AMBASE CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
Securities Exchange Act of 1934
For the quarterly period ended
September 30, 2024
Securities Exchange Act of 1934
Commission file number
1-7265
(Exact name of registrant as specified in its charter)
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices) (Zip Code)
(
201
)
265-0169
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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None.
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.
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☒ |
NO
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☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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☒
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☐ |
No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of
“large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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☐ |
Accelerated Filer
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☐ |
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☒ |
Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
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YES
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☐ |
NO
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☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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YES
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NO
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At October 31, 2024, there were
84,938,211
shares outstanding of the registrant’s common
stock, $0.01 par value per share.
AmBase Corporation
Quarterly Report on Form 10-Q
September 30, 2024
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PART I
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FINANCIAL INFORMATION
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Page
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Item 1.
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1
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Item 2.
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20
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Item 4.
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24
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PART II
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OTHER INFORMATION
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Item 1.
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24
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Item 1A.
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24
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Item 2.
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24
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Item 3.
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24
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Item 4.
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24
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Item 5.
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25 | |
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Item 6.
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25
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25
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PART I - FINANCIAL INFORMATION
AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
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Three Months Ended
September 30,
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Nine months Ended
September 30,
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|||||||||||||||
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2024
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2023
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2024 | 2023 | |||||||||||||
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Operating expenses:
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||||||||||||||||
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Compensation and benefits
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$
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$
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$ |
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$ |
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Professional and outside services
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Property operating and maintenance
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Insurance
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Other operating
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Total operating expenses
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Operating income (loss)
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(
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) |
(
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) |
(
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(
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Interest income
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Interest expense
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||||||||||||
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Income (loss) before income taxes
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(
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(
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(
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(
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Income tax expense (benefit)
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||||||||||||
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Net income (loss)
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$ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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) | ||||
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Net income (loss) per common share - basic
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$ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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) | ||||
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Weighted average common shares outstanding
-
basic
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The accompanying notes are an integral part of these condensed consolidated financial statements.
AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data)
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Assets:
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September 30,
2024
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December 31,
2023
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||||||
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Cash and cash equivalents
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$
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$
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||||
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Other assets
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||||||
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Total assets
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$
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$
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Liabilities and Stockholders’ Equity (Deficit):
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Liabilities:
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||||||||
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Accounts payable and accrued liabilities
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$
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$
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||||
| Loan(s) payable – related party – BARC Investments LLC |
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||||||
| Loan(s) payable – related party – R.A. Bianco |
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Total liabilities
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Commitments and contingencies (Note 6)
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||||||||
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Stockholders’ equity (deficit):
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Common stock ($
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Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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Treasury stock, at cost – 2024 –
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(
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)
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Total stockholders’ equity (deficit)
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(
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)
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(
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)
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||||
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Total liabilities and stockholders’ equity (deficit)
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$
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$
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||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
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(in thousands)
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Common
stock
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Additional
paid-in
capital
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Accumulated
deficit
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Treasury
stock
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Total
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|||||||||||||||
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January 1,
2024
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$
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$
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$
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(
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)
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$
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(
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)
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$
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(
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)
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|||||||
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Net income (loss)
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(
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)
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(
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March 31,
2024
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(
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)
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(
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(
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| Net income (loss) |
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(
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(
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Sale of common stock - Equity Offering
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| June 30, 2024 |
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(
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(
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| Net income (loss) |
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(
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(
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| September 30, 2024 | $ |
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$ |
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$ |
(
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$ |
(
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(in thousands)
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Common
stock
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Additional
paid-in
capital
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Accumulated
deficit
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Treasury
stock
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Total
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January 1,
2023
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$
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$
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$
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(
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)
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$
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(
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$
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(
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Net income (loss)
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(
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(
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March 31,
2023
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(
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)
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(
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(
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)
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| Net income (loss) |
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(
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(
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| June 30, 2023 |
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(
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(
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(
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| Net income (loss) |
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(
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(
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| September 30, 2023 | $ |
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$ |
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$ |
(
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) | $ |
(
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(
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The accompanying notes are an integral part of these condensed consolidated financial statements.
AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine months ended
September 30,
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(in thousands)
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2024
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2023
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Cash flows from operating activities:
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Net income (loss)
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$
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(
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)
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$
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(
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)
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Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities
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Changes in operating assets and liabilities:
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Other assets
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Accounts payable and accrued liabilities
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(
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)
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Net cash provided (used) by operating activities
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(
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(
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Cash flows from financing activities:
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Sale of common stock – equity offering
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| Proceeds from loan(s) payable – related party – BARC Investments LLC |
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Payoff of loan(s) payable – related party – R.A. Bianco
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(
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) |
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Proceeds from loan(s) payable – related party – R.A. Bianco
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Net cash provided (used) by financing activities
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Net change in cash and cash equivalents
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(
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Cash and cash equivalents at beginning of period
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Cash and cash equivalents at end of period
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$
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$
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Supplemental cash flow disclosure:
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Income taxes refunded (paid)
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$ |
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$ |
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Interest expense paid
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$
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$
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – The Company and Basis of Presentation and Going Concern
The accompanying condensed consolidated financial statements of AmBase
Corporation and subsidiaries (“AmBase” or the “Company”) are unaudited and subject to year-end adjustments. All material intercompany transactions and balances have been eliminated. In the opinion of management, these financial statements
reflect all adjustments, consisting only of normal recurring adjustments unless otherwise disclosed, necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows. Results for
interim periods are not necessarily indicative of results for the full year. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that it deems reasonable, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from such estimates and assumptions. The unaudited interim condensed consolidated financial statements presented herein are condensed and should be read in conjunction with the
Company’s consolidated financial statements filed in its Annual Report on Form 10‑K for the year ended December 31, 2023.
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 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 equity or debt securities or long term borrowings, which may include additional
borrowings from affiliates of the Company, litigation funding agreements, 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 raise capital or obtain financing on terms acceptable to the Company, if at all.
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 57
th
Street in New York, New York
(the “111 West 57
th
Property”). The Company is engaged in material disputes and litigation with regard to the 111 West 57
th
Property. Despite
ongoing litigation challenging the legitimacy of the actions taken in connection with the “Strict Foreclosure”, (as defined and as 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 57
th
Property
represented a substantial portion of the Company’s assets and net equity value.
For additional information regarding the Company’s recording of an impairment of its equity investment in
the 111 West 57
th
Property in 2017 and the Company’s legal proceedings relating to the 111 West 57
th
Property, including the Company’s challenge to the Strict Foreclosure, see
Note 3
and
Note 6.
5
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On April 1, 2024, the Company completed the issuance and sale, of all the shares of the Company’s common stock (the “Shares”) in the private placement offering (the “Equity Offering”) on the previously disclosed
terms and conditions, including Shares purchased by an institutional investor not affiliated with the Company and Shares purchased by BARC Investments, LLC, an affiliate of the Company owned and controlled by
two
of the Company’s directors and their sibling. The offer and sale of the shares in the Equity Offering was completed in reliance on the
exemption from registration under Rule 506(c) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended. See Note 10 for additional information.
The Company will continue to consider and explore other litigation funding agreements with third party litigation funders that it could enter into for portions of the litigation costs for up to $
5
million of funding, at market terms to be agreed upon at such times. In general, litigation funding agreements are structured so that
the litigation funder would receive back their initial funding amount first (i.e. before any recovery is received by the Company), plus an additional multiple ranging from
1.0
times to
3.5
times the amount funded (depending on various
factors), plus depending on the funder, additional fees, expenses, interest and potentially an additional percentage of the total recovery received. There can be no assurance that the Company would be able to secure any such
additional litigation funding on acceptable terms or at all.
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 if it will prevail with respect to any of its claims.
Note 2 – Summary of Significant
Accounting Policies
New accounting pronouncements
There are no new accounting pronouncements that would likely materially affect the Company’s unaudited condensed consolidated financial statements.
Note 3 – Investment in 111 West 57
th
Partners LLC
In June 2013, the Company
purchased an equity interest in the 111 West 57
th
Property. The Company is engaged in material disputes and litigation with regard to the 111 West 57
th
Property. Despite ongoing litigation challenging the legitimacy
of the actions taken in connection with the “Strict Foreclosure”, (as defined below and as further discussed herein), the Company recorded an impairment for the full amount of its equity investment in the 111 West 57th Property in 2017.
For additional information
regarding the Company’s 111 West 57
th
Property equity investment, events leading up to the Strict Foreclosure, the Company’s recording of an impairment of its equity investment in the 111 West 57
th
Property and the
Company’s legal proceedings relating to the 111 West 57
th
Property, including the Company’s challenge to the Strict Foreclosure, see herein below and
Note 6
.
In June 2013,
111 West 57
th
Investment LLC (“Investment LLC”), a then newly formed subsidiary of the Company, entered into a joint venture agreement (as amended, the “JV Agreement”) with 111 West 57th
Sponsor LLC (the “Sponsor”),
pursuant to which Investment LLC invested (the “Investment”) in a real estate development property to purchase and develop the 111 West 57
th
Property. In consideration for making the Investment, Investment LLC was granted a
membership interest in 111 West 57
th
Partners LLC (“111 West 57
th
Partners”), which indirectly acquired the 111 West 57
th
Property on June 28, 2013 (the “Joint Venture,” and such date, the “Closing
Date”). The Company also indirectly contributed an additional amount to the Joint Venture in exchange for an additional indirect interest in the Joint Venture. Other members and the Sponsor contributed additional cash and/or property to
the Joint Venture. The Company recorded its investment in 111 West 57
th
Partners utilizing the equity method of accounting. The Joint Venture plans were to redevelop the 111 West 57
th
Property into a luxury
residential tower and retail project.
