Presidential Realty (PDNLA) 10-Q 2010 Q2 Quarterly report

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 quarterly period ended    June 30, 2010

OR

o TRANSITION 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

PRESIDENTIAL REALTY CORPORATION

(Exact name of registrant as specified in its charter)

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

180 South Broadway, White Plains, New York  10605

(Address of principal executive offices)

Registrant’s telephone number, including area code  914-948-1300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         Yes o     No o

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  o	Accelerated filer o
Non-accelerated filer o     (Do not check if a smaller reporting company)
Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   o      No  x

The number of shares outstanding of each of the registrant’s classes of common stock as of August 10, 2010 was 442,533 shares of Class A common stock and 2,960,147 shares of Class B common stock.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

For the Quarterly Period Ended

June 30, 2010

		Page
Part I	Financial Information (Unaudited)
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)	1
	Consolidated Statements  of Operations (Unaudited)	2
	Consolidated Statement of Stockholders’ Equity (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	41
Part II	Other Information
Item 6.	Exhibits	41

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

					June 30,			December 31,
					2010			2009
Assets
Real estate (Note 2)					$	15,627,890		$	16,595,998
Less: accumulated depreciation						1,409,831			1,516,641
Net real estate						14,218,059			15,079,357
Net mortgage portfolio (of which $769,631 in 2010 and $769,037 in 2009 are due within one year) (Note 3)						2,877,129			2,880,922
Investments in joint ventures (Note 4)						2,186,234			2,595,603
Assets related to discontinued operations (Note 5)						927,707			231,813
Prepaid expenses and deposits in escrow						1,076,827			1,132,569
Other receivables (net of valuation allowance of $167,724 in 2010 and $234,316 in 2009)						351,702			804,376
Cash and cash equivalents						881,850			784,674
Securities available for sale (Note 6)						2,874,838			3,614,113
Other assets						531,208			518,185
Total Assets					$	25,925,554		$	27,641,612
Liabilities and Stockholders' Equity
Liabilities:
Mortgage debt (of which $359,293 in 2010 and $375,916 in 2009 are due within one year)					$	14,753,253		$	14,969,607
Liabilities related to discontinued operations (Note 5)						1,277,045			1,045,867
Contractual pension and postretirement benefits liabilities						921,499			927,882
Defined benefit plan liability						2,105,339			1,957,522
Accrued liabilities						1,846,508			1,797,502
Accounts payable						310,506			780,128
Other liabilities						435,740			464,242
Total Liabilities						21,649,890			21,942,750
Stockholders' Equity:
Common stock: par value $.10 per share
	June 30, 2010		December 31, 2009
Class A						47,894			47,894
Authorized:		700,000		700,000
Issued:		478,940		478,940
Treasury:		36,407		36,407
Class B						353,055			352,755
Authorized:		10,000,000		10,000,000
Issued:		3,530,547		3,527,547
Treasury:		570,400		570,400
Additional paid-in capital						4,661,025			4,636,633
Retained earnings						5,511,396			6,855,088
Accumulated other comprehensive loss (Note 9)						(2,784,809	)		(2,799,464	)
Treasury stock (at cost)						(3,129,388	)		(3,129,388	)
Total Presidential Realty Corporation stockholders' equity						4,659,173			5,963,518
Noncontrolling interest (Note 7)						(383,509	)		(264,656	)
Total Stockholders' Equity						4,275,664			5,698,862
Total Liabilities and Stockholders' Equity					$	25,925,554		$	27,641,612

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2010			2009			2010			2009
Revenues:
Rental	$	1,022,953		$	1,032,903		$	2,159,736		$	2,094,846
Interest on mortgages - notes receivable		69,931			176,196			148,622			247,382
Other revenues		10,017			12,102			18,604			23,614
Total		1,102,901			1,221,201			2,326,962			2,365,842
Costs and Expenses:
General and administrative		686,786			975,472			1,537,956			1,882,890
Depreciation on non-rental property		8,810			10,483			17,621			20,901
Rental property:
Operating expenses		479,815			473,619			1,016,782			966,972
Interest on mortgage debt		366,419			365,995			728,808			727,975
Real estate taxes		111,280			67,309			222,560			134,617
Depreciation on real estate		112,836			109,102			224,756			215,498
Amortization of in-place lease values and mortgage costs		8,405			14,544			17,886			31,195
Total		1,774,351			2,016,524			3,766,369			3,980,048
Other Income (Loss):
Investment income		24,178			17,735			30,798			32,382
Equity in the loss from joint ventures (Note 4)		(214,771	)		(372,506	)		(409,369	)		(585,878	)
Gain on settlement of joint venture loans (Notes 3 and 4)		-			2,279,289			-			3,979,289
Income (loss) from continuing operations		(862,043	)		1,129,195			(1,817,978	)		1,811,587
Discontinued Operations (Note 5):
Income from discontinued operations		40,167			55,163			56,192			124,131
Net gain from sales of discontinued operations		299,241			3,208,336			299,241			3,208,336
Total income from discontinued operations		339,408			3,263,499			355,433			3,332,467
Net income (loss)		(522,635	)		4,392,694			(1,462,545	)		5,144,054
Add: Net loss from noncontrolling interest (Note 7)		71,677			45,513			118,853			83,616
Net Income (Loss) attributable to Presidential Realty Corporation	$	(450,958	)	$	4,438,207		$	(1,343,692	)	$	5,227,670
Earnings per Common Share attributable to Presidential
Realty Corporation (basic and diluted) (Note 10):
Income (loss) from continuing operations	$	(0.23	)	$	0.35		$	(0.50	)	$	0.56
Discontinued Operations:
Income from discontinued operations		0.01			0.01			0.01			0.04
Net gain from sales of discontinued operations		0.09			0.95			0.09			0.95
Total income from discontinued operations		0.10			0.96			0.10			0.99
Net Income (Loss) per Common Share - basic	$	(0.13	)	$	1.31		$	(0.40	)	$	1.55
- diluted	$	(0.13	)	$	1.31		$	(0.40	)	$	1.54
Weighted Average Number of Shares Outstanding - basic		3,391,880			3,380,380			3,390,156			3,379,999
- diluted		3,391,880			3,399,680			3,390,156			3,399,547
Amounts attributable to Presidential Realty Corporation Common Shareholders:
Income (loss) from continuing operations	$	(790,366	)	$	1,174,708		$	(1,699,125	)	$	1,895,203
Total income from discontinued operations		339,408			3,263,499			355,433			3,332,467
Net Income (Loss)	$	(450,958	)	$	4,438,207		$	(1,343,692	)	$	5,227,670

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

	Presidential Realty Corporation Stockholders
	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interest			Comprehensive Loss			Total Stockholders' Equity
Balance at January 1, 2010	$	400,649	$	4,636,633	$	6,855,088		$	(2,799,464	)	$	(3,129,388	)	$	(264,656	)				$	5,698,862
Issuance and vesting of restricted stock		300		24,392		-			-			-			-						24,692
Comprehensive loss:
Net loss		-		-		(1,343,692	)		-			-			(118,853	)	$	(1,462,545	)		(1,462,545	)
Other comprehensive income (loss) -
Net unrealized gain on securities available for sale		-		-		-			30,288			-			-			30,288			30,288
Adjustment for contractual postretirement benefits		-		-		-			(15,633	)		-			-			(15,633	)		(15,633	)
Comprehensive loss																		(1,447,890	)
Comprehensive loss attributable to noncontrolling interest																		118,853
Comprehensive loss attributable to
Presidential Realty Corporation																	$	(1,329,037	)
Balance at June 30, 2010	$	400,949	$	4,661,025	$	5,511,396		$	(2,784,809	)	$	(3,129,388	)	$	(383,509	)				$	4,275,664

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	SIX MONTHS ENDED JUNE 30,
	2010			2009
Cash Flows from Operating Activities:
Cash received from rental properties	$	2,727,027		$	2,850,839
Interest received		229,248			204,349
Miscellaneous income		10,029			10,930
Interest paid on rental property mortgage debt		(587,689	)		(645,562	)
Cash disbursed for rental property operations		(2,148,749	)		(1,832,179	)
Cash disbursed for general and administrative costs		(1,616,522	)		(1,644,512	)
Net cash used in operating activities		(1,386,656	)		(1,056,135	)
Cash Flows from Investing Activities:
Payments received on notes receivable		16,435			96,306
Proceeds from sales of properties		327,434			1,545,851
Payments received on settlement of joint venture loans		500,000			65,289
Payments disbursed for additions and improvements		(85,101	)		(293,576	)
Purchase of securities available for sale		-			(4,431,622	)
Proceeds from sales of securities		750,900			-
Net cash provided by (used in) investing activities		1,509,668			(3,017,752	)
Cash Flows from Financing Activities:
Principal payments on mortgage debt		(1,235,176	)		(210,428	)
Proceeds of mortgage refinancing		1,250,000			-
Payments disbursed for mortgage costs		(40,660	)		(1,500	)
Net cash used in financing activities		(25,836	)		(211,928	)
Net Increase (Decrease) in Cash and Cash Equivalents		97,176			(4,285,815	)
Cash and Cash Equivalents, Beginning of Period		784,674			5,984,550
Cash and Cash Equivalents, End of Period	$	881,850		$	1,698,735

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	SIX MONTHS ENDED JUNE 30,
	2010			2009
Reconciliation of Net Income (Loss) to Net Cash Used in Operating Activities
Net Income (Loss)	$	(1,462,545	)	$	5,144,054
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net gain from sales of discontinued operations		(299,241	)		(3,208,336	)
Gain on settlement of joint venture loans		-			(3,979,289	)
Equity in the loss from joint ventures		409,369			585,878
Depreciation and amortization		274,837			306,458
Net change in revenue related to acquired lease rights/obligations and deferred rent receivable		(3,604	)		(20,226	)
Amortization of discounts on notes and fees		(12,642	)		(35,983	)
Issuance of stock to directors and officers		23,687			25,096
Changes in assets and liabilities:
Decrease (increase) in other receivables		(51,389	)		40,470
Increase (decrease) in accounts payable and accrued liabilities		(290,385	)		230,730
Decrease in other liabilities		(47,136	)		(185,133	)
Decrease in prepaid expenses, deposits in escrow and deferred charges		56,747			50,901
Other		15,646			(10,755	)
Total adjustments		75,889			(6,200,189	)
Net cash used in operating activities	$	(1,386,656	)	$	(1,056,135	)
SUPPLEMENTAL NONCASH DISCLOSURES:
Fair value of assets received in settlement of notes receivable due from joint ventures:
50% partnership interest in IATG Puerto Rico, LLC				$	3,250,000
Note receivable					664,000
				$	3,914,000
Satisfaction of mortgage debt as a result of assumption of the mortgage debt by purchaser				$	2,053,964

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 (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 or interests in 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).  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 (excluding nonvested shares) 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 10.)

