Cautionary Statement for Forward-Looking Information
This quarterly report together with other statements and information publicly
disseminated by the Company may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or make oral statements that constitute forward-looking
statements. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
or quantified. The forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, anticipated market performance, anticipated
litigation results or the timing of pending litigation, and similar matters.
When used in this Quarterly Report, the words "estimates," "expects,"
"anticipates," "believes," "plans," "intends" and variations of such words and
similar expressions are intended to identify forward-looking statements that
involve risks and uncertainties. The Company cautions readers that a variety of
factors could cause the Company's actual results to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to those set forth in
"Item 1A, Risk Factors" and elsewhere in the Company's Annual Report on Form
10-K and in the Company's other public filings with the Securities and Exchange
Commission including, but not limited to: (i) risks with regard to the ability
of the Company to continue as a going concern; (ii) assumptions regarding the
outcome of legal and/or tax matters, based in whole or in part upon consultation
with outside advisors; (iii) risks arising from unfavorable decisions in tax,
legal and/or other proceedings; (iv) transaction volume in the securities
markets; (v) the volatility of the securities markets; (vi) fluctuations in
interest rates; (vii) risks inherent in the real estate business, including, but
not limited to, insurance risks, tenant defaults, risks associated with real
estate development activities, changes in occupancy rates or real estate values;
(viii) changes in regulatory requirements which could affect the cost of doing
business; (ix) general economic conditions; (x) risks with regard to whether or
not the Company's current financial resources will be adequate to fund
operations over the next twelve months from financial statement issuance date
and/or continue operations; (xi) changes in the rate of inflation and the
related impact on the securities markets; (xii) changes in federal and state tax
laws and (xiii) additionally, there is risk relating to assumptions regarding
the outcome of tax matters, based in whole or in part upon consultation with
outside advisors; risk relating to potential unfavorable decisions in tax
proceedings; risks regarding changes in, and/or interpretations of federal and
state income tax laws; and risk of IRS and/or state tax authority assessment of
additional tax plus interest. These are not the only risks that we face. There
may be additional risks that we do not presently know of or that we currently
believe are immaterial which could also impair our business and financial
position.
Undue reliance should not be placed on these forward-looking statements, which
are applicable only as of the date hereof. The Company undertakes no obligation
to revise or update these forward-looking statements to reflect events or
circumstances that arise after the date of this Quarterly Report or to reflect
the occurrence of unanticipated events. Accordingly, there is no assurance that
the Company's expectations will be realized.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, should be read in conjunction with the consolidated
financial statements and related notes, which are contained in Part I - Item 1,
herein and in Part II - Item 8 in the Company's Annual Report on Form 10-K for
the year ended December 31, 2021.
BUSINESS OVERVIEW
AmBase Corporation (the "Company" or "AmBase") is a Delaware corporation that
was incorporated in 1975. AmBase is a holding company. At September 30, 2022,
the Company's assets consisted primarily of cash and cash equivalents. The
Company is engaged in the management of its assets and liabilities.
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In June 2013, the Company purchased an equity interest in a real estate
development property through a joint venture agreement to purchase and develop
real property located at 105 through 111 West 57th Street in New York, New York
(the "111 West 57th Property"). The Company is engaged in material disputes and
litigation with regard to the 111 West 57th Property. Despite ongoing litigation
challenging the legitimacy of the actions taken in connection with the "Strict
Foreclosure", (as defined and further discussed herein), the Company recorded an
impairment for the full amount of its equity investment in the 111 West 57th
Property in 2017. Prior to the Strict Foreclosure, the carrying value of the
Company's equity investment in the 111 West 57th Property represented a
substantial portion of the Company's assets and net equity value.
For additional information concerning the Company's recording of an impairment
of its equity investment in the 111 West 57th Property in 2017 and the Company's
legal proceedings relating to the 111 West 57th Property, including the
Company's challenge to the Strict Foreclosure, see Part I - Item 1 - Note 3 and
Note 6 to the Company's unaudited condensed consolidated financial statements.
FINANCIAL CONDITION AND LIQUIDITY
The Company's assets at September 30, 2022, aggregated $1,029,000, consisting of
cash and cash equivalents of $938,000. At September 30, 2022, the Company's
liabilities aggregated $1,387,000. Total stockholders' deficit was $358,000.
In 2019, the Company received a letter from the Federal Deposit Insurance
Corporation ("FDIC"), requesting the Company reimburse the FDIC for 2012 federal
taxes of approximately $501,000 that the FDIC had previously reimbursed the
Company, pursuant to a 2012 settlement agreement which was approved by the
United States Court of Federal Claims (the "Court of Federal Claims") in October
2012 (the "2012 Tax Amount"). The Company is currently reviewing the FDIC
request, along with the SGW 2012 Settlement Agreement and Court of Federal
Claims August 2013 ruling, with its outside legal and tax advisors. The Company
is unable to predict at this time whether the 2012 Tax Amount is refundable back
to the FDIC in current and/or future years. For additional information, see Part
I - Item 1 - Note 5 to the Company's unaudited condensed consolidated financial
statements.
A fundamental principle of the preparation of financial statements in accordance
with GAAP is the assumption that an entity will continue in existence as a going
concern, which contemplates continuity of operations and the realization of
assets and settlement of liabilities occurring in the ordinary course of
business. In accordance with this requirement, the Company has prepared its
accompanying unaudited condensed consolidated financial statements assuming the
Company will continue as a going concern.
The Company has incurred operating losses for the past several years. The
Company has continued to keep operating expenses at a reduced level; however,
there can be no assurance that the Company's current level of operating expenses
will not increase or that other uses of cash will not be necessary. The Company
believes that based on its current level of operating expenses its existing cash
and cash equivalents may not be sufficient to cover operating cash needs through
the twelve month period from the financial statement reporting date. Based on
the above factors, management determined there is substantial doubt about the
Company's ability to continue as a going concern within one year after the date
that the financial statements are issued. The accompanying unaudited condensed
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. The financial statements do not include
adjustments to the carrying value of assets and liabilities which might be
necessary should the Company not continue in operation.
In order to continue as a going concern, the Company must take steps to manage
its current level of cash and cash equivalents, through various ways, including
but not limited to, raising additional capital through the sale of assets or
long term borrowings, which may include additional borrowings from affiliates of
the Company, reducing operating expenses, and seeking recoveries from various
sources. There can be no assurance that the Company will be able to adequately
implement these cash management measures, in whole or in part, or sell any of
its assets or raise capital on terms acceptable to the Company, if at all.
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As noted herein, in June 2013, the Company purchased an equity interest in the
111 West 57th Property. The Company is engaged in material disputes and
litigation with regard to the 111 West 57th Property. Despite ongoing litigation
challenging the legitimacy of the actions taken in connection with the "Strict
Foreclosure", (as defined and further discussed herein), in accordance with
GAAP, the Company recorded an impairment for the full amount of its equity
investment in the 111 West 57th Property of $63,745,000 in 2017. Prior to the
Strict Foreclosure, the carrying value of the Company's equity investment in the
111 West 57th Property represented a substantial portion of the Company's assets
and net equity value. The Company has several legal proceedings pending against
various parties with regard to the 111 West 57th Street Property. For additional
information concerning the Company's recording of an impairment of its equity
investment in the 111 West 57th Property and the Company's legal proceedings
relating to the 111 West 57th Property, see Part I - Item 1 - Note 3 and Note 6
to the Company's unaudited condensed consolidated financial statements.
In 2017, the Company entered into a Litigation Funding Agreement (the "LFA")
with Mr. R. A. Bianco. Pursuant to the LFA, Mr. R. A. Bianco agreed to provide
litigation funding to the Company, to satisfy actual documented litigation costs
and expenses of the Company, including attorneys' fees, expert witness fees,
consulting fees and disbursements in connection with the Company's legal
proceedings related to the Company's equity investment in the 111 West 57th
Street Property. In 2019, the Company and Mr. R. A. Bianco entered into an
amendment to the LFA (the "Amendment). For additional information including the
terms of the Litigation Funding Agreement, as amended by the Amendment, see Part
I - Item 1 - Note 7 to the Company's unaudited condensed consolidated financial
statements.
With respect to its disputes and litigation relating to its interest in the 111
West 57th Property, the Company is pursuing, and will continue to pursue, other
options to realize the Company's investment value, various legal courses of
action to protect its legal rights, recovery of its asset value from various
sources of recovery, as well as considering other possible economic strategies,
including the possible sale of the Company's interest in and/or rights with
respect to the 111 West 57th Property; however, there can be no assurance that
the Company will prevail with respect to any of its claims.
The Company can give no assurances regarding the outcome of the matters
described herein, including as to the effect of Spruce's actions described
herein, whether the Sponsors will perform their contractual commitments to the
Company under the JV Agreement, as to what further action, if any, the lenders
may take with respect to the project, as to the ultimate resolution of the
ongoing litigation proceedings relating to the Company's investment interest in
the 111 West 57th Property, as to the ultimate effect of the Sponsors', the
Company's or the lenders' actions on the project, as to the completion or
ultimate success of the project, or as to the value or ultimate realization of
any portion of the Company's equity investment in the 111 West 57th Street. For
additional information with regard to the Company's investment in the 111 West
57th Property and the legal proceedings related thereto, see Part I - Item 1 -
Note 3 and Note 6 to the Company's unaudited condensed consolidated financial
statements.
While the Company's management is evaluating future courses of action to protect
and/or recover the value of the Company's equity investment in the 111 West 57th
Property, the adverse developments make it uncertain as to whether any such
courses of action will be successful. Any such efforts are likely to require
sustained effort over a period of time and substantial additional financial
resources. Inability to recover all or most of such value would in all
likelihood have a material adverse effect on the Company's financial condition
and future prospects. The Company can give no assurances with regard to if it
will prevail with respect to any of its claims.
For the nine months ended September 30, 2022, cash of $2,065,000 was used by
operations as a result of the payment of operating expenses and prior year
accruals.
For the nine months ended September 30, 2021, cash of $3,882,000 was used by
operations as a result of the payment of operating expenses and prior year
accruals.
Accounts payable and accrued liabilities as of September 30, 2022 increased from
December 31, 2021, principally relating to an increase in current period
accruals for legal expenses in connection with the 111 West 57th Property
litigations.
There are no other material commitments for capital expenditures as of September
30, 2022. Inflation has had no material impact on the business and operations
of the Company.
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Results of Operations for the Three Months and Nine Months Ended September 30,
2022 vs. the Three Months and Nine Months Ended September 30, 2021
The Company recorded a net loss of $717,000 or $0.02 per share and $2,757,000 or
$0.07 per share in the three months and nine months ended September 30, 2022,
respectively, compared to a net loss of $1,264,000 or $0.03 per share and
$4,133,000 or $0.10 per share in the respective 2021 periods.
Compensation and benefits was $336,000 and $1,083,000 in the three months and
nine months ended September 30, 2022, respectively, compared to $336,000 and
$1,098,000 in the respective 2021 periods. The decrease in the 2022 nine month
period is due to a decrease in compensation related expenses in the respective
2022 period versus the comparable 2021 period.
Professional and outside services decreased to $289,000 and $1,408,000 in the
three months and nine months ended September 30, 2022, respectively, compared to
$836,000 and $2,783,000 in the respective 2021 periods. The decrease in the
2022 periods as compared to the 2021 periods is principally the result of a
lower level of legal and professional fees incurred in the 2022 periods in
connection with the Company's legal proceedings relating to the Company's
investment in the 111 West 57th Property. For additional information with regard
to the Company's investment in the 111 West 57th Property and the legal
proceedings related thereto, see Part I - Item 1 - Note 3 and Note 6 to the
Company's unaudited condensed consolidated financial statements.
Property operating and maintenance expenses were $1,000 and $16,000 for the
three months and nine months ended September 30, 2022, respectively, compared to
$3,000 and $14,000 in the respective 2021 periods. The slight increase in the
2022 nine month period versus the respective 2021 period is primarily due to a
general increase in costs.
Insurance expenses were $63,000 and $197,000 in the three months and nine months
ended September 30, 2022, respectively, compared to $68,000 and $192,000 in the
respective 2021 periods. The increase in the nine month period ended September
30, 2022, compared to the respective 2021 period is generally due to a slight
increase in insurance premium costs.
Other operating expenses were $32,000 and $57,000 in the three months and nine
months ended September 30, 2022, respectively, compared with $21,000 and $46,000
in the respective 2021 periods. The slight increase in the September 30, 2022,
three month and nine month periods compared to the September 30, 2021, periods
is due to a generally higher level of related expenses in the respective 2022
periods.
Interest income in the three months and nine months ended September 30, 2022,
was $4,000 and $5,000, respectively, compared with $- and $1,000 in the
respective 2021 periods. The increased interest income in the September 30,
2022, three month and nine month periods is due to a higher interest rate yield
on cash and cash equivalents in the 2022 periods versus the respective 2021
periods.
The Company recorded an income tax expense of $- and $1,000 for the three months
and nine months ended September 30, 2022, respectively, compared with an income
tax expense of $- and $1,000 for the three months and nine months ended
September 30, 2021, respectively. State income tax amounts for the nine months
ended September 30, 2022, and the nine months ended September 30, 2021, reflect
a provision for a tax on capital imposed by the state jurisdictions.
Income taxes applicable to operating income (loss) are generally determined by
applying the estimated effective annual income tax rates to pretax income (loss)
for the year-to-date interim period. Income taxes applicable to unusual or
infrequently occurring items are provided in the period in which such items
occur. For additional information including a discussion of income tax matters,
see Part I - Item 1 - Note 5 to the Company's unaudited condensed consolidated
financial statements.
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