PDL.A Presidential Realty Corp (Classa )

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

 Commission file number 1-8594
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 Delaware 13-1954619
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(State or other jurisdiction of (I.R.S. Employer
 incorporation or organization) Identification No.)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer
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Non-accelerated filer (Do not check if a smaller reporting company)
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Smaller reporting company x
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Index to Form 10-Q

 For the Quarterly Period Ended
 September 30, 2008






Part I Financial Information (Unaudited)

 Item 1. Financial Statements
 Consolidated Balance Sheets (Unaudited)
 Consolidated Statements
 of Operations (Unaudited)
 Consolidated Statement
 of Stockholders' Equity (Unaudited)
 Consolidated Statements
 of Cash Flows (Unaudited)
 Notes to Consolidated
 Financial Statements (Unaudited)

 Item 2. Management's Discussion and Analysis
 of Financial Condition and Results
 of Operations

 Item 3. Quantitative and Qualitative Disclosures
 about Market Risk
 Item 4. Controls and Procedures


Part II Other Information

 Item 2. Unregistered Sales of Equity Securities
 and Use of Proceeds

 Item 6. Exhibits

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)



 September 30, December 31,
 2008 2007
 ----------------- -----------------
Assets
 Real estate (Note 2) $17,619,975 $21,041,049
 Less: accumulated depreciation 2,085,952 4,834,757
 ----------------- -----------------

 Net real estate 15,534,023 16,206,292
 Net mortgage portfolio (of which $226,288 in 2008
 and $455,827 in 2007 are due within one year) (Note 3) 2,369,518 7,659,225
 Investments in and advances to joint ventures (Note 4) 2,665,263 4,923,201
 Other investments (Note 5) 1,000,000 1,000,000
 Assets related to discontinued operations (Note 6) 391,479 -
 Prepaid expenses and deposits in escrow 1,192,182 1,213,162
 Prepaid defined benefit plan costs 218,042 371,942
 Other receivables (net of valuation allowance of
 $82,411 in 2008 and $147,065 in 2007) 409,851 370,004
 Cash and cash equivalents 6,732,792 2,343,497
 Other assets 693,333 861,965
 ----------------- -----------------

Total Assets $31,206,483 $34,949,288
 ================= =================

Liabilities and Stockholders' Equity

 Liabilities:
 Mortgage debt (of which $1,423,531 in 2008 and
 $445,130 in 2007 are due within one year) $16,483,861 $18,868,690
 Liabilities related to discontinued operations (Note 6) 2,103,545 -
 Contractual pension and postretirement benefits liabilities 1,949,105 2,169,408
 Accrued liabilities 1,782,346 2,431,698
 Accounts payable 572,516 464,983
 Other liabilities 681,153 755,770
 ----------------- -----------------

Total Liabilities 23,572,526 24,690,549
 ----------------- -----------------

 Stockholders' Equity:
 Common stock: par value $.10 per share
 September 30, 2008 December 31, 2007
 ------------------ -----------------
 Class A 47,894 47,894
 -----------
 Authorized: 700,000 700,000
 Issued: 478,940 478,940
 Treasury: 36,407 5,375

 Class B 352,455 352,155
 -----------
 Authorized: 10,000,000 10,000,000
 Issued: 3,524,547 3,521,547
 Treasury: 467,505 29,633

 Additional paid-in capital 4,566,093 4,486,713
 Retained earnings 6,804,848 6,959,104
 Accumulated other comprehensive loss (Note 10) (1,242,031) (1,331,097)
 Treasury stock (at cost) (Note 11) (2,895,302) (256,030)
 ----------------- -----------------

Total Stockholders' Equity 7,633,957 10,258,739
 ----------------- -----------------

Total Liabilities and Stockholders' Equity $31,206,483 $34,949,288
 ================= =================

 See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)




 THREE MONTHS ENDED
 SEPTEMBER 30,
 --------------------------

 2008 2007
 ----------- ------------
Revenues:
 Rental $1,384,783 $1,267,259
 Interest on mortgages - notes receivable 287,022 296,946
 Interest on mortgages - notes receivable - related parties 19,250 31,857
 Other revenues 1,350 1,199
 ----------- ------------

Total 1,692,405 1,597,261
 ----------- ------------

Costs and Expenses:
 General and administrative (Note 12) (60,746) 1,041,033
 Depreciation on non-rental property 11,942 9,266
 Rental property:
 Operating expenses 766,551 582,590
 Interest on mortgage debt 385,565 337,809
 Real estate taxes 111,195 122,859
 Depreciation on real estate 120,440 107,796
 Amortization of in-place lease values and mortgage costs 31,194 68,293
 ----------- ------------

Total 1,366,141 2,269,646
 ----------- ------------

Other Income (Loss):
 Investment income 16,935 456,040
 Equity in the income (loss) from joint ventures (Note 4) (124,683) 44,605
 ----------- ------------

Income (loss) before minority interest 218,516 (171,740)

Minority interest - 28
 ----------- ------------

Income (loss) from continuing operations 218,516 (171,712)
 ----------- ------------

Discontinued Operations (Note 6):
 Income from discontinued operations 71,079 43,247
 Net gain from sales of discontinued operations 2,893,031 -
 ----------- ------------

Total income from discontinued operations 2,964,110 43,247
 ----------- ------------

Net Income (Loss) $3,182,626 ($128,465)
 =========== ============


Earnings per Common Share (basic and diluted) (Note 13):
 Income (loss) from continuing operations $0.06 ($0.04)
 ----------- ------------

 Discontinued Operations:
 Income from discontinued operations 0.02 0.01
 Net gain from sales of discontinued operations 0.83 -
 ----------- ------------

 Total income from discontinued operations 0.85 0.01
 ----------- ------------

 Net Income (Loss) per Common Share - basic $0.91 ($0.03)
 =========== ============
 - diluted $0.90 ($0.03)
 =========== ============

Cash Distributions per Common Share $0.16 $0.16
 =========== ============

Weighted Average Number of Shares Outstanding - basic 3,501,921 3,905,698
 =========== ============
 - diluted 3,533,118 3,905,698
 =========== ============


See notes to consolidated financial statements.


PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)




 NINE MONTHS ENDED
 SEPTEMBER 30,
 --------------------------

 2008 2007
 ----------- ------------
Revenues:
 Rental $4,047,163 $3,590,859
 Interest on mortgages - notes receivable 815,586 884,129
 Interest on mortgages - notes receivable - related parties 146,750 253,846
 Other revenues 3,786 5,847
 ----------- ------------

Total 5,013,285 4,734,681
 ----------- ------------

Costs and Expenses:
 General and administrative (Note 12) 1,875,181 3,031,041
 Depreciation on non-rental property 29,676 23,489
 Rental property:
 Operating expenses 2,142,125 1,906,420
 Interest on mortgage debt 1,088,241 1,013,219
 Real estate taxes 330,505 340,728
 Depreciation on real estate 344,246 311,346
 Amortization of in-place lease values and mortgage costs 130,883 306,468
 ----------- ------------

Total 5,940,857 6,932,711
 ----------- ------------

Other Income (Loss):
 Investment income 53,215 489,949
 Equity in the loss from joint ventures (Note 4) (581,083) (972,860)
 ----------- ------------

Loss before minority interest (1,455,440) (2,680,941)

Minority interest - (2,194)
 ----------- ------------

Loss from continuing operations (1,455,440) (2,683,135)
 ----------- ------------

Discontinued Operations (Note 6):
 Income from discontinued operations 198,974 81,728
 Net gain from sales of discontinued operations 2,893,031 735,705
 ----------- ------------

Total income from discontinued operations 3,092,005 817,433
 ----------- ------------

Net Income (Loss) $1,636,565 ($1,865,702)
 =========== ============


Earnings per Common Share (basic and diluted) (Note 13):
 Loss from continuing operations ($0.39) ($0.69)
 ----------- ------------

 Discontinued Operations:
 Income from discontinued operations 0.05 0.03
 Net gain from sales of discontinued operations 0.77 0.18
 ----------- ------------

 Total income from discontinued operations 0.82 0.21
 ----------- ------------

 Net Income (Loss) per Common Share - basic $0.43 ($0.48)
 =========== ============
 - diluted $0.43 ($0.48)
 =========== ============

Cash Distributions per Common Share $0.48 $0.48
 =========== ============

Weighted Average Number of Shares Outstanding - basic 3,770,895 3,902,203
 =========== ============
 - diluted 3,770,895 3,902,203
 =========== ============


See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

 Accumulated
 Additional Other Total
 Common Paid-in Retained Comprehensive Treasury Comprehensive Stockholders'
 Stock Capital Earnings Loss Stock Income Equity
 --------- ----------- --------- -------------- ---------- ------------ -------------
Balance at January 1, 2008 $400,049 $4,486,713 $6,959,104 ($1,331,097) ($256,030) $10,258,739

Cash distributions ($.48 per share) - - (1,790,821) - - (1,790,821)
Issuance and vesting of restricted stock 300 79,380 - - - 79,680
Purchase of treasury stock - - - - (2,639,272) (2,639,272)
Comprehensive income:
 Net income - - 1,636,565 - - $1,636,565 1,636,565
 Other comprehensive income -
 Net unrealized gain on
 securities available for sale - - - 479 - 479 479
 Adjustment for contractual
 postretirement benefits - - - 88,587 - 88,587 88,587
 ------------
Comprehensive income $1,725,631
 ============

 --------- ---------- ----------- ------------ ------------ ------------
Balance at September 30, 2008 $400,349 $4,566,093 $6,804,848 ($1,242,031) ($2,895,302) $7,633,957
 ========= ========== =========== ============ ============ ============


See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


 NINE MONTHS ENDED SEPTEMBER 30,
 ----------------------------------------------

 2008 2007
 ---------------- -----------------
Cash Flows from Operating Activities:
 Cash received from rental properties $4,773,851 $4,428,099
 Interest received 680,405 1,050,648
 Distributions received from joint ventures 1,676,855 2,481,859
 Distributions received from other investments - 442,047
 Miscellaneous income 2,732 47,381
 Interest paid on rental property mortgage debt (1,032,805) (1,100,998)
 Cash disbursed for rental property operations (3,138,703) (3,292,029)
 Cash disbursed for general and administrative costs (2,333,587) (2,417,253)
 ---------------- -----------------

Net cash provided by operating activities 628,748 1,639,754
 ---------------- -----------------

Cash Flows from Investing Activities:
 Payments received on notes receivable 5,638,903 138,049
 Repayments received on other investments - 1,000,000
 Payments disbursed for additions and improvements (576,675) (628,243)
 Proceeds from sales of properties 3,457,950 582,004
 Purchase of additional interests in partnerships - (96,202)
 --------------- -----------------

Net cash provided by investing activities 8,520,178 995,608
 ---------------- -----------------

Cash Flows from Financing Activities:
 Principal payments on mortgage debt (329,538) (318,197)
 Distributions to minority partners - (5,000)
 Cash distributions on common stock (1,790,821) (1,892,086)
 Purchase of treasury stock (2,639,272) (233,867)
 Proceeds from dividend reinvestment plan - 200,640
 ---------------- -----------------

Net cash used in financing activities (4,759,631) (2,248,510)
 ---------------- -----------------

Net Increase in Cash and Cash Equivalents 4,389,295 386,852

Cash and Cash Equivalents, Beginning of Period 2,343,497 2,263,534
 ---------------- -----------------

Cash and Cash Equivalents, End of Period $6,732,792 $2,650,386
 ================ =================

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)




 NINE MONTHS ENDED SEPTEMBER 30,
 -----------------------------------------------

 2008 2007
 ----------------- -----------------

Reconciliation of Net Income (Loss) to Net Cash
 Provided by Operating Activities

Net Income (Loss) $1,636,565 ($1,865,702)
 ----------------- -----------------

Adjustments to reconcile net income (loss) to net
 cash provided by operating activities:
 Net gain from sales of discontinued operations (2,893,031) (735,705)
 Equity in the loss from joint ventures 581,083 972,860
 Depreciation and amortization 539,981 691,181
 Amortization of discount on mortgage payable 48,254 81,311
 Net change in revenue related to acquired lease rights/obligations
 and deferred rent receivable (45,478) (69,761)
 Amortization of discounts on notes and fees (349,195) (178,793)
 Minority interest - 2,194
 Issuance of stock to directors and officers 75,240 75,386
 Distributions received from joint ventures 1,676,855 2,481,859

 Changes in assets and liabilities:
 Decrease (increase) in other receivables (19,453) 27,438
 Decrease in accounts payable and accrued liabilities (807,222) (114,271)
 Increase in other liabilities 7,702 44,927
 Decrease in prepaid expenses, deposits in escrow
 and deferred charges 179,320 222,495
 Other (1,873) 4,335
 ----------------- -----------------

Total adjustments (1,007,817) 3,505,456
 ----------------- -----------------

Net cash provided by operating activities $628,748 $1,639,754
 ================= =================



SUPPLEMENTAL NONCASH DISCLOSURES:

 Satisfaction of mortgage debt as a result of assumption
 of the mortgage debt by the purchaser $2,856,452
 =================

 Note receivable from sale of property $200,000
 =================




See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. 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 7). The consolidated financial statements for the nine months ended September 30, 2007 also included 100% of the account balances of another partnership, UTB Associates (which was liquidated on December 31, 2007). Presidential was the general partner of UTB Associates and owned a 100% interest (previously a 75% interest, see Note 8). All significant intercompany balances and transactions have been eliminated.

