Item 1. Financial Statements
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
Audited
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate (Note 2)
|
|
|
|
|
|
|
|
|
|
$
|
1,089,840
|
|
|
$
|
1,085,909
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
451,659
|
|
|
|
414,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
|
|
|
|
|
|
|
|
638,181
|
|
|
|
671,104
|
|
Net mortgage portfolio
|
|
|
|
|
|
|
|
|
|
|
18,770
|
|
|
|
30,370
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
144,936
|
|
|
|
304,417
|
|
Other receivables (net of valuation allowance of $6,724 in 2012 and $5,592 in 2011)
|
|
|
|
|
|
|
|
|
|
|
19,817
|
|
|
|
14,428
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,053,156
|
|
|
|
961,240
|
|
Assets related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
14,324,287
|
|
|
|
14,392,300
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
40,380
|
|
|
|
-
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
16,239,527
|
|
|
$
|
16,373,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
$
|
17,645,720
|
|
|
$
|
16,638,972
|
|
Mortgage payable
|
|
|
|
|
|
|
|
|
|
|
492,608
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
164,896
|
|
|
|
150,120
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
1,959
|
|
|
|
33,970
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
637,205
|
|
|
|
622,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
18,942,388
|
|
|
|
17,446,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presidential Stockholders' Deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock: par value $.00001 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Authorized:
|
|
|
700,000
|
|
|
|
700,000
|
|
|
|
|
|
|
|
|
|
Issued:
|
|
|
471,633
|
|
|
|
471,633
|
|
|
|
|
|
|
|
|
|
Treasury:
|
|
|
29,100
|
|
|
|
29,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
Authorized:
|
|
|
999,300,000
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
Issued:
|
|
|
3,746,842
|
|
|
|
3,742,842
|
|
|
|
|
|
|
|
|
|
Treasury:
|
|
|
529,695
|
|
|
|
529,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
5,252,336
|
|
|
|
5,150,869
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
(3,263,337
|
)
|
|
|
(1,966,911
|
)
|
Treasury stock (at cost)
|
|
|
|
|
|
|
|
|
|
|
(2,879,354
|
)
|
|
|
(2,879,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Presidential stockholders' (deficit) equity
|
|
|
|
|
|
|
|
|
|
|
(890,313
|
)
|
|
|
304,646
|
|
Noncontrolling interest (Note 6)
|
|
|
|
|
|
|
|
|
|
|
(1,812,548
|
)
|
|
|
(1,376,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deficit
|
|
|
|
|
|
|
|
|
|
|
(2,702,861
|
)
|
|
|
(1,072,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
$
|
16,239,527
|
|
|
$
|
16,373,859
|
|
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
THREE MONTHS ENDED SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
193,585
|
|
|
$
|
171,657
|
|
|
$
|
570,025
|
|
|
$
|
597,983
|
|
Interest on mortgages - notes receivable
|
|
|
617
|
|
|
|
10,571
|
|
|
|
9,037
|
|
|
|
200,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
194,202
|
|
|
|
182,228
|
|
|
|
579,062
|
|
|
|
798,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
225,238
|
|
|
|
270,505
|
|
|
|
767,343
|
|
|
|
6,291,305
|
|
Stock Based Compensation
|
|
|
-
|
|
|
|
6,035
|
|
|
|
98,667
|
|
|
|
16,655
|
|
Pension plan termination
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(408,086
|
)
|
Rental property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
130,586
|
|
|
|
121,616
|
|
|
|
360,018
|
|
|
|
413,120
|
|
Interest and fees on mortgage debt
|
|
|
8,499
|
|
|
|
-
|
|
|
|
9,333
|
|
|
|
134
|
|
Real estate taxes
|
|
|
12,165
|
|
|
|
11,938
|
|
|
|
35,452
|
|
|
|
35,814
|
|
Depreciation on real estate
|
|
|
12,141
|
|
|
|
-
|
|
|
|
36,855
|
|
|
|
-
|
|
Amortization of mortgage costs
|
|
|
-
|
|
|
|
-
|
|
|
|
132
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
388,629
|
|
|
|
410,094
|
|
|
|
1,307,800
|
|
|
|
6,349,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
2,456
|
|
|
|
25,177
|
|
|
|
5,654
|
|
|
|
40,994
|
|
Gain on the sale of Consolidated note receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,264,724
|
|
Equity in the loss from joint ventures (Note 3)
|
|
|
-
|
|
|
|
(313,640
|
)
|
|
|
-
|
|
|
|
(748,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(191,971
|
)
|
|
|
(516,329
|
)
|
|
|
(723,084
|
)
|
|
|
(2,993,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(436,277
|
)
|
|
|
(518,494
|
)
|
|
|
(1,009,050
|
)
|
|
|
(1,185,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operations
|
|
|
(436,277
|
)
|
|
|
(518,494
|
)
|
|
|
(1,009,050
|
)
|
|
|
(1,185,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(628,248
|
)
|
|
|
(1,034,823
|
)
|
|
|
(1,732,134
|
)
|
|
|
(4,178,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from noncontrolling interest (Note 6)
|
|
|
172,066
|
|
|
|
237,969
|
|
|
|
435,708
|
|
|
|
563,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Presidential
|
|
$
|
(456,182
|
)
|
|
$
|
(796,854
|
)
|
|
$
|
(1,296,426
|
)
|
|
$
|
(3,614,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share attributable to Presidential (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(0.07
|
)
|
|
|
(0.08
|
)
|
|
|
(0.15
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(1.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - basic and diluted
|
|
|
3,657,369
|
|
|
|
3,405,680
|
|
|
|
3,656,243
|
|
|
|
3,405,355
|
|
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
|
|
NINE MONTHS ENDED
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,732,134
|
)
|
|
$
|
(4,178,660
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Net loss on securities held for sale
|
|
|
-
|
|
|
|
16,330
|
|
Net gain on sale of mortgage portfolio
|
|
|
-
|
|
|
|
(3,264,724
|
)
|
Realized loss on pension termination
|
|
|
-
|
|
|
|
3,967,627
|
|
Equity in the loss from joint ventures
|
|
|
-
|
|
|
|
748,541
|
|
Depreciation and amortization
|
|
|
36,855
|
|
|
|
-
|
|
Amortization of discounts on notes and fees
|
|
|
1,237
|
|
|
|
972
|
|
Stock Based compensation
|
|
|
98,667
|
|
|
|
-
|
|
Issuance of stock to directors and officers
|
|
|
2,800
|
|
|
|
16,955
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(5,389
|
)
|
|
|
(73,105
|
)
|
Discontinued operations assets
|
|
|
68,013
|
|
|
|
744,321
|
|
Prepaid expenses, deposits in escrow and deferred charges
|
|
|
159,481
|
|
|
|
108,048
|
|
Other assets
|
|
|
-
|
|
|
|
23,673
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(17,235
|
)
|
|
|
348,879
|
|
Defined benefit plan liability
|
|
|
-
|
|
|
|
(269,479
|
)
|
Contractual pension benefits
|
|
|
-
|
|
|
|
(2,851,665
|
)
|
Discontinued operations liabilities
|
|
|
1,006,748
|
|
|
|
183,081
|
|
Mortgage interest and fees
|
|
|
-
|
|
|
|
-
|
|
Other liabilities
|
|
|
14,214
|
|
|
|
13,931
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
1,365,391
|
|
|
|
(286,615
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(366,743
|
)
|
|
|
(4,465,275
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of Consolidated notes receivable
|
|
|
-
|
|
|
|
5,339,718
|
|
Payments received on notes receivable
|
|
|
10,363
|
|
|
|
8,453
|
|
Payments disbursed for additions and improvements
|
|
|
(3,932
|
)
|
|
|
(153,540
|
)
|
Sale of securities available for sale
|
|
|
-
|
|
|
|
934,836
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
6,431
|
|
|
|
6,129,467
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds of mortgage refinancing
|
|
|
459,620
|
|
|
|
-
|
|
Principal payments on mortgage debt
|
|
|
(7,392
|
)
|
|
|
(15,237
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
452,228
|
|
|
|
(15,237
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
91,916
|
|
|
|
1,648,955
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
961,240
|
|
|
|
597,440
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
1,053,156
|
|
|
$
|
2,246,395
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
9,333
|
|
|
$
|
268,467
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
1.
