UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended: March 31, 2013

 

Or

 

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

 

For the transition period from         to         

 

Commission File Number: 001-08594

 

PRESIDENTIAL REALTY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		13-1954619
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

9 East 40^th Street, Suite 900

New York, NY 10016

(Address of Principal Executive Office)

 

Registrant’s Telephone Number, Including Area Code:  (914) 948-1300

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

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

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

As of May 15, 2013, there were 442,533 shares of Class A common stock and 3,227,147 shares of Class B common stock outstanding.  

  

  

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES 

 

Index to Form 10-Q

For the Quarterly Period Ended

March 31, 2013

 

				Page
Part I		Financial Information (Unaudited)
Item 1.		Financial Statements
		Consolidated Balance Sheets (Unaudited)		1
		Consolidated Statements of Operations (Unaudited)		2
		Consolidated Statements of Cash Flows (Unaudited)		3
		Notes to Consolidated
		Financial Statements (Unaudited)		4-12
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		17
Item 4.		Controls and Procedures		17
Part II		Other Information
Item 6.		Exhibits		18

 

  

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		March 31,				December 31,
		2013				2012
		(Unaudited)
Assets
Real estate (Note 2)		$	1,114,413			$	1,111,534
Less: accumulated depreciation			477,413				465,016
Net real estate			637,000				646,518
Net mortgage portfolio			12,957				14,654
Prepaid expenses			213,209				253,330
Other receivables (net of valuation allowance of
$10,066 in 2013 and  $7,506 in 2012 )			54,528				31,825
Cash and cash equivalents			775,704				852,674
Assets related to discontinued operations			14,283,422				14,198,806
Other assets			11,991				11,988
Total Assets		$	15,988,811			$	16,009,795
Liabilities and Equity
Liabilities:
Liabilities related to discontinued operations		$	18,194,167			$	17,843,489
Mortgage payable			481,866				488,748
Line of Credit			100,000				-
Accrued liabilities			402,629				337,827
Accounts payable			1,359				7,559
Other liabilities			652,448				633,815
Total Liabilities			19,832,469				19,311,438
Presidential Stockholders' Deficit:
Common stock: par value $.00001 per share

 

		March 31, 2013				December 31, 2012
Class A											5				5
Authorized:			700,000				700,000
Issued:			471,633				471,633
Treasury:			29,100				29,100
Class B											38				38
Authorized:			999,300,000				999,300,000
Issued:			3,756,842				3,756,842
Treasury:			529,695				529,695

 

Additional paid-in capital			5,254,135				5,254,135
Accumulated deficit			(4,127,908	)			(3,717,861	)
Treasury stock (at cost)			(2,879,354	)			(2,879,354	)
Total Presidential stockholders' deficit			(1,753,084	)			(1,343,037	)
Non-controlling interest (Note 5)			(2,090,574	)			(1,958,606	)
Total Deficit			(3,843,658	)			(3,301,643	)
Total Liabilities and Stockholders' Deficit		$	15,988,811			$	16,009,795
See notes to consolidated financial statements.

  

  

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS  AND COMPREHENSIVE LOSS (UNAUDITED)

 

		THREE MONTHS ENDED MARCH 31,
		2013				2012
Revenues:
Rental		$	212,916			$	191,617
Interest on mortgages - notes receivable			1,189				677
Total			214,105				192,294
Costs and Expenses:
General and administrative			272,670				246,975
Stock Based Compensation			-				74,000
Rental property:
Operating expenses			127,000				113,570
Interest and fees on mortgage debt			5,466				-
Real estate taxes			9,471				11,644
Depreciation on real estate			12,398				12,308
Amortization of in-place lease values and mortgage costs			-				132
Total			427,005				458,629
Other Income:
Investment income			805				55
Loss from continuing operations			(212,095	)			(266,280	)
Discontinued Operations (Note 3):
Loss from discontinued operations			(329,920	)			(308,054	)
Net loss			(542,015	)			(574,334	)
Net loss from non-controlling interest (Note 3) and (Note 5)			131,968				155,882
Net loss attributable to Presidential		$	(410,047	)		$	(418,452	)
Earnings per Common Share attributable to Presidential (basic and diluted):
Loss from continuing operations		$	(0.06	)		$	(0.07	)
Discontinued Operations:
Loss from discontinued operations			(0.09	)			(0.09	)
Net Loss per Common Share - basic and diluted		$	(0.15	)		$	(0.16	)
Weighted Average Number of Shares Outstanding - basic and diluted			3,669,680				3,655,680

 

 See notes to consolidated financial statements.