B. 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 during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of nonvested shares. See Note 13.

C. Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") 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-KSB for the year ended December 31, 2007.

D. Management Estimates - In preparing the consolidated financial statements in conformity with GAAP, 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.

E. Purchase Accounting - In 2006 and 2007, the Company acquired an additional 25% and 1% limited partnership interest in the Hato Rey Partnership, respectively. The Company allocated the fair value of acquired tangible and intangible assets and assumed liabilities based on their estimated fair values in accordance with the provisions of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements", and the Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", as a partial step acquisition. No gain or goodwill was recognized on the recording of the acquisition of the additional interests in the Hato Rey Partnership. Building and improvements are depreciated on the straight-line method over thirty-nine years. In-place lease values are amortized to expense over the terms of the related tenant leases. Above and below market lease values are amortized as a reduction of, or an increase to, rental revenue over the remaining term of each lease. Mortgage discount was amortized to mortgage interest expense over the term of the mortgage (maturity was originally May, 2008) using the interest method.

F. Discontinued Operations - The Company complies with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated.

G. Equity Method - The Company accounts for its investments in joint ventures using the equity method of accounting.

H. Accounting for Uncertainty in Income Taxes - On January 1, 2007, the Company adopted the Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN 48"). If the Company's tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest, or a deficiency dividend and related interest, for prior years. Should such an assessment require the Company to pay a deficiency dividend in order to continue to qualify as a REIT, the Company would pay the deficiency dividend to its shareholders and the related interest assessment to the taxing authorities.

I. Recent Accounting Pronouncements - In September, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of this standard on January 1, 2008 did not have a material effect on the Company's consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106 and 132(R)". SFAS No. 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan's overfunded status or a liability for a plan's underfunded status; (ii) measure a plan's assets and its benefit obligations that determine its funded status as of the end of the employer's fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The Company previously adopted in 2006 the requirement to recognize the funded status of a benefit plan and the disclosure requirements. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date provisions of this standard is not expected to have a material effect on the Company's consolidated financial statements.

In February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is not electing to measure its financial assets or liabilities at fair value pursuant to this statement.

In December, 2007, the FASB issued No. 141, (revised 2007) "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R replaces SFAS No. 141, which the Company previously adopted. SFAS No. 141R revises the standards for accounting and reporting of business combinations. In summary, SFAS No. 141R requires the acquirer of a business combination to measure, at fair value, the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, with limited exceptions. SFAS No. 141R applies to all business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not believe that the adoption of this statement on January 1, 2009 will have a material effect on the Company's consolidated financial statements.

In December, 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements", which requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this standard is not expected to have a material effect on the Company's consolidated financial statements.

In March, 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities". SFAS No. 161 changes the reporting requirements for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivatives and Hedging Activities", by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments are accounted for under SFAS No. 133 and (c) the effect of derivative instruments and hedging activities on an entity's financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company does not believe that the adoption of this statement will have a material effect on the Company's consolidated financial statements.

In April, 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 142-3, "Determination of the Useful Life of Intangible Assets". FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets". The objective of FSP No. FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and GAAP. FSP FAS No. 142-3 is effective for financial statements issued for years beginning after December 15, 2008, and interim periods within those years and applied prospectively to intangible assets acquired after the effective date. The Company does not believe that the adoption of FSP FAS No. 142-3 will have a material effect on the Company's consolidated financial statements.

In June, 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities". FSP No. EITF 03-6-1 affects entities which accrue non-returnable cash dividends on share-based payment awards during the awards' service period. The FASB concluded unvested share-based payment awards which are entitled to cash dividends, whether paid or unpaid, are participating securities any time the common shareholders receive dividends. Because the awards are considered participating securities, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share. FSP No. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and early adoption is not permitted. The Company does not believe that the adoption of FSP No. EITF 03-6-1 will have a material effect on the Company's consolidated financial statements.

2. REAL ESTATE

Real estate is comprised of the following:

 September 30, December 31,
 2008 2007
 ------------ ------------

Land $ 2,059,856 $ 2,309,930
Buildings 15,479,531 18,605,700
Furniture and equipment 80,588 125,419
 ----------- -----------
Total real estate $17,619,975 $21,041,049
 =========== ===========

3. MORTGAGE PORTFOLIO

The components of the net mortgage portfolio are as follows:

 September 30, December 31,
 2008 2007
 ------------- ------------

Notes receivable $2,410,262 $8,051,342
Less: Discounts 40,744 392,117
 ---------- ----------
Net mortgage portfolio $2,369,518 $7,659,225
 ========== ==========

At September 30, 2008, all of the notes in the Company's mortgage portfolio are current in accordance with their terms, as modified.

During the nine months ended September 30, 2008, the Company received repayment of its $1,500,000 loan receivable collateralized by ownership interests in Reisterstown Square Associates, LLC, which owns Reisterstown Apartments in Baltimore, Maryland, and repayment of its $3,875,000 Fairfield Towers note receivable. In addition, the Company also received repayment of its $100,000 loan collateralized by the Pinewood property in Des Moines, Iowa and repayment of its $110,000 Mark Terrace note receivable.

In March, 2007, the Company sold its Cambridge Green property in Council Bluffs, Iowa. As part of the sales price, the Company received a $200,000 secured note receivable which matured on March 20, 2008. The note receivable has an interest rate of 7% per annum, payment of which is deferred until maturity. At December 31, 2007, the accrued deferred interest was $11,083. In March, 2008, the Company agreed to extend the maturity of the loan to December 31, 2008 and received a $25,000 payment for $13,917 of principal and $11,083 of accrued deferred interest. At September 30, 2008, the accrued deferred interest was $10,122, which was recorded in interest income, and the loan balance was $186,083.

The Company had a $3,875,000 note receivable, which was received by the Company in connection with the sale of the Fairfield Towers mortgages in 1999 and which was collateralized by security interests in the ownership interests in entities that own various properties located in Maryland, New Jersey and Pennsylvania. The loan was originally due in February, 2009, but the Company had the right to require prepayment upon 90 days prior notice. On March 20, 2008, the Company notified the borrower that the loan must be prepaid within 90 days from the date of the notice. On June 3, 2008, the Company received a principal payment of $1,079,239 on the loan and on July 11, 2008, the remaining loan balance of $2,795,761 was paid. The Company recognized $337,496 of unamortized discount on this loan during 2008.

4. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

The Company has investments in and loans to four joint ventures which own and operate nine shopping malls located in seven states. These investments in and advances to joint ventures were made to entities controlled by David Lichtenstein, who also controls The Lightstone Group ("Lightstone"). The Company accounts for these investments using the equity method.

The first investment, the Martinsburg Mall, was purchased by PRC Member LLC, a limited liability company which was originally wholly owned by the Company, in 2004 and, subsequent to closing, PRC Member LLC obtained a mezzanine loan from Lightstone in the amount of $2,600,000, which is secured by ownership interests in the entity that owns the Martinsburg Mall. The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone manages the Martinsburg Mall and David Lichtenstein received a 71% ownership interest in PRC Member LLC, leaving the Company with a 29% ownership interest.

During 2004 and 2005, the Company made three mezzanine loans in the aggregate principal amount of $25,600,000 to joint ventures controlled by David Lichtenstein. These loans are secured by the ownership interests in the entities that own the properties and the Company received a 29% ownership interest in these entities. These loans mature in 2014 and 2015 and the interest rate on the loans is 11% per annum. During 2006, the Company made an additional $335,000 mezzanine loan to Lightstone II, which loan was added to and has the same interest rate and maturity date as the original Lightstone II loan. At September 30, 2008, the aggregate principal amount of loans to joint ventures controlled by David Lichtenstein was $25,935,000.

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

 Nonrecourse First Mortgage
Owning and Mezzanine Loans
Entity and Mezzanine Loans September 30, 2008
Property Advanced by Approximate Maturity Interest
 Owned (1) the Company Sq. Ft. Balance Date Rate
---------- --------------- ----------- ------- -------- --------
 (Amounts in thousands)
PRC Member LLC (2)
Martinsburg Mall 552 $ 29,840 July, 2016 (4)
----------------
 Martinsburg, WV

Lightstone I (2)
Four Malls $ 8,600
----------
Bradley Square Mall 385 13,788 July, 2016 (4)
 Cleveland, TN

Mount Berry Square Mall 478 22,458 July, 2016 (4)
 Rome, GA

Shenango Valley Mall 508 14,727 July, 2016 (4)
 Hermitage, PA

West Manchester Mall 733 24,600 June, 2009 (4)
 York, PA

Lightstone II
Shawnee/Brazos Malls 7,835 39,061 Jan., 2009 (5)
--------------------
Brazos Mall 698
 Lake Jackson, TX

Shawnee Mall 444
 Shawnee, OK

Lightstone III (3)
Macon/Burlington Malls 9,500 155,076 June, 2015 5.78%
----------------------
Burlington Mall 412
 Burlington, NC

Macon Mall 1,446
 Macon, GA
 ------- ----- --------
 $25,935 5,656 $299,550
 ======= ===== ========

(1) Each individual owning entity is a single purpose entity that is prohibited by its organizational documents from owning any assets other than the specified shopping mall properties listed above.

(2) Lightstone I defaulted in payments of interest due September 1, 2008 and subsequent thereto on the first mortgage secured by the Martinsburg Mall and three of the Four Malls. It is unlikely that Lightstone I will be able to cure the mortgage defaults or negotiate a modification of the terms of the mortgage and the Company expects that the holder of the first mortgage will commence foreclosure proceedings. Since management believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged properties, the Company expects that its interest in these properties as security for the Company's $8,600,000 mezzanine loan to Lightstone I will be extinguished. The Company's $8,600,000 mezzanine loan is also secured by interests in the West Manchester property but the Company believes that the outstanding principal balance of the first mortgage on West Manchester, which is not in default, exceeds the value of that property under current market conditions. At September 30, 2008, the carrying value of the Company's investments in PRC Member LLC and Lightstone I have been reduced to zero.

