PRESIDENTIAL REALTY CORP/DE/ - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 001-08594

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

Class A Common Stock and Class B Common Stock

(Title of class) 

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. ¨ 

The aggregate market value of voting stock held by non-affiliates based on the closing price of the stock at June 30, 2015 was $200,757. For purposes of this calculation it is assumed that officers and directors of the registrant are affiliates and that the BBJ Family Irrevocable Trust is an affiliate. The registrant has no non-voting stock. The number of shares outstanding of each of the registrant’s classes of common stock as of April 12, 2016 was 442,533 shares of Class A common stock and 3,846,147 shares of Class B common stock.

Documents Incorporated by Reference: None.

PRESIDENTIAL REALTY CORPORATION

TABLE OF CONTENTS

Forward-Looking Statements

This report contains statements that do not relate to historical facts, but are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to future events or trends, our future prospects and proposed development or business strategies, among other things. These statements can generally (although not always) be identified by their use of terms and phrases such as anticipate, appear, believe, continue, could, estimate, expect, indicate, intend, may, plan, possible, predict, project, pursue, will, would and other similar terms and phrases, as well as the use of the future tense. Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Examples of forward-looking statements in this report include, but are not limited to, the following categories of expectations about:

PART I.

Presidential Realty Corporation is a Delaware corporation organized in 1983 to succeed to the business of a company of the same name which was organized in 1961 to succeed to the business of a closely held real estate business founded in 1911. The terms, “we”, “us”, “our”, “Presidential” or the “Company” refer to the present Presidential Realty Corporation or its predecessor company of the same name and to any subsidiaries. Since 1982, we have elected to be treated as a real estate investment trust (“REIT”) for Federal and State income tax purposes. See (e) Qualification as a REIT. We own, directly or indirectly, interests in real estate and interests in entities which own real estate.

During 2015, we continued to explore ways to grow the Company through various forms of transactions with owners of significant apartment portfolios in furtherance of management’s strategy to grow the Company. During the year management has broadened its focus to all types of real estate assets and capital raising activities and intends to continue to do so going forward.

No transactions were consummated during 2015.

Mapletree Financing

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit with Country Bank for Savings. The Loan replaces the prior loan agreement and mortgage on the Mapletree Property which was entered into on June 8, 2012 with Country Bank for Savings. $123,757 of the Loan proceeds were set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly payments of $11,308. The outstanding balance of the loan at December 31, 2015 was $1,740,462. The Company is required to maintain certain Financial Covenants. The Company was in compliance with the covenants at December 31, 2015.

At December 31, 2015, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and to increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

We have only one business segment: our real estate interests. Our principal assets fall into the following categories:

Under the Internal Revenue Code of 1986, as amended (the “Code”), a REIT that meets certain requirements is not subject to Federal income tax on that portion of its taxable income that is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed. Since January 1, 1982, the Company has elected to be taxed as a REIT. We sustained losses in 2015 and 2014 and, accordingly, did not pay any dividends in 2015 and 2014.

While we intend to operate in such a manner as to be taxed as a REIT, and to pay dividends in an amount sufficient to maintain REIT status, we cannot promise that we will, in fact, continue to be taxed as a REIT or that the Company will have cash available to pay any dividends that may be required to maintain REIT status. We were not required to pay any dividends in 2015, and believe that we will not be required to pay dividends in 2016 to maintain our REIT status. See (e) Qualification as a REIT and Item 5. - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

We currently maintain a website at www.presrealty.com. We file annual, quarterly and periodic reports, proxy statements and other information electronically with the Securities and Exchange Commission (“SEC”), which filings are available at the SEC’s website (http://www.sec.gov.) free of charge, or at its public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC 1-800-SEC-0330 for further information about the public reference room.

Our general investment strategy is to continue our REIT status, make investments in real estate assets that offer attractive current yields and, in some cases, potential for capital appreciation. Management plans to utilize its experience in real estate investing to grow our asset base.

Our investment policy is not contained in or subject to restrictions included in the Company’s Certificate of Incorporation or Bylaws and there are no limits in the Company’s Certificate of Incorporation or Bylaws on the percentage of assets that it may invest in any one type of asset or the percentage of securities of any one issuer that it may acquire. The investment policy may, therefore, be changed by our Board of Directors of the Company without the concurrence of the holders of its outstanding stock. However, to continue to qualify as a REIT, we must restrict our activities to those permitted under the Code. See (e) Qualification as a REIT.

Since 1982, we have operated in a manner intended to permit us to qualify as a REIT under Sections 856 to 860 of the Code. We intend to continue to operate in a manner to continue to qualify as a REIT. However, we cannot promise that we will be able to continue to operate in such a manner or to remain qualified.

In any year that we qualify as a REIT and meet other conditions, including the distribution to stockholders of at least 90% of our “real estate investment trust taxable income” (excluding long-term capital gains but before a deduction for dividends paid), we will be entitled to deduct the distributions that we pay to our stockholders in determining our ordinary income and capital gains that are subject to Federal income taxation (see Note 5 of Notes to Consolidated Financial Statements). Income not distributed is subject to tax at rates applicable to a domestic corporation. In addition, we are subject to an excise tax (at a rate of 4%) if the amounts actually or deemed distributed during the year do not meet certain distribution requirements. In order to receive this favorable tax treatment, the Company must restrict our operations to those activities that are permitted under the Code and to the holding of assets that a REIT is permitted to hold.

We cannot promise that we will continue to be taxed as a REIT, that we will have sufficient cash to pay dividends in order to maintain REIT status or that we will make cash distributions in the future. In addition, even if we continue to qualify as a REIT, the Board of Directors has the discretion to determine whether or not to distribute long-term capital gains and other types of income not required to be distributed in order to maintain REIT tax treatment.

The real estate business is highly competitive in all respects. In all phases of our business we face competition from companies with greater financial and other resources. To the extent that we seek to acquire additional properties or originate new loans, we face competition from other potential purchasers or lenders with greater financial resources.

Obtaining tenants for our rental property is also highly competitive. We face competition from newer buildings and from property owners who have more financial resources available to them for capital improvements to their properties.

At December 31, 2015, we employed 4 people, two of whom are employed at our executive office and two of whom are employed at an individual property site.

In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluation of our business. Our business, financial condition, or results of operations could be materially adversely affected by any of these risks. Additional risks not presently known to us, or which we currently consider immaterial, may also impair our business and operations.

We have limited working capital and may not be able to continue as a going concern.

At December 31, 2015, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and to increase working capital by raising debt and/or equity.

The Company is highly leveraged and may not be able to generate sufficient revenue to pay its debt service and operating expenses. 

The Company’s largest asset and its primary income producing asset, the Mapletree Industrial Center, acts as security for a mortgage loan.  There is no guaranty that the Mapletree Property will continue to generate revenues sufficient to pay the debt service on the loan and, together with other income, to pay the Company’s operating expenses.  If the Company is unable to service the debt, or pay its operating expenses, then the Company will be required to sell the Mapletree Property and may cease to qualify as a REIT. The Company may not be able to continue as a going concern. 

Volatility in capital and credit markets, or other unfavorable changes in economic conditions, could adversely impact us.

The capital and credit markets are subject to volatility and disruption. We may not be able to obtain new debt financing or refinance our existing debt on favorable terms or at all, which would adversely affect our liquidity, our ability to make distributions to stockholders and acquire and dispose of assets. Other weakened economic conditions, including job losses and high unemployment rates, could adversely affect rental rates and occupancy levels. Unfavorable changes in economic conditions may have a material adverse impact on our cash flows and operating results.

Additional key economic risks which may adversely affect conditions in the markets in which we operate include the following:

Difficulties of selling real estate could limit our flexibility.

We intend to continue to evaluate the potential disposition of assets which may no longer meet our investment objectives. When we decide to sell an asset, we may encounter difficulty in finding buyers in a timely manner as real estate investments generally cannot be disposed of quickly, especially when market conditions are poor. These factors may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and may also limit our ability to utilize sales proceeds as a source of liquidity, which would adversely affect our ability to make distributions to stockholders or repay debt.

Competition could limit our ability to lease our properties or increase or maintain rental income.

There are numerous alternatives which compete with our properties in attracting tenants. Some of these other properties may be newer and offer more modern amenities. This competitive environment could have a material adverse effect on our ability to lease our present properties as well as on the rents realized.