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 for interim financial information.  The results for such interim periods are not necessarily indicative of the results to be expected for the year.  In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected.  These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2009.

D.  Management Estimates – In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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.  Securities Available for Sale – The Company’s investments are in marketable equity and debt securities consisting primarily of notes and bonds of agencies of the federal government.  Disposition of such securities may be appropriate for either liquidity management or in response to changing economic conditions, so they are classified as securities available for sale.

Securities available for sale are reported at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).  The valuation of securities available for sale was determined to be Level 1 financial assets within the valuation hierarchy in this topic, and is based on current market quotes received from financial sources that trade such securities. Unrealized gains and losses are reported as other comprehensive income in the consolidated statement of stockholders’ equity until realized.  The Company evaluates these investments for other-than-temporary declines in value, and, if such declines were other than temporary, the Company would record a loss on the investments. Gains and los ses on sales of securities are determined using the specific identification method.

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F.  Discontinued Operations – The Company follows the guidance of the Presentation and Property, Plant, and Equipment Topics of the ASC, with respect to long-lived assets classified as held for sale.  The ASC requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet.  Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated.

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

I.  Recently Adopted Accounting Standards – In June, 2009, the FASB issued new provisions to the Consolidated Topic of the ASC, which modified the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE.  These new provisions became effective for all new and existing VIEs on January 1, 2010.  The Company’s adoption of these provisions on January 1, 2010 had no impact on the Company’s consolidated financial statements.

In January, 2010, the FASB issued a new accounting standard for distributions to stockholders with components of stock and cash.  The guidance clarifies that in calculating earnings per share, an entity should account for the stock portion of the distribution as a stock issuance and not as a stock dividend.  The new standard was effective for fiscal years and interim periods ending after December 15, 2009 and should be applied on a retrospective basis.  The Company’s adoption of the new standard on December 31, 2009 had no impact on the Company’s consolidated financial statements.

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2. REAL ESTATE

Real estate is comprised of the following:

	June 30,		December 31,
	2010		2009
Land	$	1,906,466	$	1,995,982
Buildings		13,715,049		14,563,891
Furniture and equipment		6,375		36,125
Total real estate	$	15,627,890	$	16,595,998

3. MORTGAGE PORTFOLIO

The components of the net mortgage portfolio are as follows:

	June 30,		December 31,
	2010		2009
Notes receivable	$	2,900,693	$	2,917,134
Less: Discounts		23,564		36,212
Net mortgage portfolio	$	2,877,129	$	2,880,922

At June 30, 2010, all of the notes in the Company’s mortgage portfolio are current in accordance with their terms, as modified.

On February 27, 2009, the Company completed a Settlement Agreement with The Lightstone Group (“Lightstone”) and David Lichtenstein regarding various claims the Company had asserted against them.  Under the terms of the Settlement Agreement, an affiliate of Lightstone, which is the debtor on an existing loan from the Company in the outstanding principal amount of $2,074,994, assumed $10,000,006 of indebtedness under the $9,500,000 and $8,600,000 mezzanine loans due from Lightstone.  The total indebtedness was consolidated into a nonrecourse loan in the outstanding principal amount of $12,075,000 (the “Consolidated Note”).  The Consolidated Note is secured by the ownership interests in entities owning nine apartment properties (1,056 apartment units) located in Virginia (which had previo usly secured the $2,074,994 indebtedness) and 75% of the ownership interests in entities owning nine additional apartment properties (931 apartment units) located in Virginia and North Carolina.

The carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet is $2,074,994.  This is the same carrying value of the $2,074,994 note that was on the Company’s consolidated balance sheet prior to the consolidation of that note with the additional $10,000,006 indebtedness assumed by the affiliate of Lightstone pursuant to the Settlement Agreement.  The $10,000,006 additional portion of the Consolidated Note was received in partial settlement of the $9,500,000 and $8,600,000 mezzanine loans held by the Company, which had a net carrying value of $0 on the Company’s consolidated balance sheet at December 31, 2008.  Accordingly, in 2009, there was no adjustment on the Company’s consolidated balance sheet and no gain or loss was recorded on the Company 217;s consolidated financial statements as a result of the receipt of the Consolidated Note.

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The Consolidated Note accrues interest at the rate of 13% per annum and is due on February 1, 2012.  All net cash flow from the eighteen apartment properties will be utilized to pay the interest accrued on the Consolidated Note and to the extent that there is not sufficient cash flow to pay all accrued interest, the unpaid interest will be deferred until the maturity of the Consolidated Note.  The Company does not believe that there will be sufficient cash flow from the security for the Consolidated Note to pay all of the interest that is due on the note, the deferred interest that will be due at maturity and the $12,075,000 principal amount due at maturity.

However, the Company believes that the monthly interest due on the $2,074,994 portion of the note will be paid in accordance with the terms of the note and, as a result, the Company will accrue the interest on this portion of the note.  For the six months ended June 30, 2010, the Company received the interest due on the $2,074,994 portion of the Note.

The interest due on the $10,000,006 portion of the note is being recorded in income on a cash basis as interest is received and the balance of the interest due on the $10,000,006 is deferred and is due at maturity of the note.  For the six months ended June 30, 2010, the Company did not receive any interest payments on this portion of the Consolidated Note and the unaccrued deferred interest was $1,683,169.

Under the terms of the Settlement Agreement, the Company also received a $750,000 non-interest bearing, nonrecourse note originally due on January 31, 2010, which is secured by a 25% ownership interest in IATG Puerto Rico, LLC (“IATG”) (see Note 4).  In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee.

In March, 2009, the Company had preliminarily estimated the fair value of the $750,000 note to be $200,000 and the Company recorded the $200,000 note receivable on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $200,000 in its consolidated financial statements at March 31, 2009.  Subsequently, the Company received an independent appraisal of the IATG property (see Note 4) and based upon that appraisal, the Company estimated the fair value of the $750,000 note to be $664,000 ($750,000 note receivable less a discount on the note receivable of $86,000).  Accordingly, in June, 2009, the Company recorded an additional $464,000 for the note receivable on its consolidated balance sheet and recognized an additional gain of $464,000 on settlement of joint venture loans in its consol idated financial statements.  For the six months ended June 30, 2010, the Company recognized in interest income $8,329 of the amortization of discount recorded on the note receivable.

4. INVESTMENTS IN JOINT VENTURES

Pursuant to the February 27, 2009 Settlement Agreement, the Company assigned its interests in PRC Member LLC, Lightstone I and Lightstone III, which the Company believed had no value, to Lightstone and received, among other assets, a 50% interest in IATG described below.  At June 30, 2010, the Company had investments in joint ventures in two entities that are controlled by David Lichtenstein and Lightstone. The Company accounts for these investments using the equity method.

The first investment is the Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II which is secured by ownership interests in the Shawnee Mall and the Brazos Mall properties (“Shawnee/Brazos Malls”).  In connection with this loan, the Company received a 29% ownership interest in Lightstone II.

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The loan was in good standing at December 31, 2008.  However, in January, 2009, the holder of the first mortgage loan exercised its right (exercisable because the cash flow from the properties did not satisfy a required debt service coverage ratio) to retain all cash flow from the properties (after payment of all operating expenses but before payment of interest on the Company’s mezzanine loan) as additional security for the repayment of the first mortgage loan and Lightstone II failed to make the interest payments due on the Company’s mezzanine loan on January 1, 2009 and on the first day of subsequent months.  The first mortgage loan on the properties became due on January 10, 2010 and has not been paid.  Lightstone has been unable to refinance the first mortgage indebtedness and the holder of t he first mortgage loan has commenced foreclosure proceedings.

As part of the Settlement Agreement, the Company received a personal guaranty from Mr. Lichtenstein of certain amounts due under the Company’s $7,835,000 mezzanine loan (relating to the Shawnee/Brazos Malls), which personal guaranty was limited to $500,000.  At December 31, 2009, the Company recognized a $500,000 gain on settlement of joint venture loans in its consolidated financial statements and recorded a $500,000 receivable due from Mr. Lichtenstein on its consolidated balance sheet, which payment was received in March, 2010.  The Company believes that it is likely that the first mortgage loan will be foreclosed and that the Company will not be able to obtain any recovery on its mezzanine loan other than the recovery of the $500,000 on the guaranty.