(3) Lightstone III defaulted in payments of interest due on the first mortgage secured by these properties in February of 2008 and subsequent thereto and the holder of the first mortgage commenced foreclosure proceedings with respect to its mortgage. Management believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged properties and the Company does not expect that its $9,500,000 mezzanine loan secured by interests in these properties will be repaid. The carrying value of the Company's investment in Lightstone III was reduced to zero at December 31, 2007.

(4) In June, 2006, the original $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the Four Malls was refinanced with the following mortgage loans: a $73,900,000 nonrecourse first mortgage loan with an interest rate of 5.93% per annum, maturing on July 1, 2016, a $7,000,000 mezzanine loan with an interest rate of 12% per annum maturing on July 1, 2016 and a $29,600,000 nonrecourse first mortgage loan with an adjustable interest rate based on the London Interbank Offered Rates ("LIBOR") plus 232 basis points (approximately 4.79% at September 30, 2008), with a minimum interest rate of 7.89%. The $73,900,000 first mortgage loan and the $7,000,000 mezzanine loan, with an aggregate outstanding balance of $80,813,000 at September 30, 2008, are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first mortgage loan, with an outstanding balance of $24,600,000 at September 30, 2008, is secured by the West Manchester Mall and had an original maturity date of June 8, 2008, which maturity date was extended until June 9, 2009 subject to the right of the borrower to extend the maturity date until June 9, 2010 upon making certain principal pay downs and meeting other conditions.

(5) The interest rate is at the 30 day LIBOR rate plus 280 basis points (approximately 5.27% at September 30, 2008). The loan matures in January, 2009, with an option to extend the loan for one year with an extension fee of .125% of the outstanding principal. The borrower's right to extend the loan is subject to the borrower's compliance with certain financial covenants and other conditions.

Under the equity method of accounting, the Company's investments in the joint ventures, including the $25,935,000 of loans advanced to the joint ventures, have been reduced by distributions received and losses recorded for the joint ventures. Activity in investments in and advances to joint ventures for the period ended September 30, 2008 is as follows:

 Equity
 in the
 Income
 (Loss)
 Balance at from Balance at
 December 31, Distributions Joint September 30,
 2007 Received Ventures 2008
 ------------ ------------- ----------- -------------

Martinsburg Mall (1) $ - $ (134,052) $ 134,052 $ -
Four Malls (2) 688,735 (722,638) 33,903 -
Shawnee/Brazos
 Malls (3) 4,234,466 (730,179) (839,024) 2,665,263
Macon/Burlington
 Malls (4) - (89,986) 89,986 -
 ---------- ----------- --------- ----------
 $4,923,201 $(1,676,855) $(581,083) $2,665,263
 ========== =========== ========= ==========

Equity in the income (loss) from joint ventures is as follows:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---- ---- ---- ----

Martinsburg Mall (1) $ 13,625 $ 80,431 $ 134,052 $ (2,953)
Four Malls (2) 162,922 (262,129) 33,903 (678,806)
Shawnee/Brazos
 Malls (3) (301,230) (344,228) (839,024) (628,729)
Macon/Burlington
 Malls (4) - 570,531 89,986 337,628
 --------- --------- --------- ---------
 $(124,683) $ 44,605 $(581,083) $(972,860)
 ========= ========= ========= =========

(1) The Company's share of the income (loss) from joint ventures for the Martinsburg Mall is determined after the deduction for interest expense at the rate of 11% per annum on the outstanding $2,600,000 loan from Lightstone. In 2007, the Company's basis of its investment in the Martinsburg Mall was reduced by distributions and losses to zero and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $134,052 of distributions received in income from joint ventures.

(2) Interest income earned by the Company at the rate of 11% per annum on the outstanding $8,600,000 loan from the Company to Lightstone I is included in the calculation of the Company's share of the income (loss) from joint ventures for the Four Malls. In the second quarter of 2008, the Company's basis of its investment in the Four Malls was reduced by distributions and losses to zero and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $33,903 of distributions received in income from joint ventures.

(3) Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000 loan from the Company to Lightstone II is included in the calculation of the Company's share of the loss from joint ventures for the Shawnee/Brazos Malls.

(4) Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000 loan from the Company to Lightstone III is included in the calculation of the Company's share of the income (loss) from joint ventures for the Macon/Burlington Malls. In the fourth quarter of 2007, the Company's basis of its investment in the Macon/Burlington Malls was reduced by distributions and losses to zero and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $89,986 of distributions received in income from joint ventures.

The Company prepares the summary of the condensed combined financial information for the Martinsburg Mall, the Four Malls, the Shawnee/Brazos Malls and the Macon/Burlington Malls based on information provided by The Lightstone Group. The summary financial information below includes information for all of the joint ventures. The condensed combined information is as follows:

 September 30, December 31,
 2008 2007
 ------------- ------------
 (Amounts in thousands)
Condensed Combined Balance Sheets
 Net real estate $ 234,746 $235,595
 In-place lease values and
 acquired lease rights 9,542 11,569
 Prepaid expenses and
 deposits in escrow 18,921 18,145
 Cash and cash equivalents 2,147 3,028
 Deferred financing costs 1,949 2,505
 Other assets 2,669 7,307
 --------- --------

 Total Assets $ 269,974 $278,149
 ========= ========

 Nonrecourse mortgage debt $ 299,550 $306,131
 Mezzanine notes payable 56,225 49,994
 Other liabilities 28,828 29,278
 --------- --------

 Total Liabilities 384,603 385,403
 Members' Deficit (114,629) (107,254)
 --------- --------
 Total Liabilities and
 Members' Deficit $ 269,974 $278,149
 ========= ========

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---------- ----------- ----------- -----------
 (Amounts in thousands)
Condensed Statements
 of Operations
 Revenues $ 9,502 $17,406 $ 33,556 $ 44,408
 Interest on
 mortgage debt
 and other debt (3,867) (6,489) (16,552) (18,842)
 Other expenses (5,914) (8,842) (21,407) (24,505)
 ------- ------- -------- --------
 Income (loss) before
 depreciation
 and amortization (279) 2,075 (4,403) 1,061

 Depreciation
 and amortization (1,933) (4,150) (7,814) (10,409)
 ------- ------- -------- --------
 Net Loss $(2,212) $(2,075) $(12,217) $ (9,348)
 ======= ======= ======== ========

As a result of the Company's use of the equity method of accounting with respect to its investments in and advances to the joint ventures, the Company's consolidated statements of operations reflect its proportionate share of the income (loss) from the joint ventures. The Company's equity in the loss from joint ventures of $581,083 for the nine months ended September 30, 2008, is after deductions in the aggregate amount of $713,810 for the Company's proportionate share of noncash charges (depreciation of $612,411 and amortization of deferred financing costs, in-place lease values and other costs of $101,399, all of which pertains to the Shawnee/Brazos Malls). Notwithstanding the loss from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,935,000 of loans to the joint ventures. For the nine months ended September 30, 2008, the Company received distributions from the joint ventures in the amount of $1,676,855 which included interest payments of $1,542,803 on the outstanding loans to the joint ventures and return on investment in the amount of $134,052.

During the quarter ended March 31, 2008, Lightstone III defaulted on its monthly payments of interest on the Company's $9,500,000 mezzanine loan relating to the Macon/Burlington Malls and also failed to make the payments due on the first mortgage loan secured by Macon/Burlington. The holder of the first mortgage has declared the mortgage in default and commenced foreclosure proceedings. Since management believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged properties, the Company does not expect to receive repayment of the principal amount of its $9,500,000 loan to Lightstone III or any further interest thereon. The carrying value of this investment was reduced to zero at December 31, 2007.

During the quarter ended September 30, 2008, Lightstone I defaulted in payments of interest due September 1, 2008 on the first mortgage secured by the Martinsburg Mall and three of the Four Malls. Subsequent to September 30, 2008, Lightstone I also defaulted in payments of interest due on the Company's $8,600,000 mezzanine loan secured by interests in these properties. It is unlikely that Lightstone I will be able to cure the defaults on the first mortgage or negotiate a modification of the terms of the first mortgage and the Company expects that the holder of the first mortgage will commence foreclosure proceedings. Since management believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged properties, the Company expects that its interest in these properties as security for the Company's $8,600,000 mezzanine loan to Lightstone I will be extinguished. The Company's $8,600,000 mezzanine loan is also secured by interests in the West Manchester property but the Company believes that the outstanding principal balance of the first mortgage on West Manchester, which is not in default, exceeds the value of that property under current market conditions. At September 30, 2008, the carrying value of the Company's investments in PRC Member LLC and Lightstone I have been reduced to zero.

The Company's equity in the loss from joint ventures of $972,860 for the nine months ended September 30, 2007, is after deductions in the aggregate amount of $2,828,400 for the Company's proportionate share of noncash charges (depreciation of $2,118,083 and amortization of deferred financing costs, in-place lease values and other costs of $710,317). For the nine months ended September 30, 2007, the Company received distributions from the joint ventures in the amount of $2,481,859, which included interest payments of $2,321,991 on the outstanding loans to the joint ventures and return on investment in the amount of $159,868.

The Lightstone Group is controlled by David Lichtenstein. At September 30, 2008, in addition to Presidential's investments of $2,665,263 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has a loan that is due from an entity that is controlled by Mr. Lichtenstein in the outstanding principal amount of $2,074,994. The loan is secured by interests in nine apartment properties and is in good standing.

The $4,740,257 net carrying value of investments in and advances to joint ventures with entities controlled by Mr. Lichtenstein and the loan outstanding to an entity controlled by Mr. Lichtenstein constitute approximately 15% of the Company's total assets at September 30, 2008.

5. OTHER INVESTMENTS

At September 30, 2008 and December 31, 2007, the Company had a $1,000,000 investment in Broadway Partners Feeder Fund A II, a blind pool of investment capital sponsored by Broadway Real Estate Partners, LLC. The Company accounts for this investment under the cost method.

6. DISCONTINUED OPERATIONS

For the periods ended September 30, 2008 and 2007, income from discontinued operations includes the Crown Court property in New Haven, Connecticut (which consists of 105 apartment units and 2,000 square feet of commercial space), 42 cooperative apartment units at the Towne House Apartments in New Rochelle, New York and another cooperative apartment unit in New Haven, Connecticut. The Crown Court property was designated as held for sale during the three months ended September 30, 2008. The other properties were designated as held for sale during the three months ended June 30, 2008 and sold during the three months ended September 30, 2008. In addition, income from discontinued operations for the periods ended September 30, 2007, included the Cambridge Green property, which was sold in March, 2007, and another cooperative apartment unit which was sold in June, 2007.

The following table summarizes income for the properties sold or held for sale:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---- ---- ---- ----
Revenues:
 Rental $ 265,671 $251,013 $ 805,137 $905,057
 ---------- -------- ----------- --------

Rental property expenses:
 Operating expenses 104,288 108,169 321,088 467,871
 Interest on mortgage debt 36,954 38,591 112,114 148,626
 Real estate taxes 49,349 44,360 138,070 159,210
 Depreciation on real estate 4,099 16,747 35,176 49,879
 ---------- -------- ----------- --------
Total 194,690 207,867 606,448 825,586
 ---------- -------- ----------- --------

Other income:
 Investment income 98 101 285 2,257
 ---------- -------- ----------- --------

Income from
 discontinued operations 71,079 43,247 198,974 81,728

Net gain from sales of
 discontinued operations 2,893,031 - 2,893,031 735,705
 ---------- -------- ----------- --------

Total income from
 discontinued operations $2,964,110 $ 43,247 $3,092,005 $817,433
 ========== ======== ========== ========

The Crown Court property in New Haven, Connecticut is subject to a long-term net lease with an option to purchase which is exercisable only in April, 2009. In August, 2008, the lessee notified the Company that it is electing to exercise this option in accordance with the terms of the net lease. The option purchase price is $1,635,000 over the outstanding principal mortgage balance at the date of the exercise of the option. The gain from sale for financial reporting purposes is estimated to be approximately $3,261,000 and the estimated net proceeds of sale will be approximately $1,615,000.