Our acquisition strategy may not produce the cash flows expected.

We may acquire additional operating properties on a selective basis. Our acquisition activities are subject to a number of risks, including the following:

A portion of any acquisitions we may make in the near future will have to be made through the issuance and/or sale of shares of our common stock and will likely result in our ownership together with other partners. We may not be able to identify suitable partners or properties on terms acceptable to us and may not achieve expected returns or other benefits.

Losses from catastrophes may exceed our insurance coverage.

We carry comprehensive property and liability insurance on our properties, which we believe is of the type and amount customarily obtained on similar real property assets by similar types of owners. We intend to obtain similar coverage for properties we acquire in the future. However, some losses, generally of a catastrophic nature, such as losses from floods, hurricanes, or earthquakes, may be subject to coverage limitations. We exercise our discretion in determining amounts, coverage limits, and deductible provisions of insurance to maintain appropriate insurance on our investments at a reasonable cost and on suitable terms. If we suffer a catastrophic loss, our insurance coverage may not be sufficient to pay the full current market value or current replacement value of our lost investment, as well as the anticipated future revenues from the property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also may reduce the feasibility of using insurance proceeds to replace a property after it has been damaged or destroyed.

Investments through joint ventures involve risks not present in investments in which we are the sole investor.

We have invested, and may continue to invest, as a joint venture partner in joint ventures. These investments involve risks, including the possibility the other joint venture partner may have business goals which are inconsistent with ours, possess the ability to take action or withhold consent contrary to our requests, or become insolvent and require us to assume and fulfill the joint venture’s financial obligations. We and our joint venture partner may each have the right to initiate a buy-sell arrangement, which could cause us to sell our interest, or acquire our joint venture partner’s interest, at a time when we otherwise would not have entered into such a transaction. Each joint venture agreement is individually negotiated, and our ability to operate, finance, and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.

Tax matters, including failure to qualify as a REIT, could have adverse consequences.

We may not continue to qualify as a REIT in the future. The Internal Revenue Service may challenge our qualification as a REIT for prior years and new legislation, regulations, administrative interpretations, or court decisions may change the tax laws or the application of the tax laws with respect to qualification as a REIT or the federal tax consequences of such qualification.

For any taxable year that we fail to qualify as a REIT and do not qualify under statutory relief provisions:

We may face other tax liabilities in the future which may impact our cash flow. These potential tax liabilities may be calculated on our income or property values at either the corporate or individual property levels. Any additional tax expense incurred would decrease the cash available for cash distributions to our common shareholders, perpetual preferred unit holders, and non-controlling interest holders.

We depend on our key personnel.

Our success depends in part on our ability to attract and retain the services of executive officers and other personnel. There is substantial competition for qualified personnel in the real estate industry, and the loss of key personnel could have an adverse effect on us.

Insufficient cash flows could limit our ability to pay our operating expenses to make required payments for debt obligations or pay distributions to shareholders.

All of our income is derived from rental and other income from our Mapletree property. As a result, our performance depends in large part on our ability to collect rent from tenants, which could be negatively affected by a number of factors, including the following:

Cash flow could be insufficient to meet required payments of principal and interest with respect to debt financing. In order for us to continue to qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our stockholders equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. This requirement limits the cash available to meet required principal payments on our debt.

We may be unable to renew, repay or refinance our outstanding debt.

We are subject to the risk that indebtedness on our properties will not be renewed, repaid or refinanced when due or the terms of any renewal or refinancing will not be as favorable as the existing terms of such indebtedness. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of the properties on disadvantageous terms, which might result in losses to us. Such losses could have a material adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequent loss of our revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements of the Code.

Issuances of additional debt may adversely impact our financial condition.

Our capital requirements depend on numerous factors, including the rental and occupancy rates of our properties, dividend payment rates to our stockholders, capital expenditures, costs of operations and potential acquisitions. If our capital requirements vary materially from our plans, we may require additional financing earlier than anticipated. If we issue more debt, we could become more leveraged, resulting in increased risk of default on our obligations and an increase in our debt service requirements, both of which could adversely affect our financial condition and ability to access debt and equity capital markets in the future.

Share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders.

For us to maintain our qualification as a REIT, we must have 100 or more shareholders during the year and not more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals. As defined for federal income tax purposes, the term “individuals” includes a number of specified entities. To minimize the possibility of us failing to qualify as a REIT under this test, our articles of incorporation include restrictions on transfers of our shares and ownership limits. The ownership limits, as well as our ability to issue other classes of equity securities, may delay, defer, or prevent a change in control. These provisions may also deter tender offers for our common shares which may be attractive to you or limit your opportunity to receive a premium for your shares which might otherwise exist if a third party were attempting to effect a change in control transaction.

 Our share price will fluctuate.

The market price and trading volume of our common shares are subject to fluctuation due to general market conditions, the risks discussed in this report and other matters, including the following:

The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.

The form, timing and/or amount of dividend distributions will be declared at the discretion of our Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as the Board may consider relevant. The Board may modify the form, timing and/or amount of dividends from time to time.

Our common stock is quoted on the Pink Sheets OTCQB market which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the Pink Sheets OTCQB market, which is a significantly more limited trading market than the New York Stock Exchange or The NASDAQ Stock Market. The quotation of the Company’s shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

When fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood of one’s orders for shares of our common stock being executed, and current prices may differ significantly from the price one was quoted at the time of one’s order entry.

Our common stock is thinly traded, so stockholders may be unable to sell at or near asking prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Currently, our common stock is quoted in the Pink Sheets OTCQB market and the trading volume the Company anticipates to develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in unlisted stocks and certain major brokerage firms restrict their brokers from recommending unlisted stocks because they are considered speculative, volatile and thinly traded. The Pink Sheets OTCQB market is an inter-dealer market much less regulated than the major exchanges, and our common stock is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for our common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded there.

The trading volume of our common stock has been, and may continue to be, limited and sporadic. As a result of such trading activity, the quoted price for our common stock on the OTCQB may not necessarily be a reliable indicator of its fair market value. Further, if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate quotations as to the market value of our common stock and as a result, the market value of our common stock likely would decline.

We are subject to the penny stock rules adopted by the Securities and Exchange Commission (“SEC”) that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.

Rule 3a51-1 of the Securities Exchange Act of 1934, as amended, establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and adversely affect any market liquidity for our common stock. For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.  In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule required by the SEC relating to the penny stock market, which, in highlight form, sets forth: 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock, if and when our common stock becomes publicly traded. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock, in all probability, will be subject to such penny stock rules for the foreseeable future and our stockholders will, in all likelihood, find it difficult to sell their common stock.

As of December 31, 2015, we owned 100% of the Mapletree Industrial Center located in Palmer, Massachusetts.

We sublease our executive office space under a month to month lease with Signature Community Investment Group for a monthly rental payment of $1,100 or $13,200 per year. Either party may terminate the sublease upon 30 days prior written notice.

The chart below lists the Company’s properties as of December 31, 2015.

Mapletree Industrial Center – Palmer, Massachusetts

We own 100% of the Mapletree Industrial Center located in Palmer, Massachusetts. This is a multi-tenant rental facility which was originally the Wickwire-Spencer Wire Mill until 1970 at which time it became rental space. The property consists of 31 buildings located on approximately 48 acres. Major tenants include National Fiber, Creative Material Technologies office and lab, New England Promotional Marketing and Fulfillment Plus, Consolidated Lumber Transport office, Eastern States Associates office, ESSROC Materials (a Portland cement distributor) and American Cable Assembly. The property offers traditional office space and industrial/warehouse space along with vacant land with rail access ready for development. The buildings comprise a total of 418,679 square feet, of which 393,488 is rentable. The property has a carrying value of $1,118,345, less accumulated depreciation of $602,220, resulting in a net carrying value of $516,125 at December 31, 2015. 

In the opinion of management, all of our properties are adequately covered by insurance in accordance with normal insurance practices. All real estate owned by us is owned in fee simple interest with title insurance.

None

Not applicable.

PART II.

(a) The principal market for our Class A common stock (ticker symbol PDNLA) and our Class B common stock (ticker symbol PDNLB) is the Pink Sheets OTCQB market.

