              
              
              6.0U.S.
      government securities
              
              
              0.8
              
              
              
              0.6Cash
      and other investments
              
              
              8.8
              
              
              
              5.2100.0
              %
              
              
              100.0
              %





The
Company’s pension plan assets are managed by outside investment managers and the
plan’s trustees.  The Company’s investment strategy with respect to
pension assets is to maximize return while protecting principal.  The
investment managers have the flexibility to adjust the asset allocations and
move funds to the asset class that offers the most opportunity for investment
returns.





A
contribution amount has not yet been determined for 2009, however the Company
anticipates an amount comparable to the 2008 contribution.  The 2008
contribution was equal to the IRS minimum required contribution in accordance
with the Pension Protection Act of 2006.





Benefit
payments, which include the effects of expected future service, are expected to
be paid as follows:





Years
      ending December 31,2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              
              2014-2018Expected
      benefit payments
              
              $
              916
              
              
              $
              914
              
              
              $
              928
              
              
              $
              926
              
              
              $
              912
              
              
              $
              4,550





15.        
Business Segments





The
Company operates through three business segments:  real estate
investment and management, hotel operations and engineered
products.  The real estate investment and management segment is
engaged in the business of investing in and managing real estate properties
which are located throughout the United States.  The hotel operations
segment currently owns and operates three hotels located in the United
States.  Engineered products are manufactured through wholly-owned
subsidiaries of the Company and primarily consist of knitted wire products and
components and transformer products sold worldwide.





Operating
results of the Company’s business segments are as follows:




For
      the years ended
                  December
      31,2008
              
              
              2007Net
      revenues and sales:Real
      estate investment and management
              
              $
              20,392
              
              
              $
              19,387Hotel
      operations
              
              
              16,317
              
              
              
              14,564Engineered
      products
              
              
              36,212
              
              
              
              37,820$
              72,921
              
              
              $
              71,771Operating
      income (loss):Real
      estate investment and management
              
              $
              11,642
              
              
              $
              11,744Hotel
      operations
              
              
              1,020
              
              
              
              2,072Engineered
      products
              
              
              264
              
              
              
              2,083General
      corporate expenses
              
              
              (3,279
              )
              
              
              (2,776
              )9,647
              
              
              
              13,123Other
      income (expense), net
              
              
              (16,741
              )
              
              
              13,222(Loss)
      income from continuing operations before income taxes
              
              $
              (7,094
              )
              
              $
              26,345




46





For
      the years ended
                  December
      31,2008
              
              
              2007Depreciation
      and amortization expense:Real
      estate investment and management
              
              $
              2,450
              
              
              $
              1,829Hotel
      operations
              
              
              1,431
              
              
              
              1,279Engineered
      products
              
              
              309
              
              
              
              339General
      corporate expenses
              
              
              104
              
              
              
              95$
              4,294
              
              
              $
              3,542Mortgage
      interest expense:Real
      estate investment and management
              
              $
              241
              
              
              $
              247Hotel
      operations
              
              
              1,874
              
              
              
              849$
              2,115
              
              
              $
              1,096





Sales by
the Company’s engineered products segment to automobile original equipment
manufacturers and their first tier suppliers accounted for approximately 20.5%
and 24.7% of 2008 and 2007 consolidated revenues, respectively.  Sales
by the engineered products segment to General Motors, its largest customer,
accounted for 10.8% and 14.6% of the segment’s sales for the years ended
December 31, 2008 and 2007, respectively.





Approximately
13.3% and 13.7% of 2008 and 2007 total sales generated from the engineered
products segment were to foreign customers.  Substantially all assets
held by the Company’s engineered products segment are located within the United
States or its leased warehouse in Tijuana, Mexico.