|
Organization and Summary of Significant Accounting
Policies
|
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 and in the holding of notes and mortgages
secured by real estate or interests in real estate. Presidential operates in a single business segment, investments in real estate
related assets.
On November 8, 2011, we and PDL Partnership, a New York general
partnership (“PDL Partnership”), the general partners of which were 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 some investors and Signature Community Investment Group LLC (together with its affiliates,
“Signature”). Signature is owned by Nickolas W. Jekogian, III, the promoter of the stock transactions included in
the strategic transactions.
The September 30, 2011 financial statements
were reported on the liquidating basis of accounting. In connection with the November 8, 2011 strategic transactions, the Company’s
financial statements are being reported on the going concern basis retroactively.
Basis of Presentation and Going Concern
Considerations
For the nine months ended September 30,
2012, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital
deficit have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue
as a going concern. See Note 8 A4 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant
amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity. Our
ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve
profitability, to increase working capital raising debt and or equity and a successful defense of the claims against the Company
under its guaranty related to the Hato Rey property. The accompanying financial statements do not include any adjustments that
may result from the outcome of this.
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.
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information. The results for such interim periods are not necessarily indicative of the results
to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated
financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended
December 31, 2011.
Principles of Consolidation
The consolidated financial statements
include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial
statements include 100% of the account balances of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”).
PDL, Inc. (a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential own
an aggregate 60% general and limited partnership interest in the Hato Rey Partnership (see Note 6). All significant intercompany
balances and transactions have been eliminated.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
1.
|
Organization and Summary
of Significant Accounting Policies (Continued)
|
Investments in Joint Ventures
The Company has equity investments in
joint ventures and accounts for these investments using the equity method of accounting. These investments are recorded at cost
and adjusted for the Company’s share of each entity’s income or loss and adjusted for cash contributions or distributions.
Real estate held by such entities is reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable, and would be written down to its estimated fair value if an impairment was determined to exist
(see Note 3).
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.
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. As
of September 30, 2012 and December 31, 2011, allowance for doubtful accounts for continuing operations relating to tenant obligations
was $6,724 and $5,592, respectively.
Net Loss Per Share
Basic net loss per share data is computed
by dividing net loss by the weighted average number of shares of Class A and Class B common stock outstanding (excluding nonvested
shares) during each period. Diluted net loss per share is computed by dividing net loss by the weighted average shares outstanding,
including the dilutive effect, if any, of nonvested shares. For the three and nine months ended September 30, 2012 and 2011, the
weighted average shares outstanding as used in the calculation of diluted loss per share do not include 740,000 and 6,800, respectively,
of outstanding stock options and restricted shares, respectively, as their inclusion would be antidilutive.
Cash and Cash Equivalents
Cash and cash equivalents include cash
on hand, cash in banks and 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.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
1.
|
Organization and Summary of Significant Accounting
Policies (Continued)
|
Discontinued Operations
The Company follows the guidance of the
presentation and property, plant, and equipment Topics of the ASC, with respect to long-lived assets classified as held for sale.
The ASC requires that the results of operations, including impairment, gains and losses related to the properties that have been
sold or properties that are intended to be sold, be presented as discontinued operations in the statements of operations for all
periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance
sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated.
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.
Reclassifications
Certain items have been reclassified in
the accompanying consolidated Financial Statements and Notes for prior periods. Deferred compensation of $593,750 was reclassified
from accrued liabilities to other liabilities.
Real estate included in continuing operations
is comprised of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
79,100
|
|
|
$
|
79,100
|
|
Buildings
|
|
|
960,714
|
|
|
|
956,783
|
|
Furniture and equipment
|
|
|
50,026
|
|
|
|
50,026
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,089,840
|
|
|
$
|
1,085,909
|
|
Rental revenue from the Maple Tree property
constituted virtually all of the rental revenue for the Company during the quarters ended September 30, 2012 and 2011.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
3.
|
Investments in Joint Ventures
|
At September 30, 2012 and
December 31, 2011, the Company’s only joint venture investment was IATG. The carrying amount of the joint venture was
$0. At December 31, 2011, the occupancy rate at the property was approximately 16%. The property is managed by a Lightstone
Group (“Lightstone”) affiliate and Lightstone agreed to advance funds to pay any negative cash flow from the operations of the property
until a sale could be accomplished and has agreed that if it does not do so, on demand by the Company, it will transfer its
remaining 49% interest in the property to Presidential. Lightstone has advised the Company that it will no longer advance
funds for the operations of the property.