The range of high low bid information for the Class A and Class B common stock for the last two calendar years are set forth below:

(b)  The number of aggregate record holders for the Company’s Class A and Class B Common Stock at April 12, 2016 was 387 holders.

(c) Under the Code, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed. 2014 and 2013, the Company did not pay any dividends. Management does not believe that any dividend will be payable in respect to 2015. We cannot promise that we will continue to be taxed as a REIT, or that we will have sufficient cash to pay dividends in order to maintain REIT status. See Item 1. - Business – (e) Qualification as a REIT above.

(d) The following table sets forth certain information as of December 31, 2015, relating to the Company’s equity compensation plans:

Not required for a smaller reporting company.

Overview

Presidential is a Delaware corporation organized in 1983 to succeed to the business of a company of the same name which was organized in 1961 to succeed to the business of a closely held real estate business founded in 1911. Since 1982, we have elected to be treated as a real estate investment trust (“REIT”) for Federal and State income tax purposes. We own, directly or indirectly, interests in real estate and interests in entities which own real estate.

On November 8, 2011, we and PDL Partnership, a New York general partnership (“PDL Partnership”), the general partners of which are Jeffrey F. Joseph (a director and former officer), Steven Baruch (a former director and former officer) and Thomas Viertel (a former director and former officer), entered into a series of strategic transactions with Signature Community Investment Group LLC (together with its affiliates, “Signature”). Signature is owned by Nickolas W. Jekogian, III, and the promoter of the stock transactions included in the strategic transactions. The strategic transactions among other things resulted in the termination of our plan of liquidation.

We outsource the management of the Mapletree Industrial Center to Signature Community Management.

We obtain funds for working capital and investment from our available cash, operating activities, and refinancing of mortgage loans on our real estate.

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit with Country Bank for Savings. The Loan replaces the prior loan agreement and mortgage on the Mapletree Property which was entered into on June 8, 2012 with Country Bank for Savings. $123,757 of the Loan proceeds were set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly payments of $11,308. The outstanding balance of the loan at December 31, 2015 was $1,740,462. The Company is required to maintain certain Financial Covenants. The Company was in compliance with the covenants at December 31, 2015.

Critical Accounting Policies

At December 31, 2015, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and to increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require difficult, complex and subjective judgments. Management has discussed with the Audit Committee the implementation of the critical accounting policies described below and the estimates required with respect to such policies.

Real Estate

Real estate is carried at cost, net of accumulated depreciation and amortization. Additions and improvements are capitalized whereas repairs and maintenance are charged to rental property operating expenses as incurred. Depreciation is generally provided on the straight-line method over the estimated useful life of the asset. The useful life of each property, as well as the allocation of the costs associated with a property to its various components, requires estimates by management. If management incorrectly estimates the allocation of those costs or incorrectly estimates the useful lives of its real estate, depreciation expense may be miscalculated.

The Company reviews its properties for impairment if events or changes in circumstances warrant. If impairment were to occur, the property would be written down to its estimated fair value. The Company assesses the recoverability of its investment in real estate based on undiscounted cash flow estimates. The future estimated cash flows of a property are based on current rental revenues and operating expenses, as well as the current local economic climate affecting the property. Considerable judgment is required in making these estimates and changes in these estimates could cause the estimated cash flows to change and impairment could occur. As of December 31, 2015, the Company’s net real estate was carried at $516,125. 

Rental Revenue Recognition

The Company recognizes rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs.

Allowance for Doubtful Accounts

Management assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded on the accrual method and rental revenue recognition is generally discontinued when the tenant in occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts and subsequent receipts collected for those receivables will reduce bad debt expense. At December 31, 2015 and 2014, allowance for doubtful accounts relating to tenant obligations was $790 and $9,835, respectively.

 Income Taxes

We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of our ordinary tax loss for 2014 there was no requirement to make a distribution in 2015. In addition, no provision for income taxes was required at December 31, 2015. If the Company fails to distribute the required amounts of income to its shareholders, or otherwise fails to meet the REIT requirements, we would fail to qualify as a REIT and substantial adverse tax consequences could result. We believe that we will not be required to pay a dividend in 2016 to maintain our REIT status.

Accounting for Uncertainty in Income Taxes

The Company follows the guidance for the recognition of current and deferred income tax accounts, including accrued interest and penalties in accordance with ASC 740-10-25. If the Company’s tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend to its shareholders in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.

Results of Operations

Results of Operations for the year ended December 31, 2015 compared to the year ended December 31, 2014 were as follows:

Revenues increased by $60,545 for the year ended December 31, 2015, compared to the year ended December 31, 2014, as a result of increased rental revenue at the Mapletree Industrial Center.

Net loss for the year ended December 31, 2015 was $495,377 compared to $941,050 for the year ended December 31, 2014, a decrease of $445,673. The decrease was comprised of: (i) a reduction in general and administrative expenses of approximately $58,000, which primarily consists of a decrease in insurance expenses of $53,000, (ii) a decrease in stock based compensation of $123,000, (iii) increased rental income of approximately $62,000, (iv) decreases in loss on deconsolidation of subsidiaries of $516,982 (v) gain on extinguishment of debt of $228,261. This was offset by a reduction in other income in 2015 due to approximately $206,000 less investment income received from Broadway Partners Fund II, approximately $260,000 less income received from the sale of environmental tax credits, in the state of Massachusetts related to the Mapletree Property, and higher operating expense due to the refinancing costs on the Mapletree Property mortgage.

Balance Sheet

December 31, 2015 compared to December 31, 2014

Net real estate decreased by approximately $40,000 as a result of depreciation expense of approximately $51,000, in 2015, offset by additions and improvements of $13,613.

Prepaid expenses decreased by approximately $9,700 as a result of the accretion of prepaid insurance in connection with the directors and officers tail policy purchased in 2011.

Other assets increased by approximately $256,000 primarily due to the recording of $155,280 of mortgage costs for the refinancing of the Mapletree Property and increased escrow costs required by the new mortgage.

Accrued liabilities increased by $276,490 due to $225,000 accrued salary for Nicholas W. Jekogian, CEO as required by his employment contract and $78,000 for legal fees incurred for potential acquisitions and general legal matters.

Other liabilities decreased $560,778 primarily due to the final settlement of $563,750 deferred compensation owed to three former officers for $50,000 each paid in cash with the balance of $413,750 issued in stock options exercisable upon a future public offering of the Company’s Class B Common Stock.

Liquidity and Capital Resources

We obtain funds for working capital and investment from our available cash and operating activities, and refinancing of mortgage loans on our real estate.

At December 31, 2015, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and to increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

At December 31, 2015, we had approximately $443,000 in available cash, consistent with December 31, 2014. The consistency in cash year over year was due to cash used in operating activities of approximately $795,000 offset by proceeds from financing activities of approximately $800,000 from the refinancing of the Mapletree Property mortgage.

(a)                 Insurance

The Company carries comprehensive liability, fire, extended coverage, auto, workman’s compensation, rental loss and acts of terrorism insurance on its properties. The Company also carries director and officer insurance and a director and officer insurance tail policy. Management believes that its properties are adequately covered by insurance. In 2015, the cost for this insurance was approximately $226,000 including the accretion during the year of $35,000 paid in 2011 for the director and officer insurance tail policy. The Company has renewed its insurance coverage for 2016 and the Company estimates that the premium costs will be approximately $175,000. Although the Company has been able to obtain terrorism coverage on its properties in the past, this coverage may not be available in the future.

(b)                Operating Activities

Cash from operating activities includes interest on the Company’s mortgage portfolio and net cash received from rental property operations. Net cash received from rental property operations was approximately $936,000. Net cash received from rental property operations is before additions and improvements and mortgage amortization.

(c)                 Investing Activities

During 2015, the Company invested approximately $14,000 in additions and improvements to its properties, offset by $8,900 of investment income from Broadway Partners Fund II.

(d)                Financing Activities 

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit with Country Bank for Savings. The Loan replaces the prior loan agreement and mortgage on the Mapletree Property which was entered into on June 8, 2012 with Country Bank for Savings. $123,757 of the Loan proceeds were set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly payments of $11,308. The outstanding balance of the loan at December 31, 2015 was $1,740,462. The Company is required to maintain certain Financial Covenants. The Company was in compliance with the covenants at December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

While we are not required as a smaller reporting company to comply with this Item 7A, we are providing the following general discussion of qualitative market risk.