Amounts
relating to the Company’s initial June 2013 investment in the 111 West 57
th
Property follow:
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($ in thousands)
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||||
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Company’s aggregate
initial investment
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$
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Company’s aggregate
initial membership interest %
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%
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||
6
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The JV Agreement and related operating agreements generally provide
that all distributable cash shall be distributed as follows: (i) first,
100
% to the members in proportion to their
percentage interests until Investment LLC has received distributions yielding a
20
% internal rate of return as calculated;
(ii) second,
100
% to the Sponsor as a return of (but not a return on) any additional capital contributions made by the
Sponsor on account of manager overruns; and (iii) thereafter, (a)
50
% to the members in proportion to their respective
percentage interests at the time of such distribution, and (b)
50
% to the Sponsor.
In March 2014, the Company entered into an amended and restated
operating agreement for Investment LLC (the “Amended and Restated Investment Operating Agreement”) to grant a
10
%
subordinated participation interest in Investment LLC to
the Company’s Chairman, President and Chief Executive Office, Mr. Richard A. Bianco (“Mr. R.A. Bianco”),
as a contingent future incentive for Mr. R.A. Bianco’s past, current and anticipated ongoing role to develop and commercialize the Company’s equity investment in the 111 West 57
th
Property.
Pursuant to the terms of the Amended and Restated Investment Operating Agreement, Mr. R.A. Bianco has
no
voting rights with respect to his interest in Investment LLC, and his entitlement to receive
10
% of the distributions from Investment LLC is subject to the Company first receiving distributions equal to
150
% of the Company’s initial aggregate investment in Investment LLC and the Joint Venture, plus any additional investments by the
Company, and only with respect to any distributions thereafter. At the current time, the Company has
no
t expensed
no
r accrued any amounts relating to this subordinated participation interest, as no amount or range of amounts can be reasonably
estimated or assured.
During 2014, in connection with the funding of
additional capital calls under the JV Agreement for required borrowing and development costs for the 111 West 57
th
Property, the Company’s management and its Board of Directors concluded that, given the continuing development
risks of the 111 West 57
th
Property and the Company’s financial position, the Company should not at that time increase its already significant concentration and risk exposure to the 111 West 57th Property. Nonetheless, the
Company sought to limit dilution of its interest in the Joint Venture resulting from any failure to fund the capital call requirements, but at the same time wished to avoid the time, expense and financial return requirements (with
attendant dilution and possible loss of voting rights) that obtaining a replacement third-party investor would require. The Company, therefore, entered into a second amended and restated operating agreement for Investment LLC (“Second
Amended and Restated Investment Operating Agreement”) pursuant to which Capital LLC was admitted as a member of Investment LLC. In exchange for Capital LLC contributing toward Investment LLC capital calls in respect of the 111 West 57
th
Property, available cash of Investment LLC will be distributed first to Capital LLC until it has received a
20
% internal rate
of return (calculated as provided for in the JV Agreement as noted above), second to the Company until it has received
150
% of
its capital, and, thereafter, available cash is split
10/90
, with
10
% going to Mr. R.A. Bianco as the subordinated participation interest noted above and
90
% going to Capital LLC and the Company pari-passu, with Capital LLC receiving
of its pro-rata share based on capital contributed and the Company receiving the balance. No other material changes were made to the Amended and Restated Investment Operating Agreement, and
neither Mr. R.A. Bianco nor Capital LLC has any voting rights with respect to their interest and investment in Investment LLC.
In accordance with the JV Agreement, shortfall
capital contributions may be treated either as a member loan or as a dilutive capital contribution as set forth in the JV Agreement. The Sponsor deemed the shortfall capital contributions as dilutive capital contributions to the Company.
The Company disagrees with the Sponsor’s investment percentage calculations. The Sponsor has taken the position that the capital contribution requests, if taken together, would have caused the Company’s combined ownership percentage to be
diluted below the Company’s initial membership interest percentage. The parties have a dispute with regard to the calculation of the revised investment percentages resulting from the capital contribution requests, along with the treatment
and allocation of these shortfall capital contribution amounts.
On June 30, 2015, 111 West 57
th
Partners
obtained financing for the 111 West 57
th
Property. The financing was obtained in two parts: (i) a first mortgage construction loan with AIG Asset Management (US), LLC (along with its affiliates “AIG”); and (ii) a mezzanine
loan with Apollo Commercial Real Estate Finance, Inc. (along with its affiliates “Apollo”), as detailed herein. Both loans initially had certain repayment term dates with extension option(s) subject to satisfying certain conditions. The
loan agreements (the “Loan Agreements”) also include customary events of default and other customary terms and conditions. Simultaneously with the closing of the AIG and the Apollo financing, 111 West 57
th
Partners repaid all
outstanding liabilities and obligations to Annaly CRE, LLC under the initial mortgage and acquisition loan agreement, dated June 28, 2013, between the joint venture entities and Annaly CRE, LLC. The remaining loan proceeds were to be
drawn down and used as necessary for construction and related costs, loan interest escrow and other related project expenses for development of the 111 West 57
th
Property.