The Company owns a small portfolio of cooperative apartments located in New York and Connecticut. These apartments are held for the production of rental income and generally are not marketed for sale. However, from time to time, the Company will receive purchase offers for some of these apartments or decide to market specific apartments and will make sales if the purchase price is acceptable to management.

In September, 2008, the Company sold a package of 42 cooperative apartment units at Towne House located in New Rochelle, New York for a sales price of $3,450,000. The net proceeds of sale were $3,343,960 and the gain from sale for financial reporting purposes was $2,807,272.

In July, 2008, the Company sold one cooperative apartment unit located in New Haven, Connecticut for a sales price of $122,000. The net proceeds of sale were $113,990 and the gain from the sale for financial reporting purposes was $85,759.

On March 21, 2007, the Company completed the sale of the Cambridge Green property, a 201-unit apartment property in Council Bluffs, Iowa for a sales price of $3,700,000. As part of the sales price, (i) the $2,856,452 outstanding principal balance of the first mortgage debt was assumed by the buyer, (ii) the Company received a $200,000 secured note receivable from the buyer, which originally was due to mature on March 20, 2008 (see Note 3) and has an interest rate of 7% per annum, and (iii) the balance of the sales price was paid in cash. The net proceeds of sale were $664,780, which included the $200,000 note receivable. The Company recognized a gain from the sale for financial reporting purposes of $646,759 in March, 2007.

In June, 2007, the Company sold one cooperative apartment unit located in New Haven, Connecticut for a sales price of $125,000. The net proceeds from the sale were $117,224 and the Company recognized a gain from the sale for financial reporting purposes of $88,946 in June, 2007.

The assets and liabilities of the Crown Court property are segregated in the consolidated balance sheet at September 30, 2008. The components are as follows:

 September 30,
 2008
 -------------

Assets related to discontinued operations:
 Land $ 168,000
 Buildings 3,090,544
 Furniture and equipment 45,382
 Less: accumulated depreciation (2,912,447)
 ----------
Total $ 391,479
 ==========

Liabilities related to discontinued operations:
 Mortgage debt $2,103,545
 ==========

7. HATO REY PARTNERSHIP

PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership. Presidential 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 209,000 square feet of commercial space, located in Hato Rey, Puerto Rico. During 2005 and 2006, three tenants at the building vacated a total of 82,387 square feet of office space at the expiration of their leases. In 2006, the Hato Rey Partnership began a program of repairs and improvements to the property and since that time has spent approximately $795,000 to upgrade the physical condition and appearance of the property. The improvement program was substantially completed by the end of 2007. In 2005, the Company agreed to lend up to $2,000,000 to the Hato Rey Partnership to pay for the cost of improvements to the building and fund any negative cash flows from the operation of the property. The loan, which is advanced from time to time as funds are needed, bore interest at the rate of 11% per annum until May 11, 2008, with interest and principal to be paid out of the first positive cash flow from the property or upon a refinancing of the first mortgage on the property. In September, 2007, the Company agreed to lend an additional $500,000 to the Hato Rey Partnership under the same terms as the original $2,000,000 loan, except that the interest rate on the additional $500,000 loan is at the rate of 13% per annum and that the interest rate on the entire loan is to be increased to 13% per annum to the extent that the loan is not repaid on May 11, 2008. At September 30, 2008, the Company had advanced $2,199,275 of the loan to the Hato Rey Partnership and subsequent to September 30, 2008, the Company advanced an additional $20,000. The $2,199,275 loan and accrued interest in the amount of $422,656 have been eliminated in consolidation.

The first mortgage loan on the Hato Rey Center property is due on May 11, 2028 but the mortgage provides that if it was not repaid on or before May 11, 2008, the interest rate on the loan would be increased by two percentage points (to 9.38% per annum, of which 2% per annum would be deferred until maturity) and all cash flow from the property, after payment of all operating expenses, would be applied to pay down the outstanding principal balance of the loan. The Company did not repay the existing mortgage on May 11, 2008 and the mortgage provisions described above became applicable. At September 30, 2008, the outstanding principal balance of the loan was $15,323,327 and the deferred interest was $123,969.

For the nine months ended September 30, 2008 and September 30, 2007, the Hato Rey Partnership had a loss of $351,442 and $371,416, respectively. The minority partners have no basis in their investment in the Hato Rey Partnership and, as a result, the Company is required to record the minority partners' 40% share of the loss which was $140,577 and $148,566, respectively. Therefore, the Company recorded 100% of the loss from the partnership of $351,442 and $371,416 on the Company's consolidated financial statements for the nine months ended September 30, 2008 and 2007, respectively. Future earnings of the Hato Rey Partnership, should they materialize, will be recorded by the Company up to the amount of the losses previously absorbed that were applicable to the minority partners.

8. MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP

During 2007, Presidential was the general partner of UTB Associates, a partnership, which held notes receivable and in which Presidential had a 75% interest. As the general partner of UTB Associates, Presidential exercised effective control over this partnership through its ability to manage the affairs of the partnership in the ordinary course of business, including the ability to approve the partnership's budgets, and through its significant equity interest. Accordingly, Presidential consolidated this partnership in the accompanying consolidated financial statements for the three months and nine months ended September 30, 2007. The minority interest reflected the minority partners' equity in the partnership.

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

9. INCOME TAXES

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

The Company adopted FIN 48 on January 1, 2007. If the Company's tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest, or a deficiency dividend and related interest, for prior years. Should such an assessment require the Company to pay a deficiency dividend in order to continue to qualify as a REIT, the Company would pay the deficiency dividend to its shareholders and the related interest assessment to the taxing authorities.

Upon adoption of FIN 48 the Company recorded a reduction to the January 1, 2007 balance of retained earnings of $460,800 for accrued interest for prior years related to the tax positions for which the Company may be required to pay a deficiency dividend. In addition, the Company recorded interest expense of $356,780 for the year ended December 31, 2007 and $147,526 for the six months ended June 30, 2008 for the interest related to these matters. The Company recognizes this interest expense in general and administrative expenses in its consolidated statements of operations. As of June 30, 2008, the Company had accrued $965,106 of interest related to these matters, which was included in accrued liabilities in its consolidated balance sheet. During the three months ended September 30, 2008, the tax years related to the FIN 48 interest accrual expired and the Company reversed the $965,106 interest accrual. As of September 30, 2008, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2005 - 2007 tax years and those tax years did not require any accrual pursuant to FIN 48.

Upon filing the Company's income tax return for the year ended December 31, 2007, Presidential applied approximately $584,000 of its 2006 net operating loss carryforward of approximately $1,412,000 and then applied all of its available 2007 stockholders' distributions to reduce its taxable income for 2007 to zero.

The Company had taxable income (before distributions to stockholders) for the nine months ended September 30, 2008, of approximately $4,416,000 ($1.26 per share), which is comprised of capital gains of approximately $5,186,000 ($1.48 per share) and an ordinary loss of $770,000 ($.22 per share).

The Company intends to apply the $828,000 balance of its 2006 net operating loss carryforward, all of its available 2008 distributions and, if required, any eligible 2009 distributions to its 2008 taxable income to reduce its 2008 taxable income to zero. Therefore, no provision for Federal income taxes has been made at September 30, 2008.

With respect to the Company's taxable income for the year ended December 31, 2008, the Company anticipates that the $9,500,000 mezzanine loan due from Lightstone III will not be repaid as a result of a pending foreclosure by the first mortgagee with respect to its mortgage on the Macon/Burlington Mall properties. If the foreclosure sale of the property is completed in 2008, the Company would have a tax write-off to bad debt for its $9,500,000 loan and would have a tax loss for 2008. For financial reporting purposes, the $9,500,000 note receivable was recorded as investments in and advances to joint ventures under the equity method of accounting and at December 31, 2007, the carrying value of this investment was reduced to zero.

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

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

 September 30, December 31,
 2008 2007
 ------------- -----------
Defined benefit plan liability $(1,130,613) $(1,130,613)
Contractual postretirement
 benefits liability (66,972) (155,559)
Minimum contractual pension
 benefit liability (55,664) (55,664)
Net unrealized gain on
 securities available
 for sale 11,218 10,739
 ----------- -----------
Total accumulated other
 comprehensive loss $(1,242,031) $(1,331,097)
 =========== ===========

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.
Thus, comprehensive income (loss), which consists of net income (loss) plus or
minus other comprehensive income, is as follows:






 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---------- --------- ---------- -----------

Net income (loss) $3,182,626 $(128,465) $1,636,565 $(1,865,702)

Other comprehensive
 income (loss)-
 Net unrealized
 gain on securities
 available for sale 2,489 3,762 479 13
 Adjustment for
 contractual
 postretirement
 benefits 29,529 - 88,587 (120,484)
 --------- --------- ----------- -----------
Comprehensive
 income (loss) $3,214,644 $(124,703) $1,725,631 $(1,986,173)
 ========== ========= ========== ===========

11. TREASURY STOCK

Treasury stock consists of the following:

 September 30, 2008 December 31, 2007
 Number Total Number Total
 of Shares Cost of Shares Cost
 --------- --------- --------- -----

Class A common stock 36,407 $ 206,696 5,375 $ 36,136

Class B common stock 467,505 2,688,606 29,633 219,894
 ------- ---------- ------ --------
Total 503,912 $2,895,302 35,008 $256,030
 ======= ========== ====== ========

During the nine months ended September 30, 2008, the Company purchased 31,032 shares of its Class A common stock and 437,872 shares of its Class B common stock as follows:

 Number of Number of
 Class A Price Per Class B Price Per Total
Period Purchased From Shares Share Shares Share Paid
------ --------------------- --------- --------- --------- --------- -----
May Foundation controlled
 by a director and
 an officer of the
 Company (1) 932 $5.375 4,072 $5.725 $ 28,322

June Private Investor (2) 12,100 5.50 226,800 5.75 1,370,650

July Private Investor 1,000 5.50 7,000 5.90 46,800

July Private Investor (2) 17,000 5.50 200,000 5.50 1,193,500
 ------ ------- ----------

Total purchased during the
 nine months ended
 September 30, 2008 31,032 437,872 $2,639,272
 ====== ======= ==========

(1) These shares were purchased at 1/8th of a point below market price.
(2) These shares were purchased pursuant to common stock repurchase agreements.

The Company has no specific plan or program to repurchase additional shares but it may do so in the future.

12. GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses include the following:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---- ---- ---- ----
FIN 48 interest
 expense (credit) $(965,106) $ 87,382 $ (817,580) $ 267,382
Other general and
 administrative expenses 904,360 953,651 2,692,761 2,763,659
 --------- ---------- ---------- ----------

Net expense (credit) $ (60,746) $1,041,033 $1,875,181 $3,031,041
 ========= ========== ========== ==========

As previously discussed in Note 9, during the three months ended September 30, 2008, the tax years related to the FIN 48 interest expense accrual had expired and the Company had reversed the $965,106 interest accrual. Such reversal reduced general and administrative expenses by $965,106 and resulted in a credit balance for total general and administrative expenses of $60,746 in the Company's consolidated statement of operations for the three months ended September 30, 2008.

13. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted income
(loss) per share:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---- ---- ---- ----

Income (loss) from
 continuing operations $ 218,516 $ (171,712) $(1,455,440) $(2,683,135)
 ---------- ----------- ----------- -----------
Discontinued Operations:
 Income from
 discontinued operations 71,079 43,247 198,974 81,728
 Net gain from sales of
 discontinued operations 2,893,031 - 2,893,031 735,705
 --------- ---------- ---------- -----------
Total income from
 discontinued operations 2,964,110 43,247 3,092,005 817,433
 ---------- ----------- ----------- ------------
Net Income (Loss) $3,182,626 $ (128,465) $ 1,636,565 $(1,865,702)
 ========== =========== =========== ============

Earnings per Common
Share basic:
 Income (loss) from
 continuing operations $ 0.06 $ (0.04) $ (0.39) $ (0.69)
 ---------- ----------- ---------- -----------
 Discontinued Operations:
 Income from discontinued
 operations 0.02 0.01 0.05 0.03
 Net gain from sales of
 discontinued operations 0.83 - 0.77 0.18
 ---------- ---------- ---------- -----------
Total income from
 discontinued operations 0.85 0.01 0.82 0.21
 ---------- ----------- ---------- -----------

Net Income (Loss) per
 Common Share - basic $ 0.91 $ (0.03) $ 0.43 $ (0.48)
 ========== =========== ========== ===========

Earnings per Common
Share diluted:
 Income (loss) from
 continuing operations $ 0.06 $ (0.04) $ (0.39) $ (0.69)
 --------- ---------- ---------- -----------
 Discontinued Operations:
 Income from
 discontinued operations 0.02 0.01 0.05 0.03
 Net gain from sales of
 discontinued operations 0.82 - 0.77 0.18
 --------- ---------- ---------- ----------

Total income from
 discontinued operations 0.84 0.01 0.82 0.21
 --------- ---------- ---------- ----------

Net Income (Loss) per
 Common Share - diluted $ 0.90 $ (0.03) $ 0.43 $ (0.48)
 ========= ========== ========== ==========

Weighted average number
of shares outstanding:
 Basic 3,501,921 3,905,698 3,770,895 3,902,203
 Effect of dilutive
 securities -
 restricted stock 31,197 - - -
 ---------- ---------- --------- ----------
Diluted 3,533,118 3,905,698 3,770,895 3,902,203
 ========== ========== ========== ==========

For the nine months ended September 30, 2008, the weighted average shares outstanding as used in the calculation for diluted loss per share does not include 30,600 of restricted shares to be vested, as their inclusion would be antidilutive.

For the three months and nine months ended September 30, 2007, the weighted average shares outstanding as used in the calculation for diluted loss per share does not include 31,100 of restricted shares to be vested, as their inclusion would be antidilutive.

14. COMMITMENTS AND CONTINGENCIES

Presidential is not a party to any material legal proceedings. The Company may from time to time be a party to routine litigation incidental to the ordinary course of its business.

In the opinion of management, all of the Company's properties are adequately covered by insurance in accordance with normal insurance practices.

The Company is involved in an environmental remediation process for contaminated soil found on its Mapletree Industrial Center property in Palmer, Massachusetts. The land area involved is approximately 1.25 acres and the depth of the contamination is at this time undetermined. Since the most serious identified threat on the site is to songbirds, the proposed remediation will consist of removing all exposed materials and a layer of soil (the depth of which is yet to be determined). The Company estimates that the costs of the cleanup will not exceed $1,000,000. The remediation will comply with the requirements of the Massachusetts Department of Environmental Protection ("MADEP"). The MADEP has agreed that the Company may complete the remediation over the next fifteen years, but the Company expects to complete the project over the next ten years. In order to proceed with the remediation process, the Company has been waiting for MADEP to adopt hazard waste regulation 310 CMR 30. During the quarter ended June 30, 2008, this regulation was adopted and the Company is currently in the process of adopting a remediation plan that complies with regulation 310 CMR 30.

In accordance with the provisions of SFAS No. 5, "Accounting for Contingencies", in the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. At September 30, 2008, the accrued liability balance was $932,010 and the discount balance was $142,540.

Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The Company believes that any liability in excess of amounts provided which may result from the resolution of this matter will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.

For the nine months ended September 30, 2007, the Company incurred environmental expenses of $41,493 for further excavation and testing of the site. These expenses were in addition to the $1,000,000 previously accrued in 2006 for the costs of the cleanup of the site. There were no such additional environmental expenses for the nine months ended September 30, 2008.

15. CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

The following tables set forth the components of net periodic benefit costs for contractual pension benefits:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 -------- -------- -------- --------

Service cost $ - $ 4,354 $ - $ 13,066
Interest cost 19,399 31,109 58,195 93,322
Amortization of prior
 service cost (11,594) (11,594) (34,782) (34,782)
Recognized actuarial loss - 105,590 - 316,772
 -------- -------- -------- --------

Net periodic benefit cost $ 7,805 $129,459 $ 23,413 $388,378
 ======== ======== ======== ========

The following tables set forth the components of net periodic benefit costs for contractual postretirement benefits:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 -------- -------- -------- --------

Service cost $ 518 $ 487 $ 1,554 $ 1,460
Interest cost 9,696 11,042 29,088 33,132
Amortization of prior
 service cost 926 (2,944) 2,777 (8,834)
Recognized actuarial loss (gain) (631) 5,446 (1,893) 16,337
 ------- ------- ------- --------

Net periodic benefit cost $10,509 $14,031 $31,526 $ 42,095
 ======= ======= ======= ========

During the nine months ended September 30, 2008, the Company made contributions of $162,495 and $24,160 for contractual pension benefits and postretirement benefits, respectively. The Company anticipates additional contributions of $54,165 and $10,840 for contractual pension benefits and postretirement benefits, respectively, for the remainder of 2008.

16. DEFINED BENEFIT PLAN

The following table sets forth the components of net periodic benefit costs:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 -------- --------- --------- ---------

Service cost $ 59,413 $ 58,495 $ 178,241 $175,487
Interest cost 76,200 107,812 228,598 323,437
Expected return on
 plan assets (91,988) (142,128) (275,966) (426,388)
Amortization of prior
 service cost 3,154 3,154 9,462 9,462
Amortization of
 accumulated loss 4,521 2,403 13,565 7,209
 -------- --------- -------- --------

Net periodic benefit cost $ 51,300 $ 29,736 $ 153,900 $ 89,207
 ======== ========= ========= ========

The Company's funding policy for the defined benefit plan is based on contributions that comply with the minimum and maximum amounts required by law. During the nine months ended September 30, 2008, the Company did not make a contribution to the defined benefit plan for the 2008 plan year. The Company is not required to make any contributions in 2008, but may decide to do so.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Forward-Looking Statements

Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following:

o generally adverse economic and business conditions, which may, among other things (a) affect the demand for retail and office space at properties owned by the Company or which are security for loans made by the Company, (b) affect the availability and creditworthiness of prospective tenants and the rental rates obtainable at the properties, and (c) affect consumer demand for the products offered by the tenants at the malls owned by the joint ventures in which the Company is a member, which adversely affects the operating results and valuations of such malls;

o adverse changes in the real estate markets, including a severe tightening of the availability of credit, which may adversely affect the ability of the Company or the joint ventures in which the Company is a member to sell, or refinance the mortgages on, their properties and which may also affect the ability of prospective tenants to rent space at these properties;

o general risks of real estate development, ownership and operation;

o governmental actions and initiatives; and

o environmental and safety requirements.

Summary

During the past year, the downturn in the economy, higher unemployment and lack of consumer confidence have adversely affected the operating results of the shopping mall properties in which the Company has invested. These conditions, among others, have resulted in defaults in 2008 on two of the mezzanine loans made by the Company to joint ventures owning seven shopping mall properties and in defaults on the first mortgage loans secured by six of these properties (see Liquidity and Capital Resources below).

In addition, the turmoil in the credit markets has made it very difficult for the Company and its joint venture partners to obtain refinancing of the mortgage loans on some of its properties on satisfactory terms. For example, the Company was unable to refinance the existing first mortgage on its Hato Rey Center office building in May, 2008 when the terms of the mortgage anticipated repayment. As a result, while the mortgage is not in default, the interest rate was increased by 200 basis points per annum (the payment of which is deferred until maturity) and the mortgagee receives all net cash flow from the property to reduce the outstanding principal balance, thus affecting the ability of the Company to obtain cash from a refinancing of the mortgage or the operations of the property. While the Company has been successful in increasing the occupancy rate at the Hato Rey Center property from 69% at December 31, 2007 to 80% at October 31, 2008 (including space leased but not yet in rent paying status), the worsening economy may adversely affect the Company's ability to continue to increase occupancy rates in the near future. (See Hato Rey Partnership below).

The restrictive credit market may also adversely affect the ability of the Company and the joint ventures to sell properties owned by them on satisfactory terms because of the inability of prospective purchasers to obtain financing on satisfactory terms.

There are no current market indications of when the general U.S. economy will rebound or when credit will become more easily available. The Company's Board of Directors and management will continue to review the options available to the Company.

Critical Accounting Policies

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require difficult, complex and subjective judgments. The Company's critical accounting policies are described in its Form 10-KSB for the year ended December 31, 2007. There have been no significant changes in the Company's critical accounting policies since December 31, 2007.

Results of Operations

Continuing Operations:

Revenues increased by $95,144 primarily as a result of increases in rental revenues, partially offset by a decrease in interest income on mortgages-notes receivable-related parties.

Rental revenues increased by $117,524 primarily due to increased occupancy rates at the Hato Rey Center property, which increased rental revenues by $119,993.

Interest on mortgage-notes receivable-related parties decreased by $12,607 primarily as a result of a decrease of $10,857 in interest income and amortization of discounts on the notes receivable held by UTB Associates, a partnership in which the Company owned a 75% partnership interest. In 2007, the Company purchased the remaining 25% limited partnership interests.

Costs and expenses decreased by $903,505 primarily due to decreases in general and administrative expenses and amortization of in-place lease values and mortgage costs. These decreases were partially offset by increases in rental property operating expenses, interest on mortgage debt and depreciation expense.

General and administrative expenses decreased by $1,101,779 primarily as a result of the reversal of the $965,106 interest expense previously accrued in accordance with FIN 48, related to tax positions for which the Company may have been required to pay a deficiency dividend. When the statute of limitations with respect to these tax positions lapsed in September, 2008, the accrued liability was reversed. This reversal resulted in a reduction of interest expense in the three month period of $1,052,488. In addition, professional fees decreased by $83,748 (primarily accounting fees) and contractual pension benefit expenses decreased by $125,177 as a result of the deaths of two participants in 2007. These decreases were partially offset by increases in salary expense of $123,505. Salary expense increased primarily due to an amendment of an executive employment agreement which would require payments upon the retirement of the executive, which resulted in accrued salary expense of $135,514.

Rental property operating expenses increased by $183,961. This increase was primarily a result of increases in utility expenses of $107,560 at the Hato Rey Center property. In addition, at the Hato Rey Center property, advertising expense increased by $11,674 and repairs and maintenance increased by $25,763. Insurance expense at the Mapletree Industrial Center property increased by $28,315 as a result of a $35,625 reversal in 2007 of an accrual for a workmen's compensation audit that was settled in 2007.

Interest on mortgage debt increased by $47,756 primarily as a result of a $74,751 increase in mortgage interest expense on the Hato Rey Center property first mortgage. The terms of the existing first mortgage provided for a 2% per annum increase in the interest rate on the mortgage beginning on May 12, 2008. This increase was partially offset by a $25,412 decrease in the amortization of discount on mortgage payable.

Depreciation on real estate increased by $12,644 primarily as a result of a $12,754 increase in depreciation on the Hato Rey Center property.

Amortization of in-place lease values and mortgage costs decreased by $37,099 as a result of a $37,181 decrease in the amortization of in-place lease values. In-place lease values were recorded in connection with the partial step acquisition of the Hato Rey Partnership in 2006 and 2007 and amortize over the remaining terms of the leases.