Our financial instruments consist primarily of notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so our cash flows from them are not directly impacted by changes in market rates of interest. However, changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. We generally hold our notes receivable until maturity or prepayment and repay our notes payable at maturity or upon sale of the related properties, and, accordingly, any fluctuations in values do not impact our earnings, balance sheet or cash flows. We also have investments in securities available for sale, which are reported at fair value. We evaluate these instruments for other-than-temporary declines in value, and, if such declines were other than temporary, would record a loss on the investments. We do not own any derivative financial instruments or engage in hedging activities.

See Table of Contents to Consolidated Financial Statements. 

None.

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures or controls and other procedures that are designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that a company files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and President, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and President, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, 2015. Based on this evaluation, our Chief Executive Officer and our President concluded that as of December 31, 2015, our disclosure controls and procedures were effective at providing reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and President, as appropriate, to allow timely decisions regarding disclosure.

(b) Internal Controls over Financial Reporting 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting at December 31, 2015.

This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. The Company is a smaller reporting company and, as such, management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this Annual Report.

(c) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of Fiscal 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

Directors and Executive Officers of the Company

Richard Brandt . Mr. Brandt has been a member of the Board of Directors of Presidential and the chairman of its Audit and Compensation Committees since 1972. He became President of Trans-Lux Corporation, a diversified entertainment and electronic communications company, in 1962 and then served as Chairman of the Board of Directors of Trans-Lux from 1974 until 2003. Mr. Brandt brings extensive experience to the Board of Directors as a chief executive of a public company and from his thorough knowledge of Presidential’s business.

Robert Feder . Mr. Feder has been a practicing attorney for over 50 years and is a founding partner of Cuddy & Feder LLP, a prominent law firm in White Plains, New York, specializing in real estate law, and is a Fellow of the American College of Real Estate Lawyers. Mr. Feder has been a Director of Presidential, and a member of its Audit and Compensation committees, since 1981. Mr. Feder has also been a director and member of the Executive Committee of Interplex Industries, a privately owned multinational manufacturer of precision parts for the electronic industry, for over 35 years. Presidential’s Board and stockholders benefit from Mr. Feder’s extensive legal and business experience and his thorough understanding of the business of Presidential.

Nickolas W. Jekogian, III . Mr. Jekogian, is the founder, owner and President of Signature Community Investment Group LLC, a Delaware limited liability company (together with its affiliates, "Signature"). Mr. Jekogian founded Signature in 1991 while in college with the purchase of an apartment building in Center City Philadelphia. Since that time, Mr. Jekogian has obtained extensive experience in the real estate industry focusing Signature primarily on multi-family rental properties and at the same time gaining experience in developing commercial properties for third parties. He has built Signature into an integrated real estate company that has owned and operated over its history approximately 5,000 apartment units in 17 markets throughout the United States. Mr. Jekogian is a licensed real estate broker in New York. He has a business Administration degree from Drexel University and a Masters degree in Management from the University of Pennsylvania. Mr. Jekogian has more than 15 years experience developing commercial projects in the New York and Philadelphia Metropolitan areas for retailers such as CVS Drugs, Commerce Bank and Blockbuster Video. During the last five years, prior to joining Presidential, Mr. Jekogian worked exclusively with Signature. Through his extensive experience in the real estate industry, his involvement in strategic transactions within the industry and educational background, Mr. Jekogian provides important expertise to the Board of Directors.

Jeffrey F. Joseph . Mr. Joseph has been employed by Presidential for many years in many capacities. Mr. Joseph initially served as General Counsel for Presidential and was its President and Chief Executive Officer from 1992 to 2011. Mr. Joseph has served as a director of Presidential since 1993. As a result of his long experience in the real estate business in general and with Presidential, Mr. Joseph has a deep understanding of Presidential’s business, finances and operational requirements and is a valuable member of our Board.

Alexander Ludwig . Since February 2011 Mr. Ludwig, has provided, and will continue to provide, consulting services for Signature. From 2009 to October of 2011 he worked at Urban Real Estate Growth Fund LLC, a real estate development and financing company, where he oversaw new investments. Prior to joining Urban Real Estate Growth Fund LLC, Mr. Ludwig worked from 2003 to 2008 for ADG Capital LLC, a real estate development and financing company, where he oversaw multiple real estate development projects. Mr. Ludwig also held various positions in banking, where he structured debt and corporate finance transactions, most recently as a Vice President at Societe Generale, where he was employed from 1997 until 2002. Previously he worked for First Union National Bank and First Fidelity Bank from 1993 to 1997 underwriting and structuring loan transactions. Mr. Ludwig holds a BA degree in history from The University of Pennsylvania. Mr. Ludwig brings substantial leadership skills and knowledge to our board of directors through his experience in the real estate and financial industries.

Jeffrey Rogers Jeffrey Rogers has over 20 years of executive management experience in real estate, finance, technology and operations.  Currently, Mr. Rogers is the President & CEO of LiftForward, Inc.  LiftForward is an online financial community that enables its small business members to borrow money and accredited investors to invest in such loans.   Prior to LiftForward, Mr. Rogers was the President of Zazma, Inc., which provides online financing for the inventory, supplies, equipment and services small and medium size businesses need to grow.  Prior to Zazma, Mr. Rogers, as President & COO, grew and managed one of the largest professional services firm in the United States, Integra Realty Resources, Inc.  Integra, with 64 offices in the United States and Mexico, serves the nation’s largest and most prestigious financial institutions, corporations, law firms, and government agencies. Under his leadership, the company built the best proprietary analytical technology in the industry which fueled record growth for the company over a 9 year period.  Prior to joining Integra, Mr. Rogers held other operating positions and worked for a couple of Wall Street firms as an investment banker.  Mr. Rogers received his BA from Washington and Lee University, his JD from Washington and Lee University School of Law, and finally, his MBA from the Darden School at the University of Virginia.

BBJ Family Irrevocable Trust owns 177,013 shares of Class A common stock and 250,000 shares of Class B common stock. 32,455 of the 250,000 shares of Class B Common Stock constitutes excess shares as provided in the Company’s certificate of incorporation and are excluded in the Beneficial Ownership calculations. The trust was formed in September 2009 by Mr. Jekogian for the benefit of family members including Mr. Jekogian's parents, grandparents, wife, sister, children, nieces and nephews. The trustee of the trust is Mr. Jekogian’s father and Mr. Jekogian remains the protector of the Trust. There is no agreement between the trustee of the trust and Mr. Jekogian as to how the shares of Class A common stock acquired by the trust will be voted or otherwise dealt with. The terms of the transaction pursuant to which the shares of Class A common stock were acquired provide that the trust will vote its shares of Class A common stock for Mr. Robert Feder and/or Mr. Richard Brandt, current independent directors, as directors (subject to their desire to remain as directors); provided that each of them continues to qualify as an independent director under applicable rules, including the rules of any exchange on which either the Class A common stock or the shares of Class B common stock may then be listed and until the occurrence of a Capital Event. “Capital Event” means the receipt by us of at least $20,000,000 in cash or property from a capital raising activity including the following: (a) the sale for cash of shares of the Class A common stock or Class B common stock or securities convertible into shares of the Class A common stock or Class B common stock; (b) the exchange of shares of Class A common stock or Class B common stock for real estate assets consistent with our status as a REIT; (c) the sale of unsecured subordinated debt instruments issued by us, the proceeds of which may be used to acquire real estate assets which are consistent with our status as a REIT.

Family Relationships

There are no family relationships between any director and any executive officer.

Involvement in Certain Legal Proceedings

To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% stockholders are required by regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of reports we received, or written representations that no such reports were required for those persons, we believe that, for the year ended December 31, 2015, all statements of beneficial ownership required to be filed with the Securities and Exchange Commission were filed on a timely basis.       

Code of Ethics

The Company has adopted a Code of Ethics that applies to all officers and employees, including its Chief Executive Officer and Principal Financial Officer. The Company’s Code of Business Conduct and Ethics is filed as Exhibit 14 to this report. and is available on the SEC’s website, www.sec.gov. We will provide any person without charge, upon your written request to the company, a copy of the code.