On December 22, 2011, an action entitled Centro De
Recaudacion de Ingresos Municipals against IATG Puerto Rico, LLC was filed in Estado Libre Asociado de Puerto Rico, Tribunal
de Primera Instancia, Sala Superior de Hunacao in respect of approximately $7.7 million of unpaid interest, taxes and
penalties owed by IATG Puerto Rico, LLC, the owner of Las Piedras Industrial Park in Las Piedras, Puerto Rico. We believe the
value of the property is less than the amount of taxes owed. We own a 50% interest in the defendant. At December 31, 2011,
the Company wrote down its investment of $771,110 in the property to zero. The Company has evaluated its potential
liabilities and believes it has no liabilities with respect to IATG other than the complete loss of its investment in IATG
Puerto Rico, LLC, which was reflected in the Company’s balance sheet at December 31, 2011 (see Note 8A3).
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
The summary financial information for
IATG is as follows:
|
|
December 31,
|
|
|
|
2011
|
|
|
|
|
|
Condensed balance sheet
|
|
|
|
|
Net real estate
|
|
$
|
5,156,600
|
|
Cash and cash equivalents
|
|
|
29,000
|
|
Accounts receivable
|
|
|
36,000
|
|
Deferred expenses
|
|
|
4,400
|
|
Prepaid expenses
|
|
|
84,000
|
|
|
|
$
|
5,310,000
|
|
|
|
|
|
|
Note payable (1)
|
|
$
|
10,124,000
|
|
Other liabilities
|
|
|
3,269,000
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,393,000
|
|
Members' deficit
|
|
|
(8,083,000
|
)
|
Total liabilities and members' deficit
|
|
$
|
5,310,000
|
|
(1) The note payable is payable to an affiliate of Lightstone
and payment thereof is subordinate to the Company’s right to receive its share of any proceeds of a sale or refinancing.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
|
Year Ended
December 31,
|
|
|
Nine Months
Ended
September
30,
|
|
|
Three
Months
Ended
September
30,
|
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
Condensed statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
975,000
|
|
|
$
|
765,900
|
|
|
$
|
209,979
|
|
Interest on notes payable
|
|
|
(1,127,000
|
)
|
|
|
(831,736
|
)
|
|
|
(285,563
|
)
|
Other expenses
|
|
|
(1,480,000
|
)
|
|
|
(1,129,674
|
)
|
|
|
(355,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before depreciation and amortization
|
|
|
(1,632,000
|
)
|
|
|
(1,195,510
|
)
|
|
|
(430,894
|
)
|
Depreciation and amortization
|
|
|
(350,000
|
)
|
|
|
(301,571
|
)
|
|
|
(25,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,982,000
|
)
|
|
$
|
(1,497,081
|
)
|
|
$
|
(456,009
|
)
|
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
4.
|
Discontinued Operations
|
During the quarter ended March 31, 2012,
the Company designated Hato Ray, Pres Matmor and PDL, Inc. as discontinued operations. All numbers have been adjusted retrospectively
for the change.
The following table summarizes for the
property discontinued:
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
860,954
|
|
|
$
|
828,941
|
|
|
$
|
2,755,212
|
|
|
$
|
2,738,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,371
|
|
|
|
48,420
|
|
|
|
6,004
|
|
|
|
145,192
|
|
Rental property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
714,851
|
|
|
|
490,963
|
|
|
|
1,859,873
|
|
|
|
1,590,720
|
|
Interest and fees on mortgage debt
|
|
|
502,028
|
|
|
|
609,263
|
|
|
|
1,661,279
|
|
|
|
1,501,654
|
|
Real estate taxes
|
|
|
78,742
|
|
|
|
78,743
|
|
|
|
236,227
|
|
|
|
324,171
|
|
Depreciation
|
|
|
-
|
|
|
|
115,723
|
|
|
|
-
|
|
|
|
345,829
|
|
Amortization of in place lease value
|
|
|
-
|
|
|
|
5,415
|
|
|
|
3,456
|
|
|
|
19,944
|
|
Total expenses
|
|
|
1,297,992
|
|
|
|
1,348,527
|
|
|
|
3,766,839
|
|
|
|
3,927,510
|
|
Investment income
|
|
|
761
|
|
|
|
1,092
|
|
|
|
2,577
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(436,277
|
)
|
|
$
|
(518,494
|
)
|
|
$
|
(1,009,050
|
)
|
|
$
|
(1,185,306
|
)
|
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Assets related to discontinued operations:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,905,985
|
|
|
$
|
1,905,985
|
|
Buildings
|
|
|
13,829,390
|
|
|
|
13,829,390
|
|
Furniture and equipment
|
|
|
6,375
|
|
|
|
6,375
|
|
Less: accumulated depreciation
|
|
|
(2,087,424
|
)
|
|
|
(2,087,424
|
)
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
13,654,326
|
|
|
|
13,654,326
|
|
Other assets
|
|
|
669,961
|
|
|
|
737,974
|
|
Total assets related to discontinued operations
|
|
$
|
14,324,287
|
|
|
$
|
14,392,300
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to discontinued operations:
|
|
|
|
|
|
|
|
|
Mortgage debt
|
|
$
|
14,484,138
|
|
|
$
|
14,484,138
|
|
Mortgage related interest and fees
|
|
|
2,412,506
|
|
|
|
1,431,672
|
|
Other liabilities
|
|
|
749,076
|
|
|
|
723,162
|
|
Total liabilities related to discontinued operations
|
|
$
|
17,645,720
|
|
|
$
|
16,638,972
|
|
During the quarter ended March 31, 2010,
the Company designated its Mapletree Industrial Center in Palmer, Massachusetts as held for sale. As of November 8, 2011, the
Company no longer considered Mapletree Industrial Center a discontinued operation. All numbers have been adjusted retrospectively
for the change.
The Hato Rey Center mortgage debt is being
recorded in discontinued operations. At September 30, 2012 and December 31, 2011, the principal balance was $14,484,138 on the
Hato Rey Center property in Hato Rey, Puerto Rico. The loan is nonrecourse to the Company with standard carve outs. The first
mortgage loan on the Hato Rey Center property is due on May 11, 2028, but provides that if it was not repaid on or before May
11, 2008, the interest rate on the loan was increased by two percentage points (to 9.38% per annum of which 2% per annum would
be deferred until maturity). Since April 2011, the Company has not made any mortgage payments on the loan (See Note 8). In addition,
the Company is accruing an additional 5% per annum as default interest and a 5% late payment fee. At September 30, 2012 and December
31, 2011, interest and other fees payable were $2,412,483 and $1,431,672, respectively, which were offset by escrow accounts maintained
by Berkadia Commercial LLC, servicer of the loan. Because of the foreclosure action, The Hato Rey Center property was classified
as a discontinued operation.