Selected
information on the Company’s business segments is as follows:


December
      31,2008
              
              
              2007Identifiable
      assets:Real
      estate investment and management and corporate assets
              
              $
              220,222
              
              
              $
              227,854Hotel
      operations
              
              
              30,586
              
              
              
              31,867Engineered
      products
              
              
              12,077
              
              
              
              12,349$
              262,885
              
              
              $
              272,070Additions
      to long-lived assets:Real
      estate investment and management and corporate assets
              
              $
              14,771
              
              
              $
              4,146Hotel
      operations
              
              
              962
              
              
              
              16,564Engineered
      products
              
              
              136
              
              
              
              176$
              15,869
              
              
              $
              20,886





The cost
of long-lived asset additions in 2007 includes the assumption of mortgage
obligations ($2,315) in connection with the acquisition of the Utica Hotel (see
Note 2).





16.        
Lease Obligations





At
December 31, 2008, the Company was obligated under various noncancelable
operating leases which expire on various dates through 2040.  These
leases include certain facilities and equipment of the engineered products
segment, as well as land leases of the real estate investment and management
segment.  Certain leases contain renewal options and/or increased
rental amounts.  The future minimum rental commitments under operating
leases are as follows:





Years
      ending December 31,2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalMinimum
      rental commitments
              
              $
              612
              
              
              $
              224
              
              
              $
              144
              
              
              $
              126
              
              
              $
              124
              
              
              $
              1,608
              
              
              $
              2,838





Rental
expense under operating leases was $639 and $623 for 2008 and 2007,
respectively.




47





17.        
Commitments and Contingencies





The
Company has undertaken the completion of environmental studies and/or remedial
action at its two New Jersey facilities and has recorded a liability for the
estimated investigation, remediation and administrative costs associated
therewith.





The
process of remediation has begun at one facility pursuant to a plan filed with
the New Jersey Department of Environmental Protection
(“NJDEP”).  Environmental experts engaged by the Company estimate that
under the most probable scenario, the remediation of this site is anticipated to
require initial expenditures of $860, including the cost of capital equipment,
and $86 in annual operating and maintenance costs over a 15 year
period.





Environmental
studies at the second facility indicate that remediation may be
necessary.  Based upon the facts presently available, environmental
experts have advised the Company that, under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2,300 in initial costs, including capital equipment expenditures, and $258 in
annual operating and maintenance costs over a 10 year period.  These
estimated costs of future expenses for environmental remediation obligations are
not discounted to their present value.  The Company may revise such
estimates in the future due to the uncertainty regarding the nature, timing and
extent of any remediation efforts that may be required at this site, should an
appropriate regulatory agency deem such efforts to be necessary.





The
foregoing estimates may also be revised by the Company as new or additional
information in these matters becomes available or should the NJDEP or other
regulatory agencies require additional or alternative remediation efforts in the
future.  Although such events are not expected to change these
estimates, adverse decisions or events, particularly as to the merits of the
Company’s factual and legal basis, could cause the Company to change its
estimate of liability with respect to such matters in the future.  The
Company has approximately $9,300 and $9,500 recorded in accounts payable and
accrued liabilities and other long-term liabilities as of December 31, 2008 and
2007, respectively, to cover such matters.





The
Company has an employment agreement with its Chairman, President and Chief
Executive Officer (the “Officer”) which provides for a base salary of $800 per
annum plus a discretionary bonus as determined by the Compensation and Stock
Option Committee of the Board of Directors.  In the event of
termination or a change in control, as defined in the employment agreement, the
Company is required to pay the Officer a lump sum severance payment equal to
three years salary and purchase outstanding options.  The employment
agreement provides for successive one-year terms unless either the Company or
the Officer gives the other written notice that the employment agreement is
terminated and also provides a death benefit which the Company secures through
an insurance policy.





The
Company is subject to various other litigation, legal, regulatory and tax
matters that arise in the ordinary course of business
activities.  When management believes it is probable that liabilities
have been incurred and such amounts are reasonably estimable, the Company
provides for amounts that include judgments and penalties that may be
assessed.  These liabilities are usually included in accounts payable
and accrued liabilities or other long-term liabilities in the Consolidated
Financial Statements, depending on the anticipated payment
date.  Based on the facts presently available, the Company does not
believe that the disposition of matters that are pending or asserted will have a
material adverse effect on the Company’s consolidated financial position or
results of operations.  However, new or additional facts or an adverse
judgment by a court, arbitrator or a settlement could adversely impact the
Company’s results of operations or financial position in any given
period.




48