Audit Committee

The members of the Audit Committee since November 8, 2011 and through the date of the filing are Richard Brandt, Robert Feder and Jeffrey Rogers. The function of the Audit Committee, which is established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act, is to oversee the accounting and financial reporting process of the Company and the audits of the financial statements of the Company. Each member of the Audit Committee is independent (as defined in Section 803A(2) of the NYSE Amex Company Guide). The Board of Directors has adopted a written Charter for the Audit Committee. The Audit Committee held four meetings during our last fiscal year.

The Board of Directors has determined that Richard Brandt, a member of the Audit Committee, is financially sophisticated as defined by Section 803B(2)(a)(iii) of the NYSE Amex Company Guide. The Board does not believe that it is necessary to have a member of the Audit Committee who meets the definition of a financial expert pursuant to Item 407(d) of Regulation S-K because all of the members of the Audit Committee satisfy the NYSE Amex requirements for Audit Committee membership applicable to NYSE Amex listed companies and, as mentioned above, all the members of the Audit Committee are financially sophisticated individuals as defined by the NYSE Amex Company Guide. In addition, all members of the Audit Committee with the exception of Mr. Rogers have been members for at least ten years and are familiar with the business and accounting practices of the Company. The Charter of the Audit Committee is filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held June 15, 2009, filed with the SEC on April 27, 2009, and is available on the SEC’s website, www.sec.gov.

Remuneration of Executive Officers

The following table and discussion summarizes the compensation for the two years ended December 31, 2015 and 2014 of the Principal Executive Officer and Principal Financial Officer of the Company who served as such during fiscal 2014 and those persons serving in such capacity at December 31, 2015. There were no other executive officers at December 31, 2015.

Summary Compensation Table

See Employment Agreements.

Outstanding Equity Awards at Fiscal Year-End

Compensation discussion and analysis

The Company has a Compensation Committee consisting of three independent directors. The Compensation Committee has designed compensation packages for its executive offers which are heavily weighted towards equity compensation realizable upon transactions that raise capital to the Company or which bring assets into the Company. Its key components are stock options, the value of which are directly tied to the performance of our executives.

Employment Agreements and Stock Option Agreements

Nickolas W. Jekogian.

Jekogian Agreements. On November 8, 2011, we entered into an employment agreement with Mr. Jekogian pursuant to which we employ Mr. Jekogian as a Director, Chairman of the Board of Directors and Chief Executive Officer. The employment agreement has a term of eighteen months and may be terminated at any time by the Board of Directors for “cause” or by Mr. Jekogian for “good reason,” each as defined in the employment agreement. Mr. Jekogian receives a base salary of $225,000 per annum. Commencing with our fiscal year beginning January 1, 2012 and for each fiscal year thereafter during the term of the employment agreement, Mr. Jekogian will have the opportunity to earn a bonus of up to $200,000, with the amount determined by the Compensation Committee in its absolute discretion. However, the payment of the bonus and base salary will be deferred until a “Capital Event” occurs, which is defined as the receipt by the Company of at least $20,000,000 in cash or property from capital raising activities.

On January 8, 2014, The Company and Mr. Nicholas W. Jekogian, Chairman and Chief Executive Officer of the Company, entered into an amendment to Mr. Jekogian’s employment agreement dated November 8, 2011. The amendment provides for (i) the extension of the employment term from May 3, 2013 to December 31, 2015, (ii) continuation of Mr. Jekogian’s base salary through the balance of the term at the rate of $225,000 per annum (subject to the continued deferral of the payment of the base salary until a Capital Event), (iii) removal of the $200,000 cap on the amount of any annual bonus that might be awarded Mr. Jekogian, (iv) the issuance to Mr. Jekogian of a “Warrant” (as described below) to purchase 1,700,000 shares of the Company’s Class B Common Stock in exchange for the complete cancellation of $425,000 of the deferred compensation accrued under Mr. Jekogian’s employment agreement, (v) the issuance of a “Transaction Warrant” (as described below) to Mr. Jekogian upon the occurrence of a Capital Event, and (vi) an increase in severance benefits from three months to six months in the event of a termination of Mr. Jekogian’s employment following a change of control or a termination for “good reason” as defined in the employment agreement. The payment of any bonus and base salary will continue to be deferred until a “Capital Event” occurs, which is defined as the receipt by the Company of at least $20,000,000 in cash or property from capital-raising activities.

Mr. Jekogian’s employment agreement, as amended, expired at December 31, 2015 but the board agreed to continue Mr. Jekogian’s employment on the same terms as the agreement until otherwise terminated by the board.

The Transaction Warrant is a warrant to purchase shares of the Company’s Class B Common Stock to be issued to Mr. Jekogian upon the closing of each acquisition transaction by the Company of cash or property (including capital commitments for the purchase of assets). A copy of the form of Transaction Warrant is annexed as an Exhibit to the amendment to Mr. Jekogian’s employment agreement. Each Transaction Warrant, when issued, will entitle Mr. Jekogian to purchase the number of shares of Class B Common Stock determined by multiplying the total value of the transaction for which the Transaction Warrant is being issued times 4.75% and dividing the amount thereby obtained by the “Transaction Price”. The exercise price of the Transaction Warrant will be the Transaction Price. The Transaction Price is the price at which owners of assets or third party investors providing capital or capital commitments have the right to acquire or are issued shares of Class B Common Stock (a) in exchange for interests in real estate assets or (b) in exchange for interests or investments in operating partnerships or other vehicles in which the Company has an interest and which own or are acquiring real estate assets or (c) in exchange for providing capital and/or capital commitments. Each Transaction Warrant will become exercisable six months after issuance. The Transaction Warrant will not be exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the Company’s certificate of incorporation. Mr. Jekogian agreed not to exercise or attempt to exercise any Transaction Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares. The Transaction Warrant contains a cashless exercise feature. The Transaction Warrant also contains registration rights which permit Mr. Jekogian to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

As provided in the amendment to Mr. Jekogian’s employment agreement, on January 8, 2014 the Company issued to Mr. Jekogian a Warrant to purchase 1,700,000 shares of the Company’s Class B Common Stock in exchange for the complete cancellation of $425,000 of the deferred compensation accrued under Mr. Jekogian’s employment agreement. The Warrant becomes exercisable only upon the expiration of six (6) months from the date of the Company’s consummation of a Capital Event and will expire five and one half years following the date it first becomes exercisable. The Warrant will also terminate if Mr. Jekogian terminates his employment and/or resigns as a director of the Company without “Good Reason” or without the consent of the Company prior to the date the Warrant becomes exercisable. The Company’s certificate of incorporation contains limitations on the ownership of shares of the Company’s common stock. Those restrictions limit, among other things, any person from owning more than 9.2% of the Company’s outstanding common stock as more particularly set forth in the Company’s certificate of incorporation. The Warrant is not exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the certificate of incorporation. Mr. Jekogian agreed not to exercise or attempt to exercise the Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares. The Warrant contains a cashless exercise feature. The Warrant also contains registration rights which permit Mr. Jekogian to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

Mr. Jekogian will not be exclusive to the Company. He will continue to own and operate Signature. As a result, Mr. Jekogian may be subject to conflicts of interest. The independent directors of the Board will review all transactions between the Company and Signature and the activities of Mr. Jekogian.

On November 8, 2011, we also entered into a stock option agreement with Mr. Jekogian. Subject to the terms and conditions set forth in the option agreement, the Company granted to Mr. Jekogian the right and option to purchase 370,000 shares of our Class B common stock at a price of $1.25 per share, of which 74,000 shares may be purchased six months after the grant date, 148,000 shares may be purchased upon and after the occurrence of the Capital Event, and the rest may be purchased upon and after the consummation of an underwritten registered public offering of our common stock with gross proceeds of not less than $40,000,000. However, if there is a “Change of Control,” as defined in the option agreement, the option automatically becomes fully vested and exercisable. The option is not a qualified option within the meaning of the Internal Revenue Code of 1986 nor was it granted pursuant to any stock option plan as the Company does not have a stock option plan in effect. The option has a term of ten years.