On June 8, 2012, we entered into a mortgage and line of credit
for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The Mortgage is for $500,000
at a 5% interest rate, for a term of 5 years. Thereafter the interest will adjust monthly equal to the bank’s Prime Rate,
plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net proceeds. The line of credit is
for $500,000, with an interest rate of 1% over the bank’s Prime Rate. The line of credit is due on demand. Both mortgage
and the line of credit are secured by the Mapletree Industrial Center, in Palmer, Massachusetts. The outstanding balance of the
mortgage at September 30, 2012 was $492,608.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
PDL, Inc. (a wholly owned subsidiary of
Presidential) is the general partner of the Hato Rey Partnership. Presidential Matmor and PDL, Inc. have an aggregate 60% general
and limited partner interest in the Hato Rey Partnership. The Company exercises effective control over the partnership through
its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, the Company consolidates
the Hato Rey Partnership in the accompanying consolidated financial statements.
The Hato Rey Partnership owns and operates
the Hato Rey Center, an office building with 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico. The Company
advanced $2,670,000 to the partnership to be used for building improvements and for operations. The loan, which was advanced to
the partnership, as needed, bears interest at the rate of 13% per annum, with interest and principal to be paid out of the positive
cash flow from the property or upon a refinancing of the First Mortgage on the property. At September 30, 2012 and December 31,
2011, the loan balance was $2,670,000 and accrued interest amounted to $1,614,941 and $1,527,202, respectively. These amounts
were eliminated in consolidation. Management does not believe the Company will collect any of the principal or interest owed the
Company.
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 September 30, 2012, the tax years that remain open to examination
by the federal, state and local taxing authorities are the 2009 – 2011 tax years and the Company was not required to accrue
any liability for those tax years.
For the year ended December 31, 2011,
the Company had a tax loss of approximately $8,500,000 ($2.47 per share), which is comprised of an ordinary loss of approximately
$8,210,000 ($2.38 per share) and a capital loss of approximately $294,000 ($0.09 per share).
For the nine months ended September 30,
2012, the Company had a tax loss of approximately $1,035,000 ($0.28) per share), which is comprised of an ordinary loss.
|
8.
|
Commitments, Contingencies and Related parties
|
|
A.
|
Commitments and Contingencies
|
|
1)
|
Except as described in item 4 below, Presidential is not a
party to any material legal proceedings. The Company may from
time to time be a party to routine litigation incidental to the
ordinary course of its business.
|
|
2)
|
In the opinion of management,
all of the Company’s properties are adequately covered by
insurance in accordance with normal insurance practices.
|
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
3) On
December
22,
2011, an
action
entitled
Centro
De
Recaudacion
de
Ingresos
Municipals
against
IATG
Puerto
Rico,
LLC
was
filed
in
Estado
Libre
Asociado
de
Puerto
Rico,
Tribunal
de
Primera
Instancia,
Sala
Superior
de
Hunacao
in
respect
of
approximately
$7.7
million
of
unpaid
interest,
taxes
and
penalties
owed
by
IATG
Puerto
Rico,
LLC,
the
owner
of
Las
Piedras
Industrial
Park
in
Las
Piedras,
Puerto
Rico.
We
believe
the
value
of
the
property
is
less
than
the
amount
of
taxes
owed.
We
own
a
50%
interest
in
the
defendant.
The
Company
has
evaluated
its
potential
exposure
and
has
concluded
that
the
Company
is
not
responsible
for
any
of
the
debts
or
liabilities
of
IATG
Puerto
Rico
and
that
the
Company’s
only
exposure
is
the
complete
loss
of
its
investment.
At
December
31,
2011,
the
Company
wrote
off
its
investment
in
the
property
.
4) On April 4, 2012, a mortgage foreclosure action was filed
in the Court of First Instance, San Juan Superior Part, in the Commonwealth of Puerto Rico to foreclose on the Company’s
Hato Rey property. The action is entitled U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America,
National Association, as trustee for the Registered Holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through
Certificates, Series 1998-C1, acting by and through Berkadia Commercial Mortgage LLC in its capacity as special servicer pursuant
to the pooling and servicing agreement dated October 11, 1998 against PDL, Inc. & Associates, Limited Co-partnership; PDL,
Inc., Presidential Realty Corporation; Lester Cohen and F.D. Rich Company of Puerto Rico, Inc. The complaint seeks a judgment
against the Hato Rey Partnership in the amount of not less than $19,512,591, consisting of i) $14,484,138 in principal, ii) $1,119,406
in accrued interest, iii) $685,985 in default interest, iv) $48,371 in late charges, v) $1,424,691 in deferred interest and vi)
$1,750,000 in liquidated damages as well as additional interest and default charges which continue to accrue under the mortgage
loan on the Hato Rey property and foreclosure of the mortgage notes in order to sell the Hato Rey property and apply the proceeds
of sale against the indebtedness. The Company’s wholly owned subsidiary, PDL, Inc., is the general partner of the partnership
and the Company’s wholly owned subsidiary, Presidential Matmor Corporation, is a limited partner of the partnership.
The complaint also seeks judgments against PDL, Inc., the Company,
Lester Cohen and F.D. Rich Company of Puerto Rico, Inc., with liability among them to be allocated 1%, 45%, 9% and 45%, respectively,
under the terms of certain guarantees issued by them in connection with the mortgage loans, for alleged physical waste to the
Property and, the costs of certain repairs to the property of not less than $1,100,000 and the reasonable legal costs and expenses
in connection with the enforcement of the loan documents.
In 1998, at the time the mortgage loan was made, F.D. Rich
Company was a limited partner of the partnership. In April 2006, Presidential Matmor acquired the limited partnership interest
in the partnership owned by F.D. Rich. In connection with the acquisition of that interest, the parties executed a release and
indemnification agreement which provides, among other things, that the Company and Presidential Matmor agree to indemnify F.D.
Rich against any liability under the guaranty.
The guarantees provide that the guarantors will pay the lender
any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of fraud, intentional
material misrepresentation, willful misconduct, physical waste committed on the subject property, failure to pay any valid taxes
and assessments to the extent rents from the property are sufficient to pay such taxes, mechanics liens, materialmen’s liens
or other liens which could create liens superior to the mortgage lien, reasonable legal costs and expenses incurred by lender
in connection with litigation or other legal proceedings to enforce the loan, the breach of any material representation, covenant
and warranty under the related environmental and hazardous substance indemnification agreement, misapplication or conversion of
any insurance proceeds, awards or other amounts received in connection with condemnation of all or a portion of the property or
any rents following an event of default and any security deposits not delivered to the lender.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
The lender has not asserted any claims
against the Company other than those asserted under the guarantees as referenced above. The Company believes that the
likelihood that the Company will be held liable for the claims asserted under the guarantees is remote.