7
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
In April 2016, the Company
initiated a litigation in the New York State Supreme Court for New York County (the “NY Court”), Index No. 652301/2016, (“AmBase v. 111 West 57th Sponsor LLC, et al.”) (the “
Sponsor
Action”). The defendants in that litigation include 111 West 57th Sponsor LLC, Kevin Maloney, Michael Stern, and various members and affiliates, Liberty Mutual
Insurance Company, and Liberty Mutual Fire Insurance Company (collectively, “Defendants”) and nominal defendants 111 West 57th Partners LLC and 111 West 57
th
Mezz 1 LLC. For additional information with regard to the Company’s legal proceedings relating to the 111 West 57
th
Property, see
Note 6
.
In December 2016, the Sponsor proposed for approval a “proposed budget” (the “Proposed Budget”), which the Sponsor claims reflected an increase in other costs resulting in the need for additional funding in order to complete
the project. The Company disputes, among other items, the calculation of the percentage increase of hard costs shown in the Proposed Budget. The Company believes the aggregate projected hard costs in the Proposed Budget exceed a
contractually stipulated limit as a percentage of the hard costs set forth in the prior approved budget, thus allowing Investment LLC the option to exercise its equity put right as set forth in the JV Agreement (the “Equity Put
Right”). Consequently, subsequent to the Sponsor’s presentation of the Proposed Budget, Investment LLC notified the Sponsor that it was exercising its Equity Put Right pursuant to the JV Agreement. The Sponsor refused to honor the
exercise of Investment LLC’s Equity Put Right. The Sponsor claims, among other things, that the conditions precedent were not met because it claims that the increase in aggregate hard costs in the Proposed Budget does not exceed the
contractually stipulated limit that would allow the exercise of the Equity Put Right.
The Company further contends that a portion of the
Proposed Budget increases are manager overruns (as defined in the JV Agreement) and thus should be paid for by the Sponsor. The Sponsor denies that the Proposed Budget increases were manager overruns. The Company continues to challenge
the nature and substance of the Proposed Budget increases and how they should be treated pursuant to the JV Agreement.
The Sponsor claimed that additional borrowings were
needed to complete the project. Shortly thereafter, the Sponsor informed the Company that Apollo had indicated that due to budget increases, it believed the current loan was “out of balance” (meaning, according to Apollo, the projected
budget exceeds the original budget approved in connection with the loan); and thus 111 West 57th Partners LLC, or its subsidiaries would need additional funding in order to bring the loan back into balance. The Company considered
approving the additional financing but informed the Sponsor that it had concerns about the Proposed Budget and the implications of the Proposed Budget, as well as other questions which needed to be addressed first.
Around this time, Apollo provided loan forbearances
to the borrowers and guarantors to allow the Sponsor time (while the building continued to be built) to raise the additional financing that Sponsor claimed would be needed to complete the 111 West 57th project. This forbearance period
ended on June 29, 2017. Around this date, the Company was advised that Apollo sold a portion of the mezzanine loan—broken off as a junior mezzanine loan—to an affiliate of Spruce Capital Partners LLC (“Spruce”) (the “Junior Mezzanine
Loan”).
On June 30, 2017, Spruce declared an event of
default under the Junior Mezzanine Loan and demanded immediate payment of the full outstanding balance of the Junior Mezzanine Loan. Spruce then gave notice to the junior mezzanine borrower that it proposed to accept the pledged
collateral (including the joint venture members’ collective interest in the property) in full satisfaction of the joint venture’s indebtedness under the Junior Mezzanine Loan (i.e., a “Strict Foreclosure”).
On July 25, 2017, the Company filed a complaint against Spruce and the Sponsor
and requested injunctive relief halting the Strict Foreclosure from the New York State Supreme Court for New York County, (the “NY Court”) Index No. 655031/2017, (the “Lender Action”). The defendants in the Lender Action were 111 W57
Mezz Investor, LLC, Spruce Capital Partners LLC, 111 West 57th Sponsor LLC, Michael Z. Stern, and Kevin P. Maloney (collectively, “Defendants”) and nominal defendants 111 West 57
th
Partners LLC and 111 West 57
th
Mezz 1 LLC. The
Company has since voluntarily discontinued its claims against Sponsor, Stern, and Maloney, without prejudice to reinstating them in the Lender Action or any other action. For additional information with regard to the Lender Action, see
Note 6
.