Alexander Ludwig

On November 8, 2011, we entered into an employment agreement with Mr. Ludwig pursuant to which we employ Mr. Ludwig as President, Chief Operating Officer, Director and Principal Financial Officer of the Company. The employment agreement has a term of eighteen months and may be terminated at any time by the Board of Directors for “cause” or by Mr. Ludwig for “good reason,” each as defined in the employment agreement. Mr. Ludwig receives a base salary of $225,000 per annum. Commencing with our fiscal year beginning January 1, 2012 and for each fiscal year thereafter during the term of the employment agreement, Mr. Ludwig will have the opportunity to earn a bonus of up to $200,000, with the amount determined by the Compensation Committee in its absolute discretion.

On January 8, 2014, the Company and Mr. Alexander Ludwig entered into an amendment to Mr. Ludwig’s employment agreement dated November 8, 2011. The amendment provides for (i) the extension of the employment term from May 3, 2013 to December 31, 2015, (ii) continuation of Mr. Ludwig’s base salary through the balance of the term at the rate of $225,000 per annum, (iii) removal of the $200,000 cap on the amount of any annual bonus that might be awarded Mr. Ludwig, (iv) the issuance of a “Transaction Warrant” to Mr. Ludwig upon the occurrence of a Capital Event, and (v) an increase in severance benefits from three months to six months in the event of a termination of Mr. Ludwig’s employment following a change of control or a termination for “good reason” as defined in the employment agreement.

Mr. Ludwig’s employment agreement, as amended, expired at December 31, 2015 but the board agreed to continue Mr. Ludwig’s employment on the same terms as the agreement until otherwise terminated by the board.

The Transaction Warrant is a warrant to purchase shares of the Company’s Class B Common Stock to be issued to Mr. Ludwig upon the closing of each acquisition transaction by the Company of cash or property (including capital commitments for the purchase of assets). A copy of the form of Transaction Warrant is annexed as an Exhibit to the amendment to Mr. Ludwig’s employment agreement. The Transaction Warrant, when issued, would entitle Mr. Ludwig to purchase the number of shares of Class B Common Stock determined by multiplying the total value of the transaction for which the Transaction Warrant is being issued times 4.75% and dividing the amount thereby obtained by the “Transaction Price”. The exercise price of the Transaction Warrant will be the Transaction Price. The “Transaction Price is the price per share at which owners of assets or third party investors providing capital or capital commitments have the right to acquire or are issued shares of Class B Common Stock (a) in exchange for their interests in real estate assets or in exchange for their interests or investments in operating partnerships or other vehicles in which the Company has an interest and which vehicles own or are acquiring real estate assets or (b) in exchange for providing capital and/or capital commitments. Each Transaction Warrant will become exercisable six months after issuance. The Transaction Warrant will not be exercisable for any shares that would be deemed “Excess Shares” as that term is defined in the Company’s certificate of incorporation. Mr. Ludwig agreed not to exercise or attempt to exercise the Transaction Warrant for a number of shares which, when taken together with his other ownership of the Company’s securities, would result in the issuance of any Excess Shares. The Transaction Warrant contains a cashless exercise feature. The Transaction Warrant also contains registration rights which permit Mr. Ludwig to demand one resale registration statement on Form S-3 at any time six months following the completion of a registered offering by the Company and unlimited piggyback registration rights, subject to customary cutbacks.

Mr. Ludwig will continue to provide consulting services to and receive compensation from Signature. As a result, Mr. Ludwig may be subject to conflicts of interest. Mr. Ludwig has agreed to keep the independent directors of the Board advised of his activities for and compensation from Signature.

On November 8, 2011, we entered into an option agreement with Mr. Ludwig which has the same terms as the option agreement entered into with Mr. Jekogian and which is described above.

Compensation of Directors

The Directors received no compensation for their services during 2015.

As of April 12, 2016, there were 442,533 shares of Class A common stock and 3,846,147 shares of Class B common stock outstanding.

The following tables set forth certain information regarding our Class A and Class B common stock beneficially owned as of April 12, 2016, for (i) each stockholder known to be the beneficial owner of 5% or more of any class of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group.  A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

For purposes of these tables, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of April 12, 2016.  For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of April 15, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.  The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

Security Ownership of Management

As of April 12, 2016, the directors and executive officers of Presidential owned beneficially the following amounts and percentages of the Class A and Class B common stock of Presidential:

* Less than 1% of the class of stock.

Except as set forth in the notes to the table, each of the owners of the shares set forth in the table has the sole voting and dispositive power over such shares except that any such owner has no voting or dispositive power over shares the beneficial ownership of which is disclaimed.

Security Ownership of Certain Beneficial Owners

The following table sets forth information as of the date noted in the footnotes about persons, in addition to Jeffrey Joseph and Robert Feder (whose ownership of our common stock is set forth in the previous table), who, to our knowledge, as of April 12, 2016, beneficially owned more than 5% of any class of our outstanding shares of common stock determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934.

*Owns less than 1% of all outstanding Class A and Class B stock combined.

The Company’s management knows of no other persons owning beneficially more than 5% of either the outstanding Class A common stock or the outstanding Class B common stock of the Company.

BBJ Irrevocable Family Trust has agreed to vote its shares of Class A common stock which it is entitled to vote for Mr. Robert Feder and/or Mr. Richard Brandt, current independent directors, as directors (subject to their desire to remain as directors); provided that each of them continues to qualify as an independent director under applicable rules, including the rules of any exchange on which either the Class A common stock or the shares of Class B common stock may then be listed and until the occurrence of a Capital Event. 

Our certificate of incorporation contains certain restrictions on the ownership of our shares in order to assure that we continue to qualify as a REIT. Shares of our common stock cannot be transferred to any person if such transfer would cause that person to be the owner of more than 9.2% of our outstanding shares. The BBJ Irrevocable Family Trust has exceeded that limit. Under the terms of our certificate of incorporation, the excess shares (shares owned in excess of the 9.2% limitation) shall be deemed to have been transferred to the Company as trustee for the benefit of the person to whom the shares will later be transferred; the person who would have been the owner shall not be entitled to exercise any voting rights with respect to the excess shares, the excess shares will not be deemed to be outstanding for the purpose of determining a quorum at any meeting of shareholders and any dividends or other distributions with respect to the excess shares shall be accumulated and deposited in a savings account for the benefit of the person to whom the excess shares are transferred. Our certificate of incorporation further provides that excess shares are deemed offered for sale to the Company or its designee for a period of ninety (90) days from the date of the transfer (or the date the Company learns of the transfer) at the fair market value (as defined in our certificate of incorporation) of the excess shares. If notwithstanding the terms of the certificate of incorporation, a person knowingly would own shares in excess of the limit and we would have been a REIT but for the fact that more than 50% of the value of our shares are held in violation of the Code, then that person and all legal entities which constitute that person shall be jointly and severally liable for and pay to the Company, such amounts will, after taking into account of all taxes imposed with respect to the receipt or accrual of such amount and all costs incurred by the Company as a result of such loss, put the Company in the same financial position as it would have been had it not lost its REIT qualification. If the Board determines that a transfer has taken place in violation of the limitations set forth above, or that a person intends to acquire or has acquired ownership of excess shares, the Board may take such action as it deems advisable to prevent or to refuse to give effect to such transfer or acquisition, including but not limited to refusing to give effect to such transfer or acquisition or instituting proceedings to enjoin the transfer or acquisition.

The ownership restrictions in our certificate of incorporation define ownership under both Subchapter M, Part II of the Code and Rule 13d-3 under the Securities Exchange Act of 1934. The BBJ Irrevocable Family Trust has entered into agreements with us pursuant to which, among other things, they acknowledge that they are not entitled to vote or transfer the excess shares and that they hold such shares in trust for the Company.

Changes in Control

We are not aware of any arrangements that may result in a change in control of the Company.

Independent Directors

The Board has determined that Richard Brandt, Robert Feder and Jeffrey Rogers are independent directors pursuant to Section 803A(2) of the NYSE MKT LLC Company Guide.

Conflicts of Interest and Fiduciary Duties  

Conflicts of interest may arise as a result of the relationship between Mr. Jekogian, who is Chairman of the Company’s board of directors and chief executive officer of the Company, and Signature, of which Mr. Jekogian is the owner and chief executive officer. Mr. Ludwig, a director, our president, chief operating officer and principal financial officer, also provides consulting services to and receives compensation from Signature. All of our directors and officers have fiduciary duties to manage the Company in a manner beneficial to our stockholders. At the same time, Mr. Jekogian and Mr. Ludwig may also owe fiduciary duties to Signature. The independent directors of the Board will review all transactions between the Company and Signature and the activities of Mr. Jekogian and Mr. Ludwig.

