UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(MARK ONE)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-08594

 

PRESIDENTIAL REALTY CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware   13-1954619
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
530 Seventh Avenue, Suite 407, New York, New York   10018
(Address of principal executive offices)   (Zip Code)

 

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

 

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

 

Title of each class   Name of each exchange on which registered
None   N/A

 

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

 

Class A Common Stock and Class B Common Stock
(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

 

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 ☒ No

 

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 ☒ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ 

 

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

 

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer  ☐ Smaller reporting company ☒
  Emerging growth company ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

The aggregate market value of voting stock held by non-affiliates based on the closing price of the stock at June 30, 2021 was $176,040. For purposes of this calculation it is assumed that officers and directors of the registrant are affiliates and that the BBJ Family Irrevocable Trust is an affiliate. The registrant has no non-voting stock. The number of shares outstanding of each of the registrant’s classes of common stock as of March 31, 2022 was 442,533 shares of Class A common stock and 4,746,147 shares of Class B common stock.

 

Documents Incorporated by Reference: None.

 

 

 

 

 

 

PRESIDENTIAL REALTY CORPORATION

 

TABLE OF CONTENTS

 

Explanatory Note   ii
     
Forward-Looking Statements   ii
       
PART I.   1
       
ITEM 1. BUSINESS   1
       
ITEM 2. PROPERTIES   12
       
ITEM 3. LEGAL PROCEEDINGS   13
       
ITEM 4. MINE SAFETY DISCLOSURES   13
       
PART II.   14
       
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   14
       
ITEM 6. [RESERVED]   15
       
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   15
       
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   20
       
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   20
       
PART III.   21
       
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   21
       
ITEM 11. EXECUTIVE COMPENSATION   23
       
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   24
       
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   26
       
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   27
       
PART IV. 28
       
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES   28

 

i

 

 

Explanatory Note

 

This Annual Report on Form-K (this “Form 10-K”) is a comprehensive filing for the fiscal year ended December 31, 2021 filed by Presidential Realty Corp. (“Presidential”, the “Company”, “we”, “us” or “our,” unless the context indicates otherwise).

 

Forward-Looking Statements

 

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

 

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

 

  ● our ability to implement plans for growth;
     
  ● our ability to finance the acquisition of new real estate assets;
     
  ● our ability to manage growth;
     
  ● our ability to generate operating liquidity;
     
  ● our ability to attract and maintain tenants for our rental properties;
     
  ● the demand for rental properties and the creditworthiness of tenants;
     
  ● financial results for 2022 and beyond;
     
  ● future acquisitions and dispositions of assets;
     
  ● future development and redevelopment opportunities;
     
  ● future issuances of capital stock;
     
  ● market and industry trends;
     
  ● interest rates;
     
  ● the outcome and impact of any litigation;
     
  ● operating performance including statements relating to creating value for stockholders;
     
  ● governmental actions and initiatives;
     
  ● environmental and safety requirements;
     
  ● the form, timing and/or amount of dividend distributions in future periods.

 

ii

 

 

Any forward-looking statements are based upon management’s beliefs, assumptions and expectations of our future performance, taking into account information currently available. These beliefs, assumptions and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:

 

  ● the availability and terms of capital and financing;
     
  ● the ability to refinance or repay indebtedness as it matures;
     
  ● the failure of purchase, sale, or other contracts to close;
     
  ● the failure to achieve anticipated benefits from acquisitions and investments or from dispositions;
     
  ● the potential dilutive effect of common or preferred stock offerings;
     
  ● the impact of future financing arrangements including secured and unsecured indebtedness;
     
  ● the availability of buyers and pricing with respect to the disposition of assets;
     
  ● risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular;
     
  ● leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly developed and/or recently acquired space, and the risk of declining leasing rates;
     
  ● the adverse change in the financial condition of one or more of our major tenants;
     
  ● volatility in interest rates and insurance rates;
     
  ● competition from other developers or investors;
     
  ● the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
     
  ● the loss of key personnel;
     
  ● the potential liability for uninsured losses, condemnation, or environmental issues;
     
  ● the potential liability for a failure to meet regulatory requirements;
     
  ● the financial condition and liquidity of, or disputes with, joint venture partners;
     
  ● any failure to comply with debt covenants under credit agreements;
     
  ● any failure to continue to qualify for taxation as a real estate investment trust and meet regulatory requirements;
     
  ● risks associated with the COVID 19 Pandemic;
     
  ● potential changes to tax legislation;
     
  ● potential changes to state, local or federal regulations applicable to our business;
     
  ● changes in demand for properties;
     
  ● risks associated with the acquisition, development, expansion, leasing and management of properties;
     
  ● significant costs related to condemnation, or environmental issues;
     
  ● those additional risks and factors discussed in reports filed with the Securities and Exchange Commission (“SEC”) by us.

 

iii

 

 

PART I.

 

ITEM 1.BUSINESS

 

(a)General

 

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

 

(b)First Capital Transaction

 

On December 16, 2016, the Company and its newly formed operating partnership, Presidential Realty Operating Partnership LP (“Presidential OP”), entered into an interest contribution agreement (the “Initial Agreement”) with First Capital Real Estate Trust Incorporated (“FC REIT”), First Capital Real Estate Operating Partnership (the “FC OP”), Township Nine Owner, LLC (T9/JV), Capital Station Holdings, LLC, Capital Station Member, LLC, Capital Station 65 LLC and Avalon Jubilee LLC.

 

On January 6, 2017, the Company and the other parties to the Initial Agreement entered into the First Amendment to the Initial Agreement (the “Amendment,” and, together with the Initial Agreement, the “Agreement”) and FC OP entered into the Agreement of Limited Partnership (the “Limited Partnership Agreement”) of Presidential OP, as limited partner, with the Company as general partner. The Agreement contemplated that Presidential OP would acquire from FC OP a 31.3333% interest in the owner of a residential community referred to as the “Avalon Property” (as defined below) and 66% (the “T9 Transferred Interest”) of FC OP’s 92% interest (FC/T9 Interest) in the owner of a development property known as the “T9 Property.” The purchase price for the interests was to be payable in limited partnership interests in Presidential OP (“Presidential OP Units”) convertible under certain conditions into shares of the Company’s Class B common stock or redeemable for cash at the Company’s discretion.

 

Presidential OP’s acquisition of the interest in the Avalon Property was completed on January 6, 2017. The Avalon Property consisted of 251 non-contiguous single-family residential lots at various stages of development, within the Jubilee at Los Lunas subdivision located in Los Lunas, New Mexico (the “Avalon Property”). At the Closing, in exchange for the contribution to Presidential OP of FC OP’s membership interests in the Avalon Property, FC OP received 4,632,000 Presidential OP Units in and became a limited partner of Presidential OP. Such limited partnership interests were convertible, upon the satisfaction of certain conditions, into shares of Class B common stock of the Company on a one-for-one basis or redeemable into cash at the Company’s discretion. Presidential OP never completed its acquisition of the T9 Property from FC OP and all agreements related to the acquisition and transfer of the interests in the property were canceled.

 

In connection with the Closing, FC REIT paid $800,000 to Presidential to be used as operating capital, of which $300,000 was used for direct fees in connection with the transaction. The Company recorded this payment as other income in 2017. The agreements also provided that FC REIT would contribute additional working capital for the seamless integration of the FC REIT properties, up listing of the Company on a national securities exchange and asset growth plans as conditions precedent to the closing of the Agreement. FC REIT did not provide the required working capital to complete these activities. All the agreements relating to the FC REIT transactions entered into in 2016 and 2017 were considered terminated due to the lack of performance by FC REIT except the 31.3333% ownership interest in the Avalon Property. On March 21, 2018 FC OP redeemed its 4,632,000 shares of Presidential OP Units in exchange for $90,381 previously owed to Presidential from FC REIT. Upon the redemption of the Presidential OP Units the Presidential OP Partnership was terminated pursuant to the terms of the Limited Partnership Agreement and Presidential retained the 31.3333% interest in the Avalon Property. The Company believes that it does not have any further obligations to FC REIT or any other parties in connection with the Agreement due to the lack of contractual performance by FC REIT, numerous closing conditions precedent in the Agreement not being met, and the balance of transactions contemplated in the Agreement not being completed.

 

On January 6, 2017 Presidential OP recorded the fair value of their interest in Avalon Jubilee LLC at $4,222,027 based on the appraised value of the property under the assumptions that the partnership would be building and selling single-family homes. In 2018 the managing member in the Avalon Property changed their focus from building and selling single-family homes to improving and selling developed lots. The change in strategy has significantly impaired our investment.

 

1

 

 

Based on the redemption features associated with FC OP’s limited partnership interest in Presidential OP, the non-controlling interest of FC OP’s interest is reported as mezzanine equity. The redemption feature allowed FC OP to redeem their interest in Presidential OP one year after their initial contribution whereby such interest could be redeemed in full or partial through the settlement of cash or issuance of the Company’s Class B Common Stock, based solely on the Company’s discretion. The Company has elected to adjust the non-controlling interest to the redemption amount at each balance sheet date. As of December 31, 2017, the redemption amount of the non-controlling interest was less than the initial carrying value adjusted for the portion of net income allocated to the non-controlling interest for the year-end December 31, 2017 and as such, the non-controlling interest is reported at its carrying amount.

 

On December 31, 2021 the Avalon Property consisted of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land in Los Lunas, New Mexico.

 

(c)Business Generally

 

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

 

  (i) Mapletree:
     
    Ownership of Rental Properties at December 31, 2021: $1,545,347 net of accumulated depreciation of $901,047, which is approximately 61% of our assets. At December 31, 2021, this consisted of our ownership of the Mapletree Industrial Center located in Palmer, Massachusetts. This is a multi-tenant rental facility which was originally the Wickwire-Spencer Wire Mill until 1970 at which time it became rental space. The property consists of 31 buildings located on approximately 48 acres. Major tenants include National Fiber, Creative Material Technologies office and lab, New England Promotional Marketing and Fulfillment Plus, Consolidated Lumber Transport office, Eastern States Associates office, ESSROC Materials (a Portland cement distributor) and American Cable Assembly. The property offers traditional office space and industrial/warehouse space along with vacant land with rail access ready for development. As of December 31, 2021, the property had 99.4% occupancy. The buildings comprise a total of 315,540 square feet, of which 313,639 is rentable. The property has a carrying value of $1,545,347, less accumulated depreciation of $901,047, resulting in a net carrying value of $664,300 at December 31, 2021. See Properties below.
     
  (ii)  Avalon:
     
    We own 31.3333% of Avalon Jubilee LLC which consists of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land located in Los Lunas, New Mexico . The fair value of the property is $0, which is approximately 0% of our assets.
     
  (iii) Cash: At December 31, 2021, we had $225,029 in cash, which is approximately 21.4% of our assets. (See Investment Strategies below.)

 

Under the Internal Revenue Code of 1986, as amended (the “Code”), a REIT that meets certain requirements is not subject to Federal income tax on that portion of its taxable income that is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed. Since January 1, 1982, the Company has elected to be taxed as a REIT. We were not required to pay any dividends in 2022 and 2021.

 

While we intend to operate in such a manner as to be taxed as a REIT, and to pay dividends in an amount sufficient to maintain REIT status, we cannot promise that we will, in fact, continue to be taxed as a REIT or that the Company will have cash available to pay any dividends that may be required to maintain REIT status. We were not required to pay any dividends in 2021 and believe that we will not be required to pay dividends in 2022 to maintain our REIT status. See (e) Qualification as a REIT and Item 5. - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

2

 

 

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

 

(d)Investment Strategies

 

Our general investment strategy is to continue our REIT status, make investments in real estate assets that offer attractive current yields and, in some cases, potential for capital appreciation.

 

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

 

(e)Qualification as a REIT

 

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

 

In any year that we qualify as a REIT and meet other conditions, including the distribution to stockholders of at least 90.0% of our “real estate investment trust taxable income” (excluding long-term capital gains but before a deduction for dividends paid), we will be entitled to deduct the distributions that we pay to our stockholders in determining our ordinary income and capital gains that are subject to Federal income taxation (see Note 5 of Notes to Consolidated Financial Statements). Income not distributed is subject to tax at rates applicable to a domestic corporation. In addition, we are subject to an excise tax (at a rate of 4%) if the amounts actually or deemed distributed during the year do not meet certain distribution requirements. In order to receive this favorable tax treatment, the Company must restrict our operations to those activities that are permitted under the Code and to the holding of assets that a REIT is permitted to hold.

 

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

 

(f)Competition

 

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

 

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

 

(g)Employees

 

At December 31, 2021, we employed 4 people, two of whom are employed at our executive office and two at our Mapletree Property.

 

3

 

 

ITEM 1A.RISK FACTORS

 

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

 

Our business, financial condition, results of operations and cash flows may be adversely affected by the recent COVID-19 pandemic and the impact could be material to us.

 

In December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China. In March 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a global pandemic. The extent of the impact of the pandemic on the Company’s business, financial condition, liquidity, result of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, the duration and scope of the pandemic; actions that have been and continue to be taken by governmental entities, individuals and businesses in response to the pandemic; the impact on economic activity from the pandemic and actions taken in response thereto; the impact on capital availability and costs of capital; the impact on our employees; any other operational disruptions or difficulties we may face; and the effect on our customers and their ability to make rental payments. Many companies are implementing work from home polices that could negatively affect the ability to rent our properties. These polices could further impact the commercial real estate markets and decrease the leasing rates the Company can charge. Any of these events, individually or in aggregate, could have a material adverse impact on the Company’s business, financial condition, results of operations and share price.

 

Historical losses have limited our ability to raise working capital for growth. 

 

The Company has a history of operating losses and working capital deficiency, which could be detrimental to future growth. Our ability to grow is dependent upon our ability to acquire additional properties through raising capital either through debt and/or equity financing.  We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business and the ability to finance growth.  As a result, we may not be able to sustain profitability in subsequent periods. Our prior losses and potential future losses have had and could continue to have an adverse effect on our stockholders’ equity and working capital.

 

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

 

The Company’s largest asset and its primary income producing asset, the Mapletree Industrial Center, acts as security for a mortgage loan.  There is no guaranty that the Mapletree Property will continue to generate revenues sufficient to pay the debt service on the loan and, together with other income, to pay the Company’s operating expenses.  If the Company is unable to service the debt, or pay its operating expenses, then the Company will be required to sell the Mapletree Property and may cease to qualify as a REIT.

 

4

 

 

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

 

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

 

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

 

●local conditions, such as an oversupply of office space available to rent, or a reduction in demand for office space in the area;

 

●declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;

 

●declines in market rental rates;

 

●regional economic downturns which may affect one or more of our geographical markets;

 

●increased operating costs, if these costs cannot be passed through to tenants;

 

●material changes in any significant tenant industry concentration;

 

●the general reputation of real estate as an attractive investment in comparison to other equity securities; changes in market valuations of our properties;

 

●the reputation of the product types of our assets compare to other sectors of the real estate industry;

 

●changes in tax law;

 

●adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt and our ability to refinance such debt on favorable terms;

 

●any failure to comply with existing debt covenants; and

 

●the realization of any other risk factors described in this report.

 

Difficulties of selling real estate could limit our flexibility.

 

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

 

We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/ or sell real estate.

 

Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may also impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure to contamination at or from our properties.

 

5

 

 

Each of our properties has been subject to varying degrees of environmental assessment. Our Mapletree Property has a controlled recognized environmental condition that was remediated by the Company during the years 2009-2012. This remediation plan was fully approved and audited after completion by the Massachusetts Department of Environmental Protection. The property currently has certain use restrictions and has to perform ongoing required monitoring that was part of the remediation plan. While there are currently no further actions required with regards to this environmental condition, the company could experience future risks related to this condition or other conditions that could develop at its properties.

 

We have limited assets so that an adverse event occurring with respect to one asset may not be offset by the performance of the remaining assets.

 

At the end of 2021 we owned two investments: Mapletree Industrial Center and Avalon Jubilee. We are vulnerable to significant losses as a percentage of our assets if there is an adverse effect to one or both of these properties.

 

Losses from catastrophes may exceed our insurance coverage.

 

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

 

Competition and changing rental needs due to companies allowing employees to work remotely could limit our ability to lease our properties or increase or maintain rental income.

 

There are numerous alternatives which compete with our properties in attracting tenants. Some of these other properties may be newer and offer more modern amenities. This competitive environment could have a material adverse effect on our ability to lease our present properties as well as on the rents realized. In addition, companies allowing employees to work remotely could reduce demand and lease prices for rental space and reduce income derived from our properties.

 

Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance.

 

In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property. If our estimated return on investment proves to be inaccurate, it may fail to perform as we expected. With certain properties, our business plan contemplates reposition or redeveloping that property with the goal of increasing its cash flow, value or both. Our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire new properties not fully leased or developed and the cash flow from those properties may be insufficient to pay the operating expenses and debt service associated with that property until the property is more fully leased or developed. If one or more of these new properties do not perform as expected or we are unable to successfully integrate new properties into our operations, our financial performance and ability to make distributions may be adversely affected.

 

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

 

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

 

6

 

 

Such investments may involve risks not otherwise present when acquiring real estate directly, including for example:

 

●joint ventures may share certain approval rights over major decisions;

 

●co-ventures, co-owner or partner may at any time have economic or business interests or goals which are or which may become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture.

 

●the possibility that our co-ventures, co-owner or partner in an investment might become insolvent or bankrupt;

 

●the possibility that we may incur liabilities as a result of an action taken by our co-venture, co-owner or partner;

 

●a co-venture, co-owner or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT;

 

●disputes between us and our co-ventures may result in litigation or arbitration that would increase our expenses and prevent officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; or

 

●under certain joint venture arrangements, neither joint venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

 

Our acquisition strategy may not produce the cash flows expected.

 

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

 

●our percentage ownership in any new property may be small;

 

●we may not be able to successfully integrate acquired properties into our existing operations;

 

●our estimates of the costs, if any, of repositioning or redeveloping the acquired property may prove inaccurate;

 

●the expected occupancy and rental rates may differ from the actual results; and

 

●we may not be able to obtain adequate financing.

 

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

 

7

 

 

We depend on our key personnel.

 

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

 

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

 

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

 

●delay in lease commencements;

 

●decline in occupancy;

 

●failure of tenants to make rental payments when due;

 

●the attractiveness of our properties to tenants and potential tenants;

 

●our ability to adequately manage and maintain our properties;

 

●competition from other available commercial alternatives; and

 

●changes in market rents.

 

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

 

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

 

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

 

8

 

 

 

Issuances of additional debt may adversely impact our financial condition.

 

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

 

Potential conflicts of interest between related parties.

 

We outsource the management of the Mapletree Property to Signature Community Management LLC and Signature Community Investment Group LLC, companies owned by our CEO. This is a related party relationship and while monitored by our Board of Directors could be subject to conflicts of interest.

 

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

 

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

 

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

 

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

 

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

 

  ● we would be subject to federal income tax on our taxable income at regular corporate rates, including any applicable alternative minimum tax;

 

  ● we would be disqualified from treatment as a REIT for the four taxable years following the year in which we failed to qualify, thereby reducing our net income, including any distributions to shareholders, as we would be required to pay significant income taxes for the year or years involved; and

 

  ●

our ability to expand our business and raise capital would be impaired, which may adversely affect the value of our common shares.

 

We may face other tax liabilities in the future which may impact our cash flow. These potential tax liabilities may be calculated on our income or property values at either the corporate or individual property levels. Any additional tax expense incurred would decrease the cash available for cash distributions to our shareholders.

 

We may change our targeted investments without stockholder consent.

 

We have no restrictions in our Certificate of Incorporation or other organization documents with respect to the types of investments we may make. We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our common stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments that we have made in the past. A change in our targeted investments or investment guidelines may increase our exposure to real estate market risk, interest rate risk, default risk and concentration risk, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.

 

We may pursue business development and strategic transactions that could result in a change of strategy, dilution to our current stockholders or an acquisition at a per share value that is less than our stockholders may have paid for their investment in the Company.

 

Our board of directors is continually evaluating business development opportunities and other opportunities for strategic transactions with third parties. This may include the sale of additional stock, the sale of our assets or even the sale of the entire company. If any of these transactions occur there may be an adverse effect on our stockholders. For instance, depending on the terms of such transactions, most notably the price per share, which may be less than the price paid per share in our public or private offerings, and the value of our properties, holders of our common stock might experience a dilution in the book value per share of their stock.

 

9

 

 

A stockholder’s interest in us may be diluted if we issue additional stock.

 

Our common stockholders do not have preemptive rights to any stock we issue in the future. Therefore, in the event that we (1) sell stock in the future, (2) sell securities that are convertible into stock, (3) issue stock in a private offering, (4) issue stock upon the exercise of options granted to our directors, executives, employees or others, holders of our common stock will experience dilution of their percentage of ownership in us. Depending on the terms of such transactions, most notably the price per share, which may be less than the price paid per share in our public or private offerings, and the value of our properties, holders of our common stock might also experience a dilution in the book value per share of their stock.

 

Our organization documents permit our board of directors to issue stock or securities convertible or exchangeable into equity securities, with terms that maybe subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

 

Our board of directors may issue, classify and establish the preferences, conversion or other rights, voting powers, restrictions, and limitations as to distributions, qualifications and terms or conditions of redemption of any of our preferred stock. Our board of directors could authorize the issuance of preferred stock or securities convertible or exchangeable into equity securities, with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock and convertible or exchangeable securities could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

 

Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks of an investment in us.

 

Our board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks of an investment in us.

 

Share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders and limits our ability to make investments using our common stock.

 

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

 

Our Certificate of Incorporation limits ownership of our common stock by a single holder or group of related holders to 9.2%. Until we can increase the market price of our stock and increase our asset base, the number of shares that can be issued to any single holder or group of related holders adversely affects our ability to use our common stock as the purchase price for new assets.

 

Our share price will fluctuate.

 

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

 

●operating results which vary from the expectations of securities analysts and investors;

 

  ● investor interest in our property portfolio;

 

  ● the reputation and performance of REITs;

 

  ● the attractiveness of REITs as compared to other investment vehicles;

 

  ● the results of our financial condition and operations;

 

  ● the perception of our growth and earnings potential;

 

  ● dividend payment rates;

 

  ● increases in market interest rates, which may lead purchasers of our common shares to demand a higher yield; and

 

  ● changes in financial markets and national economic and general market conditions.

 

10

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  ● The basis on which the broker or dealer made the suitability determination; and

 

  ● That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

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

 

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

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

11

 

 

ITEM 2.PROPERTIES

 

As of December 31, 2021, we owned 100% of the Mapletree Industrial Center located in Palmer, Massachusetts.

 

The chart below lists the Company’s 100% owned property as of December 31, 2021.

 

      Gross Amount of Real Estate At
December 31, 2021		                     
Property  Rentable
Space		  Land ($)   Buildings,
Improvements and Equipment
($)		   Total
($)		   Accumulated
Depreciation
December 31,
2021
($)		   Net
Amount of
Real
Estate At
December 31,
2021
($)		   Mortgage Balance at
December 31,
2021
($)		   Maturity
Date		   Interest
Rate		 
Mapletree Industrial Center, Palmer, MA  315,540 sq. ft.  $79,100   $1,466,247   $1,545,347   $901,047   $644,300   $1,529,570    (1)   6.031%

 

(1)Mortgage matures August 2025

 

Mapletree Industrial Center – Palmer, Massachusetts

 

We own 100% of the Mapletree Industrial Center located in Palmer, Massachusetts. This is a multi-tenant rental facility which was originally the Wickwire-Spencer Wire Mill until 1970 at which time it became rental space. The property consists of 31 buildings located on approximately 48 acres. Major tenants include Creative Material Technologies office and lab, Consolidated Lumber Transport office, Australian natural Soapworks, ESSROC Materials (a Portland cement distributor), Michael Houle, JP Mc Carthy & Sons and American Cable Assembly. The property offers traditional office space and industrial/warehouse space along with vacant land with rail access ready for development. The buildings comprise a total of 315,540 square feet, of which 313,639 is rented. The property has a carrying value of $1,545,347, less accumulated depreciation of $901,047, resulting in a net carrying value of $644,300 at December 31, 2021. 

 

☐The occupancy rate at the property at December 31, 2021 was 99.40% with most tenants being on month to month lease terms.

 

☐Due to the varied nature of the building types on this property, it is occupied by office tenants as well as storage, warehouse and distribution operations. The average effective annual rent per square foot at the property is $2.97 and varies based on the type and location of the space within the property.

 

Avalon Jubilee LLC-Los Lunas, New Mexico

 

We own a 31.3333% non-controlling joint venture partnership interest in Avalon Jubilee LLC located in Los Lunas, New Mexico

 

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

 

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ITEM 3.LEGAL PROCEEDINGS

 

In the ordinary course of business, we may be subject to litigation from time to time. Except as discussed below, there is no current, pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of such party) which in our opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.

 

There is pending in the Supreme Court of the state of New York county of New York (Index No. 656191/2017) an action entitled MLF3 NWJ LLC filed in October of 2017, suing Nickolas W. Jekogian, III, Presidential Realty Corporation, Presidential Realty Operating Partnership LP, First Capital Real Estate Trust Incorporated, First Capital Real Estate Operating Partnership, Nickolas W. Jekogian, JR. as trustee of The BBJ Family Irrevocable Trust, Alexander Ludwig, Signature Group Advisors LLC, Richard Brandt, Marjorie Feder as Executrix of the Estate of Robert Feder, Jeffrey F. Joseph, Jeffrey Rogers.

 

The litigation is related to actions taken by Mr. Jekogian individually on a real estate project and personal guarantee that predated his involvement with the Company. The Plaintiff had received a judgment against Mr. Jekogian for approximately $1,500,000, in addition to attorneys’ fees, and had filed a lien on assets owned individually by Mr. Jekogian including certain options and warrants to purchase stock in the Company.   When the Company entered into the Contribution Agreement with FC REIT in January of 2017, Mr. Jekogian surrendered these options and warrants to purchase stock in the Company as part of the transaction. The Plaintiff is arguing that they had a lien on Mr. Jekogian’s options and warrants in the Company and that the actions taken by the Company, its Officers and Directors, in entering into the Contribution Agreement with FC REIT fraudulently conveyed their interests in the options and warrants owned by Mr. Jekogian and damaged their position. The Company, its Officers and Directors, named in this action had no involvement in this personal matter relating to Mr. Jekogian and answered the complaint in February of 2018 stating that it had no merit.   Since that time, the Company has received no additional notification that the action against the Company, its Officers and Directors is moving forward. The Company believes that as to the Company, Officers and Directors, the claims have no merit.

 

ITEM 4.Mine Safety Disclosures

 

Not applicable.

 

13

 

 

PART II.

 

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

 

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

 

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

 

   Class A   Class B 
Calendar 2021  High   Low   High   Low 
First Quarter  $.20   $.09   $.05   $.02 
Second Quarter   .64    .10    .10    .01 
Third Quarter   .60    .02    .05    .00 
Fourth Quarter   1.10    .10    .50    .00 
                     
Calendar 2020                    
First Quarter  $ .08   $ .04   $ .01   $ .01 
Second Quarter   .15    .06    .03    .01 
Third Quarter   .08    .01    .02    .01 
Fourth Quarter   .55    .01    .05    .03 

 

(b) The number of aggregate record holders for the Company’s Class A and Class B Common Stock at March 31, 2022 was 341 holders.

 

(C ) Under the Code, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed in 2021 and 2020, the Company did not pay any dividends. Management does not believe that any dividend will be payable in respect to 2021. We cannot promise that we will continue to be taxed as a REIT, or that we will have sufficient cash to pay dividends in order to maintain REIT status. See Item 1. - Business – (e) Qualification as a REIT above.

 

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ITEM 6.[RESERVED]

 

None.

 

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

 

Overview

 

We own 100% of the Mapletree Industrial Center located in Palmer, Massachusetts. This is a multi-tenant rental facility which was originally the Wickwire-Spencer Wire Mill until 1970 at which time it became rental space. The property consists of 31 buildings located on approximately 48 acres.Major tenants include Creative Material Technologies office and lab, Consolidated Lumber Transport office, Australian natural Soapworks, ESSROC Materials (a Portland cement distributor), Michael Houle, JP Mc Carthy & Sons and American Cable Assembly. The property offers traditional office space and industrial/warehouse space along with vacant land with rail access ready for development. The buildings comprise a total of 315,540 square feet, of which 313,639 is rentable.

 

We own a 31.3333% non-controlling joint venture partnership interest in Avalon Jubilee LLC located in LosLunas, New Mexico the Avalon Property consisted of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land in Los Lunas, New Mexico.

 

We outsource the property management of the Mapletree Industrial Center to Signature Community Management LLC (“Signature”) and our asset management to Signature Community Investment Group LLC (“SCIG”), companies owned by our CEO. We accrued a property management fee of $45,587 and an asset management fee of $13,639 during 2021.

 

15

 

 

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

 

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit on the Mapletree Property. $123,757 of the Loan proceeds was set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly payments of $11,308. The outstanding balance of the loan and unamortized mortgage costs at December 31, 2021 and 2020 was $1,529,570 and $56,045, respectively and $1,570,383 and $71,777, respectively. The Company is required to maintain certain Financial Covenants. The Company was compliance with the covenants at December 31, 2021.

 

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. Management has discussed with the Audit Committee the implementation of the critical accounting policies described below and the estimates required with respect to such policies.

 

Basis of presentation

 

At December 31, 2021, the Company had a loss from operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

 

Real Estate

 

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

 

The Company reviews its properties for impairment if events or changes in circumstances warrant. If impairment were to occur, the property would be written down to its estimated fair value. The Company assesses the recoverability of its investment in real estate based on undiscounted cash flow estimates. The future estimated cash flows of a property are based on current rental revenues and operating expenses, as well as the current local economic climate affecting the property. Considerable judgment is required in making these estimates and changes in these estimates could cause the estimated cash flows to change and impairment could occur. As of December 31, 2021, the Company’s net real estate was carried at $644,300

 

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Rental Revenue Recognition

 

Rental revenues include revenues from the leasing of space at our Mapletree Property, which primarily consist of monthly base rents in addition to the reimbursement of utilities. Other rental revenues, which are included as a component of rental revenue, primarily include fees related to build-out or other services performed by the Company on the property.

 

The Company adopted ASU 2014-09, Revenue from Contracts with Customers ( ASC 606) effective January 1, 2018, and its adoption did not have a material effect on the consolidated financial statements, as the majority of the Company’s revenue is recognized under ASC 840, Leases, and subsequently ASC 842, Leases, upon its adoption, which are scoped out of ASC 606. ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contract with customers and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. The Company’s other rental revenues recognized in accordance with ASC 606 are recognized over time as the performance obligations are satisfied. Such revenues are not material to the consolidated financial statements.

 

Revenues from the leasing of space at our property to tenants includes (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of electric expense and (ii) reimbursement of real estate taxes. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.

 

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease, together with renewal options that are reasonably certain of being exercised. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of real estate taxes and electric expense are generally recognized in the same period as the related expenses are incurred, which did not change as a result of the adoption of ASU 2016-02

 

The Company assess the collectability of lease receivables (including future minimum rental payments) both at commencement and throughout the lease term. If our assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis in accordance with ASC 842. 

 

Allowance for Doubtful Accounts

 

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Any subsequent recovery of tenant receivable that were previously reserved is recorded as a reduction in the allowance of bad debt. As of December 31, 2021 and 2020, the allowance relating to tenant receivables was $6,235 and $6,764, respectively.

 

Investments in Joint Venture

 

The Company has an equity investment in joint venture and accounts for this investment using the fair value method of accounting.

 

Income Taxes

 

We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of our ordinary tax loss for 2021 there is no requirement to make a distribution in 2022. In addition, no provision for income taxes was required at December 31, 2021. If the Company fails to distribute the required amounts of income to its shareholders, or otherwise fails to meet the REIT requirements, we would fail to qualify as a REIT and substantial adverse tax consequences could result. We believe that we will not be required to pay a dividend in 2022 to maintain our REIT status.

 

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Results of Operations

 

Results of Operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 were as follows:

 

   2021   2020 
Total revenue  $1,030,141   $1,017,613 
Operating expenses   559,853    600,335 
Net (loss)  $(47,750)  $(7,881)

 

Revenues increased by $12,528 for the year ended December 31, 2021, compared to the year ended December 31, 2020, as a result of higher occupancy at the Mapletree Industrial Center.

 

Net loss for the year ended December 31, 2021, was $47,750 compared to net loss of $7,881 for the year ended December 31, 2020, a larger loss of $39,869 for the year. The increase was comprised of higher general and administrative expenses of $134,644 caused by increases in insurance and professional fees, offset by a decrease of $40,482 in operating expense from lower payroll costs at the Mapletree Property, increases in rental revenue of $12,528, and other income from the PPP loan forgiveness of $42,100. We incurred additional accounting and legal fees in connection with filing our 2017-2020 10K to bring the Company’s SEC financial filings current and legal fees in the exploration of strategic growth transactions for the Company.

 

Balance Sheet

 

December 31, 2021, compared to December 31, 2020

 

Net real estate decreased by approximately $15,000 as a result of additions and improvements to our Mapletree property of approximately $43,000 offset by depreciation expense of approximately $58,000 in 2021.

 

Prepaid expenses increased by approximately $1,000 primarily as a result of higher insurance costs in connection with the Mapletree property and corporate directors and officer’s insurance.

 

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Mortgage escrow increased by approximately $1,500 primarily due to the timing of improvements made to the Mapletree property during 2021.

 

Accounts payable and accrued liabilities increased by approximately $71,000 primarily due to higher legal and accounting fees related to filing of our 2017-2020 10K to bring the Company's SEC financial filings current and the exploration of strategic growth transactions for the Company.

 

Liquidity and Capital Resources

 

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

 

The Company had a loss from continuing operations at December 31, 2021. This, combined with a history of operating losses and working capital deficiency, has been detrimental to our ability to grow the Company.

 

At December 31, 2021, we had $225,029 in available cash, an increase from December 31, 2020. The increase in cash was due to cash provided by operating activities of $104,302, offset by $43,033 used for capital improvements and $40,813 in principal payments.

 

(a)Insurance

 

The Company carries comprehensive liability, fire, extended coverage, auto, workman’s compensation, rental loss and acts of terrorism insurance on its properties. The Company also carries director and officer insurance. Management believes that its properties are adequately covered by insurance. In 2021, the cost for this insurance was approximately $159,000.

 

(b)Operating Activities

 

Cash from operating activities includes net cash received from rental property operations. Net cash received from rental property operations was approximately $114,034. Net cash received from rental property operations is before additions and improvements and mortgage amortization.

 

(c)Investing Activities

 

During 2021, the Company invested $43,033 in additions and improvements to its property.

 

(d)Financing Activities

 

During 2021, the Company made principal payments of $40,813 in connection with the Mapletree property.

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

Our financial instruments consist of mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so our cash flows from them are not directly impacted by changes in market rates of interest. However, changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. We do not own any derivative financial instruments or engage in hedging activities.

 

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Table of Contents to Consolidated Financial Statements. 

 

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

 

None.

 

ITEM 9A.CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and President, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, 2021. Based on this evaluation, our Chief Executive Officer and our President concluded that as of December 31, 2021, our disclosure controls and procedures were effective at providing reasonable assurance that the information required to be disclosed by the Company is recorded, processed and summarized in an accurate matter.

 

(b) Internal Controls over Financial Reporting 

 

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

 

●Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

 

●Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and

 

●Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

 

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

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting at December 31, 2021.

 

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

 

(c) Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of Fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.OTHER INFORMATION

 

None.

 

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PART III.  

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers of the Company

 

Name of Director (Age)

  

Position with Company and
Principal Occupation

  

Director Since

         
Nickolas W. Jekogian III (52)   Director, Chairman and Chief Executive Officer; Owner and Chief Executive Officer of Signature Community Investment Group LLC, Signature Community Management LLC   2011
         
Jeffrey F. Joseph (80)   Director, Audit Chair   1993
         
Alexander Ludwig (51)   Director, President, Chief Operating Officer and Principal Financial Officer    2011

 

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

 

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

 

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

 

Family Relationships

 

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

 

Involvement in Certain Legal Proceedings

 

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

 

●been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

●had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

●been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

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●been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

  ● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  ● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Section 16(A) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% stockholders are required by regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of reports we received, or written representations that no such reports were required for those persons, we believe that, for the years ended December 31, 2021and 2020 that all statements of beneficial ownership required to be filed with the Securities and Exchange Commission were filed on a timely basis. 

 

Code of Ethics

 

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

 

Audit Committee

 

The sole member of the Audit Committee from January 1, 2021 and through the date of the filing is Jeffrey Joseph. The function of the Audit Committee, which is established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act, is to oversee the accounting and financial reporting process of the Company and the audits of the financial statements of the Company. The sole member of the Audit Committee is independent (as defined in Section 803A(2) of the NYSE Amex Company Guide). The Board of Directors has adopted a written Charter for the Audit Committee.

 

The Board of Directors has determined that Jeffrey Joseph, the sole member of the Audit Committee, is financially sophisticated as defined by Section 803B(2)(a)(iii) of the NYSE Amex Company Guide. The Board does not believe that it is necessary to have a member of the Audit Committee who meets the definition of a financial expert pursuant to Item 407(d) of Regulation S-K because the sole member of the Audit Committee satisfies the NYSE Amex requirements for Audit Committee membership applicable to NYSE Amex listed companies and, as mentioned above, the sole member of the Audit Committee is a financially sophisticated individual as defined by the NYSE Amex Company Guide. In addition, the sole member of the Audit Committee has been involved with the company and its operations for many years and is familiar with the business and accounting practices of the Company. The Charter of the Audit Committee is filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held June 15, 2009, filed with the SEC on April 27, 2009, and is available on the SEC’s website, www.sec.gov, and Presidential’ s website, www.presrealty.com.

 

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ITEM 11.EXECUTIVE COMPENSATION

 

Remuneration of Executive Officers

 

The following table and discussion summarize the compensation for the two years ended December 31, 2021, and 2020 of the Chief Executive Officer and Principal Financial officer/Chief Operating Officer/President of the Company who served as such during fiscal 2021 and those persons serving in such capacity at December 31, 2021. There were no other executive officers at December 31, 2021.

 

Summary Compensation Table

 

Name and Principal Position  Year   Salary
($)		   All Other
Compensation (2)
($)		   Total
($)		 
Nickolas W. Jekogian III (1)   2021    -0-    45,399    45,399 
Chairman, Chief Executive Officer and Director   2020    -0-    43,994    43,994 
                     
Alexander Ludwig President (1)   2021    -0-    15,930    15,930 
Chief Operating Officer, Principal Financial Officer and Secretary   2020    -0-    15,436    15,436 

 

(1)Elected as an officer effective November 16, 2011.
  
(2)All other compensation was entirely comprised of annual health care coverage for both Mr. Jekogian and Mr. Ludwig for 2021 and 2020.

 

Outstanding Equity Awards at Fiscal Year-End

 

   Option Awards  Stock Awards
Name   Number of securities underlying unexercised options exercisable   (#)     Number of securities underlying  unexercised   options   unexercisable (#)  Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)  Option
exercise
price per
share
($)		 

Option
expiration
date 

  Number of shares or units of stock that have not
vested
(#)		  Market
value  of shares or units of
stock that
have not
vested
($) 		 Equity incentive plan awards: Number of unearned shares, units or other rights that have
not vested
(#) 		  Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) 
                             
Alexander Ludwig  0  550,000  0   .00   January 6, 2027             

 

Employment Agreements and Stock Option Agreements

 

Nickolas W. Jekogian III– On January 6, 2017, as part of the First Capital transaction Mr. Jekogian entered into a Cancellation and Release Agreement for the cancellation of all stock options and warrants held by Mr. Jekogian as of such date, termination of his Employment Agreement effective as of such date and forgiveness of accrued compensation of $709,745 owed. As a result, the accrued salary which was forgiven was recorded as a component of additional paid in capital during the year ended December 31, 2017. Mr. Jekogian will continue as an employee of the Company in his capacity as Chairman and Chief Executive Officer on a month-to-month basis until such time as otherwise determined by the Company in its sole discretion. Mr. Jekogian has not received any salary for the year ended December 31, 2021 nor do we anticipate paying him any salary in 2022.

 

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

 

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

 

On January 6, 2017 as part of the First Capital transaction the Company and Mr. Ludwig, our President and Chief Operating Officer, entered into a Cancellation and Release Agreement for the cancellation of all stock options and warrants held by Mr. Ludwig as of such date in consideration for the issuance of (x) 450,000 shares of Class B common stock of the Company and (y) an option to purchase an additional 550,000 shares of Class B common stock of the Company. The exercise of such option is subject to certain conditions, including that the Company has consummated an equity offering, capital raise or such other offering such that the issuance of any shares of Class B common stock of the Company covered by Mr. Ludwig’s option would not be deemed “Excess Shares” as that term is defined in the certificate of incorporation of the Company. The exercise price is $0.00. The Company has not recognized any share-based compensation associated with this award based on the contingent performance condition which is not probable of occurring.

 

In June of 2017, the Board of Directors notified Mr. Ludwig that due to financial constraints on the company that he would no longer be receiving his salary. We do not anticipate paying him any salary in 2022.

 

Compensation of Directors

 

In connection with filing our annual reports for the years ended December 31, 2021, 2020, 2019, 2018 and 2017 our non-management director received $15,000 in cash compensation, which was paid in 2022.

 

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

 

As of March 31, 2022, there were 442,533 shares of Class A common stock and 4,746,147 shares of Class B common stock outstanding.

 

The following tables set forth certain information regarding our Class A and Class B common stock beneficially owned as of March 31, 2022, for (i) each stockholder known to be the beneficial owner of 5% or more of any class of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group.  A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

 

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For purposes of the table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of March 31, 2022. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of March 31, 2022 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth information as of the date noted in the footnotes about persons, (whose ownership of our common stock is set forth in the previous table), who, to our knowledge, as of March 31, 2022, beneficially owned more than 5% of any class of our outstanding shares of common stock determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934 and the directors, and executive officers of Presidential owned beneficially the following amounts and percentages of the Class A and Class B common stock of Presidential:

 

   Class A Common
Beneficially Owned and Percentage of Class		   Class B Common 
Beneficially Owned and Percentage of Class		   Percentage of all Outstanding Stock (Class A and B Combined) 
Name of Beneficial Owner  Number of
shares		   %   Number of
shares		   %   % 
                     
Nickolas W. Jekogian, Jr.,
Trustee of the BBJ Irrevocable Family Trust
312 Lewis Rd
Broomall, PA 19008		   226,013    51.1%   250,000    5.0%   9.2%
                          
Alexander Ludwig, Director, President,
C/O Presidential Realty Corporation
Chief Operating Officer, Principal Financial Officer,
530 Seventh Avenue, Suite 407
New York, NY 10018		             450,000    9.4%   8.7%
                          
Alex B Gray (1)
6519 Oxford Avenue.
Zionsville, IN 46077		             410,539    8.7%   7.9%
                          
Jeffrey F. Joseph, Director
C/O Presidential Realty Corporation
530 Seventh Avenue, Suite 407
New York, NY 10018		   4,344    1.0%   390,720    8.2%   7.6%
                          
The Estate of Richard Brant, Deceased
4555 E Mayo Blvd Apt #5308
Phoenix, AZ 85050		             291,000    6.1%   5.6%
                          
The Estate of Robert Feder, Deceased
4 Samuel Purdy Lane
Katonah, NY 10536		             286,000    6.0%   5.5%
                          

Jeffrey Rogers

12 E. 86th St. Unit 921

New York, NY 10028

             242,000    5.1%   4.7%
                          
All officers and directors as a group (3 persons)   4,344    1%   840,720    17.6%   16.3%

 

(1)Includes 73,400 shares owned by Mr. Gray’s wife for whom he shares voting power and 20,000 shares held in custodial accounts for his children which he has the right to vote but in which he disclaims any primary interest.

 

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

 

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

 

BBJ Family Irrevocable Trust owns 226,013 shares of Class A common stock and 250,000 shares of Class B common stock. The trust was formed in September 2009 by Mr. Jekogian for the benefit of family members including Mr. Jekogian's parents, grandparents, wife, sister, children, nieces and nephews. The trustee of the trust is Mr. Jekogian’s father and Mr. Jekogian remains the protector of the Trust. There is no agreement between the trustee of the trust and Mr. Jekogian as to how the shares of Class A common stock acquired by the trust will be voted or otherwise dealt with the ownership restrictions in our certificate of incorporation define ownership under both Subchapter M, Part II of the Code and Rule 13d-3 under the Securities Exchange Act of 1934. The BBJ Irrevocable Family Trust has entered into agreements with us pursuant to which, among other things, they acknowledge that they are not entitled to vote or transfer any excess shares and that if they hold such shares, they hold them in trust for the Company.

 

The following table sets forth certain information as of December 31, 2021, relating to the Company’s equity compensation plans:

 

Plan Category   Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights		   Weighted average
exercise price of
outstanding options,
warrants and rights		   Number of securities
remaining available for
further issuance under
equity compensation plans
(excluding securities
reflected in column (a))
    (a)   (b)   (c)
Equity compensation plans approved by security holders   None   None   1,000,000 Class B
Common Shares
             

Equity compensation not Approved by the security Holders

   550,000   $-0-   None

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Independent Directors

 

The Board has determined that Jeffrey Joseph, is an independent director pursuant to Section 803A(2) of the NYSE MKT LLC Company Guide.

 

Conflicts of Interest and Fiduciary Duties  

 

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

 

26

 

 

Indemnification of Directors and Officers

 

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

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

The following table presents fees billed for professional services rendered by Baker Tilly US LLP (“Baker Tilly”) for the audit of the Company’s financial statements for the fiscal year ended December 31, 2021, and fees for other services rendered by Baker Tilly during the year.

 

   2021   2020 
Audit Fees (a)  $50,000   $40,000 
Audit-Related Fees   10,000    - 
Taxes   -    - 
All Other Fees   -    - 
Total  $60,000   $40,000 

 

(a)Fees for audit services consisted of the audit of the Company’s annual consolidated financial statements and review of the Company’s quarterly financial statements.

 

Policy on Pre-Approval of Independent Registered Public Accounting Firm

 

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

 

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

 

27

 

 

PART IV.

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

SUBJECT TO FUTHER REVIEW FOR INCLUSION

 

3.1   Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.5 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).
     
3.2   Certificate of Amendment to Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1-8594).
     
3.3   Certificate of Amendment to Certificate of Incorporation of the Company, filed July 21, 1988 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 1-8594).
     
3.4   Certificate of Amendment to Certificate of Incorporation of the Company, filed on September 12, 1989 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 1-8594).
     
3.5   Certificate of Amendment to Certificate of Incorporation of the Company, filed on August 15, 2012 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit A to the Company’s definitive Proxy Statement for its Annual Meeting to Shareholders filed with the Securities and Exchange Commission on July 3, 2012, Commission File No. 1-8594).
     
3.6   By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).
     
4.1   2012 Equity Incentive Plan and Forms of Award Agreements (incorporated herein by reference to Exhibit B to the Company’s definitive Proxy Statement for its Annual Meeting to Shareholders filed with the Securities and Exchange Commission on July 3, 2012, Commission File No. 1-8594).
     
10.1   Property Management Agreement, dated November 8, 2011, between Presidential Realty Corp. and Signature Community Investment Group LLC (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594)
     
10.2   Asset Management Agreement, dated November 8, 2011, between Presidential Realty Corp. and Signature Community Investment Group LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).
     
10.3   Executive Employment Agreement, dated November 8, 2011, between Presidential Realty Corp. and Nickolas W. Jekogian, III (incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).
     
10.4   Warrant issued January 8, 2014 to Nickolas W. Jekogian to purchase 1,700,000 shares of Class B Common Stock. (incorporated herein by reference to Exhibit 4 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).
     
10.5   Amendment dated January 8, 2014 to the Employment Agreement dated November 8, 2011 between the Company and Nickolas W. Jekogian (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).
     
10.6   Option Agreement, dated November 8, 2011, between Presidential Realty Corp. and Nickolas W. Jekogian, III (incorporated herein by reference to Exhibit 10.5 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).
     
10.7   Executive Employment Agreement, dated November 8, 2011, between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).
     
10.8   Amendment dated January 8, 2014 to the Employment Agreement dated November 8, 2011 between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on January 15, 2014, Commission File No. 1-8594).
     
10.9   Option Agreement, dated November 8, 2011, between the Company and Alexander Ludwig (incorporated herein by reference to Exhibit to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594)
     
10.10   Form of Indemnification Agreement between Presidential Realty Corp. and each officer and director (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K as filed on November 9, 2011, Commission File No. 1-8594).

 

28

 

 

10.11   Loan Agreement dated as of July 28, 2015 between Palmer-Mapletree LLC and Natixis Real Estate Capital LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).
     
10.12   Promissory Note dated as of July 28, 2015, by Palmer-Mapletree LLC in favor of Natixis Real Estate Capital LLC ( incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).
     
10.13   Mortgage, Assignment of Leases and Rents and Security Agreement dated as of July 28, 2015, by Palmer-Mapletree LLC to Natixis Real Estate Capital LLC. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).
     
10.14   Guaranty of Recourse Obligations dated as of July 28, 2015, by Presidential Realty Corporation in favor of Natixis Real Estate Capital LLC. (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K as filed on August 3, 2015, commission file No. 1-8594).
     
14.   Code of Business Conduct and Ethics of the Company
     
21.   List of Subsidiaries of Registrant.
     
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.
     

101.INS

   Inline XBRL Instance Document.
     

101.SCH

   Inline XBRL Taxonomy Extension Schema Document.
     

101.CAL

  

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

     

101.DEF

   Inline XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB  

Inline XBRL Taxonomy Extension Label Linkbase Document.

     

101.PRE

   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

29

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of March, 2022

 

  PRESIDENTIAL REALTY CORPORATION
     
  By: /s/ Nickolas W. Jekogian III
   

Nickolas W. Jekogian III

Chief Executive Officer and Chairman of the Board

   
  By: /s/ Alexander Ludwig
    Alexander Ludwig
    President, Chief Operating Officer and
Principal Financial Officer

  

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

 

Signature and Title   Date   March 31, 2022
         
By /s/ NICKOLAS W. JEKOGIAN III      
  Nickolas W. Jekogian III      
  Director, Chairman and Chief Executive Officer      
         
By: /s/ JEFFREY F. JOSEPH      
  Jeffrey F. Joseph      
  Director      
         
By: /s/ ALEXANDER LUDWIG      
  Alexander Ludwig      
  Director, President, Chief Operating Officer and Principal Financial Officer      

 

30

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-2
     
CONSOLIDATED FINANCIAL STATEMENTS:    
     
Consolidated Balance Sheets – December 31, 2021, and 2020   F-4
     
Consolidated Statements of Operations for the Years Ended December 31, 2021, and 2020   F-5
     
Consolidated Statements of Deficit for the Years Ended December 31, 2021, and 2020   F-6
     
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, and 2020   F-7
     
Notes to Consolidated Financial Statements   F-8

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 
 

 

Baker Tilly US, LLP

8219 Leesburg Pike, Ste 800

Tysons, VA 22182-2625

 

T: +1 (703) 923 8300

F: +1 (703) 923 8330

 

bakertilly.com

 

To the shareholders and the board of directors of Presidential Realty Corporation:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Presidential Realty Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ deficit, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

F-2

 

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Investment in Partnership (Refer to Notes 1 and 3 to the consolidated financial statements)

 

Critical Audit Matter Description

 

As described in Notes 1 and 3 to the consolidated financial statements, the Company has an equity investment in a joint venture and accounts for this investment using the fair value method of accounting. As a result, the unrealized gain or loss measured on an annual basis is based on the change in fair value of the equity investment and is recognized as a component of net income within the consolidated statements of operations. Fair value is determined based on estimated cash flow projections that utilize discount and capitalization rates and available market information. The Company’s discounted cash flows require management to make significant estimates and assumptions related to future lot sales prices, estimated lot take downs, capitalization rates, and discount rates. Due to the significant estimates and assumptions management is required to make, we identified the fair value option of accounting for this investment as a critical audit matter. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

 

How We Addressed the Matter in Our Audit

 

The primary procedures we performed to address this critical audit matter included:

 

●We obtained an understanding and evaluated the design and implementation of controls over the investment valuation process. This included management’s review over the assessment of the methodology, significant inputs and assumptions included in the fair value estimate, as well as management’s review around the completeness, accuracy and reasonableness of the data used in this estimate

 

●Our audit procedures assessed whether the valuation methodology used was appropriate and tested the mathematical accuracy of the valuation model.

 

●We evaluated whether the assumptions used were reasonable by considering the past performance and third-party market data, and whether such assumptions were consistent with evidence obtained in other areas of the audit.

 

/s/ Baker Tilly US LLP

 

We have served as the Company’s auditor since 2021.

 

Tysons, Virginia

 

March 31, 2022

 

PCAOB ID:32

 

F-3

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

           December 31, 
           2021   2020 
Assets                
                 
Real estate            $1,545,347   $1,502,314 
Less: accumulated depreciation             901,047    843,239 
                     
Net real estate             644,300    659,075 
Investment in Avalon Jubilee, LLC             -    
-
 
Prepaid expenses             89,411    88,538 
Other receivables (net of valuation allowance of $6,235 in 2021 and $6,764 in 2020)             25,982    41,202 
Cash             225,029    206,112 
Mortgage escrow             59,603    58,064 
Other assets             5,304    5,291 
Total Assets            $1,049,629   $1,058,282 
                     
Liabilities and Equity                    
                     
Liabilities:                    
Mortgage payable, net            $1,473,525   $1,498,606 
Accounts payable and accrued liabilities             399,985    328,623 
Other liabilities             77,501    84,685 
                     
Total Liabilities             1,951,011    1,911,914 
                     
Presidential Stockholders’ Deficit:                    
Common stock: par value $.00001 per share                    
                     
    December 31,
2021		    December 31,
2020		           
Class A                    
Authorized:   700,000    700,000           
Issued and Outstanding:
   442,533    442,533    4    4 
                     
Class B                    
Authorized:   999,300,000    999,300,000           
Issued and Outstanding:
   4,746,147    4,746,147    47    47 
                     
Additional paid-in capital             8,122,108    8,122,108 
Accumulated deficit             (9,023,541)   (8,975,791)
Total Stockholders’ Deficit             (901,382)   (853,632)
Total Liabilities and Stockholders’ Deficit            $1,049,629   $1,058,282 

 

See notes to consolidated financial statements.

 

F-4

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   YEARS ENDED DECEMBER 31, 
   2021   2020 
Revenues:        
Rental  $1,030,141   $1,017,613 
Total Revenue   1,030,141    1,017,613 
           
Costs and Expenses:          
General and administrative   348,184    213,540 
           
Rental property:          
Operating expenses   559,853    600,335 
Interest expense and amortization of mortgage costs   110,621    112,739 
Real estate taxes   43,541    44,671 
Depreciation on real estate   57,808    54,240 
           
Total Costs and Expenses   1,120,007    1,025,525 
           
Other Income:          
SBA PPP Loan forgiveness   42,100    
-
 
Investment income   16    31 
           
Net loss  $(47,750)  $(7,881)
           
Net loss per Common Share -basic  $(0.01)  $(0.00)
Net loss per Common Share -diluted  $(0.01)  $(0.00)
Weighted Average Number of Shares Outstanding          
basic   5,188,718    5,188,718 
diluted   5,188,718    5,188,718 

 

F-5

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

   Common
Stock		   Additional
Paid-in
Capital		   Accumulated
Deficit		   Total
Stockholders’
Equity
(Deficit)		 
Balance at January 1, 2020  $51   $8,122,108   $(8,967,910)  $(845,751)
                     
Net loss   
-
    
-
    (7,881)   (7,881)
                     
Balance at December 31, 2020  $51   $8,122,108   $(8,975,791)  $(853,632)
                     
Net loss   
-
    
-
    (47,750)   (47,750)
                     
Balance at December 31, 2021  $51   $8,122,108   $(9,023,541)  $(901,382)

 

F-6

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   YEARS ENDED DECEMBER 31, 
   2021   2020 
Net loss  $(47,750)  $(7,881)
           
Adjustments to reconcile net loss to net cash flow from operating activities:          
Depreciation and amortization   73,540    69,972 
Bad debt   2,504    8,697 
Loan forgiveness SBA PPP   (42,100)   
-
 
Changes in assets and liabilities:          
Decrease (increase) in:          
Other receivables   12,716    (29,433)
Prepaid expenses   (873)   (21,333)
Other assets   (13)   (24)
Increase (decreases) in:          
Accounts payable and accrued liabilities   113,462    45,145 
Other liabilities   (7,184)   (5,839)
           
Total adjustments   152,052    67,185 
           
Net cash flow provided by operating activities   104,302    59,304 
           
Cash Flows from Investing Activities:          
Payments disbursed for capital improvements   (43,033)   (109,449)
           
Net cash flow (used in) investing activities   (43,033)   (109,449)
           
Cash Flows from Financing Activities:          
Proceeds from SBA PPP loan   
-
    42,100 
Principal payments on mortgage debt   (40,813)   (38,133)
           
Net cash flow (used in) provided by financing activities   (40,813)   3,967 
           
Net increase (decrease) in cash and restricted cash   20,456    (46,178)
           
Cash and restricted cash, Beginning of Year   264,176    310,354 
           
Cash and restricted cash, End of Year (1)  $284,632   $264,176 
Supplemental cash flow information:          
Interest paid in cash  $94,889   $97,006 

 

(1)This line item includes restricted cash of $59,603 and $58,064 at December 31, 2021 and 2020, respectively. these amount are presented in the “mortgage escrow” caption on the accompanying consolidated balance sheets.

 

F-7

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.Organization and Summary of Significant Accounting Policies

 

Organization

 

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

 

Basis of Presentation

 

At December 31, 2021, the Company had a loss from operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

 

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

 

Real Estate

 

Real estate is stated at cost. Generally, depreciation is provided on the straight-line method over the assets estimated useful lives, which range from twenty to thirty-nine years for buildings and improvements and from three to ten years for furniture and equipment. Maintenance and repairs are charged to operations as incurred and renewals and replacements are capitalized. The Company reviews each of its property investments for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment of properties is determined to exist when estimated amounts recoverable through future operations on an undiscounted basis are below the properties carrying value. If a property is determined to be impaired, it is written down to its estimated fair value. As of December 31, 2021, and 2020, the Company did not identify any indicators of impairment.

 

Principles of Consolidation

 

The Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary, generally as a result of having the power to direct the activities that most significantly affect the VIE’s economic performance and holding variable interest that convey to the Company the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

 

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

 

Investments in Joint Venture

 

The Company has an equity investment in a joint venture and accounts for this investment using the fair value method of accounting.

 

Revenue Recognition

 

Rental revenues include revenues from the leasing of space at our Mapletree Property, which primarily consist of monthly base rents in addition to the reimbursement of utilities. Other rental revenues, which are included as a component of rental revenue, primarily include fees related to build-out or other services performed by the Company on the property.

 

F-8

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.Organization and Summary of Significant Accounting Policies (Continued)

 

Revenue Recognition (continued)

 

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) effective January 1, 2018, and its adoption did not have a material effect on the consolidated financial statements, as the majority of the Company’s revenue is recognized under ASC 840, Leases, and subsequently ASC 842, Leases, upon its adoption, which are scoped out of ASC 606. ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contract with customers and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. The Company’s other rental revenues recognized in accordance with ASC 606 are recognized over time as the performance obligations are satisfied. Such revenues are not material to the consolidated financial statements.

 

The Company adopted ASU 2016-02, Leases (ASC 842) effective January 1, 2019, and its adoption did not have a material effect on the consolidated financial statements. As a lessor, the adoption of ASU 2016-02 (as amended by subsequent ASUs) did not change the timing of revenue recognition of the Company’s rental revenues. Revenues from the leasing of space at our property to tenants includes (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of electric expense and (ii) reimbursement of real estate taxes. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.

 

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease, together with renewal options that are reasonably certain of being exercised. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of real estate taxes and electric expense are generally recognized in the same period as the related expenses are incurred, which did not change as a result of the adoption of ASC 842.

 

The Company assess the collectability of lease receivables (including future minimum rental payments) both at commencement and throughout the lease term. If our assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis in accordance with ASC 842.

 

Allowance for Doubtful Accounts

 

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Any subsequent recovery of tenant receivable that were previously reserved is recorded as a reduction in the allowance of bad debt. As of December 31, 2021 and 2020, the allowance relating to tenant receivables was $6,235 and $6,764, respectively.

 

F-9

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.Organization and Summary of Significant Accounting Policies (Continued)

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding (excluding non-vested shares) during each period. Diluted net income (loss) per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of non-vested shares. For the years ended December 31, 2021 and 2020 the weighted average shares outstanding as used in the calculation of diluted loss per share do not include 550,000, of outstanding stock options, as their inclusion would be antidilutive.

 

Cash and cash equivalents

 

Cash includes cash on hand, cash in banks and cash in money market funds. Cash equivalents represent short-term, highly liquid investment which are readily convertible to cash and have maturities of three months or less.

 

Management Estimates

 

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

 

Accounting for Stock Awards

 

The Company recognizes the cost of employee and non-employee services received in exchange for awards of equity instruments as stock-based compensation expense. Stock-based compensation expense is measured at the grant date based on the fair value of the stock award and options, is recognized as an expense, less expected forfeitures, over the requisite service period, which typically equals the vesting period. Stock-based compensation expense for the years ended December 31, 2021 and 2020 was $0.

 

Accounting for Income Taxes

 

The Company accounts for income taxes utilizing the asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected future tax consequences of net operating loss carryforwards and temporary differences between the basis of assets and liabilities for financial reporting purposes and tax purposes and for net operating loss and other carryforwards. A valuation allowance is provided for deferred tax assets based on the likelihood of realization.

 

The Company recognizes the benefit of an uncertain tax position that it has taken or expect to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

 

The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the applicable statutes of limitation expire. As of December 31, 2021, the tax years after 2018 remain subject to examination. The Company did not record unrecognized tax positions for the years ended December 31, 2021 and 2020.

 

Mortgage costs

 

The Company amortizes mortgage costs over the life of the loan.

 

F-10

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.Organization and Summary of Significant Accounting Policies (Continued)

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements.

 

2.Real Estate

 

Real estate is comprised of the following:

 

   December 31,
2021		   December 31,
2020		 
         
Land  $79,100   $79,100 
Buildings   1,401,611    1,360,460 
Furniture and equipment   64,636    62,754 
Total  $1,545,347   $1,502,314 

 

Rental revenue from our Mapletree Property constituted all of the rental revenue for the Company for the years ended December 31, 2021, and 2020.

 

3.Investment in Partnership

 

We own a 31.3333% interest in Avalon Jublee, LLC partnership with an aggregate fair value of $0. The Company has elected the fair value option versus accounting under the equity method as the fair value better represents the Company’s expected realization of this investment.

 

On December 31, 2021 the Avalon Property consisted of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land in Los Lunas, New Mexico.

 

F-11

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

3.Investment in Partnership (Continued)

 

Summary financial information for Avalon Property (31.3333% owned) accounted for by the fair value method is as follows:

 

  

December 31,

 
   2021   2020 
Condensed balance sheet        
Cash  $123,198   $114,223 
Accounts receivable   16,575    394,158 
Inventory   2,165,837    2,266,107 
Fixed assets net   
-
    320 
Other assets   
-
    68,690 
Total assets  $2,305,610   $2,843,498 
           
Accounts payable  $504,547   $1,054,716 
Other liabilities   690,978    378,563 
Loans from partners   555,104    320,000 
Mortgages   
-
    485,104 
Partners’ capital   554,981    605,115 
Total liabilities and capital  $2,305,610   $2,843,498 
           
Condensed statement of operations          
Gross receipts  $1,504,299   $554,692 
Cost of goods sold   1,033,214    281,932 
Gross profit   471,085    272,760 
Other expenses(income)   537,916    262,263 
Net income (loss)   (66,831)   10,497 
Net income (loss) attributed to Presidential Realty Corporation  $(20,940)   3,289 

 

F-12

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

4.Mortgage Debt

 

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit on the Mapletree Property. $123,757 of the Loan proceeds was set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly principal and interest payments of $11,308 and escrows for insurance, taxes and capital improvements. Escrow balances are considered restricted cash. The mortgage is presented net of unamortized Mortgage costs, the outstanding balance of the loan and loan costs were as follows:

 

   Mortgage
Balance		   Unamortized
Mortgage
Costs		   Interest
Expense		 
December 31, 2021  $1,529,570   $56,045   $94,889 
December 31, 2020  $1,570,383   $71,777   $97,006 

 

The Company is required to maintain certain financial covenants. The Company was in compliance with the covenants on December 31, 2021, and 2020.

 

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

 

2022  $45,386 
2023  $48,201 
2024  $51,189 
2025  $1,384,794 

 

5.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 any of its taxable income as long as they distribute the required amounts to its shareholders.

 

ASC 740 prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of December 31, 2021, the tax years that remain open to examination by the federal, state, and local taxing authorities are the 2019 – 2021 tax years and the Company was not required to accrue any liability for those tax years.

 

The Company has accumulated a net operating loss carry forward of approximately $21,038,000. These net operating losses may be available in future years to reduce taxable income when and if it is generated. These loss carryforwards begin to expire in 2027 and are available to offset 100% of taxable income. Net operating losses generated in 2018 and thereafter will be available to offset 80% of taxable income beginning in 2021. Under the Cares Act, taxpayers with NOLs arising in tax years beginning in 2019 and 2020 can carry them back five years.

 

For the year ended December 31, 2021, the Company had taxable Income of approximately $14,000 ($.00 per share), before utilization of net operating loss carry forwards, which was all ordinary income.

 

For the year ended December 31, 2020, the Company had a taxable income of approximately $46,000 ($.00 per share), before utilization of net operating loss carry forwards, which was all ordinary income.

 

F-13

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

6.Commitments, Contingencies, Concentrations and Related parties

 

A) Related Parties

 

1)Executive Employment Agreements

 

Nickolas W. Jekogian III –Mr. Jekogian is employed by the Company as the Chief Executive Officer on a month-to-month basis until such time as otherwise determined by the Company in its sole discretion. Mr. Jekogian has not received any salary for the years ended December 31, 2021 and 2020 and we do not anticipate paying him any salary in 2022.

 

Alexander Ludwig - Mr. Alexander Ludwig is employed by the Company as the President, Chief Operating Officer and Principal Financial Officer. He has not received any salary since June 2017. We do not anticipate paying him any salary in 2022.

 

2)Property Management Agreement

 

On November 8, 2011, the Company and Signature Community Management LLC (“Signature”), (an entity owned by our CEO) entered into a Property Management Agreement pursuant to which the Company retained Signature as the exclusive managing and leasing agent for the Company’s Mapletree Property. Signature receives compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The Property Management Agreement renewed for a one-year term on November 8, 2021 and will automatically renew for one-year terms until it is terminated by either party upon written notice. The Company incurred management fees of $45,587 and $40,291 for the years ended December 31, 2021 and 2020, respectively.

 

The balance unpaid to Signature at December 31, 2021 and 2020 for property management fees was $80,397 and $47,170, respectively and is recorded in accrued expenses.

 

3)Asset Management Agreement

 

On November 8, 2011, the Company entered into an Asset Management Agreement with Signature Community Investment Group LLC (“SCIG”), (an entity owned by our CEO) pursuant to which the Company engaged SCIG to oversee the Mapletree Property. SCIG receives an asset management fee of 1.5% of the monthly gross rental revenues collected for the Mapletree Property. The Asset Management Agreement renewed for a one-year term on November 8, 2021 and will automatically renew for one-year terms until it is terminated by either party upon written notice. The Company incurred asset management fees of $13,639 and $12,090 for the year ended December 31, 2021 and 2020, respectively.

 

The balance unpaid to SCIG at December 31, 2021 and 2020, for asset management fees was $38,122 and $24,482, respectively, and is recorded in accrued expenses.

 

B)Legal Proceedings

 

In the ordinary course of business, we may be subject to litigation from time to time. Except as discussed below, there is no current, pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of such party) which in our opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.

 

F-14

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

6.Commitments, Contingencies, Concentrations and Related parties (Continued)

 

There is pending in the Supreme Court of the state of New York county of New York (Index No. 656191/2017) an action entitled MLF3 NWJ LLC filed in October of 2017, against Nickolas W. Jekogian, III, Presidential Realty Corporation, Presidential Realty Operating Partnership LP, First Capital Real Estate Trust Incorporated, First Capital Real Estate Operating Partnership, Nickolas W. Jekogian, JR. as trustee of The BBJ Family Irrevocable Trust, Alexander Ludwig, Signature Group Advisors LLC, Richard Brandt, Marjorie Feder as Executrix of the Estate of Robert Feder, Jeffrey F. Joseph, Jeffrey Rogers.

 

The litigation is related to actions taken by Mr. Jekogian individually on a real estate project and personal guarantee that predated his involvement with the Company.  The Plaintiff had received a judgment against Mr. Jekogian for approximately $1,500,000, in addition to attorneys’ fees, and had filed a lien on assets owned individually by Mr. Jekogian including certain options and warrants to purchase stock in the Company.   When the Company entered into the Contribution Agreement with FC REIT in January of 2017, Mr. Jekogian surrendered these options and warrants to purchase stock in the Company as part of the transaction.    The Plaintiff is arguing that they had a lien on Mr. Jekogian’s options and warrants in the Company and that the actions taken by the Company, its Officers and Directors, in entering into the Contribution Agreement with FC REIT fraudulently conveyed their interests in the options and warrants owned by Mr. Jekogian and damaged their position.    The Company, its Officers and Directors, named in this action had no involvement in this personal matter relating to Mr. Jekogian and answered the complaint in February of 2018 stating that it had no merit.   Since that time, the Company has received no additional notification that the action against the Company, its Officers and Directors is moving forward.   The Company believes that as to the Company, Officers and Directors, the claims have no merit.

 

C)Concentration of Credit Risk

 

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

 

Two customers accounted for approximately 23%, and 29% of the Company’s accounts receivable as of December 31, 2021.

 

Three customers accounted for approximately 12%, 19% and 24% of the Company’s accounts receivable as of December 31, 2020.

 

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

 

7.Common Stock

 

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

 

F-15

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

8.Stock-based Compensation

 

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

 

The following summarizes the outstanding and vested stock option activity as of December 31, 2021, and 2020:

  

   Shares
Underling
Options		   Weighted
Average
Exercise Price
(per share)		   Weighted
Average
Remaining
Contractual
Term
(in years)		 
Outstanding at December 31, 2019   550,000   $0.00   7 
Granted   
-
    
-
     
Forfeited and expired   
-
    
-
     
Outstanding at December 31, 2020   550,000   $0.00   6 
Granted   
-
    
-
     
Forfeited and expired   
-
    
-
     
Outstanding at December 31, 2021   550,000   $0.00   5 

 

9.Fair Value Measurements

 

ASC 820 defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). The standards generally require the use of one or more valuation techniques that include the market, income or cost approaches. The standards also establish market or observable inputs as the preferred source of values when using such valuation techniques, followed by assumptions based on hypothetical transactions in the absence of market inputs. ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.

 

F-16

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

9.Fair Value Measurements (Continued)

 

Non-Financial Assets Measured at Fair Value on a Recurring Basis

 

The Non-Financial asset that is measured at fair value on our consolidated balance sheet consists of a real estate partnership investment. The tables below aggregate the fair values of the non-financial assets by their levels in the fair value hierarchy.

 

      As of December 31, 2021  
      Total       Level 1       Level 2       Level 3  
Investment in Avalon Jubilee, LLC   $
          -
     $
       -
     $
           -
     $
           -
  

 

    As of December 31, 2020 
    Total    Level 1    Level 2    Level 3 
Investment in Avalon Jubilee, LLC  $
-
   $
-
   $
         -
   $
-
 

 

Investment in Avalon Jubilee, LLC

 

Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, current and anticipated market conditions, and industry publications. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of this real estate partnership investment.

 

    Range 
    December 31,
2021		    

December 31,

2020

 
Unobservable Quantitative Input          
           
Discount rates   16% to 20%    16% to 20%  

 

The inputs above are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of the investment. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of the investment resulting from a change in the terminal capitalization rate may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of real estate investments that are classified as Level 3.

 

   December 31,
2021		   December 31,
2020		 
         
Beginning Balance  $-0-   $-0- 
Net unrealized gain(loss) on held investment   -0-    -0- 
Purchase /additional funding   -0-    -0- 
Ending balance  $-0-   $-0- 

 

F-17

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

9.Fair Value Measurements (Continued)

 

The carrying amounts of cash and cash equivalents, escrow, deposits and other assets and receivables and accrued expenses and other liabilities are not measured at fair value on a recurring basis but are considered to be recorded at amounts that approximate fair value.

 

At December 31, 2021, the $1,598,382 estimated fair value of the Company’s mortgage payable is greater than the $1,529,570 carrying value (before unamortized deferred financing costs of $56,045), assuming a blended market interest rate of 4.62% based on the 3.8 year remaining term to maturity of the mortgage.

 

At December 31, 2020, the $1,675,296 estimated fair value of the Company’s mortgage payable is greater than the $1,570,383 carrying value (before unamortized deferred financing costs of $71,777), assuming a blended market interest rate of 4.34% based on the 4.8 year remaining term to maturity of the mortgage.

 

The fair value of the Company’s mortgages payable is estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

 

Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

10.Loans payable

 

2020 Paycheck Protection Program Term Note

 

In April 2020, the Company entered into a Paycheck Protection Program Term Note (the “PPP Note”) with CountryBank in the amount of $42,100. The PPP Note was issued to the Company pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (the “CARES Act”) (P.L. 116-136) Paycheck Protection Program (the “Program”). On July 21, 2021, we were notified that the SBA had forgiven the PPP Note in full, the amount was recorded as other income in 2021. The loan balance at December 31, 2020 was $42,100 and was included in Other liabilities on the consolidated balance sheet.

 

11.Restricted Cash

 

Restricted cash represents funds held for specific purposes and are therefore not available for general corporate purposes. The mortgage escrow reflected on the consolidated balance sheets represents funds that are held by the Company specifically for capital improvements, insurance and real estate taxes on the Mapletree Property.

 

F-18

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

12.Future Minimum Annual Base Rents

 

Future minimum annual base rental revenue for the next five years for commercial real estate owned at December 31, 2021, and subject to non-cancelable operating leases is as follows:

 

Year Ending December 31,    
2022  $576,704 
2023   204,623 
2024   106,453 
2025   104,563 
2026   38,532 
Thereafter   
-
 
Total  $1,030,875 

 

 

F-19

 

 

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