  

  

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		THREE MONTHS ENDED MARCH 31,
		2013				2012
Net loss		$	(542,015	)			(574,334	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization			12,398				12,308
Amortization of discounts on notes and fees			750				1,973
Stock Based compensation			-				74,000
Changes in assets and liabilities:
(Increase) decrease in:
Other receivables			(22,703	)			(8,460	)
Discontinued operations assets			(84,616	)			58,498
Prepaid expenses, deposits in escrow
and deferred charges			40,121				39,562
Other assets			(3	)			-
Increase in:
Accounts payable and accrued liabilities			58,602				61,054
Discontinued operations liabilities			350,678				198,411
Other liabilities			18,633				539
Total adjustments			373,860				437,885
Net cash used in operating activities			(168,155	)			(136,449	)
Cash Flows from Investing Activities:
Payments received on notes receivable			947				-
Payments disbursed for capital improvements			(2,880	)			-
Net cash used in investing activities			(1,933	)			-
Cash Flows from Financing Activities:
Proceeds of Line of Credit			100,000				-
Principal payments on mortgage debt			(6,882	)			-
Net cash  provided by financing activities			93,118				-
Net decrease  in Cash and Cash Equivalents			(76,970	)			(136,449	)
Cash and Cash Equivalents, Beginning of Period			852,674				961,240
Cash and Cash Equivalents, End of Period		$	775,704			$	824,791
Supplemental cash flow information:
Interest paid in cash		$	5,466			$	-

 

 See notes to consolidated financial statements.

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

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

 

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

 

Basis of Presentation and Going Concern Considerations

 

For the three months ended March 31, 2013, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. See Note 7A3 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity.  Our ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve profitability, to increase working capital raising debt and or equity and a successful defense of the claims against the Company under its guaranty related to the Hato Rey property. The accompanying consolidated financial statements do not include any adjustments that may result from this uncertainty.

 

The consolidated 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 consolidated financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s financial position and operating results.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.  The results for such interim periods are not necessarily indicative of the results to be expected for the year.  In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected.  These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2012.

 

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”). PDL, Inc. (a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential own an aggregate 60% general and limited partnership interest in the Hato Rey Partnership (see Note 5). All significant intercompany balances and transactions have been eliminated.

 

Rental Revenue Recognition

 

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

 

Allowance for Doubtful Accounts

 

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded on the accrual method and rental revenue recognition is generally discontinued when the tenant in occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts and subsequent receipts collected for those receivables will reduce bad debt expense. As of March 31, 2013 and December 31, 2012, the allowance for doubtful accounts for continuing operations relating to tenant obligations was $10,066 and $7,506, respectively.

 

Net Loss Per Share

 

Basic net loss per share data is computed by dividing net loss by the weighted average number of shares of Class A and Class B common stock outstanding (excluding nonvested shares) during each period. Diluted net loss per share is computed by dividing net loss by the weighted average shares outstanding, including the dilutive effect, if any, of nonvested shares. For the three months ended March 31, 2013 and 2012, the weighted average shares outstanding as used in the calculation of diluted loss per share do not include 740,000 of outstanding stock options, as their inclusion would be antidilutive.

 

Cash and Cash Equivalents

 

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

 

Management Estimates

 

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

 

 

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Discontinued Operations

 

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

  

Accounting for Uncertainty in Income Taxes

 

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

 

2. Real Estate

 

Real estate included in continuing operations is comprised of the following:

 

		March 31,				December 31,
		2013				2012
Land		$	79,100			$	79,100
Buildings			985,287				982,408
Furniture and equipment			50,026				50,026
Total		$	1,114,413			$	1,111,534

  

Rental revenue from the Maple Tree property constituted virtually all of the rental revenue for the Company during the quarters ended March 31, 2013 and 2012.