The second investment, which the Company received as part of the Settlement Agreement, is a 50% ownership interest in IATG, the Lightstone affiliate that owns The Las Piedras Industrial Complex, an industrial property located in Las Piedras, Puerto Rico consisting of approximately 68 acres of land and 380,800 square feet of rentable space contained in several buildings in the complex.  The property is substantially vacant and the owners may attempt to sell the property.  The property is managed by a Lightstone affiliate and Lightstone has agreed to advance funds to pay any negative cash flow from the operations of the property until a sale can be accomplished and has agreed that if it does not do so, it will transfer its remaining 49% interest in the property to Presidential.

The Company’s preliminary estimate of the fair value of its 50% ownership interest in IATG was $1,500,000 and in March, 2009, the Company recorded a $1,500,000 investment in joint ventures on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $1,500,000 in its consolidated financial statements.

The Company based the preliminary estimated fair value of its interest in the IATG property on information available to it at the time. During the quarter ended June 30, 2009, the Company obtained an independent appraisal of the property owned by IATG and based on the appraised value of $6,500,000, the Company adjusted the preliminary estimate of the value of its 50% ownership interest in the IATG property from $1,500,000 to $3,250,000 on its consolidated financial statements.  In the quarter ended June 30, 2009, the Company recorded an additional $1,750,000 investment in joint ventures on its consolidated balance sheet and recognized an additional $1,750,000 gain on the settlement of joint venture loans in its consolidated financial statements.  While management believes that the $6,500,000 appraised value of the IATG property is a reasonable value, there can be no assurancethat if and when the property is sold, it can be sold for its appraised value.

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Activity in investments in joint ventures for the period ended June 30, 2010 is as follows:

	Balance at		Equity in the Loss from			Balance at
	December 31,		Joint			June 30,
	2009		Ventures			2010
IATG (1)	$	2,595,603	$	(409,369	)	$	2,186,234
Shawnee/Brazos Malls (2)		-		-			-
	$	2,595,603	$	(409,369	)	$	2,186,234

Equity in the loss from joint ventures is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
IATG (1)	$	(214,771	)	$	(162,306	)	$	(409,369	)	$	(227,842	)
Shawnee/Brazos Malls (2)		-			(210,200	)	-				(358,036	)
	$	(214,771	)	$	(372,506	)	$	(409,369	)	$	(585,878	)

(1) The Company recorded its 50% share of the loss from IATG for the six months ended June 30, 2010 and for the four months ended June 30, 2009.

(2) 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 was included in the calculation of the Company’s share of the loss from joint ventures for the Shawnee/Brazos Malls.  At December 31, 2009, the Company’s investment in the Shawnee/Brazos Malls was reduced by distributions and losses to zero.

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The summary financial information for IATG is as follows:

	June 30,			December 31,
	2010			2009
	(Amounts in thousands)
Condensed Balance Sheets
Net real estate	$	5,417		$	5,506
Cash and cash equivalents		37			43
Accounts receivable		23			4
Deferred expenses		190			203
Prepaid expenses		12			14
Total Assets	$	5,679		$	5,770
Note payable (1)	$	8,251		$	7,748
Other liabilities		2,681			2,456
Total Liabilities		10,932			10,204
Members’ Deficit		(5,253	)		(4,434	)
Total Liabilities and Members’ Deficit	$	5,679		$	5,770

(1) The note payable is payable to an affiliate of Lightstone and payment thereof is subordinate to the Company’s right to receive its share of any proceeds of a sale or refinancing.

	Three Months Ended June 30, 2010			Three Months Ended June 30, 2009			Six Months Ended June 30, 2010			Four Months Ended June 30, 2009
	(Amounts in thousands)
Condensed Statements of Operations
Revenues	$	224		$	245		$	460		$	307
Interest on note payable		(243	)		(214	)		(478	)		(283	)
Other expenses		(356	)		(303	)		(694	)		(409	)
Loss before depreciation and amortization		(375	)		(272	)		(712	)		(385	)
Depreciation and amortization		(55	)		(53	)		(107	)		(71	)
Net Loss	$	(430	)	$	(325	)	$	(819	)	$	(456	)

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The summary financial information for the Shawnee/Brazos Malls is as follows:

	June 30,			December 31,
	2010			2009
	(Amounts in thousands)
Condensed Balance Sheets
Net real estate	$	37,775		$	38,714
In-place lease values and acquired lease rights		501			607
Prepaid expenses and deposits in escrow		4,300			3,903
Cash and cash equivalents		2,427			1,311
Deferred financing costs		731			643
Other assets		898			1,069
Total Assets	$	46,632		$	46,247
Nonrecourse mortgage debt	$	39,061		$	39,061
Mezzanine notes payable (1)		41,158			39,373
Other liabilities		8,566			7,960
Total Liabilities		88,785			86,394
Members’ Deficit		(42,153	)		(40,147	)
Total Liabilities and Members’ Deficit	$	46,632		$	46,247

(1) The mezzanine notes payable include a $7,835,000 mezzanine note which is payable to the Company and the balance is payable to an affiliate of Lightstone.  The payment due to the affiliate of Lightstone is subordinate to the Company’s mezzanine note.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Amounts in thousands)
Condensed Statements of Operations
Revenues	$	2,352		$	2,472		$	4,778		$	5,034
Interest on mortgage debt and other debt		(1,637	)		(1,535	)		(3,232	)		(3,034	)
Other expenses		(1,192	)		(1,447	)		(2,383	)		(2,796	)
Loss before depreciation and amortization		(477	)		(510	)		(837	)		(796	)
Depreciation and amortization		(581	)		(748	)		(1,161	)		(1,499	)
Net Loss	$	(1,058	)	$	(1,258	)	$	(1,998	)	$	(2,295	)

The Lightstone Group is controlled by David Lichtenstein.  At June 30, 2010, in addition to Presidential’s investments of $2,186,234 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has two loans that are due from entities that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount of $12,825,000 with a net carrying value of $2,824,994.

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The $5,011,228 net carrying value of investments in joint ventures with entities controlled by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute approximately 19% of the Company’s total assets at June 30, 2010.

5. DISCONTINUED OPERATIONS

For the periods ended June 30, 2010 and 2009, income from discontinued operations includes the Building Industries Center in White Plains, New York (which consists of 23,500 square feet of commercial space), the Mapletree Industrial Center property in Palmer, Massachusetts (which consists of 385,000 square feet of commercial space), two cooperative apartment units in Riverdale, New York and two cooperative apartment units in New York, New York.  The two cooperative apartment units in Riverdale, New York and the two cooperative apartment units in New York, New York were sold in June, 2010.  In addition, income from discontinued operations for the periods ended June 30, 2009 included the Crown Court property in New Haven, Connecticut (105 apartment units and 2,000 square feet of commercial space) and one cooperative apar tment unit in Riverdale, New York which were sold in April, 2009 and October, 2009, respectively.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Revenues:
Rental	$	301,583	$	329,335	$	618,056	$	790,651
Rental property expenses:
Operating expenses		191,709		195,196		418,848		422,441
Interest on mortgage debt		20,222		15,412		35,069		66,969
Real estate taxes		46,750		44,560		93,501		138,468
Depreciation		-		18,099		7,566		35,786
Amortization of mortgage costs		2,828		1,003		7,008		3,078
Total		261,509		274,270		561,992		666,742
Other income:
Investment income		93		98		128		222
Income from discontinued operations		40,167		55,163		56,192		124,131
Net gain from sales of discontinued operations		299,241		3,208,336		299,241		3,208,336
Total income from discontinued operations	$	339,408	$	3,263,499	$	355,433	$	3,332,467

During the quarter ended December 31, 2009, the Company began to market the Building Industries Center property in White Plains, New York for sale and designated it as held for sale.  The carrying value of the property at June 30, 2010 was $225,588, net of accumulated depreciation of $1,196,305. In March, 2010, the Company obtained a new $1,250,000 mortgage on the property and repaid the $1,038,086 outstanding balance of the prior mortgage. The new mortgage bears interest at the rate of 6.25% per annum, requires monthly payments of principal and interest of $8,317 and has a balloon payment of $1,184,606 due at maturity on March 23, 2013. The mortgage will be repaid in full upon the sale of the property.  In July, 2010, the Company entered into a contract to sell the Building Industries Center property for a sales price of $2,150,000.  The net proceeds of sale are estimated to be approximately $786,000 (after repayment of the first mortgage and expenses of sale).  The gain from sale for financial reporting purposes is estimated to be approximately $1,771,000.  The sale, which is conditional upon the purchaser’s ability to obtain financing in the amount of 50% of the purchase price, is expected to be completed by the end of 2010.

During the quarter ended March 31, 2010, the Company designated its Mapletree Industrial Center in Palmer, Massachusetts as held for sale. The carrying value of the property at June 30, 2010 was $659,113, net of accumulated depreciation of $330,482.  The property is subject to a first mortgage in the outstanding principal amount of $30,228 at June 30, 2010. The mortgage bears interest at the rate of 3.25% per annum, requires monthly payments of principal and interest of $2,564 and matures on June 24, 2011. The property is currently being marketed for sale and the Company expects to sell the property for net proceeds in excess of its carrying value.

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During the quarter ended March 31, 2010, the Company also designated two cooperative apartment units in New York, New York and one cooperative apartment unit in Riverdale, New York as held for sale.  The Company had previously designated one cooperative apartment unit in Riverdale, New York as held for sale during the three months ended June, 2009.  In June, 2010, the Company completed the sale for these four cooperative apartment units for a sales price of $403,500.  The net proceeds of sale were $327,434 and the gain from sale for financial reporting purposes was $299,241.