Indemnification of Directors and Officers

The Company’s Articles of Incorporation provide that no director, officer of or employee to the corporation past, present or future, shall be personally liable to the corporation or any of its shareholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the liability of a director for acts or omissions which involve intentional misconduct, fraud or knowing violation of law and for the payment of dividends is not so eliminated.  The corporation shall advance or reimburse reasonable expenses incurred by an affected officer, director or employee without regard to the above limitations, or any other limitation which may hereafter be enacted to the extent such limitation may be disregarded if authorized by the Articles of Incorporation.

Audit Fees

The following table presents fees billed for professional services rendered by Baker Tilly Vichow Krause LLP (“Baker Tilly”) for the audit of the Company’s financial statements for the fiscal years ended December 31, 2015 and December 31, 2014 and fees for other services rendered by Baker Tilly during those periods.

All audit-related services, tax services and other services in 2015 and 2014 were pre-approved by the Audit Committee.

Policy on Pre-Approval of Independent Registered Public Accounting Firm

The Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. The Audit Committee has established a policy regarding pre-approval of all audit and non-audit services provided by our Company’s independent registered public accounting firm.

On an on-going basis, management communicates specific projects and categories of service for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and advises management if the Audit Committee approves the engagement of the independent registered public accounting firm. The Audit Committee may also delegate the ability to pre-approve audit and permitted non-audit services to one or more of its members, provided that any pre-approvals are reported to the Audit Committee at its next regularly scheduled meeting.

PART IV.

3.1 Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.5 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).

3.2 Certificate of Amendment to Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1-8594).

3.3 Certificate of Amendment to Certificate of Incorporation of the Company, filed July 21, 1988 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 1-8594).

3.4 Certificate of Amendment to Certificate of Incorporation of the Company, filed on September 12, 1989 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 1-8594).

3.5 Certificate of Amendment to Certificate of Incorporation of the Company, filed on August 15, 2012 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit A to the Company’s definitive Proxy Statement for its Annual Meeting to Shareholders filed with the Securities and Exchange Commission on July 3, 2012, Commission File No. 1-8594).

3.6 By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).

4.1 2012 Equity Incentive Plan and Forms of Award Agreements (incorporated herein by reference to Exhibit B to the Company’s definitive Proxy Statement for its Annual Meeting to Shareholders filed with the Securities and Exchange Commission on July 3, 2012, Commission File No. 1-8594).

10.1 Property Management Agreement, dated November 8, 2011, between Presidential Realty Corp. and Signature Community Investment Group LLC (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594)

10.2 Asset Management Agreement, dated November 8, 2011, between Presidential Realty Corp. and Signature Community Investment Group LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

10.3 Executive Employment Agreement, dated November 8, 2011, between Presidential Realty Corp. and Nickolas W. Jekogian, III (incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

10.4 Warrant issued January 8, 2014 to Nickolas W. Jekogian to purchase 1,700,000 shares of Class B Common Stock. (incorporated herein by reference to Exhibit 4 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).

10.5 Amendment dated January 8, 2014 to the Employment Agreement dated November 8, 2011 between the Company and Nickolas W. Jekogian (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).

10.6 Option Agreement, dated November 8, 2011, between Presidential Realty Corp. and Nickolas W. Jekogian, III (incorporated herein by reference to Exhibit 10.5 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

10.7 Executive Employment Agreement, dated November 8, 2011, between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

10.8 Amendment dated January 8, 2014 to the Employment Agreement dated November 8, 2011 between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).

10.9 Option Agreement, dated November 8, 2011, between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit

to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594)

10.10 Form of Indemnification Agreement between Presidential Realty Corp. and each officer and director (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

10.11 Loan Agreement dated as of July 28, 2015 between Palmer-Mapletree LLC and Natixis Real Estate Capital LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).

10.12 Promissory Note dated as of July 28, 2015, by Palmer-Mapletree LLC in favor of Natixis Real Estate Capital LLC ( incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).

10.13 Mortgage, Assignment of Leases and Rents and Security Agreement dated as of July 28, 2015, by Palmer-Mapletree LLC to Natixis Real Estate Capital LLC. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).

10.14 Guaranty of Recourse Obligations dated as of July 28, 2015, by Presidential Realty Corporation in favor of Natixis Real Estate Capital LLC. (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).

14. Code of Business Conduct and Ethics of the Company

21. List of Subsidiaries of Registrant (incorporated herein by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, Commission File No. 1-8594).

31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1 Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 12th day of April 2016.

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

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders, Audit Committee and Board of Directors

Presidential Realty Corporation and Subsidiaries

New York, New York

We have audited the accompanying consolidated balance sheets of Presidential Realty Corporation and Subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of operations, deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Presidential Realty Corporation and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and cash flows for the years then ended, in conformity with United States generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Melville, New York

April 12, 2016

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF DEFICIT

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

Organization

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

Basis of Presentation and Going Concern Considerations

At December 31, 2015, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and to increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s financial position and operating results.

Real Estate

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

Mortgage Portfolio

Net mortgage portfolio represents the outstanding principal amounts of notes receivable reduced by discounts. The primary forms of collateral on all notes receivable are real estate and ownership interests in entities that own real property, and may include borrower personal guarantees. The Company periodically evaluates the collectability of both accrued interest on and principal of its notes receivable to determine whether they are impaired. A mortgage loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms of the loan. The Company also considers loan modifications as possible indicators of impairment. When a mortgage loan is considered to be impaired, the Company establishes a valuation allowance equal to the difference between a) the carrying value of the loan, and b) the present value of the expected cash flows from the loan at its effective interest rate, or at the estimated fair value of the real estate collateralizing the loan. Income on impaired loans, including interest, and the recognition of deferred gains and unamortized discounts, is recognized only as cash is received.

Sale of Real Estate

Presidential follows the guidance of the Property, Plant and Equipment Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) as it pertains to sales of real estate. Accordingly, the gains on certain transactions were deferred and were recognized on the installment method until such transactions complied with the criteria for full profit recognition. At December 31, 2015 and 2014, the Company had no deferred gains.

Discounts on Notes Receivable

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

Principles of Consolidation

The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Rental Revenue Recognition

The Company acts as lessor under operating leases. Rental revenue is recorded on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs. Recognition of rental revenue is generally discontinued when the rental is delinquent for ninety days or more, or earlier if management determines that collection is doubtful.

Reclassifications

Certain items in the December 31, 2014 consolidated financial statements and notes have been reclassified to conform to the December 31, 2015 presentation.

Allowance for Doubtful Accounts

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded on the accrual method and rental revenue recognition is generally discontinued when the tenant in occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts and subsequent receipts collected for those receivables will reduce bad debt expense. For the years ended December 31, 2015 and 2014, bad debt expense for continuing operations relating to tenant obligations was $790 and $9,835, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding (excluding non-vested shares) during each year. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of non-vested shares. For the years ended December 31, 2015 and 2014, the weighted average shares outstanding as used in the calculation of diluted loss per share do not include 740,000, of outstanding stock options and 1,700,000 of outstanding warrants, as their inclusion would be antidilutive.

Cash

Cash includes cash on hand, cash in banks and cash in money market funds.

Management Estimates

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

Accounting for Stock Awards

The Company follows the guidance of ASC Topic 718 in accounting for stock-based compensation. Shares of Class B common stock granted are fully vested upon the grant date. The Company recorded the market value of the grants that were earned and vested in 2015 and 2014 to expense in each year.

Accounting for Uncertainty in Income Taxes

The Company follows the guidance of the recognition of current and deferred income tax accounts, including accrued interest and penalties, in accordance with ASC 740-10-25. Under this guidance, if the Company’s tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend to its shareholders in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-3, to simplify the presentation of debt issuance costs. This update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the required presentation for debt discounts. This update is effective for interim and annual periods beginning after December 15, 2015. The adoption of this standard will change the Company’s current practice of presenting debt issuance costs as an asset and will result in the reduction of total assets and total liabilities in an amount equal to the balance of unamortized debt issuance costs at each balance sheet date. Debt issuance costs are currently presented separately on the Company’s condensed consolidated balance sheets in other assets and amounted to $150,438 at December 31, 2015 and $14,195 at December 31, 2014.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on the Company’s financial position or results of operations.