  

3. Discontinued Operations

 

During the quarter ended March 31, 2012, the Company designated PDL, Inc. & Associates, Limited Co-partnership, Presidential Matmor Corp. and PDL, Inc. as discontinued operations.

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  

 

The following table summarizes operations for the property discontinued:

 

		Three Months Ended
		March 31,				March 31,
		2013				2012
Revenues:
Rental		$	895,652			$	951,918
General and administrative expenes			-				3,633
Rental property expenses:
Operating			585,581				600,894
Interest on mortgage debt			562,042				576,703
Real estate taxes			78,638				78,742
Total rental property expense			1,226,261				1,259,972
Investment income			689				-
Total loss from discontinued operations		$	(329,920	)		$	(308,054	)

  

		March 31,				December 31,
		2013				2012
Assets related to discontinued operations:
Land		$	1,905,985			$	1,905,985
Buildings			13,829,390				13,829,390
Furniture and equipment			6,375				6,375
Less: accumulated depreciation			(2,087,424	)			(2,087,424	)
Net real estate			13,654,326				13,654,326
Other assets			629,096				548,480
Total assets related to discontinued operations		$	14,283,422			$	14,198,806
Liabilities related to discontinued operations:
Mortgage debt		$	14,009,797			$	14,009,797
Mortgage related interest and fees			3,559,461				3,287,507
Other liabilities			624,909				546,185
Total liabilities related to discontinued operations		$	18,194,167			$	17,843,489

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4. Mortgage Debt

 

The mortgage debt on the Hato Rey Center in Puerto Rico is being recorded in discontinued operations. At March 31, 2013 and December 31, 2012, the principal balance on the mortgage was $14,009,797.  The loan is nonrecourse to the Company with standard carve outs. The first mortgage loan on the Hato Rey Center property matures on May 11, 2028, but provided that if it was not repaid on or before May 11, 2008, the interest rate on the loan was increased by two percentage points to 9.38% per annum of which 2% per annum would be deferred until maturity.

 

Since April 2011, cashflow at the property was not sufficient to make the required monthly mortgage payments. (See Note 7A). At this time, Berkadia Commercial Mortgage LLC (“Berkadia”) was put in place as the special servicer for the loan and all rental payments for the property were sent to a lock box account controlled by Berkadia. During this period Berkadia has applied $474,341 to the mortgage balance and $1,339,576 to interest accrued on the mortgage.  The Company is accruing an additional 5% per annum as default interest and a 5% late payment fee. At March 31, 2013 and December 31, 2012, interest and other fees payable were $3,559,461 and $3,287,507, respectively, which were offset by escrow accounts maintained by Berkadia. Because of the foreclosure action, the Hato Rey Center property was classified as a discontinued operation.

 

On June 8, 2012, we closed on a mortgage and line of credit for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The mortgage is for $500,000 at a 5% interest rate, for a term of 5 years. Thereafter the interest will adjust monthly equal to the bank’s Prime Rate, plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net proceeds. The balance at March 31, 2013 and December 31, 2012 was $481,866 and $488,748, respectively. The line of credit is for $500,000, with an interest rate of 1% over the bank’s Prime Rate. At March 31, 2013, there was $100,000 outstanding on the line of credit. As of May 15, 2013, there was $200,000 outstanding on the line of credit. The line of credit is due on demand. Both the mortgage and the line of credit are secured by the Mapletree Industrial Center in Palmer, Massachusetts.

 

5. Hato Rey Partnership

 

PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership. Presidential and PDL, Inc. have an aggregate 60% general and limited partner interest in the Hato Rey Partnership. The Company exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, the Company consolidates the Hato Rey Partnership in the accompanying consolidated financial statements. As of March 2012, the Company has reported the partnership as a discontinued operation.

 

The Hato Rey Partnership owns and operates the Hato Rey Center, an office building with 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico. The Company has previously advanced $2,670,000 to the partnership to be used for building improvements and for operations. The loan, which was advanced to the partnership, as needed, bears interest at the rate of 13% per annum, with interest and principal to be paid out of the positive cash flow from the property or upon a refinancing of the First Mortgage on the property. At March 31, 2013 and December 31, 2012, the loan balance was $2,670,000 and accrued interest amounted to $1,614,941. These amounts were eliminated in consolidation. Management does not believe the Company will collect any of the principal or interest owed the Company. During the second quarter of 2012 the Company stopped accruing interest on the loan.

  

6. Income Taxes

 

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

 

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

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 March 31, 2013, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2009 – 2011 tax years and the Company was not required to accrue any liability for those tax years.

 

For the three months ended March 31, 2013, the Company had a tax loss of approximately $352,000 ($0.10) per share, which is comprised of an ordinary loss.

 

7. Commitments, Contingencies and Related parties

 

A.

Commitments and Contingencies

 

1)

Except as described in item 3 below, Presidential is not a party to any material legal proceedings. The Company may from time to time be a party to routine litigation incidental to the ordinary course of its business.

 

2)

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

 

3)

On April 4, 2012, a mortgage foreclosure action was filed in the Court of First Instance, San Juan Superior Part, in the Commonwealth of Puerto Rico to foreclose on the Company’s Hato Rey property. The action is entitled U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America, National Association, as trustee for the Registered Holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 1998-C1, acting by and through Berkadia Commercial Mortgage LLC in its capacity as special servicer pursuant to the pooling and servicing agreement dated October 11, 1998, against PDL, Inc. & Associates, Limited Co-partnership; PDL, Inc., Presidential Realty Corporation; Lester Cohen and F.D. Rich Company of Puerto Rico, Inc. The complaint seeks a judgment against the Hato Rey Partnership in the amount of not less than $19,512,591, consisting of i) $14,484,138 in principal, ii) $1,119,406 in accrued interest, iii) $685,985 in default interest, iv) $48,371 in late charges, v) $1,424,691 in deferred interest and vi) $1,750,000 in liquidated damages, as well as additional interest and default charges which continue to accrue under the mortgage loan on the Hato Rey property and foreclosure of the mortgage notes in order to sell the Hato Rey property and apply the proceeds of sale against the indebtedness. The Company’s wholly owned subsidiary, PDL, Inc., is the general partner of the partnership and the Company’s wholly owned subsidiary, Presidential Matmor Corporation, is a limited partner of the partnership.

 

The complaint also seeks judgments against PDL, Inc., the Company, Lester Cohen and F.D. Rich Company of Puerto Rico, Inc., with liability among them to be allocated 1%, 45%, 9% and 45%, respectively, under the terms of certain guarantees issued by them in connection with the mortgage loans, for alleged physical waste to the Property and, the costs of certain repairs to the property of not less than $1,100,000 and the reasonable legal costs and expenses in connection with the enforcement of the loan documents. In 1998, at the time the mortgage loan was made, F.D. Rich Company of Puerto Rico, Inc. was a limited partner of the partnership. In April 2006, Presidential Matmor Corp. acquired the limited partnership interest in the partnership owned by F.D. Rich Company of Puerto Rico, Inc. In connection with the acquisition of that interest, the parties executed a release and indemnification agreement which provides, among other things, that the Company and Presidential Matmor Corp. agree to indemnify F.D. Rich of Puerto Rico, Inc. against any liability under the guaranty.

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

   

The guarantees provide that the guarantors will pay the lender any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of fraud, intentional material misrepresentation, willful misconduct, physical waste committed on the subject property, failure to pay any valid taxes and assessments to the extent rents from the property are sufficient to pay such taxes, mechanics liens, materialmen’s liens or other liens which could create liens superior to the mortgage lien, reasonable legal costs and expenses incurred by lender in connection with litigation or other legal proceedings to enforce the loan, the breach of any material representation, covenant and warranty under the related environmental and hazardous substance indemnification agreement, misapplication or conversion of any insurance proceeds, awards or other amounts received in connection with condemnation of all or a portion of the property or any rents following an event of default and any security deposits not delivered to the lender. The lender has not asserted any claims against the Company other than those asserted under the guarantees as referenced above. The Company believes that the likelihood that the Company will be held liable for the claims asserted under the guarantees is remote.

 

The plaintiff has made a motion for the entry of judgment against the Partnership and PDL Inc. and the right to sell the property in foreclosure. The motion is currently pending. The plaintiff lender has also obtained a default judgment against F. D. Rich Company of Puerto Rico, Inc. That company was dissolved in 2009.

  

B.

Related Parties

 

 

Property Management Agreement

 

On November 8, 2011, the Company and Signature entered into a Property Management Agreement pursuant to which the Company has retained Signature as the exclusive managing and leasing agent for the Company’s Mapletree Industrial Center property in Palmer, Massachusetts (the “Mapletree Property”). Signature shall manage the Mapletree Property in accordance with specific management guidelines and leasing guidelines and shall meet specific reporting requirements and vendor insurance requirements. Signature will receive compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The Company will reimburse Signature for all reasonable expenses incurred by Signature in performance of its duties under the Property Management Agreement that are either in accordance with the annual budget or which have been approved in writing by the Company. Such expense shall include, but not be limited to, Signature’s costs of the salaries, benefits and appropriate and prudent training for Signature’s employees who are engaged solely in management or operation of the Mapletree Property, but excluding certain expenses that will be borne by Signature, as specified in the Property Management Agreement. The Property Management Agreement renewed for a one year term on November 8, 2012 and will be automatically renewable for one year terms until it is terminated by either party upon written notice. For the three months ended March 31, 2013 and 2012 the Company incurred management fees of $10,828 and $9,178, respectively.

 

Asset Management Agreement

 

On November 8, 2011, the Company and Signature entered into an Asset Management Agreement pursuant to which the Company engaged Signature to oversee the Company’s Mapletree Industrial Center property in Palmer, Massachusetts and an office building at Hato Rey, Puerto Rico (the “Properties”). Signature’s duties include leasing, marketing and advertising, financing, construction and dispositions of the Properties. Signature will receive a construction fee for any major renovations or capital projects, subject to the approval of the Company’s Board of Directors, an asset management fee of 1.5% of the monthly gross rental revenues collected for the Properties, a finance fee of 1% on any debt placement, and a disposition fee of 1% on the sale of any assets, as specified in the Asset Management Agreement. The Asset Management Agreement renewed for a one year term on November 8, 2012 and will be automatically renewable for one year terms until it is terminated by either party upon written notice. For the three and three months ended March 31, 2013 and 2012 the Company incurred an asset management fee of $12,777 and $0, respectively.

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

Sublease

 

The Company subleases its executive office space under a month to month lease with Signature for a monthly rental payment of $433 or $5,200 per year. Either party may terminate the sublease upon 30 days prior written notice. For each of the three month periods ended March 31, 2013 and 2012 the Company incurred approximately $1,300 in rent expense.

  

8. Stock Options

 

In connection with the November 8, 2011 Strategic Transactions the Company issued 740,000 options at an exercise price of $1.25. A total of 148,000 shares vest six months after the grant date. At March 31, 2013, the aggregate intrinsic value was $0. The remaining options vest upon the achievement of performance milestones. Options vesting on the achievement of performance milestones will not be recognized as compensation until such milestones are deemed probable of achievement. For the quarters ended March 31, 2013 and 2012 compensation expense was $0 and $74,000, respectively. The Company has approximately $592,000 of unrecognized compensation expense related to unvested share-based compensation awards, which will vest upon the achievement of performance milestones.

.

9. Estimated Fair Value of Financial Instruments

 

Estimated fair values of the Company’s financial instruments as of March 31, 2013 and December 31, 2012 were determined using available market information and various valuation estimation methodologies. Considerable judgment was required to interpret the effects on fair value of such items as future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a errant market exchange. Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

 

 

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

		March 31, 2013								December 31, 2012
		(Amounts in thousands)								(Amounts in thousands)
		Net Carrying				Estimated				Net Carrying				Estimated
		Value (1)				Fair Value				Value (1)				Fair Value
Assets:
Cash and cash equivalents		$	776			$	776			$	853			$	853
Notes Receivable			13				13				15				15
Liabilities:
Mortgage debt			482				482				489				489
Line of credit			100				100				-				-

 

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

 

 

The fair value estimates presented above were based on pertinent information available to management as of March 31, 2013 and December 31, 2012.

 

Fair value methods and assumptions were as follows:

 

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

 

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

 

Mortgage Debt and line of credit – The fair value of mortgage debt was estimated by discounting projected cash flows using current rates for similar debt.

 

 

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

 

Forward-Looking Statements

 

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

 

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

 

·

Our ability to implement plans for growth;

 

·

Our ability to finance the acquisition of new real estate assets;

 

·

Our ability to manage growth;

 

·

Our ability to generate operating liquidity;

 

·

Our ability to attract and maintain tenants for our rental properties;

 

·

The demand for rental properties and the creditworthiness of tenants;

 

·

The continuing adverse conditions in the real estate markets, which affect the ability of the Company to sell the properties, or refinance the mortgages on their properties and which may also affect the ability or willingness of prospective tenants to rent space at these properties;

 

·

Governmental actions and initiatives;

 

·

Financial results for 2013 and beyond, environmental and safety requirements;

 

·

The form, timing and/or amount of dividend distributions in future periods; and

 

·

The outcome of any litigation.

  

Overview

 

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

 

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

 

We outsource the management of the Mapletree Industrial Center to Signature Community Management. We manage the Hato Ray Center which is owned by PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”) in which we are the general partner and have a 60% partnership interest.

 

 

 

We obtain funds for working capital and investment from our available cash and cash equivalents. Due to the foreclosure action pending with respect to our Hato Rey Partnership and claims against the Company related to its guaranty given in connection with the mortgage on the Hato Rey Property, the current ongoing economic downturn, our continuing decline in revenues, expected losses from continuing operations and negative cash flows from operating activities, management believes that we might have insufficient working capital for the next twelve months (See Liquidity and Capital Resources below).

 

On June 8, 2012, we closed on a mortgage and line of credit for a combined total of $1,000,000 with Country Bank for Savings on the Mapletree Industrial Center. The mortgage is for $500,000 at a 5% interest rate, for a term of 5 years. Thereafter the interest will adjust monthly equal to the bank’s Prime Rate, plus 1% with an interest rate floor of 5%, for a term of 15 years. We received $459,620 of net proceeds. The line of credit is for $500,000, with an interest rate of 1% over the bank’s Prime Rate. At May 15, 2013, there was $200,000 outstanding on the line of credit. The line of credit is due on demand. Both the mortgage and the line of credit are secured by the Mapletree Industrial Center in Palmer, Massachusetts.

 

Critical Accounting Policies

 

For the three months ended March 31, 2013, the Company had a loss from continuing operations. This combined with a history of operating losses and working capital deficiency have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. See Note 7A3 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity. Our ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve profitability, to increase working capital raising debt and or equity, and a successful defense of the claims against the Company under its guaranty related to the Hato Rey property. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

 

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

  

Real Estate

 

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

  

The Company reviews each of 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 March 31, 2013, the Company’s net real estate was carried at $637,000.

 

Rental Revenue Recognition

 

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

 

 

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 the quarter ended March 31, 2013 there is no requirement to make a distribution in 2014. In addition, no provision for income taxes was required at March 31, 2013.

 

 

Results of Operations

 

Results of operations for the three months ended March 31, 2013 compared to the three months ended March 31, 2012:

 

		Three Months Ended
		2013				2012
Revenue		$	214,105			$	192,294
Operating expenses			127,000				113,570
Loss from continuing operatings			(212,095	)			(266,280	)
Discontinued operations:
Loss from discontinued operations			(329,920	)			(308,054	)
Net loss			(542,015	)			(574,334	)
Net loss from noncontolling interest			131,968				155,882
Net loss attributable to Presidential
Realty Corporation		$	(410,047	)		$	(418,452	)

  

Continuing Operations:

 

Revenues increased by $21,811 as a result of an increase in rental income due to new tenants at the MapleTree Industrial Center of $21,299 and an increase in interest income of $512 on mortgage notes receivable.

 

 

Loss from continuing operations decreased by $54,185 from a loss of $266,280 in 2012 to a loss of $212,095 in 2013. The decrease in the loss was primarily due to stock based compensation of $74,000 that was fully expensed during 2012, offset by an increase in salaries and related costs of approximately $28,500 primarily related to the hiring of an analyst to assist in the implementation of management’s growth strategy (included in general and administrative expenses), mortgage interest of $5,466 from the MapleTree Industrial Center mortgage, and an increase in operating expenses of $13,430.

 

 

 

Balance Sheet

  

March 31, 2013 compared to December 31, 2012

  

Net real estate decreased by $9,518 primarily as a result of depreciation expense of $12,398 recorded during the three months ended March 31, 2013 offset by capital improvements of $2,880 at the MapleTree Industrial Center.

 

Net mortgage portfolio decreased by $1,697 as a result of payments received during the three months ended March 31, 2013.

 

Assets related to discontinued operations increased by $84,616 primarily due to an increase in prepaid expenses of $55,722, an increase in other receivables of $18,225 and an increase of $7,320 in other assets.

 

Prepaid expenses decreased by $40,121 primarily due to the amortization of insurance.

 

Accrued liabilities increased by $64,802 primarily as a result of accrued officer salaries of $55,250 due to Nicholas W. Jekogian which is deferred in accordance with his employment agreement, and an increase in accrued insurance.

 

Liabilities related to discontinued operations increased by $350,678 primarily due to mortgage interest and fees of $271,954, an increase in accrued expenses of $25,483 and an increase in other liabilities of $53,241.

 

Other liabilities remained consistent from period to period.

 

Liquidity and Capital Resources

 

We obtain funds for working capital and investment from our available cash and cash equivalents.

 

During the three months ended March 31, 2013, the Company incurred a loss from continuing operations. This combined with a history of operating losses and working capital deficiency have been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. See Note 7A3 of Notes to Consolidated Financial Statements. If the Company is required to pay any significant amounts under its guaranty related to our Hato Rey property, such a payment would also adversely impact our liquidity.  Our ability to continue as a going concern is dependent upon management’s successful execution of our business plan to achieve profitability, to increase working capital raising debt and or equity, and a successful defense of the claims against the Company under its guaranty related to the Hato Rey property. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

 

At March 31, 2013, we had $775,704 in available cash and cash equivalents, a decrease of $76,970 from $852,674 available at December 31, 2012. This decrease in cash and cash equivalents was due to cash used in operating activities of $168,155 offset by $100,000 of financing provided by a drawdown of the MapleTree Industrial Center line of credit. In addition we have drawn down an additional $100,000 from the line of credit during April 2013.

  

Operating Activities

 

Cash from operating activities includes interest on the Company’s mortgage portfolio and net cash received from rental property operations. For the three months ended March 31, 2013, cash received from interest and principal on the Company’s mortgage portfolio was $2,880. Net cash received from rental property operations was approximately $70,000. Net cash received from rental property operations is before additions and improvements and mortgage amortization.

 

 

Off-Balance Sheet Arrangements

 

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

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

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

  

Item 4. Controls and Procedures

 

(a)

Evaluation of Disclosure Controls and Procedures

 

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, herein referred to as the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

 

(b)

Changes in Internal Control over Financial Reporting

 

The principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting, herein referred to as internal control, to determine whether any changes in internal control occurred during the three months ended March 31, 2013 that may have materially affected or which are reasonably likely to materially affect internal control. Based on that evaluation, there has been no change in the Company’s internal control during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On April 4, 2012, a mortgage foreclosure action was filed in the Court of First Instance, San Juan Superior Part, in the Commonwealth of Puerto Rico to foreclose on the Company’s Hato Rey property. The action is entitled U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America, National Association, as trustee for the Registered Holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 1998-C1, acting by and through Berkadia Commercial Mortgage LLC in its capacity as special servicer pursuant to the pooling and servicing agreement dated October 11, 1998, against PDL, Inc. & Associates, Limited Co-partnership; PDL, Inc., Presidential Realty Corporation; Lester Cohen and F.D. Rich Company of Puerto Rico, Inc. The complaint seeks a judgment against the Hato Rey Partnership in the amount of not less than $19,512,591, consisting of i) $14,484,138 in principal, ii) $1,119,406 in accrued interest, iii) $685,985 in default interest, iv) $48,371 in late charges, v) $1,424,691 in deferred interest and vi) $1,750,000 in liquidated damages, as well as additional interest and default charges which continue to accrue under the mortgage loan on the Hato Rey property and foreclosure of the mortgage notes in order to sell the Hato Rey property and apply the proceeds of sale against the indebtedness. The Company’s wholly owned subsidiary, PDL, Inc., is the general partner of the partnership and the Company’s wholly owned subsidiary, Presidential Matmor Corporation, is a limited partner of the partnership.

 

  

The complaint also seeks judgments against PDL, Inc., the Company, Lester Cohen and F.D. Rich Company of Puerto Rico, Inc., with liability among them to be allocated 1%, 45%, 9% and 45%, respectively, under the terms of certain guarantees issued by them in connection with the mortgage loans, for alleged physical waste to the Property and, the costs of certain repairs to the property of not less than $1,100,000 and the reasonable legal costs and expenses in connection with the enforcement of the loan documents. In 1998, at the time the mortgage loan was made, F.D. Rich Company of Puerto Rico, Inc. was a limited partner of the partnership. In April 2006, Presidential Matmor Corp. acquired the limited partnership interest in the partnership owned by F.D. Rich Company of Puerto Rico, Inc. In connection with the acquisition of that interest, the parties executed a release and indemnification agreement which provides, among other things, that the Company and Presidential Matmor Corp. agree to indemnify F.D. Rich of Puerto Rico, Inc. against any liability under the guaranty.

 

The guarantees provide that the guarantors will pay the lender any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of fraud, intentional material misrepresentation, willful misconduct, physical waste committed on the subject property, failure to pay any valid taxes and assessments to the extent rents from the property are sufficient to pay such taxes, mechanics liens, materialmen’s liens or other liens which could create liens superior to the mortgage lien, reasonable legal costs and expenses incurred by lender in connection with litigation or other legal proceedings to enforce the loan, the breach of any material representation, covenant and warranty under the related environmental and hazardous substance indemnification agreement, misapplication or conversion of any insurance proceeds, awards or other amounts received in connection with condemnation of all or a portion of the property or any rents following an event of default and any security deposits not delivered to the lender. The lender has not asserted any claims against the Company other than those asserted under the guarantees as referenced above. The Company believes that the likelihood that the Company will be held liable for the claims asserted under the guarantees is remote.

 

 The plaintiff has made a motion for the entry of judgment against the Partnership and PDL Inc. and the right to sell the property in foreclosure. The motion is currently pending. The plaintiff lender has also obtained a default judgment against F. D. Rich Company of Puerto Rico, Inc. That company was dissolved in 2009.

   

Item 6. Exhibits

 

	31.1	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	31.2	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	32.1	Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

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

 

	101 .INS		XBRL Instance Document
	101 .SCH		XBRL Taxonomy Schema
	101 .CAL		XBRL Taxonomy Calculation Linkbase
	101 .DEF		XBRL Definition Linkbase
	101 .LAB		Taxonomy Label Linkbase
	101 .PRE		XBRL Taxonomy Presentation Linkbase

 

 

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 15th day of May 2013.

 

	PRESIDENTIAL REALTY CORPORATION
	By:	/s/ Nickolas W. Jekogian
		Nickolas Jekogian Chief Executive Officer and Chairman of the Board
	By:	/s/ Alexander Ludwig
		Alexander Ludwig
		President, Chief Operating Officer and Principal Financial Officer