Other income decreased by $608,393 as a result of a decrease in investment income of $439,105 and a decrease in the equity in the income from joint ventures of $169,288. Investment income decreased by $439,105 in the three month period as a result of the nonrecurring $442,047 distribution received from the proceeds of sale from Broadway Partners Parallel Fund A in September of 2007. Equity in the income from joint ventures decreased by $169,288 from income of $44,605 in 2007 to a loss of $124,683 in 2008 primarily because the Company's basis in most of these investments has been reduced to zero. Losses on those investments will only be recorded to the extent of their basis and thereafter distributions received will be recorded as income. (See Liquidity and Capital Resources - Investments in and Advances to Joint Ventures below.)

Loss from continuing operations decreased by $390,228 from a loss of $171,712 in 2007 to income of $218,516 in 2008. The $390,228 decrease in loss was primarily a result of a decrease of $1,101,779 in general and administrative expenses and a $95,144 increase in revenues, partially offset by the $608,393 decrease in other income and a $183,961 increase in rental property operating expenses.

Discontinued Operations:

In 2008, the Company has three properties that were classified as discontinued operations. The Crown Court property in New Haven, Connecticut, which consists of 105 apartment units and 2,000 square feet of commercial space, is under a net lease agreement with an option to purchase in April, 2009. During the quarter ended September 30, 2008, the Company received notification from the lessee that it has elected to exercise its purchase option and the property was designated as held for sale in the quarter ended September 30, 2008. In addition, the Towne House property in New Rochelle, New York, which consists of 42 cooperative apartment units, and a cooperative apartment unit in New Haven, Connecticut were designated as held for sale during the quarter ended June 30, 2008 and sold during the quarter ended September 30, 2008. (See Liquidity and Capital Resources - Discontinued Operations below).

In 2007, the Company had two properties that were classified as discontinued operations: the Cambridge Green property in Council Bluffs, Iowa, which was sold in March, 2007, and a cooperative apartment unit in New Haven, Connecticut, which was sold in June, 2007.

The following table compares the total income from discontinued operations for the three month periods ended September 30, for properties included in discontinued operations:

 2008 2007
 ---- ----

Income (loss) from discontinued operations:

Cambridge Green, Council Bluffs, IA $ - $ 845
Cooperative apartment units, New Haven, CT (13) (88)
Crown Court, New Haven, CT 39,627 18,889
Towne House, New Rochelle, NY 31,465 23,601
 ---------- -------

Income from discontinued operations 71,079 43,247
 ---------- -------

Net gain from sales of
 discontinued operations:
Cooperative apartment units 85,759 -
Towne House 2,807,272 -
 ----------- -------
Net gain from sales of
 discontinued operations 2,893,031 -
 ---------- -------

Total income from
 discontinued operations $2,964,110 $43,247
 ========== =======

Continuing Operations:

Revenues increased by $278,604 primarily as a result of increases in rental revenues, partially offset by decreases in interest income on mortgages-notes receivable and interest income on mortgages-notes receivable-related parties.

Rental revenues increased by $456,304 primarily due to increased occupancy rates at the Hato Rey Center property, which increased rental revenues by $452,366. The $452,366 increase in rental revenues at the Hato Rey Center property includes lease termination fees in the amount of $56,122.

Interest on mortgages-notes receivable decreased by $68,543 primarily as a result of repayments of $5,585,000 on notes receivable which were received in 2008. Interest income on those notes decreased by $74,156 in the 2008 period.

Interest on mortgages-notes receivable-related parties decreased by $107,096 primarily as a result of a decrease of $89,500 in payments of interest received on the Consolidated Loans (see Liquidity and Capital Resources - Consolidated Loans below).

Costs and expenses decreased by $991,854 primarily due to decreases in general and administrative expenses and amortization of in-place lease values and mortgage costs. These decreases were partially offset by increases in rental property operating expenses, interest on mortgage debt and depreciation expense.

General and administrative expenses decreased by $1,155,860 primarily as a result of the reversal of the $965,106 interest expense previously accrued in accordance with FIN 48, related to certain tax positions for which the Company may have been required to pay a deficiency dividend. When the statute of limitations with respect to these tax positions lapsed in September, 2008, the accrued liability was reversed. This reversal resulted in a reduction of interest expense of $1,084,962. In addition, professional fees decreased by $236,396 (primarily accounting fees) and contractual pension benefit expenses decreased by $375,534 as a result of the deaths of two participants in 2007. These decreases were partially offset by increases in salary expense of $490,288 and an increase in employee benefit plan expense of $64,693. Salary expense increased primarily due to an amendment of an executive employment agreement which would require payments upon the retirement of the executive, which resulted in accrued salary expense of $403,596.

Rental property operating expenses increased by $235,705 primarily as a result of increases in utility expenses of $214,109 and increases in bad debt expense of $24,049 at the Hato Rey Center property.

Interest on mortgage debt increased by $75,022 primarily as a result of a $111,319 increase in mortgage interest expense on the Hato Rey Center property first mortgage. This increase was partially offset by a decrease of $33,057 in the amortization of discount on mortgage payable.

Depreciation on real estate increased by $32,900 primarily as a result of a $36,045 increase in depreciation on the Hato Rey Center property.

Amortization of in-place lease values and mortgage costs decreased by $175,585 as a result of a $155,087 decrease in the amortization of in-place lease values and a $20,498 decrease in the amortization of mortgage costs. In-place lease values were recorded in connection with the partial step acquisition of the Hato Rey Partnership in 2006 and 2007 and amortize over the remaining terms of the leases.

Other income decreased by $44,957 as a result of a decrease in investment income of $436,734, offset by a decrease in the equity in the loss from joint ventures of $391,777. Investment income decreased primarily due to the nonrecurring $442,047 distribution received from the sales proceeds from Broadway Partners Parallel Fund A in September, 2007. The loss from joint ventures decreased by $391,777 from a loss of $972,860 in 2007 to a loss of $581,083 in 2008 primarily because the Company's basis in most of these investments has been reduced to zero. Losses on those investments will only be recorded to the extent of their basis and thereafter distributions received will be recorded as income. (See Liquidity and Capital Resources - Investments in and Advances to Joint Ventures below.)

Loss from continuing operations decreased by $1,227,695 from a loss of $2,683,135 in 2007 to a loss of $1,455,440 in 2008. The $1,227,695 decrease in loss was primarily a result of a decrease of $1,155,860 in general and administrative expenses.

Discontinued Operations:

The following table compares the total income from discontinued operations for the nine month periods ended September 30, for properties included in discontinued operations:

 2008 2007
 ---- ----

Income (loss) from discontinued operations:

Cambridge Green, Council Bluffs, IA $ - $(95,593)
Cooperative apartment units, New Haven, CT 866 (231)
Crown Court, New Haven, CT 109,006 103,322
Towne House, New Rochelle, NY 89,102 74,230
 ----------- --------

Income from discontinued operations 198,974 81,728
 ---------- --------
Net gain from sales of discontinued operations:
Cambridge Green - 646,759
Cooperative apartment units 85,759 88,946
Towne House 2,807,272 -
 ---------- --------

Net gain from sales of
 discontinued operations 2,893,031 735,705
 ---------- --------

Total income from
 discontinued operations $3,092,005 $817,433
 ========== ========

Balance Sheet

Net mortgage portfolio decreased by $5,289,707 primarily as a result of the $5,638,903 of payments received on the Company's mortgage portfolio. In the first quarter of 2008, the Company received repayment of its $1,500,000 mezzanine loan on the Reisterstown Apartments property and repayment of its $100,000 note on the Pinewood property. In the second and third quarters of 2008, the Company received repayments of its $3,875,000 note receivable relating to the sale of the Fairfield Towers mortgages in 1999 and its $110,000 Mark Terrace note receivable. This decrease was partially offset by the $349,196 of amortization of discounts on notes receivable.

Investments in and advances to joint ventures decreased by $2,257,938 as a result of $1,676,855 of distributions received and $581,083 of equity in the loss from the joint ventures.

Assets related to discontinued operations increased by $391,479. In the third quarter of 2008, the Company classified the Crown Court property in New Haven, Connecticut as discontinued operations.

Cash and cash equivalents increased by $4,389,295 primarily as a result of the $5,638,903 of repayments received on the Company's mortgage portfolio and the $3,457,950 of proceeds from the sales of properties. This increase was partially offset by the distributions on common stock to shareholders of $1,790,821 and the purchase of treasury stock of $2,639,272.

Other assets decreased by $168,632 primarily as a result of decreases of $99,140 of amortization of in-place lease values, $31,743 of amortization of mortgage costs and $44,540 of tenant security deposits.

Mortgage debt decreased by $2,384,829 and liabilities related to discontinued operations increased by $2,103,545. In the third quarter of 2008, the Company reclassified the $2,103,545 Crown Court mortgage debt from mortgage debt to liabilities related to discontinued operations.

Accrued liabilities decreased by $649,352 primarily as a result of the reversal of the $817,580 interest accrual related to the FIN 48 interest accrued at December 31, 2007.

In January, 2008, three independent directors of the Company each received 1,000 shares of the Company's Class B common stock as a partial payment of directors' fees for the 2008 year. The shares were valued at $5.92 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded $17,760 in prepaid directors' fees (to be amortized during 2008) based on the market value of the stock. The Company recorded additions to the Company's Class B common stock of $300 at par value of $.10 per share and $17,460 to additional paid-in capital.

Treasury stock increased by $2,639,272 as a result of the Company's purchase of 437,872 shares of its Class B common stock at an average cost of $5.64 per share and 31,032 shares of its Class A common stock at an average cost of $5.50 per share. (See Liquidity and Capital Resources - Treasury Stock below.)

Liquidity and Capital Resources

Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from operating activities, from refinancing of mortgage loans on its real estate equities or from sales of such equities, and from repayments on its mortgage portfolio. The Company also has at its disposal a $250,000 unsecured line of credit from a lending institution. At September 30, 2008, there was no outstanding balance due under the line of credit.

At September 30, 2008, Presidential had $6,732,792 in available cash and cash equivalents, an increase of $4,389,295 from the $2,343,497 at December 31, 2007. This increase in cash and cash equivalents was due to cash provided by operating activities of $628,748 and cash provided by investing activities of $8,520,178, offset by cash used in financing activities of $4,759,631.

On November 13, 2008, the Company announced that it would reduce its dividend for the fourth quarter of 2008 from $.16 per share to $.08 per share. The decision of the Board of Directors of the Company to reduce the Company's dividend at this time recognizes, among other things, the adverse economic conditions currently affecting real estate markets, the existing defaults on two of the Company's loans to affiliates of David Lichtenstein, the Company's inability at the present time to refinance the Hato Rey Center office building mortgage and the desirability of conserving the Company's cash resources under these circumstances.

In February, 2008, Lightstone III defaulted on payments of interest due under the Company's $9,500,000 loan related to the Macon/Burlington Malls (see Investments in and Advances to Joint Ventures below). As a result, the Company does not expect to receive approximately $1,060,000 of interest payments that are contractually due to be received during 2008. The holder of the first mortgage on the Macon/Burlington properties has commenced foreclosure proceedings on its mortgage. Since management believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged property, Presidential does not expect to recover any amounts on its mezzanine loan.

Subsequent to September 30, 2008, Lightstone I defaulted on the payment of interest due under the Company's $8,600,000 mezzanine loan relating to the Four Malls and also did not make the customary payments of the return on the Company's investment in the Martinsburg Mall. The payments of interest and return on investment due October 1, 2008 and November 1, 2008 totaled $187,105. Lightstone I has also defaulted on payments of interest due under the first mortgage covering the Martinsburg Mall and three of the Four Malls (Bradley Square, Mount Berry Square and Shenango Valley) on August 1, 2008 and subsequent thereto. The Company has been informed by Lightstone I that it is attempting to negotiate a modification of the first mortgage covering these properties but that it is unlikely that it will be able to do so and that the holder of the first mortgage has accelerated the outstanding principal balance of the loan and will foreclose upon its security. The Company believes that the outstanding principal balance of the first mortgage substantially exceeds the current value of the mortgaged properties and that it is unlikely that the Company will be able to recover any amount of its mezzanine loan in the amount of $8,600,000 and investment in the amount of $1,438,410.