Property Management Agreement
On November 8, 2011, the Company and Signature entered into
a Property Management Agreement pursuant to which the Company has retained Signature as the exclusive managing and leasing agent
for the Company’s Mapletree Industrial Center property in Palmer, Massachusetts (the “Mapletree Property”).
Signature shall manage the Mapletree Property in accordance with specific management guidelines and leasing guidelines and shall
meet specific reporting requirements and vendor insurance requirements. Signature will receive compensation of 5% of monthly rental
income actually received from tenants at the Mapletree Property. The Company will reimburse Signature for all reasonable expenses
incurred by Signature in performance of its duties under the Property Management Agreement that are either in accordance with
the annual budget or which have been approved in writing by the Company. Such expense shall include, but not be limited to, Signature’s
costs of the salaries, benefits and appropriate and prudent training for Signature’s employees who are engaged solely in
management or operation of the Mapletree Property, but excluding certain expenses that will be borne by Signature, as specified
in the Property Management Agreement. The Property Management Agreement has a term of one year and will be automatically renewable
for one year terms until it is terminated by either party upon written notice. For the three and nine months ended September 30,
2012, the Company incurred management fees of $6,416 and $24,144, respectively.
Ass
et Management Agreement
On November 8, 2011, the Company and Signature
entered into an Asset Management Agreement pursuant to which the Company engaged Signature to oversee the Company’s Mapletree Property and an office building at Hato Rey, Puerto Rico (the “Properties”).
Signature’s duties include leasing, marketing and advertising, financing, construction and dispositions of the Properties.
Signature will receive a construction fee for any major renovations or capital projects, subject to the approval of the Company’s
Board of Directors, an asset management fee of 1.5% of the monthly gross rental revenues collected for the Properties (provided
that the monthly fee for the Hato Rey property will be accrued and not paid until the receipt of mortgage proceeds on the Mapletree
Property), a finance fee of 1% on any debt placement, and a disposition fee of 1% on the sale of any assets, as specified in the
Asset Management Agreement. The Asset Management Agreement has a term of one year and will be automatically renewable for one
year terms until it is terminated by either party upon written notice. For the three and nine months ended September 30, 2012,
the Company incurred an asset management fee of $10,291 and $34,953, respectively.
Sublease
The Company subleases their executive office space under a
month to month lease with Signature for a monthly rental payment of $433 or $5,200 per year. Either party may terminate the sublease
upon 30 days prior written notice. For the three and nine months ended September 30, 2012, the Company incurred approximately $1,300
and $3,900, respectively, in rent expense.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
In connection with the November 8, 2011 strategic
transactions, the Company issued 740,000 options at an exercise price of $1.25. A total of 148,000 shares vested six
months after the grant date. At September 30, 2012, the aggregate intrinsic value was $0. 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 recorded stock- based compensation expense
of $0 and $98,667 for the three and nine months ended September 30, 2012. At September 30, 2012, the Company had
approximately $426,000 of unrecognized compensation expense related to unvested share-based compensation awards that will be
expensed upon the achievement of performance milestones.
|
10.
|
Common Stock and Preferred stock
|
On August 15, 2012, the stockholders approved an increase to
the number of authorized shares of common stock from 10,700,000 to 1,050,000,000, consisting of: (a) 700,000 shares of Class A
common stock; (b) 999,300,000 shares of Class B common stock (c) 50,000,000 shares of preferred stock. They also approved the
reduction to the par value for all classes of the Company’s common stock from $0.10 to $0.00001 per share. All shares have
been restated accordingly.
On August 15, 2012, the stockholders approved
the designation of 50,000,000 shares of authorized preferred stock, par value $0.00001, as a class of “blank check”
preferred stock so as to enable our board of directors to prescribe the series and the number of the shares of each series of
preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of the shares
of each series of preferred stock.
On August 15, 2012, the stockholders approved the
2012 Incentive Plan (the “2012 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 Plan.
In August 2012, the Company issued 4,000 shares of Class B
common stock as part of the directors’ compensation which was valued at $2,800.
|
11.
|
Contractual Pension and Postretirement Benefits
|
Presidential had employment contracts
with several active and retired officers and employees. These contracts provided for annual pension benefits and other postretirement
benefits such as health care benefits. The contractual benefit plans were not funded. The pension benefits generally provided
for annual payments in specified amounts for each participant for life, commencing three years after retirement, with an annual
adjustment for an increase in the consumer price index. The Company accrued on an actuarial basis the estimated costs of these
benefits during the years the employee provided services. The Company used a December 31 measurement date for the contractual
benefit plans. The plan was terminated during 2011 and no future obligation existed at December 31, 2011.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
The following tables summarize the actuarial
costs of the contractual pension and postretirement benefits:
|
|
Contractual
Pension
|
|
|
Contractual
Pension
|
|
|
Contractual
Postretirement
|
|
|
Contractual
Postretirement
|
|
|
|
Benefit
|
|
|
Benefit
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
Three
Months
Ended
|
|
|
Nine
Months
Ended
|
|
|
Three
Months
Ended
|
|
|
Nine
Months
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,591
|
|
Amortization of actuarial gain
|
|
|
|
|
|
|
(40,650
|
)
|
|
|
-
|
|
|
|
(412,677
|
)
|
Net periodic benefit income
|
|
$
|
-
|
|
|
$
|
(40,650
|
)
|
|
$
|
-
|
|
|
$
|
(408,086
|
)
|
The Company had a noncontributory defined
benefit pension plan, which covered substantially all of its employees. The plan provided monthly retirement benefits commencing
at age 65. Effective February 28, 2009, the Company “froze” or suspended future benefit accruals under the plan. On
November 5, 2010, the Company notified participants of its intention to terminate the plan in a standard termination with a proposed
termination date of January 7, 2011. In order to terminate the plan and pay the distributions required, the Company fully funded
a total of $3,320,932 to the plan, and no further funding is required. The plan was totally liquidated during 2011 and no future
pension obligation existed at December 31, 2011.
The termination resulted in the Company
recognizing a one-time non-cash expense of $4,439,735 associated with recognizing unamortized actuarial losses.
Fourth Floor Management Corp., a 100%
owned subsidiary of Presidential Realty Corporation that managed all the Company’s properties, had a profit sharing plan
which covered substantially all of its employees. The plan provided for annual contributions up to a maximum of 5% of the employees’
annual compensation. The Company made a $9,076 contribution to the plan in March 2011 for the 2010 plan. The plan was terminated
in 2011 and no future liability exists.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
14. Estimated
Fair Value of Financial Instruments
Estimated fair values of the Company’s
financial instruments as of September 30, 2012 and December 31, 2011 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 errant
market exchange. Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the
estimated fair values.
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
(Amounts in thousands)
|
|
|
(Amounts in thousands)
|
|
|
|
Net Carrying
|
|
|
Estimated
|
|
|
Net Carrying
|
|
|
Estimated
|
|
|
|
Value (1)
|
|
|
Fair Value
|
|
|
Value (1)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,053
|
|
|
$
|
1,053
|
|
|
$
|
1,187
|
|
|
$
|
1,187
|
|
Notes Receivable
|
|
|
19
|
|
|
|
23
|
|
|
|
30
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt
|
|
|
500
|
|
|
|
500
|
|
|
|
14,484
|
|
|
|
14,558
|
|
(1) Net carrying value is net of valuation
reserves and discounts where applicable.
The fair value estimates presented above
were based on pertinent information available to management as of September 30, 2012 and December 31, 2011.
Fair value methods and assumptions were
as follows:
Cash and Cash Equivalents – The
estimated fair value approximated carrying value, due to the short maturity of these investments.
Notes Receivable – The fair value
of notes receivable was estimated by discounting projected cash flows using current rates for similar notes receivable.
Mortgage Debt – The fair value of
mortgage debt was estimated by discounting projected cash flows using current rates for similar debt.
15. Accumulated Other Comprehensive
Loss
The Company’s other comprehensive income (loss) consists
of the changes in the net unrealized gain (loss) on securities available for sale and the adjustments to the pension liabilities
and the postretirement benefits liability, if any. There was no accumulated other comprehensive income (loss) at September 30,
2012 and December 31, 2011. Thus, comprehensive income (loss), which consists of net loss plus or minus other comprehensive income,
is as follows:
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net loss
|
|
$
|
(628,248
|
)
|
|
$
|
(1,034,823
|
)
|
|
$
|
(1,732,134
|
)
|
|
$
|
(4,178,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on securities available for sale
|
|
|
-
|
|
|
|
(14,213
|
)
|
|
|
-
|
|
|
|
(24,636
|
)
|
Adjustment for contractual postretirement benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,967,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(628,248
|
)
|
|
|
(1,049,036
|
)
|
|
|
(1,732,134
|
)
|
|
|
(8,170,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interest
|
|
|
172,066
|
|
|
|
237,969
|
|
|
|
435,708
|
|
|
|
563,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Presidential Realty Corporation
|
|
$
|
(456,182
|
)
|
|
$
|
(811,067
|
)
|
|
$
|
(1,296,426
|
)
|
|
$
|
(7,607,063
|
)
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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 Quarterly Report on Form
10-Q 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:
|
·
|
Our ability to implement plans for growth;
|
|
·
|
Our ability to finance the acquisition of new real estate assets;
|
|
·
|
Our ability to manage growth;
|
|
·
|
Our ability to generate operating liquidity;
|
|
·
|
Our ability to attract and maintain tenants for our rental properties;
|
|
·
|
The demand for rental properties and the creditworthiness of tenants;
|
|
·
|
The continuing adverse conditions in the real estate markets, which affect the ability of the Company or the joint venture
in which the Company is a member to sell the properties, or refinance the mortgages on their properties and which may also
affect the ability or willingness of prospective tenants to rent space at these properties;
|
|
·
|
Governmental actions and initiatives;
|
|
·
|
Financial results for 2012 and beyond, environmental and safety requirements;
|
|
·
|
The form, timing and/or amount of dividend distributions in future periods; and
|
|
·
|
The outcome of any litigation.
|
Overview
Presidential Realty Corporation (“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 the investors identified below and Signature Community Investment Group LLC (together with
its affiliates, “Signature”). Signature is owned by Nickolas W. Jekogian, III, the promoter of the stock transactions
included in the strategic transactions. The strategic transactions were as follows:
|
·
|
The termination of our plan of liquidation;
|
|
|
|
|
·
|
The acquisition by BBJ Family Irrevocable Trust of 177,013 shares of our Class A common stock, representing 40% of the
outstanding Class A common stock, from PDL Partnership at a purchase price of $1.00 per share;
|
|
·
|
Our sale of 250,000 newly issued shares of Class B common stock at a purchase price of $1.00 per share;
|
|
|
|
|
·
|
Amendments to the relevant employment agreements relating to payments upon termination of employment for Steven Baruch,
Jeffrey F. Joseph and Thomas Viertel;
|
|
|
|
|
·
|
The resignation of Steven Baruch, Thomas Viertel and Mortimer M. Caplin as directors;
|
|
|
|
|
·
|
The appointment of Nickolas W. Jekogian, III, Alexander Ludwig and Jeffrey Rogers as directors;
|
|
|
|
|
·
|
Effective as of immediately following the filing of our Quarterly Report on Form 10-Q for the quarter ended September
30, 2011, the resignations of all of our officers and the appointment of Mr. Jekogian as the Chairman and Chief Executive
Officer and Mr. Ludwig as the President, Chief Operating Officer and Principal Financial Officer;
|
|
|
|
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·
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The declaration of a special dividend of $0.35 per share on the Class A and Class B common stock;
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·
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Our entry into a property management agreement with Signature to be the exclusive managing and leasing agent for our Mapletree
Industrial Center property and an asset management agreement with Signature to provide oversight of our Mapletree Industrial
Center property and the Hato Rey Center property;
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·
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Our entry into executive employment agreements with Nickolas W. Jekogian, III and Alexander Ludwig;
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·
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The grant of non-qualified stock options to acquire 370,000 shares of Class B Common Stock at a price of $1.25 per share
to each of Messrs. Jekogian and Ludwig; and
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·
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Our assignment of the Ivy Consolidated Loan to an individual employed in the theater industry, for $100,000.
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We outsource the management of the Mapletree Industrial Center
to Signature Community Management. We manage the Hato Ray Center which is owned by PDL, Inc. and Associates Limited Co-Partnership
(the “Hato Rey Partnership”) in which we are the general partner and have a 60% partnership interest.
Following the transaction, new management
has instituted significant cost saving measures that have reduced our annual operating costs from historical levels. These include,
among other things, moving our executive offices, reducing staff, compensation and outsourcing accounting and property management.