In April, 2009, the Company sold its Crown Court property in New Haven, Connecticut for a purchase price of $1,635,000 over the outstanding principal mortgage balance of $2,053,964.  The net proceeds of sale were $1,545,851 and the gain from sale for financial reporting purposes was $3,208,336.

In October, 2009, the Company sold a cooperative apartment unit in Riverdale, New York for a sales price of $154,000.  The net proceeds of sale were $145,738 and the gain from sale for financial reporting purposes was $121,144.

The combined assets and liabilities of the properties held for sale at June 30, 2010 and the assets and liabilities of the properties held for sale at December 31, 2009 are segregated in the consolidated balance sheets.  The components are as follows:

	June 30,			December 31,
	2010			2009
Assets related to discontinued operations:
Land	$	140,428		$	62,601
Buildings		2,196,605			1,324,074
Furniture and equipment		74,455			44,705
Less: accumulated depreciation		(1,526,787	)		(1,199,567	)
Net real estate		884,701			231,813
Other assets		43,006		-
	$	927,707		$	231,813
Liabilities related to discontinued operations:
Mortgage debt	$	1,277,045		$	1,045,867

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6. SECURITIES AVAILABLE FOR SALE

The tables below summarize the Company’s securities available for sale:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
June 30, 2010
U.S. Government Agencies notes and bonds maturing within one year	$	927,794	$	398	$	(11,131	)	$	917,061
U.S. Government Agencies notes and bonds maturing from one to three years		1,929,280		19,070		(1,410	)		1,946,940
Common stock of REITS		2,011		8,826		-			10,837
	$	2,859,085	$	28,294	$	(12,541	)	$	2,874,838
December 31, 2009
U.S. Government Agencies notes and bonds maturing within one year	$	719,591	$	-	$	(12,402	)	$	707,189
U.S. Government Agencies notes and bonds maturing from one to four years		2,907,046		5,683		(16,270	)		2,896,459
Common stock of REITS		2,011		8,454		-			10,465
	$	3,628,648	$	14,137	$	(28,672	)	$	3,614,113

Sales activity results for securities available for sale for the six months ended June 30, 2010 are as follows:

Gross sales proceeds	$	750,900
Gross realized gains	$	228
Gross realized losses		(18,891	)
Net realized loss	$	(18,663	)

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 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico.  The Company agreed to lend up to $2,500,000 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, bears interest at the rate of 13% per annum, 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 July, 2009, the Company agreed to loan an additional $250,000 to the Hato Rey Partnership which increased the agreed upon $2,500,000 loan to $2,750,000.  The additional $250,000 will be advanced to the Partnership as funds are needed and will have the same terms as the $2,500,000 loan.  At June 30, 2010, the Company had advanced $2,670,000 of the loan to the Hato Rey Partnership.  The $2,670,000 loan and accrued interest in the amount of $997,874 have been eliminated in consolidation.

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On January 1, 2009, the Company adopted ASC 810-10-65 which requires amounts attributable to noncontrolling interests to be reported separately.  For the six months ended June 30, 2010 and 2009, the Hato Rey Partnership had a loss of $297,132 and $209,040, respectively.  For the six months ended June 30, 2010 and 2009, the consolidated financial statements reflect the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $118,853 and $83,616, respectively.

8. INCOME TAXES

Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code.  A REIT which distributes at least 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.

In accordance with ASC 740-10-25, if the Company’s tax positions in relation to a transaction were to be examined and not ultimately upheld, the Company would be required to pay an income tax assessment and related interest.  Alternatively, the Company could elect to pay a deficiency dividend to its shareholders in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.  As of June 30, 2010, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2006 - 2008 tax years and the Company was not required to accrue any liability for those years.

For the year ended December 31, 2009, the Company had a tax loss of approximately $4,790,000 ($1.41 per share), which is comprised of an ordinary loss of approximately $8,022,000 ($2.36 per share) and capital gains of approximately $3,232,000 ($0.95 per share).

As previously stated, in order to maintain REIT status, Presidential is required to distribute 90% of its REIT taxable income (exclusive of capital gains).  As a result of the ordinary tax loss of $2.36 per share for 2009, the Company will not be required to make a distribution in 2010 for the 2009 year in order to maintain its qualification as a REIT.

For the six months ended June 30, 2010, the Company had a tax loss of approximately $2,088,000 ($0.61 per share), which is comprised of an ordinary loss of approximately $2,357,000 ($0.69 per share) and capital gains of approximately $269,000 ($0.08 per share).

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9. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

	June 30,			December 31,
	2010			2009
Defined benefit plan liability	$	(3,739,084	)	$	(3,739,084	)
Contractual postretirement benefits liability		176,171			191,804
Minimum contractual pension benefit liability		762,351			762,351
Net unrealized gain (loss) on securities available for sale		15,753			(14,535	)
Total accumulated other comprehensive loss	$	(2,784,809	)	$	(2,799,464	)

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						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net income (loss)	$	(522,635	)	$	4,392,694		$	(1,462,545	)	$	5,144,054
Other comprehensive income (loss)-
Net unrealized gain (loss) on securities available for sale		13,928			(20,479	)		30,288			(22,996	)
Adjustment for contractual postretirement benefits		(7,817	)		(6,165	)		(15,633	)		(12,329	)
Comprehensive income (loss)		(516,524	)		4,366,050			(1,447,890	)		5,108,729
Comprehensive loss attributable to noncontrolling interest		71,677			45,513			118,853			83,616
Comprehensive income (loss) attributable to Presidential Realty Corporation	$	(444,847	)	$	4,411,563		$	(1,329,037	)	$	5,192,345

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10. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted income (loss) per share attributable to Presidential Realty Corporation:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
Income (loss) from continuing operations	$	(862,043	)	$	1,129,195	$	(1,817,978	)	$	1,811,587
Discontinued Operations:
Income from discontinued operations		40,167			55,163		56,192			124,131
Net gain from sales of discontinued operations		299,241			3,208,336		299,241			3,208,336
Total income (loss) from discontinued operations		339,408			3,263,499		355,433			3,332,467
Net income (loss)		(522,635	)		4,392,694		(1,462,545	)		5,144,054
Add: Net loss from noncontrolling interest		71,677			45,513		118,853			83,616
Net Income (Loss) attributable to Presidential Realty Corporation	$	(450,958	)	$	4,438,207	$	(1,343,692	)	$	5,227,670
Earnings per Common Share attributable to Presidential Realty Corporation basic:
Income (loss) from continuing operations	$	(0.23	)	$	0.35	$	(0.50	)	$	0.56
Discontinued Operations:
Income from discontinued operations		0.01			0.01		0.01			0.04
Net gain from sales of discontinued operations		0.09			0.95		0.09			0.95
Total income from discontinued operations		0.10			0.96		0.10			0.99
Net Income (Loss) per Common Share – basic	$	(0.13	)	$	1.31	$	(0.40	)	$	1.55

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	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
Earnings per Common Share attributable to Presidential Realty Corporation diluted:
Income (loss) from continuing operations	$	(0.23	)	$	0.35	$	(0.50	)	$	0.56
Discontinued Operations:
Income from discontinued operations		0.01			0.01		0.01			0.03
Net gain from sales of discontinued operations		0.09			0.95		0.09			0.95
Total income from discontinued operations		0.10			0.96		0.10			0.98
Net Income (Loss) per Common Share – diluted	$	(0.13	)	$	1.31	$	(0.40	)	$	1.54
Weighted average number of shares outstanding:
Basic		3,391,880			3,380,380		3,390,156			3,379,999
Effect of dilutive securities – restricted stock		-			19,300		-			19,548
Diluted		3,391,880			3,399,680		3,390,156			3,399,547

For the three months and six months ended June 30, 2010, the weighted average shares outstanding as used in the calculation for diluted loss per share does not include 10,800 of restricted shares not yet vested, as their inclusion would be antidilutive.

11. 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. Since the most serious identified threat on the site is to songbirds, the proposed remediation consisted of removing all exposed materials and a layer of soil.  The Company estimated that the costs of the cleanup will not exceed $1,000,000.  In accordance with the provisions of ASC Contingencies Topic, 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 June 30, 2010, the accrued liability balance was $263,253 and the discount balance was $112,977 for a net accrued liability of $150,276.

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The remediation must comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”) and during the three months ended March 31, 2009, the Company obtained the consent of MADEP to a specific plan of remediation.  During the second quarter of 2010, the Company completed the plan of remediation work, submitted the required reports to the MADEP and anticipates receiving a Response Action Outcome Filing (“RAO”) by the end of the third quarter of 2010.  The Company will continue to monitor and test the site until it receives a Class A RAO and, while these final costs have not been determined, management believes that it will be less than the balance of the net accrued liability at June 30, 2010.

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

12.           CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

The following table sets forth the components of net periodic benefit costs for contractual pension benefits:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	-		$	-		$	-		$	-
Interest cost		7,532			19,449			15,064			38,899
Amortization of prior service cost		-			(7,731	)		-			(15,461	)
Recognized actuarial (gain) loss		(11,831	)		14,031			(23,662	)		28,060
Net periodic benefit cost	$	(4,299	)	$	25,749		$	(8,598	)	$	51,498

The following table sets forth the components of net periodic benefit costs for contractual postretirement benefits:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	445		$	405		$	889		$	811
Interest cost		5,470			6,700			10,941			13,401
Amortization of prior service cost		925			925			1,851			1,851
Recognized actuarial (gain) loss		(9,534	)		(8,193	)		(19,067	)		(16,387	)
Net periodic benefit cost	$	(2,694	)	$	(163	)	$	(5,386	)	$	(324	)

During the six months ended June 30, 2010, the Company made contributions of $8,033 for postretirement benefits.  The Company anticipates additional contributions of $8,105 for postretirement benefits for the remainder of 2010.

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13. DEFINED BENEFIT PLAN

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	-		$	39,392		$	-		$	78,785
Interest cost		123,901			69,454			247,801			138,906
Expected return on plan assets		(122,864	)		(36,892	)		(245,727	)		(73,783	)
Amortization of prior service cost		-			3,154			-			6,308
Amortization of accumulated loss		72,871			63,183			145,743			126,366
Net periodic benefit cost	$	73,908		$	138,291		$	147,817		$	276,582

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 six months ended June 30, 2010, the Company did not make a contribution to the defined benefit plan.  The Company is required to and intends to make a $100,000 contribution to the plan in 2010.

14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values of the Company’s financial instruments as of June 30, 2010 and December 31, 2009 have been determined using available market information and various valuation estimation methodologies.  Considerable judgment is required to interpret the effects on fair value of such items as future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.  Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

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The following table summarizes the estimated fair values of financial instruments:

	June 30, 2010				December 31, 2009
	Net		Estimated		Net		Estimated
	Carrying		Fair		Carrying		Fair
	Value (1)		Value		Value (1)		Value
	(Amounts in thousands)
Assets:
Cash and cash equivalents	$	882	$	882	$	785	$	785
Securities available for sale		2,875		2,875		3,614		3,614
Notes receivable		2,877		2,922		2,881		2,973
Liabilities:
Mortgage debt		14,753		21,022		14,970		20,239

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

The fair value estimates presented above are based on pertinent information available to management as of June 30, 2010 and December 31, 2009.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since June 30, 2010 and, therefore, current estimates of fair value may differ significantly from the amounts presented above.

Fair value methods and assumptions are as follows:

Cash and Cash Equivalents – The estimated fair value approximates carrying value, due to the short maturity of these investments.

Securities Available for Sale – The fair value of securities available for sale was determined to be Level 1 financial assets within the valuation hierarchy established by the ASC Fair Value Measurements and Disclosures Topic, and is based on current market quotes received from financial sources that trade such securities.

Notes Receivable – The fair value of notes receivable has been estimated by discounting projected cash flows using current rates for similar notes receivable.

Mortgage Debt – The fair value of mortgage debt has been estimated by discounting projected cash flows using current rates for similar debt.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

Forward-Looking Statements

Certain statements made in this report that are not historical fact 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, including the possibility that the Board of Directors will request the approval of the Company’s shareholders for the sale of all or substantially all of the Company’s assets and the adoption of a plan of liquidation, which forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially differen t from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, among other things, the following:

· continuing generally adverse economic and business conditions, which, among other things (a) affect the demand for apartments, 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 venture in which the Company is a member, which adversely affects the operating results and valuations of such malls;

· continuing adverse conditions in the real estate markets, including a severe tightening of the availability of credit, which 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;

· the risk that if the Board of Directors seeks shareholder approval of the sale of all or substantially all of the Company’s assets and the adoption of a plan of liquidation, such approval is not obtained;

· general risks of real estate ownership and operation;

· governmental actions and initiatives;

· environmental and safety requirements; and

· failure to comply with continuing listing standards of the NYSE AMEX.

Overview

Presidential Realty Corporation is taxed for federal income tax purposes as a real estate investment trust.  Presidential owns real estate directly and through a partnership and joint ventures and makes loans secured by interests in real estate.

During the past three years, 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 invested. These conditions, among others, resulted in defaults in 2008 and in 2009 on three of the mezzanine loans made by the Company to joint ventures owning nine shopping mall properties and in defaults on the first mortgage loans secured by eight of these properties.  (See Liquidity and Capital Resources – Joint Venture Mezzanine Loans and Settlement Agreement below.)

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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 $14,753,253 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 annual interest rate was increased by 200 basis points (the payment of which is deferred until maturity) and the mortgagee is entitled to receive all net cash flow from the property to reduce the outstanding principal balance.  There has been no net cash flow available to reduce the principal balance of the mortgage and no assurances can be given that there will be any net cash flow available in 2010.  (See Hato Rey Partnership below.)

The restrictive credit markets 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.

From time to time in the Company’s recent history, the Company has considered various strategic alternatives in an attempt to maximize shareholder value, including a merger or consolidation with another company or a tender offer for the Company’s shares.  In the past, no appropriate opportunity has been found but the Board of Directors and management will always consider reasonable proposals and are currently engaged in discussions with a number of parties towards this end.  The Company may seek to sell one or more of its assets if reasonable prices can be determined and obtained in the current economic environment.  Alternatively, the Board of Directors is considering the approval of the sale of all or substantially all of the assets of the Company in one or a series of transactions and the adopt ion of a Plan of Liquidation for the Company, which actions, if approved by the Board of Directors, will be submitted to shareholders for their approval.  The plan of liquidation would provide for the sale of all of the Company’s assets over time and the distribution of the net proceeds of sale to the shareholders after satisfaction of the Company’s liabilities.  While the Board of Directors has considered this course of action, among others, as noted above, there has been no final determination to adopt such a plan of liquidation at this time or to enter into any strategic alternative.  Further, there can be no assurance that the Company will be able to sell any of its assets at prices that the Board of Directors deems fair or that the Company will be able to enter into a satisfactory strategic transaction.  The Company previously disclosed that its Board of Directors is considering requesting the approval of its shareholders at its next Annual Meeting for the sale of all or substantially all of the Company’s assets and the adoption of a Plan of Liquidation of the Company.  The Board of Directors currently plans to hold the Company’s Annual Meeting in the fourth quarter of 2010.

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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-K for the year ended December 31, 2009.  There have been no significant changes in the Company’s critical accounting policies since December 31, 2009.

Results of Operations

Financial Information for the three months ended June 30, 2010 and 2009:

Continuing Operations:

Revenues decreased by $118,300 primarily as a result of decreases in interest income on mortgages–notes receivable.

Interest on mortgages-notes receivable decreased by $106,265 primarily as a result of a decrease of $75,020 in interest received on the Consolidated Note.  In the 2009 period, the Company received interest payments of $75,020 on the $10,000,006 portion of the $12,075,000 Consolidated Note.  The Company did not receive any interest payments in 2010 on that portion of the Consolidated Note.  Interest due on the $10,000,006 portion of the note is recorded in income on a cash basis.  In addition, there was a $30,104 decrease in amortization of discount on the $750,000 note receivable received in the Settlement Agreement.  See Liquidity and Capital Resources – Joint Venture Mezzanine Loans and Settlement Agreement below.

Costs and expenses decreased by $242,173 primarily due to decreases in general and administrative expenses, partially offset by increases in real estate tax expenses.

General and administrative expenses decreased by $288,686 primarily as a result of decreases in salary and related payroll tax expenses of $110,547, which is attributable to the Company’s reduction in office staff during 2009 and 2010.  In addition, there were also decreases in pension plan expenses of $96,962, insurance expenses of $30,334, professional fee expenses of $26,935 and all other general and administrative expenses of $23,908.

Real estate tax expenses increased by $43,971 as a result of a $43,971 increase in real estate tax expense at the Hato Rey Center property.

Other income decreased by $2,115,111 primarily as a result of a $2,279,289 increase in the gain recorded in 2009 upon the settlement of some joint venture loans to David Lichtenstein and The Lightstone Group (“Lightstone”).  This decrease was partially offset by a $157,735 decrease in the loss from joint ventures in the 2010 period.  In the 2009 period, the loss from joint ventures included a loss of $210,200 from the Company’s investment in the Shawnee/Brazos Malls.  The Company’s basis in that investment was reduced to zero during 2009 and, as a result, the Company does not record any further losses from that investment.

Loss from continuing operations increased by $1,991,238 from income of $1,129,195 in 2009 to a loss of $862,043 in 2010.  The $1,991,238 decrease in income was a result of the $2,279,289 increase in the gain recorded in 2009 upon the settlement of some joint venture loans.  This decrease was partially offset by decreased costs and expenses of $242,173 in the 2010 period.

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Discontinued Operations:

In 2010, the Company has four properties that are classified as discontinued operations: the Building Industries Center in White Plains, New York (which consists of 23,500 square feet of commercial space); the Mapletree Industrial Center property in Palmer, Massachusetts (which consists of 385,000 square feet of commercial space); two cooperative apartment units in Riverdale, New York and two cooperative apartment units in New York, New York.

In May, 2010, the Company entered into a contract of sale for the four cooperative apartment units for a sales price of $403,500.  In June, 2010, the Company completed the sale of the four cooperative apartment units.  The net proceeds of sale were $327,434 and the gain from sale for financial reporting purposes was $299,241.

In July, 2010, the Company entered into a contract to sell the Building Industries Center property for a sales price of $2,150,000.  The net proceeds of sale are estimated to be approximately $786,000 (after repayment of the first mortgage and expenses of sale).  The gain from sale for financial reporting purposes is estimated to be approximately $1,771,000. The sale, which is conditional upon the purchaser’s ability to obtain financing in the amount of 50% of the purchase price, is expected to be completed by the end of 2010.

In 2009, the Company had two other properties that were classified as discontinued operations:  the Crown Court property in New Haven, Connecticut (which consisted of 105 apartment units and 2,000 square feet of commercial space) and a cooperative apartment unit in Riverdale, New York.  The Crown Court property was sold in April, 2009 and the cooperative apartment unit in Riverdale, New York was sold in October, 2009.

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

	2010			2009
Income (loss) from discontinued operations:
Building Industries Center, White Plains, NY	$	(26,713	)	$	(14,200	)
Mapletree Industrial Center, Palmer, MA		68,621			73,551
Cooperative apartment units, Riverdale, NY		(1,006	)		(2,702	)
Cooperative apartment units, New York, NY		(735	)		264
Crown Court, New Haven, CT		-			(1,750	)
Income from discontinued operations		40,167			55,163
Net gain from sales of discontinued operations:
Cooperative apartment units, Riverdale, NY		63,827			-
Cooperative apartment units, New York, NY		235,414			-
Crown Court		-			3,208,336
Net gain from sale of discontinued operations		299,241			3,208,336
Total income from discontinued operations	$	339,408		$	3,263,499

Financial Information for the six months ended June 30, 2010 and 2009:

Continuing Operations:

Revenues decreased by $38,880 primarily as a result of decreases in interest income on mortgages–notes receivable partially offset by increases in rental revenues.

Rental revenues increased by $64,890 due to increased rental revenues at the Hato Rey Center property.  The increased rental revenues at the Hato Rey Center property were primarily due to $118,310 of real estate tax reimbursements billed in the first quarter of 2010.  In addition, all other rental revenue items increased by $110,200.  These increases were partially offset by increased vacancy losses of $163,675.

Interest on mortgages-notes receivable decreased by $98,760 primarily as a result of a decrease of $75,020 in interest received on the Consolidated Note.  In the 2009 period, the Company received interest payments of $75,020 on the $10,000,006 portion of the Consolidated Note; the Company did not receive any interest payments in 2010 on that portion of the Consolidated Note. In addition, there was a $21,775 decrease in amortization of discount on the $750,000 note receivable received in the Settlement Agreement.

Costs and expenses decreased by $213,679 primarily due to decreases in general and administrative expenses, which were partially offset by increases in rental property operating expenses and real estate tax expenses.

General and administrative expenses decreased by $344,934 primarily as a result of decreases in salary and related payroll tax expenses of $121,419, which is attributable to the Company’s reduction in office staff during 2009 and 2010.  In addition, there were also decreases in pension plan expenses of $193,923, insurance expenses of $31,176, and all other general and administrative expenses of $49,052.  These decreases were partially offset by increases in professional fees of $50,636.

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Rental property operating expenses increased by $49,810 primarily as a result of an increase in electric expense of $80,005 at the Hato Rey Center property.  These increases were partially offset by decreases in bad debt expense of $19,795 and repairs and maintenance expense of $11,407.

Real estate tax expenses increased by $87,943 as a result of an $87,943 increase in real estate tax expense at the Hato Rey Center property.

Other income decreased by $3,804,364 primarily as a result of a $3,979,289 gain recorded in 2009 upon the settlement of some joint venture loans to David Lichtenstein and Lightstone.  This decrease was partially offset by a $176,509 decrease in the loss from joint ventures in the 2010 period.  In the 2009 period, the loss from joint ventures included a loss of $358,036 from the Company’s investment in the Shawnee/Brazos Malls.

Loss from continuing operations increased by $3,629,565 from income of $1,811,587 in 2009 to a loss of $1,817,978 in 2010.  The $3,629,565 decrease in income was a result of the $3,979,289 gain recorded in 2009 upon the settlement of some joint venture loans.  This decrease was partially offset by decreased costs and expenses of $213,679 in the 2010 period.

Discontinued Operations:

The following table compares the total income (loss) from discontinued operations for the six month periods ended June 30, for properties included in discontinued operations:

	2010			2009
Income (loss) from discontinued operations:
Building Industries Center, White Plains, NY	$	(52,158	)	$	(48,725	)
Mapletree Industrial Center, Palmer, MA		111,458			134,897
Cooperative apartment units, Riverdale, NY		(2,266	)		(6,902	)
Cooperative apartment units, New York, NY		(842	)		393
Crown Court, New Haven, CT		-			44,468
Income from discontinued operations		56,192			124,131
Net gain from sales of discontinued operations:
Cooperative apartment units, Riverdale, NY		63,827			-
Cooperative apartment units, New York, NY		235,414			-
Crown Court		-			3,208,336
Net gain from sales of discontinued operations		299,241			3,208,336
Total income from discontinued operations	$	355,433		$	3,332,467

Balance Sheet

Net real estate decreased by $861,298 primarily as a result of the $686,993 of net real estate assets designated as held for sale during 2010.  In 2010, the Company designated the Mapletree Industrial Center property and three cooperative apartment units as held for sale (see Assets Related to Discontinued Operations below).  In addition, during 2010, additions and improvements were $50,451 and depreciation was $224,756.

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Investments in joint ventures decreased by $409,369 as a result of the $409,369 loss from the IATG joint venture in the 2010 period.

Assets related to discontinued operations increased by $695,894 primarily as a result of designating the following properties as held for sale during the first quarter of 2010: the Mapletree Industrial Center, in Palmer, Massachusetts, one cooperative apartment unit in Riverdale, New York and two cooperative apartment units in New York, New York.  The reclassification of these properties increased assets related to discontinued operations by $686,993. In addition, assets related to discontinued operations were increased by the $40,660 mortgage costs for the new mortgage on the Building Industries Center property.  During the quarter ended June 30, 2010, the Company sold the cooperative apartment units and assets related to discontinued operations was decreased by $28,193.

Other receivables decreased by $452,674 primarily as a result of the $500,000 payment received in the first quarter of 2010 from Mr. Lichtenstein with respect to the settlement on the joint venture loans.  This decrease was partially offset by a $20,167 net increase in tenant accounts receivables and a $31,902 increase in other receivables.

Securities available for sale decreased by $739,275 as a result of the sale of $769,563 of securities, partially offset by the increase of $30,288 in the fair value of the securities.

Liabilities related to discontinued operations increased by $231,178 primarily as a result of the $1,250,000 new first mortgage loan obtained on the Building Industries Center property and the addition of the $37,633 first mortgage loan on the Mapletree Industrial Center property which was classified as held for sale in the first quarter of 2010.  These increases were partially offset by the amortization and repayment of $1,045,867 on the prior first mortgage loan on the Building Industries Center property.

Accrued liabilities increased by $49,006 primarily as a result of $174,617 of increased accrued mortgage interest expense for the Hato Rey Center property mortgage, which was partially offset by the $120,161 decrease in accrued environmental expenses.

In March, 2010, 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 2010 year.  The shares were valued at $0.67 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded $2,010 in prepaid directors’ fees (to be amortized during 2010) 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 $1,710 to additional paid-in capital.

Liquidity and Capital Resources

Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from securities available for sale, from operating activities, from refinancing of mortgage loans on its real estate equities or from sales of such equities, and from repayments on its mortgage portfolio.

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Management believes that, barring any unforeseen circumstances, the Company has sufficient liquidity and capital resources to carry on its existing business and to pay any dividends required to maintain REIT status until the Company can effectuate a plan of liquidation or enter into a strategic transaction.  However, in the current ongoing economic downturn, given our continuing decline in revenues, expected losses from continuing operations and negative cash flows from operating activities, management believes that Presidential might have insufficient liquidity and capital resources to operate in future years without sales of its assets.  Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity.

In the fourth quarter of 2008, the Company reduced its dividend 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 that time recognized, 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 to refinance the Hato Rey Center office building mortgage and the desirability of conserving the Company’s cash resources under these circumstances.  For these reasons, the Company did not declare a dividend in 2009 and does not expect to declare one in 2010.

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, and its ability to reduce taxes by paying dividends.

At June 30, 2010, Presidential had $881,850 in available cash and cash equivalents, an increase of $97,176 from the $784,674 at December 31, 2009.  This increase in cash and cash equivalents was due to cash provided by investing activities of $1,509,668 partially offset by cash used in operating activities of $1,386,656 and cash used in financing activities of $25,836.

Joint Venture Mezzanine Loans and Settlement Agreement

During 2004 and 2005, the Company made investments in and loans to four joint ventures and received 29% ownership interests in these joint ventures.  The initial aggregate investment in the joint ventures (original principal amount of the loans made to and the investments in the joint ventures) was $27,038,410.  The Company accounted for these investments and loans under the equity method because it exercises significant influence over, but does not control, these entities, which are controlled by Lightstone and David Lichtenstein.  The joint ventures owned nine shopping malls in seven states.

Starting in 2007, the shopping malls began to suffer from among other things, competition from other and, in some circumstances, newer shopping malls, the inability to attract new tenants and declining rental rates, which conditions worsened during the continuing economic downturn, and in 2008 and 2009, the joint ventures defaulted on the Presidential loans.

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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.  Lightstone III also defaulted on payments of interest due on the first mortgage loan covering the properties and the holder of the first mortgage loan commenced foreclosure proceedings and appointed a receiver to operate the properties.  The Company believed that the outstanding principal balance of the first mortgage loan substantially exceeded the then current value of the Macon/Burlington Malls and that it was unlikely that the Company would be able to recover any interest or any principal on its mezzanine loan from the collateral that it held as security for the loan.

In October, 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 payments of the preferential return of 11% per annum due on the Company’s $1,438,410 investment in the Martinsburg Mall.  Lightstone I also defaulted on payments of interest due under the first mortgage loan covering the Martinsburg Mall and three of the Four Malls (Bradley Square, Mount Berry Square and Shenango Valley) on and after August 1, 2008 and the holder of the first mortgage loan commenced foreclosure proceedings and appointed a receiver to operate the properties.  At that time, the Company believed that the outstanding principal balance of the first mortgage loan substantially exceeded the current value of the mortgaged properti es and that it was unlikely that the Company would 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 from the collateral that it held as security for its mezzanine loan and investment.  As of June 30, 2010, the mortgagee had not completed the foreclosure of its mortgage and the properties continue to be operated by a receiver.

The Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II secured by interests in the Shawnee Mall and the Brazos Mall has been in default since January, 2009.  The first mortgage loan on the properties became due on January 10, 2010 and has not been paid.  Lightstone has been unable to refinance the first mortgage loan indebtedness and the holder of the first mortgage loan has commenced foreclosure proceedings.  The Company believes that it is likely that the first mortgage loan will be foreclosed and that the Company will not be able to obtain any recovery on its mezzanine loan other than the recovery of the $500,000 received from David Lichtenstein on the guaranty received pursuant to the Settlement Agreement.

Subsequent to the defaults under the $9,500,000 and $8,600,000 mezzanine loans, the Company asserted various claims against Lightstone and Mr. Lichtenstein personally with respect to such loans and on February 27, 2009 completed a settlement of such claims (the “Settlement Agreement”).  Under the Settlement Agreement:

(1) $5,000,003 of the indebtedness under the $9,500,000 mezzanine loan and $5,000,003 of the indebtedness under the $8,600,000 mezzanine loan were assumed by an affiliate of Lightstone which is the debtor on an existing loan from the Company in the outstanding principal amount of $2,074,994.  The total indebtedness was consolidated into a nonrecourse loan in the outstanding principal amount of $12,075,000 (the “Consolidated Note”) and is secured by the ownership interests in entities owning nine apartment properties (1,056 apartment units) located in Virginia (which had previously secured the $2,074,994 indebtedness) and 75% of the ownership interests in entities owning nine additional apartment properties (931 apartment units) located in Virginia and North Carolina.

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The Consolidated Note accrues interest at the rate of 13% per annum and is due on February 1, 2012.  All net cash flow from the eighteen apartment properties will be utilized to pay the interest accrued on the Consolidated Note and to the extent that there is not sufficient cash flow to pay all accrued interest, the unpaid interest will be deferred until the maturity of the Consolidated Note. The Company anticipates that a substantial portion of the annual interest will not be paid currently and will be deferred in accordance with the terms of the Consolidated Note.  The Company also anticipates that it is likely that on the maturity date of the Consolidated Note, the outstanding principal balance of the Consolidated Note plus any unpaid deferred interest thereon will exceed the value of the Company’s security th erefore and, accordingly, since the Consolidated Note is a nonrecourse loan, the Company does not expect to obtain payment in full of the Consolidated Note on maturity.

(2) The Company obtained a 50% ownership interest in IATG Puerto Rico, LLC (“IATG”), the Lightstone affiliate that owns The Las Piedras Industrial Complex, an industrial property located in Las Piedras, Puerto Rico and consisting of approximately 68 acres of land and 380,800 square feet of rentable space contained in several buildings in the complex.  The property is substantially vacant and the owners may attempt to sell the property.  Lightstone has agreed to advance funds to pay any negative cash flow from the operations of the property until a sale can be accomplished and has agreed that if it does not do so, it will transfer its remaining 49% interest in the property to Presidential.

(3) The Company received at closing $250,000 in cash and a note from Mr. Lichtenstein in the amount of $750,000 payable without interest, which was originally due on January 31, 2010.  Mr. Lichtenstein is not personally liable for payment of the $750,000 note, but the note is secured by a 25% ownership interest in the Las Piedras property.  In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee.

(4) The Company received a personal guaranty from Mr. Lichtenstein that the Company will receive all accrued interest on the Company’s $7,835,000 mezzanine loan (relating to the Shawnee/Brazos Malls) through the date of repayment and $500,000 of the principal amount of the loan, which personal guaranty was limited to $500,000.  As part of the settlement, the Company agreed to modify its right to receive repayment in full of the $7,835,000 loan before Mr. Lichtenstein receives any return on his capital contributions to the borrowing entity to the following extent: the Company will receive the first net proceeds of any sale or refinancing of the Shawnee/Brazos Malls in an amount equal to all accrued and unpaid interest and $2,000,000 of principal; Mr. Lichtenstein will receive the next $1,000,000 of any such net sale or refi nancing proceeds; the Company will receive the next $1,000,000 of any such net proceeds and any additional net proceeds shall be paid 50% to the Company and 50% to Mr. Lichtenstein.  Mr. Lichtenstein’s $500,000 guaranty, which was secured by his remaining interest in IATG, was paid to the Company in March, 2010 and the security for the guaranty was released.  As a result of the $500,000 guaranty payment received in March, 2010, at December 31, 2009, the Company recognized a $500,000 gain on settlement of joint venture loans in its consolidated financial statements and recorded a $500,000 receivable due from Mr. Lichtenstein on its consolidated balance sheet. The carrying value on the Company’s consolidated financial statements of the $7,835,000 mezzanine loan and the Company’s minority interest in the entity owning the Shawnee/Brazos Malls was zero at December 31, 2009.  The Company does not anticipate any further payments on its mezzanine loan, other than the $500,000 already received.

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While under existing market conditions it was difficult to place a value on the assets and collateral received from Lightstone and Mr. Lichtenstein in settlement of the Company’s claims against them, management believes that the settlement was in the best interests of the Company taking into account the nature of the Company’s claims and the cost and unpredictability of litigation and collection of any judgment that might have been obtained.

The defaults in payment of the Company’s $9,500,000 mezzanine loan to Lightstone III, the $8,600,000 mezzanine loan to Lightstone I, and the $7,835,000 mezzanine loan to Lightstone II have had and continue to have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

The principal effect of the transactions resulting from the Settlement Agreement on the Company’s consolidated financial statements in 2009 was as follows:

(i) The carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet is $2,074,994. This is the same carrying value of the $2,074,994 note that was on the Company’s consolidated balance sheet prior to the consolidation of this note with the additional $10,000,006 indebtedness received in the Settlement Agreement.  The $10,000,006 additional portion of the note was received in partial settlement of the $9,500,000 and $8,600,000 mezzanine loans, which had a net carrying value of $0 on the Company’s consolidated balance sheet. Accordingly, there was no significant adjustment on the Company’s consolidated balance sheet in 2009 as a result of the receipt of the Consolidated Note. No gain or loss was recorded on the Company’s consolidated financial statements in connecti on with the consolidation of the $2,074,994 and $10,000,006 indebtedness and the substitution of the collateral for the $10,000,006 indebtedness.

(ii) The 50% membership interest in IATG obtained by the Company was recorded on the Company’s consolidated balance sheet at its fair value of $3,250,000 and a gain on the settlement of the joint venture loans in the amount of $3,250,000 was recognized on the Company’s consolidated financial statements.

(iii) The $750,000 non-interest bearing, nonrecourse note originally due on January 31, 2010, which is secured by an additional 25% ownership interest in IATG, was recorded on the Company’s consolidated balance sheet at its fair value of $664,000 ($750,000 note receivable less a discount on the note receivable of $86,000) and a gain on the settlement of the joint venture loans in the amount of $664,000 was recognized on the Company’s consolidated financial statements. In May, 2010, the Company extended the maturity date of the loan to December 31, 2010 and received a $10,000 fee.

In March, 2009, the Company’s preliminary estimate of the fair value of the 50% ownership interest in IATG was $1,500,000 and its preliminary estimate of the fair value of the $750,000 note was $200,000. The Company recorded a $1,500,000 investment in joint ventures and a $200,000 note receivable on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $1,700,000 in its consolidated financial statements at March 31, 2009.

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The Company based the preliminary estimated fair value of its interest in the IATG property on information available to it at the time.  During the quarter ended June 30, 2009, the Company obtained an independent appraisal of the property owned by IATG and based on the appraised value of $6,500,000, the Company adjusted the preliminary estimate of the value of its 50% ownership interest in the IATG property from $1,500,000 to $3,250,000 and its preliminary estimate of the $750,000 note receivable from $200,000 to $664,000.  Accordingly, in June, 2009, the Company recorded an additional $1,750,000 in investments in joint ventures and an additional $464,000 for the note receivable on its consolidated balance sheet and recognized an additional gain of $2,214,000 on the gain on settlement of joint venture loans in its cons olidated financial statements.  While management believes that the $6,500,000 appraised value of the IATG property is a reasonable value, there can be no assurancethat if and when the property is sold, it can be sold for its appraised value.

(iv) At December 31, 2009, the Company recorded a $500,000 receivable due from Mr. Lichtenstein on its consolidated balance sheet and recognized a $500,000 gain on settlement of joint venture loans in its consolidated financial statements, which receivable was paid in the first quarter of 2010.

In summary, as a result of the Settlement Agreement, in 2009 the Company recorded assets of $4,414,000 on the Company’s consolidated balance sheet (a $500,000 receivable, a $750,000 note receivable less an $86,000 discount on the note receivable and a $3,250,000 investment in joint ventures) and recorded a $4,414,000 gain on the settlement of joint venture loans in its consolidated financial statements.  The Company also received a net cash payment of $65,289 ($250,000 less $184,711 of expenses for the settlement), which was also recorded in gain on settlement of joint venture loans in its consolidated financial statements.  In addition, for the period ended December 31, 2009, the Company recognized in interest income $77,671 of the amortization of discount recorded on the note receivable.

Operating Activities

Cash from operating activities includes interest on the Company’s mortgage portfolio and net cash received from rental property operations.  In 2010, cash received from interest on the Company’s mortgage portfolio was $229,248.  Net cash disbursed for rental property operations was $9,411.  Net cash disbursed for rental property operations is before additions and improvements and mortgage amortization.

Investing Activities

Presidential holds a portfolio of mortgage notes receivable.  During 2010, the Company received principal payments of $16,435 on its mortgage portfolio.

During the second quarter of 2010, the Company received $327,434 of net proceeds from the sale of four cooperative apartment units.

In the first quarter of 2010, the Company received a $500,000 payment from Mr. Lichtenstein in payment of his guaranty received pursuant to the Settlement Agreement discussed above.

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During the first half of 2010, the Company invested $85,101 in additions and improvements to its properties.

During the quarter ended March 31, 2010, the Company received $750,900 of proceeds from the sale of securities.

Financing Activities

The Company’s indebtedness at June 30, 2010, consisted of mortgage debt of $14,753,253 for continuing operations and $1,277,045 for discontinued operations.  The mortgage debt is collateralized by individual properties.  The $14,753,253 mortgage on the Hato Rey Center property is nonrecourse to the Company.  The $1,246,816 Building Industries Center mortgage and the $30,229 Mapletree Industrial Center mortgage are recourse to Presidential.  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 2010, the Company made $1,23 5,176 of principal payments on mortgage debt.

The mortgages on the Company’s properties are at fixed rates of interest and the Mapletree Industrial Center mortgage will fully amortize by periodic principal payments.

In March, 2010, the Company obtained a new $1,250,000 mortgage on its Building Industries Center property and repaid the $1,038,086 outstanding principal balance of the prior mortgage. The new mortgage bears interest at the rate of 6.25% per annum, requires monthly payments of principal and interest of $8,317 and has a balloon payment of $1,184,606 due at maturity on March 23, 2013.

The $14,753,253 Hato Rey Center mortgage matures in May, 2028, has a fixed rate of interest of 9.38% and requires additional repayments of principal from surplus cash flows from operations of the property (see Hato Rey Partnership below).

Investments In Joint Ventures

The Company has investments in joint ventures in two entities that are controlled by Mr. Lichtenstein and Lightstone. The Company accounts for these investments using the equity method.

The first investment is the Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II which is secured by ownership interests in the Shawnee/Brazos Malls.  In connection with this loan, the Company received a 29% ownership interest in Lightstone II. The loan matures in 2014 and has an interest rate of 11% per annum.  Since January 1, 2009, the interest payments due on the $7,835,000 loan have not been made and the loan is in default (see Joint Venture Mezzanine Loans and Settlement Agreement above).  The $7,835,000 investment has been reduced by payments of interest (distributions received) and the Company’s share of the losses recorded from the joint venture and the balance of the Company’s investment in the Shawnee/Brazos Malls at June 30, 2010 is zero.

The second investment is a 50% ownership interest in IATG, the Lightstone affiliate that owns The Las Piedras Industrial Complex, an industrial property located in Las Piedras, Puerto Rico and consisting of approximately 68 acres of land and 380,800 square feet of rentable space contained in several buildings in the complex.

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The Company’s estimate of the fair value of its 50% ownership interest in IATG is $3,250,000 and the Company recorded a $3,250,000 investment in joint ventures on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $3,250,000 in its consolidated financial statements in 2009 (see Joint Venture Mezzanine Loans and Settlement Agreement above).

Activity in investments in joint ventures for the period ended June 30, 2010 is as follows:

	Balance at December 31, 2009		Equity in the Loss from Joint Ventures			Balance at June 30, 2010
IATG (1)	$	2,595,603	$	(409,369	)	$	2,186,234
Shawnee/Brazos Malls (2)		-		-			-
	$	2,595,603	$	(409,369	)	$	2,186,234

Equity in the loss from joint ventures is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
IATG (1)	$	(214,771	)	$	(162,306	)	$	(409,369	)	$	(227,842	)
Shawnee/Brazos Malls (2)		-			(210,200	)	-				(358,036	)
	$	(214,771	)	$	(372,506	)	$	(409,369	)	$	(585,878	)

(1) The Company recorded its 50% share of the loss from IATG for the six months ended June 30, 2010 and for the four months ended June 30, 2009.

(2) 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 was included in the calculation of the Company’s share of the loss from joint ventures for the Shawnee/Brazos Malls.  At December 31, 2009, the Company’s investment in the Shawnee/Brazos Malls was reduced by distributions and losses to zero.

The Lightstone Group is controlled by David Lichtenstein.  At June 30, 2010, in addition to Presidential’s investments of $2,186,234 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has two loans that are due from entities that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount of $12,825,000 with a net carrying value of $2,824,994.

The $5,011,228 net carrying value of investments in joint ventures with entities controlled by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute approximately 19% of the Company’s total assets at June 30, 2010.

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Hato Rey Partnership

At June 30, 2010 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.

Over the past four years the vacancy rates at the Hato Rey Center have been fluctuating from a high of 48% in 2006 to a low of approximately 20% in January, 2009.  However, as a result of local economic conditions and higher than historical vacancy rates in the Hato Rey area, the vacancy rate has increased to 28% at July 31, 2010.  The Company is attempting various marketing methods to improve vacancy rates including reducing the per square footage rates in order to rent office space in the competitive rental market in the Hato Rey area.

Over the last four years, Presidential agreed to lend up to $2,750,000 to the owning partnership to fund negative cash flow from the operations of the property during the periods of high vacancy rates and to pay the costs of a modernization program.  Interest accrues on the loan at the rate of 13% per annum, 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 or sale of the property. At June 30, 2010, total advances under the loan were $2,670,000.  The $2,670,000 loan and the accrued interest in the amount of $997,874 have been eliminated in consolidation.

The Company had expected to refinance the existing first mortgage on the building in the second quarter of 2008, when the terms of the existing mortgage were to be automatically modified to increase the interest rate thereon, but the combination of the slower than anticipated rent up and the turmoil in the lending markets made a refinancing unfeasible.  The modification of the terms of the existing mortgage provided for an increase in its interest rate by 2% per annum (from 7.38% to 9.38%) and that payment of the additional 2% will be deferred until the maturity date of the mortgage in 2028.  In addition, the modification provides that all net cash flow from the property will be utilized to repay the outstanding principal of the mortgage loan, which will be prepayable without penalty.  The Company intends to refinance this mortgage when lending markets have returned to a more normal state and occupancy levels at the property improve and remain stable. However, until the first mortgage is refinanced, the Company will not receive any cash payments on its loan to the partnership since principal and interest on the Company’s loan are payable only out of operating cash flow or refinancing or sale proceeds and, under the terms of the modified mortgage, all net cash flow will be utilized to reduce principal on the first mortgage. Since the modification in 2008, there has not been any net cash flow available to reduce the principal on the first mortgage.

On January 1, 2009, the Company adopted ASC 810-10-65 which requires amounts attributable to noncontrolling interests to be reported separately.  For the six months ended June 30, 2010, the Hato Rey Partnership had a loss of $297,132.  The consolidated financial statements reflect the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $118,853.

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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.  Since the most serious identified threat on the site is to songbirds, the proposed remediation consisted of removing all exposed metals and a layer of soil. The Company estimated that the costs of the cleanup will not exceed $1,000,000.  In accordance with the provisions of ASC Contingencies Topic, 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 June 30, 2010, the accrued liability balance was $263,253 and the discount balance was $112,977 for a net accrued liability of $150,276.

The remediation must comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”) and during the three months ended March 31, 2009, the Company obtained the consent of MADEP to a specific plan of remediation.  During the second quarter of 2010, the Company completed the plan of remediation work, submitted the required reports to the MADEP and anticipates receiving a Response Action Outcome Filing (“RAO”) by the end of the third quarter of 2010.  The Company will continue to monitor and test the site until it receives a Class A RAO and, while these final costs have not been determined, management believes that it will be less than the balance of the net accrued liability at June 30, 2010.

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

Ivy Consolidated Loan

Presidential holds two nonrecourse loans (the “Ivy Consolidated Loan”), which it received in 1991 from Ivy Properties, Ltd. and its affiliates “(Ivy”).  At June 30, 2010, the Ivy Consolidated Loan has an outstanding principal balance of $4,770,050 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 Ivy Consolidated Loan, 25% of the cash flow of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the Ivy principals (Steven Baruch, an Executive Vice President and Director of Presidential and Thomas Viertel, an Executive Vice President, Chief Financial Officer and a Director of Presidential) to carry on theatrical productions.  Amounts received by Presidential from S corpio will be applied to unpaid and unaccrued interest on the Ivy Consolidated Loan and recognized as income.  While these amounts have been material in the past, the Company believes that they will not be material in 2010.  The profitability of theatrical production is by its nature uncertain and management believes that any estimate of payments from Scorpio on the Ivy Consolidated Loan for future periods is too speculative to project.  During the six months ended June 30, 2010 and 2009, the Company did not receive any payments from Scorpio.  The Ivy Consolidated Loan bears interest at a rate equal to the JP Morgan Chase Prime rate, which was 3.25% at June 30, 2010.  At June 30, 2010, the unpaid and unaccrued interest was $3,755,646 and such interest is not compounded.

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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.  However, changes in market rates of interest impact the fair values of these fixed rate assets and liabilities.  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, and, accordingly, any fluctuations in values do not impact the Company’s earnings, balance sheet or cash flows.  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 6. Exhibits

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.

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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: August 13, 2010	By:	/s/ Jeffrey F. Joseph
		Jeffrey F. Joseph
		President and Chief Executive Officer
DATE: August 13, 2010	By:	/s/ Elizabeth Delgado
		Elizabeth Delgado
		Treasurer

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