Real estate is comprised of the following:

Rental revenue from the Maple Tree property constituted all of the rental revenue for the Company in 2015 and 2014.

We received distributions from Broadway Partners Fund II in the amount of $8,900 and $214,979 during the years ended December 31, 2015 and 2014, respectively. This amount is reported as investment income on the statement of operations. This investment was previously written off. The Company recognizes income received on the cash basis. The Broadway Partners Fund II was closed at the end of 2014 and we do not expect any meaningful income from this investment in the future.

Maturities of Mortgage for the next five years are as follows:

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

ASC 740 prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of December 31, 2015, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2012 – 2014 tax years and the Company was not required to accrue any liability for those tax years.

The Company has accumulated a net operating loss carry forward of approximately $20,000,000 expiring from 2028 through 2034.

For the year ended December 31, 2014, the Company recorded a tax loss of approximately $200,000 ($.05 per share), which was all ordinary loss.

For the year ended December 31, 2015, the Company recorded a loss of approximately $197,700 ($.05 per share), which was all ordinary loss.

As previously stated, in order to maintain REIT status, Presidential is required to distribute 90% of its REIT taxable income (exclusive of capital gains). As a result of the operating loss for 2015 there is no requirement to make a distribution in 2016. In addition, no provision for federal income taxes was required at December 31, 2015 and 2014.

Mr. Jekogian’s employment agreement, as amended, expired at December 31, 2015 but the board agreed to continue Mr. Jekogian’s employment on the same terms as the agreement until otherwise terminated by the board.

Mr. Ludwig’s employment agreement, as amended, expired at December 31, 2015 but the board agreed to continue Mr. Ludwig’s employment on the same terms as the agreement until otherwise terminated by the board.

On May 12, 2015 the Company and three former officers entered into agreements that if the Company were to refinance the Mapletree Property, then they would accept, in lieu of the deferred compensation owed to them in the amount of $563,750 a cash payment of $50,000 each for a total of $150,000 from the proceeds of the refinancing and the balance in options of restricted stock vesting upon a registered public offering of the Company’s Class B Common Stock.

On July 28, 2015 the Company successfully refinanced the Mapletree Property and made payments of $50,000 each and issued the option agreements to each of the three former officers.  The options call for the issuance of a number of shares of restricted stock based on the value at the public offering price equal to the balance due of $413,750. The options vest upon the consummation of an underwritten registered public offering of the Company’s Class B Common Stock with gross proceeds of not less than $20,000,000. The options expire 5 years from the grant date. The underlying shares of the exercised options must be held for a period of 180 days, therefore a discount for lack of marketability was applied. The Company recorded an extinguishment of debt gain of $228,261 based on the carrying value of the deferred compensation of $413,750 and the fair value of the options issued of $185,489.

These options were valued using a monte carlo model valuation methodology. The model embodies relevant assumptions that address the features underlying these instruments. Significant assumption used in the monte carlo model to value these options were, the following: Exercises price - $1.00; Term - 5 years; Discount for lack of marketability - 29.19%; Volatility - 108.6%; Risk-free interest rate - 1.61%; Dividend rate - 0%.

During 2014 we paid the former officers of the Company $10,000 each or $30,000 in total in order to extend the due date of the payment from November 8, 2014 to November 8, 2016.  The balance owed at December 31, 2015 and December 31, 2014 was $0 and $563,750, respectively and is included in other liabilities.

On November 8, 2011, the Company and Signature Community Management (“Signature”), (an entity owned by our CEO) entered into a Property Management Agreement pursuant to which the Company retained Signature as the exclusive, managing and leasing agent for the Company’s Mapletree Property. Signature receives compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The property Management Agreement renewed for a one year term on November 8, 2015 and will automatically renew for one year terms until it is terminated by either party upon written notice. The Company incurred management fees of approximately $40,500 and $38,000 for the year ended December 31, 2015 and 2014, respectively.

On November 8, 2011, the Company entered into an Asset Management Agreement with Signature pursuant to which the Company engaged Signature to oversee the Mapletree Property. Signature will receive an asset management fee of 1.5% of the monthly gross rental revenues collected for the Mapletree Property. The Asset Management Agreement renewed for a one year term on November 8, 2015 and will automatically renew for one year terms until it is terminated by either party upon written notice. The Company incurred asset management fees of $12,167 and $11,000 for the years ended December 31, 2015 and 2014, respectively.

The Company subleases their executive office space under a month to month lease with Signature for a monthly rental payment of $1,100 or $13,200 per year. Either party may terminate the sublease upon 30 days prior written notice. For the years ended December 31, 2015 and 2014 the Company incurred $13,200 in rent expense each year.

During 2014, the Company sold environmental tax credits from the state of Massachusetts for approximately $260,000 less expenses of approximately $19,500, in connection with the environmental remediation at the Mapletree Property.

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

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

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

Other than as described in Note 11, no shares of common stock of Presidential are reserved.

The Company issued to Mr. Nicholas W. Jekogian our CEO a Warrant in January 2014 to purchase 1,700,000 shares of the Company’s Class B Common Stock at an exercise price of $0.10 per share in exchange for the complete cancellation of $425,000 of deferred compensation accrued under Mr. Nicholas W. Jekogian’s employment agreement.

On November 8, 2011, the Company issued 740,000 options at an exercise price of $1.25. A total of 148,000 shares vest six months after the grant date. The aggregate intrinsic value was $0.00. The remaining options vest upon the achievement of performance milestones. Options vesting on the achievement of performance milestones will not be recognized as compensation until such milestones are deemed probable of achievement. The Company has approximately $592,000 of unrecognized compensation expense respectively, related to unvested share-based compensation awards. For the years ended December 31, 2015 and 2014 compensation expense was $0. Approximately $592,000 will vest upon the achievement of performance milestones.

The weighted-average fair value per share of the options granted is $1.00 estimated on the date of grant using the Black-Scholes-Merton option pricing model; the expected volatility is based upon historical volatility of the Company’s stock. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.

On August 15, 2012 the stockholders approved the 2012 Incentive Plan which reserves 1,000,000 shares of Class B common stock for distribution to executive officers (including executive officers who are also directors), employees, directors, independent agents, consultants and attorneys in accordance with the 2012 Plan’s terms. The 2012 Plan provides for the grant of any or all of the following types of awards (collectively, “Awards”): (a) stock options and (b) restricted stock. Awards may be granted singly, in combination, or in tandem, as determined by the Compensation Committee. The maximum number of shares of Class B common stock with respect to which incentive stock options may be granted to any one individual in any calendar year shall not exceed $100,000 in fair market value as determined at the time of grant. If any outstanding Award is canceled, forfeited, delivered to us as

payment for the exercise price or surrendered to us for tax withholding purposes, shares of Class B common stock allocable to such Award may again be available for Awards under the 2012 Incentive Plan.

In 2005, shareholders approved the adoption of the Company’s 2005 Restricted Stock Plan (the “2005 Plan”). The 2005 Plan provided that a total of 115,000 shares of the Company’s Class B common stock may be issued to employees, directors and consultants of the Company, to provide incentive compensation. The 2005 Plan was administered by the Compensation Committees of the Company’s Board of Directors, which had the authority, among other things, to determine the terms and conditions of any award under the 2005 Plan. The 2005 Plan expired on June 15, 2015.

During January 2014, the Company issued 615,000 shares of Class B common stock, valued at $123,000 for director’s fees and other professional fees in lieu of cash payments, which is included in stock based compensation expense.

The following is a summary of the Company’s activity for the 2012 and 2005 Plans in 2015 and 2014:

Estimated fair values of the Company’s financial instruments as of December 31, 2015 and 2014 were determined using available market information and various valuation estimation methodologies. Considerable judgment was required to interpret the effects on fair value of such items as future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. However, we believe reported amounts approximate fair value.

Future minimum annual base rental revenue for the next five years for commercial real estate owned at December 31, 2015, and subject to non-cancelable operating leases is as follows: