Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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, 2021.2022.
BUSINESS OVERVIEW
AmBase Corporation (the “Company” or “AmBase”) is a Delaware corporation that was incorporated in 1975. AmBase is a holding company. At March 31, 2022,2023, the Company’s assets consisted primarily of cash and cash equivalents. The Company is engaged in the management of its assets and liabilities.
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 March 31, 2022,2023, aggregated $2,161,000,$75,000, consisting principally of cash and cash equivalents of $2,121,000.$44,000. At March 31, 2022,2023, the Company’s liabilities aggregated $819,000.$2,369,000. Total stockholders’ equitydeficit was $1,342,000.
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.$2,294,000.
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 and used cash for operating activities 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 assetsequity or debt securities 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 assetsraise capital or raise capitalobtain financing on terms acceptable to the Company, if at all.
As noted herein, inIn 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, 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.
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.
To provide the necessary cash resources to continue operations and continue the litigation related to the 111 West 57th Property, the Company is currently considering and evaluating various strategic funding and/or financing alternatives in order to raise approximately $7 million in funding. Such funding may be provided by a variety of sources, including but not limited to third parties, existing shareholders of the Company and/or Company management, and may take in the form of litigation funding agreements, equity or debt securities, loans, or any combination thereof. Any sale of securities by the Company may not be offered or sold absent registration under the Securities Act of 1933, as amended (the “Act”), or an applicable exemption from such registration, which may include exemptions pursuant to Rules 506(b) or 506(c) of Regulation D under the Act.
The terms and conditions of any such funding and/or financing agreements are expected to take several months to negotiate and finalize. Depending on the timing of any such agreements, the Company’s Chairman, President and Chief Executive Office, Mr. Richard A. Bianco (“Mr. R.A. Bianco”) has indicated that, if and when needed, he would provide a working capital line of credit to the Company on an as needed basis, subject to customary and market terms and conditions to be agreed upon at such time. However, there can be no assurance that the Company will be able to secure any such funding and/or financing arrangements on acceptable terms or at all. In February 2023 and April 2023, Mr. R.A. Bianco provided loans to the Company in the amounts of $300,000 and $325,000, respectively. For additional information, see Part I – Item 1 – Note 8 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 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.
For the three months ended March 31, 2023, cash of $605,000 was used by operations as a result of the payment of operating expenses and prior year accruals.
For the three months ended March 31, 2022, cash of $882,000 was used by operations as a result of the payment of operating expenses and prior year accruals.
For the three months ended March 31, 2021, cash of $1,378,000 was used by operations as a result of the payment of operating expenses and prior year accruals.
Accounts payable and accrued liabilities as of March 31, 20222023, increased from December 31, 2021,2022, 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 March 31, 2022.2023. Inflation has had no material impact on the business and operations of the Company.
Results of Operations for the Three Months Ended March 31, 20222023 vs. the Three Months Ended March 31, 20212022
The Company recorded a net loss of $1,220,000 or $0.03 per share in the three months ended March 31, 2023, compared to a net loss of $1,057,000, or $0.03 per share in the three months ended March 31,respective 2022 compared to a net loss of $1,635,000, or $0.04 per share in the respective 2021 period.
Compensation and benefits decreased slightly to $407,000$385,000 in the three months ended March 31, 2022,2023, compared to $417,000$407,000 in the respective 20212022 period. The decrease in the 20222023 three month period versus the respective 20212022 period is due to a decrease in compensation related expenses recorded in the 2022 period. No stock based compensation expense was recorded in the three months ended March 31, 20222023 or March 31, 2021.2022.
Professional and outside services decreasedincreased to $563,000$728,000 in the three months ended March 31, 2022,2023, compared to $1,135,000$563,000 in the respective 20212022 period. The decreaseincrease in the 20222023 period as compared to the 20212022 period is principally the result of a lowerhigher level of legal and professional fees incurred in 20222023 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 remained at generally similar levels for the three months ended March 31, 2022,2023, compared to the respective March 31, 20212022, period.
Insurance expenses increaseddecreased to $58,000 for the three months ended March 31, 2023, compared with $67,000 for the three months ended March 31, 2022, compared with $61,000 for the three months ended March 31, 2021.2022. The increasedecrease is due to a slight increasedecrease in insurance premium costs in the three months ended March 31, 2022,2023, compared to the respective 20212022 period.
Other operating expenses decreasedincreased to $11,000$13,000 in the three months ended March 31, 2022,2023, compared with $13,000$11,000 in the respective 20212022 period, due to a lowerhigher level of other expenses in the 20212023 period.
Interest income in the three months ended March 31, 2022, decreased2023, increased to $-$1,000 from $1,000$- in the respective 20212022 period. The decreasedincreased interest income is due to a lower level of averagehigher yield on cash and cash equivalents on hand in the 20222023 period versus the 20212022 period.
The Company recognized income taxInterest expense of $- and $1,000 forwas $29,000 in the three months ended March 31, 2022,2023, and March 31, 2021, respectively. State income tax amounts$- in 2022. Interest expense for the three months ended March 31, 2021, reflects2023 period is attributable to interest expense paid to a provisionprofessional firm for a tax on capital imposed byoutstanding and unpaid professional fees and interest expense relating to the state jurisdictions.loan(s) payable – related party. For additional information see Part I – Item 1 – Note 8 to the Company’s unaudited condensed consolidated financial statements.
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.
Item 4. | CONTROLS AND PROCEDURES |
Our disclosure controls and procedures include our controls and other procedures to ensure that information required to be disclosed in this and other reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and to ensure that such information is recorded, processed, summarized and reported within the time periods.
Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of our disclosure controls and procedures as of March 31, 2022.2023. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported with adequate timeliness.
There have been no changes during the most recent fiscal quarter in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
- OTHER INFORMATION
For a discussion of the Company’s legal proceedings, see Part I - Item 1 - Note 6 to the Company’s unaudited condensed consolidated financial statements.
There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, in response to Item 1A of Part I of Form 10-K.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| a. Not applicable b. Not applicable c. None |
| b. Not applicable
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| c. None
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Common Stock Repurchase Plan
The Company’s common stock repurchase plan (the “Repurchase Plan”) allows for the repurchase by the Company of up to 10 million shares of its common stock in the open market. The Repurchase Plan is conditioned upon favorable business conditions and acceptable prices for the common stock. Purchases under the Repurchase Plan may be made, from time to time, in the open market, through block trades or otherwise. Depending on market conditions and other factors, purchases may be commenced or suspended any time or from time to time without prior notice. No common stock repurchases have been made pursuant to the Repurchase Plan during the year to date 20222023 period.
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Not Applicable.
Item 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
None.
a. Not applicable
b. None
c. None
Amendment to Employment Agreement between Richard A. Bianco and the Company extending term of employment to May 31, 2028 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on January 20, 2023, and incorporated herein by reference). | | Senior Promissory Note for $300,000, between Richard A. Bianco, the Company’s President and Chief Executive Officer (“Mr. R.A. Bianco”) and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 9, 2023, and incorporated herein by reference). | | Senior Promissory Note for $325,000, between Richard A. Bianco, the Company’s President and Chief Executive Officer (“Mr. R.A. Bianco”) and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on April 10, 2023, and incorporated herein by reference). | | Rule 13a-14(a) Certification of Chief Executive Officer | | Rule 13a-14(a) Certification of Chief Financial Officer | | Section 1350 Certification of Chief Executive Officer | | Section 1350 Certification of Chief Financial Officer | 101.1* | The following financial statements from AmBase Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 20222023 formatted in XBRL: (i) Condensed Consolidated StatementStatements of Operations (unaudited); (ii) Condensed Consolidated Balance Sheets (unaudited); (iii) Condensed Consolidated Statements of Cash Flow (unaudited); (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited); and (iv)(v) Notes to Condensed Consolidated Financial Statements (unaudited). | 104.1* | The Cover Page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMBASE CORPORATION
AMBASE CORPORATION |
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| /s/ John Ferrara |
| By | JOHN FERRARA Vice President, Chief Financial Officer and Controller (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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| Date:
| May 5, 20222, 2023 |
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