The Company's $7,835,000 mezzanine loan to Lightstone II secured by interests in the Brazos Mall and Shawnee Mall remains in good standing. The first mortgage on these properties also is in good standing but matures in January, 2009. The first mortgage may be extended at the option of Lightstone II but only if certain covenants and conditions are met. However, Lightstone II has advised the Company that it is unlikely that these covenants and conditions will be met and that Lightstone II will have to attempt to obtain a modification of the terms of the first mortgage. Lightstone II is attempting to sell the Shawnee/Brazos properties but under current market conditions it is impossible to determine whether Lightstone II will be able to sell these properties or to modify or refinance the first mortgage on them prior to its maturity date. If a sale is accomplished, it is unlikely that the net sales proceeds will be sufficient to repay the Company's mezzanine loan in full.

The Company believes that it may have certain legal claims with respect to the defaults on the Company's joint ventures with and mezzanine loans to affiliates of David Lichtenstein and it is discussing such claims with its attorneys and the attorneys representing Mr. Lichtenstein.

The defaults in payment of the Company's $9,500,000 mezzanine loan to Lightstone III and $8,600,000 mezzanine loan to Lightstone I have had (and any subsequent default on the Company's $7,835,000 mezzanine loan with respect to Lightstone II would have) a material adverse affect on the Company's business, financial condition and results of operations and prospects. Notwithstanding the foregoing, management believes that the Company has sufficient liquidity and capital resources to carry on its existing business and, barring any unforeseen circumstances, to pay any dividends required to maintain REIT status in the foreseeable future.

During the nine months ended September 30, 2008, the Company received repayment in full of a $3,875,000 note receivable from an affiliate of David Lichtenstein and received net proceeds of $3,343,960 from the sale of 42 cooperative apartment units at Towne House Apartments in New Rochelle, New York. At September 30, 2008, the Company had a cash balance of $6,732,792.

The first mortgage on the Building Industries Center property in White Plains, New York is due on January 1, 2009 with an outstanding principal balance of $1,072,906. The Company is investigating the possibility of obtaining an extension of the maturity date of the mortgage, but if it is not able to do so on satisfactory terms, the Company expects to repay the mortgage on its maturity date and that such repayment will not materially affect the Company's liquidity.

As described under "Hato Rey Partnership" below, commencing May 11, 2008, the first mortgage on the Hato Rey Center property provides that all cash flow from the property, after payment of all operating expenses, will be utilized to repay the outstanding principal of the first mortgage loan on the property. In addition, the Company has loaned the partnership which owns the Hato Rey Center property a total of $2,199,275 (which loan may be increased to up to $2,500,000), which loans bears interest at the rate of 13% per annum with such interest and principal to be paid from the first positive cash flow from the property or upon a refinancing of the first mortgage on the property. Since all cash flow will be devoted to repayment of the first mortgage, the Company does not expect to receive payment of any interest on the loan to the partnership until the first mortgage is refinanced. While the property generates sufficient cash flow to support a refinancing of the first mortgage, in light of the current credit market, the Company does not expect to be able to refinance the first mortgage in the near term.

During the first nine months of 2008, the Company paid cash distributions to shareholders which exceeded cash flows from operating activities. Periodically the Company receives balloon payments on its mortgage portfolio and net proceeds from sales of discontinued operations and other properties. These payments are available to the Company for distribution to its shareholders or the Company may retain these payments for future investment. The Company may in the future, as it did in the first nine months of 2008, pay dividends in excess of its cash flow from operating activities if the Board of Directors believes that the Company's liquidity and capital resources are sufficient to pay such dividends. However, no assurances can be given with respect to any dividends for future periods.

To the extent that payments received on its mortgage portfolio or payments received from sales are taxable as capital gains, the Company has the option to distribute the gain to its shareholders or to retain the gain and pay Federal income tax on it. The Company does not have a specific policy as to the retention or distribution of capital gains. The Company's dividend policy regarding capital gains for future periods will be based upon many factors including, but not limited to, the Company's present and projected liquidity, its desire to retain funds available to pay operating expenses or for additional investment, its historical dividend rate and its ability to reduce taxes by paying dividends.

As discussed above, the tenant at the Crown Court Apartment property owned by the Company has elected to exercise its option to purchase the property. The closing is expected to take place in April of 2009 and the Company expects to receive net proceeds of sale of approximately $1,615,000 at that time.

Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on the Company's liquidity.

Operating Activities

Cash from operating activities includes interest on the Company's mortgage portfolio, net cash received from rental property operations and distributions received from joint ventures. In 2008, cash received from interest on the Company's mortgage portfolio was $680,405 and distributions received from the joint ventures were $1,676,855. Net cash received from rental property operations was $602,343. Net cash received from rental property operations is net of distributions to minority partners, if any, but is before additions and improvements and mortgage amortization.

Investing Activities

Presidential holds a portfolio of mortgage notes receivable. During 2008, the Company received principal payments of $5,638,903 on its mortgage portfolio, of which $5,606,579 represented prepayments and balloon payments.

During the first nine months of 2008, the Company invested $576,675 in additions and improvements to its properties.

Financing Activities

The Company's indebtedness at September 30, 2008, consisted of mortgage debt of $16,483,861 for continuing operations and $2,103,545 for discontinued operations. The mortgage debt is collateralized by individual properties. The $15,323,327 mortgage on the Hato Rey Center property is nonrecourse to the Company, whereas the $1,080,221 Building Industries Center mortgage and the $80,313 Mapletree Industrial Center mortgage are recourse to Presidential. The $2,103,545 mortgage on the Crown Court property, which is classified as a discontinued operation, is nonrecourse to the Company. In addition, some of the Company's mortgages provide for Company liability for damages resulting from specified acts or circumstances, such as for environmental liabilities and fraud. Generally, mortgage debt repayment is serviced with cash flow from the operations of the individual properties. During 2008, the Company made $329,538 of principal payments on mortgage debt.

The mortgages on the Company's properties are at fixed rates of interest and will fully amortize by periodic principal payments, with the exception of the Building Industries Center mortgage, which has a balloon payment of $1,072,906 due at maturity in January, 2009, and the Hato Rey Center mortgage. The Company expects to repay the $1,072,906 balloon payment due in January, 2009 on the Building Industries Center mortgage, unless it is able to obtain an extension on satisfactory terms. The $15,323,327 Hato Rey Center mortgage matures in May, 2028, and had a fixed rate of interest of 7.38% per annum until May, 2008; thereafter the interest rate increased by 2% and additional repayments of principal will be required from surplus cash flows from operations of the property (see Hato Rey Partnership below).

During the first nine months of 2008, Presidential declared and paid cash distributions of $1,790,821 to its shareholders.

Treasury Stock Purchase

During the period ended September 30, 2008, the Company purchased 31,032 shares of its Class A common stock and 437,872 shares of its Class B common stock. Details of these purchases are as follows:

 Number of Number of
 Class A Price Per Class B Price Per Total
Period Purchased From Shares Share Shares Share Paid
------ --------------------- --------- --------- --------- --------- -----
May Foundation controlled
 by a director and
 an officer of the
 Company (1) 932 $5.375 4,072 $5.725 $ 28,322

June Private Investor (2) 12,100 5.50 226,800 5.75 1,370,650

July Private Investor 1,000 5.50 7,000 5.90 46,800

July Private Investor (2) 17,000 5.50 200,000 5.50 1,193,500
 ------ ------- ----------

Total 31,032 437,872 $2,639,272
 ====== ======= ==========

(1) These shares were purchased at 1/8th of a point below market price.
(2) These shares were purchased pursuant to common stock repurchase agreements.

The Company believes that the repurchase of the Company's shares at or about the then current price for the Company's shares was an appropriate use of the Company's cash available for investment and in the best interest of all of the shareholders of the Company. However, the Company has no specific plan or program to repurchase additional shares but it may do so in the future.

Investments in and Advances to Joint Ventures

Over the past several years the Company has made investments in and advances to four joint ventures that own nine shopping malls. The Company has a 29% ownership interest in these joint ventures and accounts for these investments under the equity method. All of the investments in and advances to joint ventures were made with various entities of the Lightstone Group ("Lightstone"). Each individual owning entity is a single purpose entity that is prohibited by its organizational documents from owning any assets other than its related shopping mall properties.

The Company's investments in three of the joint ventures were mezzanine loans to the various joint venture owning entities. These loans mature in 2014 and 2015 and have an annual interest rate of 11% per annum. At September 30, 2008, these loans have an aggregate outstanding principal balance of $25,935,000. The loans are secured by the ownership interests in the entities that own the malls, subject to the first mortgage liens. The Company is entitled to receive monthly payments of interest on these loans from the joint ventures and records these payments as distributions received to Investments in and advances to joint ventures.

The Company's investment in the Martinsburg Mall is a capital contribution to the owning joint venture in the original amount of $1,438,410. The Company is entitled to receive a preferential return on its capital contribution at the rate of 11% per annum. The Company's investment in the Martinsburg Mall is reduced by distributions received from the joint venture and the Company's share of losses recorded for the joint venture (and increased by any income recorded for the joint venture).

In addition, the owning entity of the Martinsburg Mall has a $2,600,000 mezzanine loan payable to Lightstone. The loan matures in 2014 and the interest rate on the loan is 11% per annum. This loan is secured by an assignment of the ownership interest in the entity that owns the mall, subject to the first mortgage lien.

Under the equity method of accounting, the Company's investments in the joint ventures, including the $25,935,000 of loans advanced to the joint ventures, have been reduced by distributions received and losses recorded for the joint ventures. Activity in investments in and advances to joint ventures for the period ended September 30, 2008 is as follows:

 Equity
 in the
 Income
 (Loss)
 Balance at from Balance at
 December 31, Distributions Joint September 30,
 2007 Received Ventures 2008
 ------------ ------------- ----------- -------------

Martinsburg Mall (1) $ - $ (134,052) $ 134,052 $ -
Four Malls (2) 688,735 (722,638) 33,903 -
Shawnee/Brazos
 Malls (3) 4,234,466 (730,179) (839,024) 2,665,263
Macon/Burlington
 Malls (4) - (89,986) 89,986 -
 ---------- ----------- --------- ----------
 $4,923,201 $(1,676,855) $(581,083) $2,665,263
 ========== =========== ========= ==========

Equity in the income (loss) from joint ventures is as follows:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2008 2007 2008 2007
 ---- ---- ---- ----

Martinsburg Mall (1) $ 13,625 $ 80,431 $ 134,052 $ (2,953)
Four Malls (2) 162,922 (262,129) 33,903 (678,806)
Shawnee/Brazos
 Malls (3) (301,230) (344,228) (839,024) (628,729)
Macon/Burlington
 Malls (4) - 570,531 89,986 337,628
 --------- --------- --------- ---------
 $(124,683) $ 44,605 $(581,083) $(972,860)
 ========= ========= ========= =========

(1) The Company's share of the income (loss) from joint ventures for the Martinsburg Mall is determined after the deduction for interest expense at the rate of 11% per annum on the outstanding $2,600,000 loan from Lightstone. In 2007, the Company's basis of its investment in the Martinsburg Mall was reduced by distributions and losses to zero and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $134,052 of distributions received in income from joint ventures.

(2) Interest income earned by the Company at the rate of 11% per annum on the outstanding $8,600,000 loan from the Company to Lightstone I is included in the calculation of the Company's share of the income (loss) from joint ventures for the Four Malls. In the second quarter of 2008, the Company's basis of its investment in the Four Malls was reduced by distributions and losses to zero, and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $33,903 of distributions received in income from joint ventures.

(3) Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000 loan from the Company to Lightstone II is included in the calculation of the Company's share of the loss from joint ventures for the Shawnee/Brazos Malls.

(4) Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000 loan from the Company to Lightstone III is included in the calculation of the Company's share of the income (loss) from joint ventures for the Macon/Burlington Malls. In the fourth quarter of 2007, the Company's basis of its investment in the Macon/Burlington Malls was reduced by distributions and losses to zero and, accordingly, the Company only recorded its share of the loss to the extent of its basis. For the nine months ended September 30, 2008, the Company recorded $89,986 of distributions received in income from joint ventures.

As a result of the Company's use of the equity method of accounting with respect to its investments in and advances to the joint ventures, the Company's consolidated statements of operations reflect its proportionate share of the income (loss) from the joint ventures. The Company's equity in the loss from joint ventures of $581,083 for the nine months ended September 30, 2008 is after deductions in the aggregate amount of $713,810 for the Company's proportionate share of noncash charges (depreciation of $612,411 and amortization of deferred financing costs, in-place lease values and other costs of $101,399, all of which pertain to the Shawnee/Brazos Malls). Notwithstanding the loss from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,935,000 of loans to the joint ventures. For the nine months ended September 30, 2008, the Company received distributions from the joint ventures in the amount of $1,676,855, of which $1,542,803 were interest payments received on the outstanding loans to the joint ventures and $134,052 was a return on investment.

The Lightstone Group is controlled by David Lichtenstein. At September 30, 2008, in addition to Presidential's investments of $2,665,263 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has a loan that is due from an entity that is controlled by Mr. Lichtenstein in the outstanding principal amount of $2,074,994. The loan is secured by interests in nine apartment properties and is in good standing.

The $4,740,257 net carrying value of investments in and advances to joint ventures with entities controlled by Mr. Lichtenstein and the loan outstanding to an entity controlled by Mr. Lichtenstein constitute approximately 15% of the Company's total assets at September 30, 2008.

Discontinued Operations

The Crown Court property in New Haven, Connecticut is subject to a long-term net lease with an option to purchase which is exercisable only in April, 2009. In August, 2008, the lessee notified the Company that it is electing to exercise this option in accordance with the terms of the net lease. In the third quarter of 2008, the Company classified this property as discontinued operations. At September 30, 2008, assets related to discontinued operations were $391,479 and liabilities related to discontinued operations were $2,103,545 (the balance of the first mortgage debt). The option purchase price is $1,635,000 over the outstanding principal mortgage balance at the date of the exercise of the option. The Company estimates that the gain from sale for financial reporting purposes will be approximately $3,261,000 and the estimated net proceeds of sale will be approximately $1,615,000.

The Company owns a small portfolio of cooperative apartments located in New York and Connecticut. These apartments are held for the production of rental income and generally are not marketed for sale. However, from time to time, the Company will receive purchase offers for some of these apartments or decide to market specific apartments and will make sales if the purchase price is acceptable to management.

In September, 2008, the Company sold a package of 42 cooperative apartment units at Towne House located in New Rochelle, New York for a sales price of $3,450,000. The net proceeds of sale were $3,343,960 and the gain from the sale for financial reporting purposes was $2,807,272.

In July, 2008, the Company sold one cooperative apartment unit located in New Haven, Connecticut for a sales price of $122,000. The net proceeds of sale were $113,990 and the gain from the sale for financial reporting purposes was $85,759.

Hato Rey Partnership

At September 30, 2008, the Company has an aggregate 60% general and limited partnership interest in the Hato Rey Partnership. The Hato Rey Partnership owns and operates the Hato Rey Center, an office building in Hato Rey, Puerto Rico.

Three tenants vacated a total of 82,387 square feet of space to occupy their own newly constructed office buildings and, as a result, by March 31, 2006, the vacancy rate at the building was approximately 48%. In 2005, Presidential and its partners agreed to undertake a program of repairs and improvements to the building, which program was substantially completed by the end of 2007 at a cost of approximately $795,000. Presidential believes that the improvement program has accomplished its goal of bringing the building (which was constructed in 1967) up to modern standards for office buildings in the area. In order to pay for the cost of the improvements to the building and fund negative cash flow from the operation of the property during the period of high vacancies, in 2005 Presidential agreed to lend the partnership a total of $2,000,000 (subsequently increased to $2,500,000). Presidential's loan bears interest at the rate of 11% per annum (13% after May 11, 2008), with interest and principal to be paid from the first positive cash flow from the property or upon a refinancing of the first mortgage on the property. At September 30, 2008, total advances under the loan were $2,199,275 and accrued interest on the loan was $422,656, all of which have been eliminated in consolidation. Subsequent to September 30, 2008, the Company advanced an additional $20,000 to the Hato Rey Partnership.

At September 30, 2008, the vacancy rate at the Hato Rey Center had been reduced to approximately 27%. However, in July, 2008, the Company executed a lease for 11,042 square feet (for November 15, 2008 occupancy), which lease will decrease the vacancy rate at the building to approximately 20%.

The Company had expected to refinance the existing $15,323,327 first mortgage on the building in the second quarter of 2008, when the terms of the existing mortgage would be automatically modified to increase the interest rate, but the combination of the slower than anticipated leasing of vacant space and the turmoil in the lending markets made a refinancing unfeasible. The modification of the terms of the existing mortgage provided for a 2% increase in the interest rate (from 7.38% to 9.38%), which additional interest will be deferred until the maturity date of the mortgage in 2028. In addition, the modification provides that all cash flow from the property, after payment of all operating expenses, will be utilized to repay the outstanding principal of the mortgage loan. The Company intends to refinance this mortgage when occupancy rates at the property have improved and lending markets have returned to a more normal state. However, until the first mortgage is refinanced, the Company will not receive any cash payments on its loan to the Hato Rey Partnership since principal and interest on the Company's loan are payable only out of operating cash flow or refinancing proceeds and under the terms of the modified mortgage, all net cash flow will be utilized to reduce principal on the first mortgage.

Environmental Matters

Mapletree Industrial Center - Palmer, Massachusetts

The Company is involved in an environmental remediation process for contaminated soil found on this property. The land area involved is approximately 1.25 acres and the depth of the contamination is at this time undetermined. Since the most serious identified threat on the site is to songbirds, the proposed remediation will consist of removing all exposed materials and a layer of soil (the depth of which is yet to be determined). The Company estimates that the costs of the cleanup will not exceed $1,000,000. The remediation will comply with the requirements of the Massachusetts Department of Environmental Protection ("MADEP"). The MADEP has agreed that the Company may complete the remediation over the next fifteen years, but the Company expects to complete the project over the next ten years. In order to proceed with the remediation process, the Company was waiting for Massachusetts to complete the adoption of hazard waste regulation 310 CMR 30. During the quarter ended June 30, 2008, this regulation was adopted by the State of Massachusetts, and the Company is currently in the process of working out the remediation plan.

In accordance with the provisions of SFAS No. 5, "Accounting for Contingencies", in the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. At September 30, 2008, the accrued liability balance was $932,010 and the discount balance was $142,540.

Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The Company believes that any liability in excess of amounts provided which may result from the resolution of this matter will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.

Consolidated Loans

Presidential holds two nonrecourse loans (the "Consolidated Loans"), which it received in 1991 from Ivy Properties, Ltd. and its affiliates "(Ivy"). At September 30, 2008, the Consolidated Loans have an outstanding principal balance of $4,770,500 and a net carrying value of zero. Pursuant to existing agreements, the Company is entitled to receive, as payments of principal and interest on the Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc. ("Scorpio"), a company owned by two of the Ivy principals (Steven Baruch who is an executive officer and Director of Presidential and Thomas Viertel who is an executive officer of Presidential) to carry on theatrical productions. Amounts received by Presidential from Scorpio will be applied to unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that these amounts may be material from time to time. However, the profitability of theatrical production is by its nature uncertain and management believes that any estimate of payments from Scorpio on the Consolidated Loans for future periods is too speculative to project. During the nine months ended September 30, 2008 and 2007, the Company received payments of $146,750 and $236,250, respectively, from Scorpio. The Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime rate, which was 5% at September 30, 2008. At September 30, 2008, the unpaid and unaccrued interest was $3,470,966 and such interest is not compounded.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

While the Company is not required as a smaller reporting company to comply with this Item 3, it is providing the following general discussion of qualitative market risk.

The Company's financial instruments consist primarily of notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so the Company's cash flows from them are not directly impacted by changes in market rates of interest. Changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. However, because the Company generally holds its notes receivable until maturity or prepayment and repays its notes payable at maturity or upon sale of the related properties, any fluctuations in values do not impact the Company's earnings, balance sheet or cash flows. Nevertheless, since some of the Company's mortgage notes payable are at fixed rates of interest and provide for yield maintenance payments upon prepayment prior to maturity, if market interest rates are lower than the interest rates on the mortgage notes payable, the Company's ability to sell the properties securing the notes may be adversely affected and the net proceeds of any sale may be reduced as a result of the yield maintenance requirements. The Company does not own any derivative financial instruments or engage in hedging activities.

ITEM 4. CONTROLS AND PROCEDURES

a) As of the end of the period covered by this quarterly report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report.

b) There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table sets forth the purchases by the Company of its equity securities during the three months ended September 30, 2008. The Company does not have a publicly announced plan or program for such purchases but it may purchase additional shares in the future if it deems it appropriate under all the circumstances. The table only lists the month when such purchases were made.

 Small Business Issuer Purchases of Equity Securities

 (d)
 (c) Maximum
 Total number number (or
 of shares approximate
 (or units) dollar value)
 (b) purchased as of shares
 Average part of (or units)
 (a) price publicly that may yet be
 Total number of paid per announced purchased under
 shares (or units) share plans or the plans or
Period purchased (or unit) programs programs
------ -------------------- --------- ------------- ---------------
 Class A Class B
 ------- -------
July 1,000 $5.50 None None
July 7,000 5.90 None None
July 17,000(1) 5.50 None None
July 200,000(1) 5.50 None None
 ------ -------
 18,000 207,000
 ====== =======

(1) These shares were purchased in a private transaction with a shareholder
pursuant to a common stock repurchase agreement.

ITEM 6. Exhibits

 10.1 Contract of Sale - Cooperative Apartment made as of June 30,
 2008 between Presidential Realty Corporation and Latipac Corp.
 and Assignment to 60-70 Locust LLC (incorporated herein by
 reference to Exhibit 10.1 to the Company's Form 8-K/A as filed
 on October 20, 2008, Commission File No. 1-8594).

 10.2 Amendment to First Amendment to Amended and Restated
 Employment and Consulting Agreement dated October 13, 2008
 between Presidential Realty Corporation and Jeffrey F. Joseph
 (incorporated herein by reference to Exhibit 99.1 to the
 Company's Form 8-K as filed on October 14, 2008, Commission
 File No. 1-8594).

 10.3 Amendment to Amended and Restated Employment and Consulting
 Agreement dated October 13, 2008 between Presidential Realty
 Corporation and Steven Baruch (incorporated herein by
 reference to Exhibit 99.2 to the Company's Form 8-K as filed
 on October 14, 2008, Commission File No. 1-8594).

 10.4 Amendment to Amended and Restated Employment and Consulting
 Agreement dated October 13, 2008 between Presidential Realty
 Corporation and Thomas Viertel (incorporated herein by
 reference to Exhibit 99.3 to the Company's Form 8-K as filed
 on October 14, 2008, 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 the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PRESIDENTIAL REALTY CORPORATION
(Registrant)

DATE: November 13, 2008 By: /s/ Jeffrey F. Joseph
 -------------------------------------
 Jeffrey F. Joseph
 President and Chief Executive Officer



DATE: November 13, 2008 By: /s/ Elizabeth Delgado
 -------------------------------------
 Elizabeth Delgado
 Treasurer

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