New management has instituted cost savings measures designed to reduce our annual operating costs in 2012 by approximately $2,000,000
compared to our operating expenses in 2011. These reductions include approximately $150,000 in reduced rent as a result
of relocating our executive offices; approximately $1,800,000 in reduced compensation and employee benefit expenses as a
result of reduction in administrative employees and executives and termination of the Deferred Benefit Plan; and approximately
$50,000 from reductions in administrative overhead expenses including telephone, internet, and office equipment.
Instability in the credit markets and
declining operating performance on certain assets has made it very difficult for the Company to obtain refinancing of the mortgage
loans on some of its properties. The first mortgage on the Hato Rey Center is in default and the loan has been accelerated. We
have not been able to restructure the loan with the existing lender. On April 4, 2012, a mortgage foreclosure action was filed
in the Court of First Instance, San Juan Superior Part, in the Commonwealth of Puerto Rico to foreclose on the Hato Rey property.
If the property is sold in foreclosure, we do not believe the proceeds of the sale will be sufficient to pay the mortgage debt
in full. (See
Hato Rey Partnership
below and Note 8 to the Notes to the Financial Statements.)
We wrote down our investment in the IATG Joint Venture to zero
at December 31, 2011. The taxing authorities in Puerto Rico have commenced a proceeding against the Las Piedras property for non-payment
of approximately $7.7 million in taxes.
We obtain funds for working capital and investment from our
available cash and cash equivalents. Due to the foreclosure action and claims against the Company related to its guaranty given
in connection with the mortgage on the Hato Rey Property, the current ongoing economic downturn, our continuing decline in revenues,
expected losses from continuing operations and negative cash flows from operating activities, management believes that we might
have insufficient working capital for the next twelve months (See
Liquidity and Capital Resources
below).
On June 8, 2012, we closed on a mortgage and line of
credit for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The mortgage is
for $500,000 at a 5% interest rate, for a term of 5 years. Thereafter the interest will adjust monthly equal to the
bank’s Prime Rate, plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net
proceeds. The line of credit is for $500,000, with an interest rate of 1% over the bank’s Prime Rate. The line of
credit is due on demand. Both the mortgage and the line of credit are secured by the Mapletree Industrial Center, in Palmer,
Massachusetts.
On August 15, 2012, we held an annual meeting of stockholders
at which the stockholders re-elected the board of directors; approved an amendment to our Certificate of Incorporation to increase
the number of authorized Class B shares of common stock; authorized a class of blank check preferred stock; reduced the par value
of all authorized shares; ratified the appointment of our auditors; and ratified our 2012 equity incentive plan.
Critical Accounting Policies
For the nine months ended September 30,
2012, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital
deficit have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue
as a going concern. See Note 8 A4 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant
amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity. Our
ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve
profitability, to increase working capital raising debt and or equity and a successful defense of the claims against the Company
under its guaranty related to the Hato Rey property. The accompanying financial statements do not include any adjustments that
may result from the outcome of this.
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 and repairs and maintenance are charged to rental property operating
expenses as incurred. Depreciation is generally provided on the straight-line method over the estimated useful life of the asset.
The useful life of each property, as well as the allocation of the costs associated with a property to its various components,
requires estimates by management. If management incorrectly estimates the allocation of those costs or incorrectly estimates the
useful lives of its real estate, depreciation expense may be miscalculated.
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.
Discontinued operations
Hato Rey Partnership: PDL, Inc. (a wholly owned subsidiary
of Presidential) is the general partner of the Hato Rey Partnership. Presidential Matmor the Company’s wholly owned subsidiary
and PDL, Inc. have an aggregate 60% general and limited partner interest in the Hato Rey Partnership. The Company exercises effective
control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business.
Accordingly, the Company consolidates the Hato Rey Partnership in the accompanying consolidated financial statements.
The Hato Rey Partnership owns and operates the Hato Rey Center,
an office building with 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico.
On April 4, 2012, a mortgage foreclosure action was filed in
the Court of First Instance, San Juan Superior Part, in the Commonwealth of Puerto Rico to foreclose on the Company’s Hato
Rey property. The action is entitled U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America,
National Association, as trustee for the Registered Holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through
Certificates, Series 1998-C1, acting by and through Berkadia Commercial Mortgage LLC in its capacity as special servicer pursuant
to the pooling and servicing agreement dated October 11, 1998 against PDL, Inc. & Associates, Limited Copartnership; PDL,
Inc., Presidential Realty Corporation; Lester Cohen and F.D. Rich Company of Puerto Rico, Inc. The complaint seeks a judgment
against the Hato Rey Partnership in the amount of not less $19,512,591, consisting of approximately i) $14,484,138 in principal,
ii) $1,119,406 in accrued interest, iii) $685,985 in default interest, iv) $48,371 in late charges, v) $1,424,691 in deferred
interest and v1) $1,750,000 in liquidated damages as well as additional interest and default charges which continue to accrue
under the mortgage loan on the Hato Rey property and foreclosure of the mortgage notes in order to sell the Hato Rey property
and apply the proceeds of sale against the indebtedness. The complaint also seeks judgments against PDL, Inc., the Company, Lester
Cohen and F.D. Rich Company of Puerto Rico, Inc., with liability among them to be allocated 1%, 45%, 9% and 45% respectively,
under the terms of certain guarantees issued by them in connection with the mortgage loans, for alleged physical waste to the
Property, the costs of certain repairs to the property of not less than $1,100,000 and the reasonable legal costs and expenses
in connection with the enforcement of the loan documents.
Due to the foreclosure action during the period ended March
31, 2012 the Company classified the Hato Ray Center Property in Hato Rey, Puerto Rico as a discontinued operation.
Income Taxes
We operate in a manner intended to enable us to continue to
qualify as a Real Estate Investment Trust under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain
requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders,
if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of its ordinary tax loss
for 2011 there is no requirement to make a distribution in 2012. In addition, no provision for income taxes was required at September
30, 2012. If the Company fails to distribute the required amounts of income to its shareholders, or otherwise fails to meet the
REIT requirements, it would fail to qualify as a REIT and substantial adverse tax consequences could result. We believe that we
will not be required to pay a dividend in 2012 to maintain our REIT status.
Results of Operations
Results of operations for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011:
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Three Months Ended
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Nine Months Ended
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2012
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2011
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2012
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2011
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Revenue
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$
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194,202
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$
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182,228
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$
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579,062
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$
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798,471
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Operating expenses
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130,586
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121,616
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|
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360,018
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413,120
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Loss from continuing operatings
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|
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(191,971
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)
|
|
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(516,329
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)
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(723,084
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)
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(2,993,354
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)
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Discontinued operations:
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Loss from discontinued operations
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(436,277
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)
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|
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(518,494
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)
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(1,009,050
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)
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|
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(1,185,306
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)
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|
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Net loss
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|
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(628,248
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)
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(1,034,823
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)
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(1,732,134
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)
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(4,178,660
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)
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Net loss from noncontrolling interest
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|
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172,066
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|
|
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237,969
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|
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435,708
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|
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563,860
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|
Net loss attributable to Presidential
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|
|
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|
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Realty Corporation
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|
$
|
(456,182
|
)
|
|
$
|
(796,854
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)
|
|
$
|
(1,296,426
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)
|
|
$
|
(3,614,800
|
)
|
Continuing Operations:
For the three months ended September 30, 2012 as compared to
September 30, 2011, revenues increased by $11,974 as a result of an increase in rental income of $21,928, offset by a decrease
in interest income of $9,954. For the nine months ended September 30, 2012 compared to September 30, 2011, revenue decreased $219,409
as a result of a decrease in rental income of $27,958 and interest income of $191,451. The majority of the decrease in interest
income was due to the sale of the Consolidated Note in early 2011.
For the three months ended September 30, 2012 as compared to
September 30, 2011, operating costs and expenses increased by $8,970 primarily related to approximate increases of $12,000 in management
fees related to the Property Management and Asset Management Agreements, $3,000 in commission expense, $2,200 in general expense,
offset by decreases of $11,000 in salary expense allocated amongst the properties, and $10,000 in insurance expense. For the nine
months ended September 30, 2012 as compared to September 30, 2011, operating costs and expenses decreased $53,102 primarily related
to an approximate decrease of $6,000 in utility costs, $15,000 in lower snow plowing costs, a $41,000 reduction in salary expense
allocated amongst the properties, and a decrease in insurance expense of $25,000, offset by an increase in management fees of
$24,000 and general expense of $4,000.
For the three months ended September 30, 2012 as compared
to September 30, 2011, general and administrative expenses decreased by $45,267 due to the reduction in salaries of
approximately $100,000, insurance expense of $4,000, rent expense of $40,000, offset by $100,000 of bad debt recovery related
to our assignment of the Ivy Consolidated Loan. For the nine months ended September 30, 2012 as compared to September 30,
2011, administrative expenses decreased by approximately $5,500,000 due to the reduction in salaries of approximately
$573,000, professional fees of $50,000, rent expense of $113,000, pension cost of $4,500,000 and various overhead costs,
offset by $100,000 of bad debt recovery related to our assignment of the Ivy Consolidated Loan. Included in general and
administrative expense for the nine months ended September 30, 2012 is $150,000 of accrued salaries for Nicholas W. Jekogian
that is deferred in accordance with his employment agreement. In addition, we recorded $30,000 of insurance expense related
to a directors and officer’s tail policy purchased in connection with the strategic transactions.
Stock based compensation was $98,667 during the nine months
ended September 30, 2012 due to the options expense related to the strategic transactions.
For the three and nine months ended September 30, 2012 as compared
to September 30, 2011, real estate tax expense remained comparative period over period.
For the three months ended September 30, 2012 as compared to
September 30, 2011, other income and expense decreased by approximately $291,000 primarily as a result of an approximate decrease
in interest income of $22,000 due to the decrease in cash and short term investments and a $313,000 loss on the IATG joint venture.
For the nine months ended September 30, 2012 as compared to September 30, 2011, other income and expense decreased by approximately
$2,550,000 primarily as a result of an approximate $3,300,000 gain recognized on the sale of the Consolidated Note,
offset by a $748,541 loss on the IATG joint venture, and a decrease in investment income of $35,000.
For the three and nine months ended September 30, 2012 as
compared to September 30, 2011, the loss from continuing operations decreased by approximately $324,000 and $2,270,000
primarily as a result of the decrease in pension cost of approximately $4,000,000 offset by a gain on the sale of the
Consolidated Note of $3,264,724, in addition to significant cost reductions from salaries, rent and related
overhead expenses.
Balance Sheet
September 30, 2012 compared to December 31, 2011
Net real estate decreased by $32,923 primarily
as a result of depreciation expense recorded during the nine months ended September 30, 2012.
Net mortgage portfolio decreased by $11,600
primarily as a result of payments received during the nine months ended September 30, 2012.
Assets related to discontinued operations
decreased by $68,013 primarily due to an increase in prepaid expenses of $75,099, offset by a decrease in other assets of $7,827,
other receivables of $40,978, and cash of $150,564.
Prepaid expenses decreased by $159,481
primarily due to the amortization of insurance.
Accrued liabilities increased by $14,776 primarily as a result
of accrued officer salaries of $150,000 due to Nicholas W. Jekogian which is deferred in accordance with his employment agreement,
offset by a decrease in accrued professional fees of $76,154 and environmental expense of $34,070. Effective February 2012 the
environmental remediation on the Palmer property was completed.
Liabilities related to discontinued operations increased by
$1,006,748 primarily due to an increase in mortgage interest and fees of $980,834, offset by a decrease in other liabilities of
$91,575 and accounts payable of $149,965.
Accounts payable decreased $32,011 during the nine months ended
September 30, 2012 due to lower operating costs.
Other liabilities remained consistent from period to period.
Liquidity and Capital Resources
We obtain funds for working capital and investment from our
available cash and cash equivalents.
For the nine months ended September 30,
2012, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital
deficit have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue
as a going concern. See Note 8 A4 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant
amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity. Our
ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve
profitability, to increase working capital raising debt and or equity and a successful defense of the claims against the Company
under its guaranty related to the Hato Rey property. The accompanying financial statements do not include any adjustments that
may result from the outcome of this uncertainty.
At September 30, 2012, we had $1,053,156 in available cash
and cash equivalents, an increase of $91,916 from the $961,240 available at December 31, 2011. This increase in cash and cash
equivalents was due to cash used in operating activities of $366,743 offset by the refinancing of Maple Tree Industrial Center
of $459,620. In addition we have a $500,000 line of credit, which is available for working capital needs.
Operating Activities
Cash from operating activities includes interest on the Company’s
mortgage portfolio and net cash received from rental property operations. For the nine months ended September 30, 2012, cash received
from interest on the Company’s mortgage portfolio was $10,363. Net cash received from rental property operations was approximately
$200,175. Net cash received from rental property operations is before additions and improvements and mortgage amortization.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements
that have, or are reasonably likely to have, a material effect on its financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.