8
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On August 30, 2017, Spruce issued a Notice of
Retention of Pledged Collateral in Full Satisfaction of Indebtedness. By purporting to accept the pledged collateral, pursuant to a Strict Foreclosure process, Spruce claims to have completed the retention of the collateral pledged
by the junior mezzanine borrower, and therefore, the Company’s interest in the 111 West 57th Property (the “Strict Foreclosure”). Despite ongoing litigation challenging the legitimacy of the actions taken in connection with the
Strict Foreclosure, the Company recorded an impairment for the full amount of its equity investment in the 111 West 57
th
Property in 2017. Prior to the Strict Foreclosure, the carrying value of the Company’s equity
investment in the 111 West 57
th
Property represented a substantial portion of the Company’s assets and net equity value.
For additional information regarding the Company’s legal proceedings relating to the 111 West 57
th
Property,
including the Company’s challenge to the Strict Foreclosure, see
Note 6
.
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 57
th
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 Sponsor 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 57
th
Property, as to the ultimate effect
of the Sponsor’s, 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
57
th
Property.
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 57
th
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.
Note 4 - Savings Plan
The Company
sponsors the AmBase 401(k) Savings Plan (the “Savings Plan”), which is a “Section 401(k) Plan” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”). The Savings Plan permits eligible employees to make
contributions of a percentage of their compensation, which are matched by the Company at a percentage of the employees’ elected deferral. Employee contributions to the Savings Plan are invested at the employee’s discretion in various
investment funds. The Company’s matching contributions are invested in the same manner as the compensation reduction contributions. All contributions are subject to the maximum limitations contained in the Code.
The Company’s
matching contributions to the Savings Plan, charged to expense, were as follows:
|
($ in thousands
)
|
Three Months Ended
|
Nine months Ended
|
||||||||||||||
|
September 30,
2024
|
September 30,
2023
|
September 30,
2024
|
September 30,
2023
|
|||||||||||||
|
Company matching contributions
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Employer match %
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
9
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 5 - Income Taxes
The Company and its domestic
subsidiaries file a consolidated federal income tax return. The Company recognizes both the current and deferred tax consequences of all transactions that have been recognized in the unaudited condensed consolidated financial statements,
calculated based on the provisions of enacted tax laws, including the tax rates in effect for current and future years. Net deferred tax assets are recognized immediately when a more likely than not criterion is met; that is, a greater
than 50% probability exists that the tax benefits will actually be realized sometime in the future.
The Company has a deferred tax asset arising primarily from NOL carryforwards. The Company
has a full valuation allowance on the deferred tax asset amounts, as management has no basis to conclude that realization is more likely than not. Management does not believe that any significant changes in unrecognized income tax
benefits are expected to occur over the next year.
The Company’s management is
continuing to work closely with outside advisors on the Company’s various federal tax return matters for the numerous interrelated tax years. The Company cannot predict whether or not the IRS and/or other tax authorities will review the
Company’s tax returns filed, to be filed and/or as filed in prior years. 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; and risks regarding changes in, and/or interpretations of federal and state income tax laws. Moreover, applicable provisions of the Code and IRS regulations permit the IRS to challenge
Company tax positions and filed returns or seek additional taxes for an extended period of time after such returns are filed. The Company can give no assurances as to the final outcome of any IRS review, if any.
The Company was a plaintiff in a
legal proceeding seeking recovery of damages from the United States Government for the loss of the Company’s wholly-owned subsidiary, Carteret Savings Bank, F.A. (the “SGW Legal Proceedings”). A settlement agreement in the SGW Legal
Proceedings between the Company, the Federal Deposit Insurance Corporation-Receiver (“FDIC-R”) and the Department of Justice (“DOJ”) on behalf of the United States of America (the “United States”), was executed (the “SGW 2012 Settlement
Agreement”) which was approved by the United States Court of Federal Claims (the “Court of Federal Claims”) in October 2012. On August 6, 2013, Senior Judge Smith issued an opinion which addressed the relief sought by AmBase. In
summary, the court held that the Settlement Agreement is a contract and that it entitles the Company to receive both “(1) the amount of the tax consequences resulting from taxation of the damages award plus (2) the tax consequences of
receiving the first component.” But the Court of Federal Claims did not award an additional amount for the second component at that time given the remaining uncertainty surrounding the ultimate tax treatment of the settlement proceeds
and the gross-up, as well as uncertainty relating to the Company’s future income. The Court of Federal Claims indicated that either the Company or the government is entitled to seek further relief “if, and when, the facts justify it.”
10
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6 - Legal
Proceedings
From time to time, the Company and
its subsidiaries may be named as a defendant in various lawsuits or proceedings. At the current time except as set forth below, the Company is unaware of any legal proceedings pending against the Company. The Company intends to
aggressively contest all litigation and contingencies, as well as pursue all sources for contributions to settlements. However, there can be no assurance that the Company will prevail with respect to any of its claims.
The Company is a party to material
legal proceedings as follows:
AmBase Corp., et al. v. 111 West 57
th
Sponsor LLC, et al.
In April 2016, AmBase and certain of its subsidiaries and affiliates
(collectively, the “Plaintiffs”) initiated a litigation in the New York State Supreme Court for New York County (the “NY Court”), Index No. 652301/2016, (“AmBase v. 111 West 57th Sponsor LLC, et al.”) (the “Sponsor Action”). The
defendants in that litigation include 111 West 57th Sponsor LLC (the “Sponsor”), Kevin Maloney, Michael Stern, and various members and affiliates, (collectively, “Defendants”) and nominal defendants 111 West 57th Partners LLC and 111
West 57th Mezz 1 LLC. In the current version of the complaint, AmBase alleges that Defendants violated multiple provisions in the JV Agreement, including by failing to honor the exercise of AmBase’s contractual “equity put right” as
set forth in the JV Agreement (the “Equity Put Right”) and by not objecting to the 2017 foreclosure of the junior mezzanine loan on the project. AmBase is seeking compensatory damages, punitive damages, indemnification and equitable
relief, including a declaration of the parties’ rights, and an accounting. The Company has also demanded from the Sponsor access to the books and records for the 111 West 57th Property which the Sponsor refused, claiming they have
provided all books and records as required
.
The Defendants
filed a motion to dismiss an earlier complaint, and on January 12, 2018, the NY Court issued an opinion allowing some of AmBase’s claims to go forward and dismissing others (“2018 Order”). Among other claims that the NY Court declined
to dismiss was AmBase’s claim that the Defendants violated the implied covenant of good faith and fair dealing by frustrating AmBase’s Equity Put Right. Claims that the NY Court dismissed included AmBase’s claim that the Defendants
breached their contract with AmBase by financing capital contributions for the project through funds obtained from third parties. On January 16, 2018, some of the Defendants wrote to the NY Court suggesting that the opinion contained
certain clerical errors and was missing a page. On January 18, 2018, the NY Court removed its previous opinion from the docket and on January 29, 2018, posted a revised opinion. On April 13, 2018, AmBase filed a notice of appeal of
the 2018 Order to the New York Supreme Court Appellate Division, First Judicial Department (the “Appellate Division”). On January 22, 2020, the Company filed a motion with the Appellate Division seeking to enlarge the time to perfect
the Company’s appeal of the 2018 Order, in light of an intervening removal to and remand from federal court. On July 2, 2020, the Appellate Division granted AmBase’s motion and enlarged the time to perfect the Company’s appeal to the
October 2020 Term of the Appellate Division. On April 29, 2021, the Appellate Division affirmed Justice Bransten’s dismissal of the claims on appeal, while the claims that were not previously dismissed remain pending in the trial
court.
On April 27, 2018, the Company filed a third amended complaint adding federal RICO claims, and new claims for declaratory judgment, breach of contract, fraud, and breach of fiduciary duty, based on information
discovered during the course of discovery and events that had transpired since the Company filed its previous complaint in the Sponsor Action. On June 18, 2018, Defendants removed the complaint to the U.S. District Court for the
Southern District of New York (the “Federal Court”), where it was docketed as case number 18-cv-5482-AT.
On October
25, 2018, the Federal Court issued an order granting Defendants’ motion to dismiss the Company’s RICO claims and declined to exercise supplemental jurisdiction over the Company’s state-law claims, dismissing the latter claims without
prejudice. On August 30, 2019, the U.S. Court of Appeals for the Second Circuit affirmed the Federal Court’s dismissal of the federal RICO claims, vacated the Federal Court’s dismissal of the state-law claims, and remanded with
instructions for the Federal Court to remand those claims to the NY Court. On September 25, 2019, the Federal Court remanded the case to the NY Court, where it was assigned to the Honorable O. Peter Sherwood.
11
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On June 11, 2020, Defendants filed a motion with the NY Court to dismiss some of the state law claims asserted by the Company in the third amended complaint. On July 28, 2020, Plaintiffs filed a motion for leave to amend the
third amended complaint, which Defendants opposed. The proposed complaint added, among other things, claims arising from certain defendants’ role in the 2017 foreclosure of the junior mezzanine loan on the project. On July 22, 2021,
the NY Court granted Plaintiffs leave to amend and denied the motion to dismiss without prejudice as moot in light of the Court’s decision granting Plaintiffs leave to amend.
On July 29, 2021, Plaintiffs filed their fourth amended complaint. On September 3, 2021,
Defendants submitted a motion to dismiss the fourth amended complaint in part, which Plaintiffs opposed. On May 9, 2022, the NY Court issued a Decision and Order on Defendants’ motion to dismiss, allowing some of AmBase’s claims to go
forward and dismissing others (“May 9, 2022 Order”). The NY Court declined to dismiss AmBase’s claims that the Defendants breached their contracts with AmBase by permitting transfers or encumbrances upon 111 West 57th Sponsor LLC’s
and 111 West 57th Control LLC’s membership interests in connection with third-party financing without seeking or obtaining prior written approval. The Court also declined to dismiss AmBase’s claim that Defendants breached their
obligations under the Development Agreement by, among other things, failing to use “commercially reasonable efforts” to plan, design, develop, construct, and obtain permits for the Property in a timely manner and failing to devote
sufficient time and attention to its obligations under the Development Agreement.
Claims that the NY Court dismissed included AmBase’s claims that Defendants breached their
contract with AmBase by making capital contributions to Sponsor from third parties; consenting to the strict foreclosure without obtaining AmBase’s prior written approval in violation of the “Major Decisions” provision; refusing to
cooperate and share information with AmBase’s construction consultant; and engaging in fraud and intentional misconduct in violation of Joint Venture Agreement section 8.5. The NY Court also dismissed AmBase’s claim that Defendants
made fraudulent misrepresentations or omissions (as duplicative of the breach of contract claims) and other claims whose dismissal was compelled by a prior decision of the First Department, namely, AmBase’s claims that Sponsor, Stern,
and Maloney breached their fiduciary duties of loyalty; to impose a constructive trust on the insurance loss fund; and to impose a constructive trust on Stern’s, Maloney’s, JDS’s, PMG’s, and the construction manager’s construction
management fees and Stern’s and Maloney’s equity interest in the Project. Finally, the Court dismissed AmBase’s current allegations that piercing certain of Defendants’ corporate veils is warranted. On January 18, 2023, the Company
filed a notice of appeal appealing the May 9, 2022 Order with regard to all defendants in the Sponsor Action and perfected the appeal on July 10, 2023.
On November 28, 2023, the Appellate Division First Department issued its decision modifying the NY Court’s
decision in part and affirming the NY Court’s decision in part. The First Department modified the NY Court’s decision by reinstating Plaintiffs’ breach of contract claim based on Defendants’ refusing to cooperate and share
information with AmBase’s construction consultant and one part of Plaintiffs’ fraudulent misrepresentation or omission claim asserted against one of the individual defendants. The First Department otherwise affirmed the NY Court’s
decision.
Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company (“Liberty
Mutual Defendants”) were named as defendants in the fourth amended complaint. On September 30, 2021, the Liberty Mutual Defendants answered the fourth amended complaint and filed a counterclaim against the Company’s subsidiaries for
specific performance of a pledge agreement securing certain insurance policies issued for the Project. Plaintiffs replied to those counterclaims on October 20, 2021. On March 14, 2024, the parties filed a Stipulation of
Discontinuance Against Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company whereby all causes of action, counterclaims, and crossclaims by and against the Liberty Mutual Defendants were discontinued without
prejudice. The Court entered the Stipulation on March 15, 2024.
Matthew
Phillips was also named as an individual defendant in the fourth amended complaint. Following the First Department’s reinstatement of one part of Plaintiffs’ fraudulent misrepresentation or omission claim as asserted against
Phillips, on March 26, 2024, the parties filed a Stipulation of Discontinuance Against Matthew Phillips whereby Plaintiffs AmBase Corporation and 111 West 57th Investment LLC discontinued their Fifth Claim for Relief for
fraudulent misrepresentation or omission only against Phillips, with prejudice.
On January 30, 2023, Sponsor, Stern, Maloney, and various defendant members and affiliates filed their answer and asserted counterclaims against the Company’s subsidiaries for breach of the Joint
Venture Agreement in connection with a proposed refinancing of the Project in 2016. Plaintiffs replied to those counterclaims on February 21, 2023.
Discovery in the case is currently ongoing
. For additional information with regard to the
Company’s investment in the 111 West 57
th
Property, including the foreclosure, see
Note 3
.
12
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
AmBase Corp., et al. v. Spruce
Capital Partners, et al.
In July 2017, the Company initiated a second litigation in the NY Court, Index No. 655031/2017, (the “Lender Action”). The defendants in the 111 West 57
th
Spruce action were 111 W57 Mezz Investor, LLC (“Spruce”),
Spruce Capital Partners LLC, 111 West 57th Sponsor LLC, Michael Z. Stern, and Kevin P. Maloney and nominal defendants 111 West 57th Partners LLC and 111 West 57
th
Mezz 1 LLC. The Company has since voluntarily discontinued its
claims against Sponsor, Stern, and Maloney, without prejudice to reinstating them in the 111 West 57
th
Spruce Action or any other action.
Spruce had
given notice to the junior mezzanine borrower that it proposed to accept the pledged collateral (including the joint venture members’ collective interest in the property) in full satisfaction of the joint venture’s indebtedness under the
Junior Mezzanine Loan (i.e., a “Strict Foreclosure”). After the Sponsor refused to object to Spruce’s proposal on behalf of the junior mezzanine borrower, and Spruce refused to commit to honor Investment LLC’s objection on its own behalf,
the Company initiated the 111 West 57
th
Spruce Action to obtain injunctive relief halting the Strict Foreclosure. For additional information on the events leading to this litigation see
Note
3
.
On July 26,
2017, the NY Court issued a temporary restraining order barring Spruce from accepting the collateral, pending a preliminary injunction hearing scheduled for August 14, 2017. Spruce and the Sponsor subsequently filed papers in opposition
to the request for a preliminary injunction and cross-motions to dismiss and quash subpoenas. On August 14, 2017, the NY Court postponed the hearing until August 28, 2017, keeping the temporary restraining order preventing a Strict
Foreclosure in effect until the August 28, 2017 hearing. Subsequently, the Company filed a response brief in support of their request for injunctive relief halting the Strict Foreclosure process and in opposition to the motions to quash
the subpoenas.
On August 28,
2017, the NY Court held a preliminary injunction hearing, lifted the temporary restraining order, denied Plaintiffs’ request for a preliminary injunction, and granted Defendants’ cross-motions. In order to prevent the Strict Foreclosure
process from going forward, the Company immediately obtained an interim stay from the New York Supreme Court Appellate Division, First Judicial Department (“Appellate Division”). That stay remained in place until August 29, 2017,
permitting the Company to obtain an appealable order, notice an appeal, and move for a longer-term stay or injunctive relief pending appeal. The Appellate Division held a hearing on August 29, 2017, to consider the Company’s motion for an
interim stay or injunctive relief pending appeal, both of which it denied, thus allowing the purported Strict Foreclosure to move forward.
In January
2019, the Appellate Division issued a decision that resolved the Company’s appeal from the order denying a preliminary injunction and dismissing its claims. The Appellate Division affirmed the decision below in part and otherwise
dismissed the appeal. It noted that the Company should be allowed to move for leave to amend to state claims for damages and/or the imposition of a constructive trust, as the dismissal of the Company’s claims was without prejudice.
On May 3, 2019, the Company’s
subsidiary, Investment LLC, entered into a stipulation with Spruce to amend the complaint in the Lender Action to state claims against Spruce for breaches of the Uniform Commercial Code and Pledge Agreement and various torts. The
amended complaint sought the entry of a declaratory judgment, the impression of a constructive trust, permanent injunctive relief restraining Spruce from disposing of or encumbering the 111 West 57
th
Property, and damages,
including punitive damages. The amended complaint did not name the Company as a plaintiff or Spruce Capital Partners as a defendant. On May 31, 2019, Spruce filed a motion to dismiss the amended complaint. On January 29, 2020, the
Court entered a decision and order granting in part and denying in part Spruce’s motion to dismiss the amended complaint. On February 26, 2020, Spruce filed a notice of appeal to the Appellate Division seeking the appeal of the
January 29, 2020 order. On March 4, 2020, Investment LLC filed a notice of cross-appeal to the Appellate Division, seeking to appeal the January 29, 2020 order to the extent the NY Court dismissed some of Investment LLC’s claims. On
March 30, 2021, the Appellate Division issued a decision and order revising the January 29, 2020, order by reinstating Investment LLC’s derivative claim for breach of the covenant of good faith and fair dealing and dismissing the
remaining claims.
While the appeal was pending, the parties to the Lender Action conducted discovery. On April 13, 2021, Investment LLC moved for leave to file a Second Amended Complaint to (1) bolster its factual allegations against the
existing Defendant, (2) add claims against Spruce Capital Partners, Joshua Crane, and Robert Schwartz (“Spruce Defendants”), Arthur Becker and his affiliates (“Atlantic Defendants”), Apollo and its affiliates (“Apollo Defendants”),
and AIG and its affiliates (“AIG Defendants”). On September 30, 2021, the Court granted the motion, and Investment LLC filed its Second Amended Complaint on the same day. On November 22, 2021, the various defendants filed separate
motions to dismiss the claims against them. On December 13, 2021, Investment LLC filed a combined opposition to the motions. The defendants filed their replies on January 7, 2022.
13
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On May 17, 2022, Plaintiff in the Lender Action filed a motion requesting that the court hold oral argument on the pending motions to dismiss. The court granted the motion and heard argument
on July 22, 2022. During argument, counsel for Plaintiff made an oral motion to amend the complaint to add an express allegation that Defendants committed the tort of interference with contractual relations by procuring Sponsor’s
breach of the implied covenant of good faith and fair dealing in the JV Agreement. The court called for supplemental briefs on the issue, which were filed on August 5, 2022.
On December 15,
2022, the NY Court issued a decision and order granting in part and denying in part the motions to dismiss (“December 15, 2022 Order”). Specifically, the NY Court declined to dismiss Plaintiff’s claims against ACREFI Mortgage
Lending, LLC, Apollo Credit Opportunity Fund III AIV I LP, and AGRE Debt 1 – 111 W 57, LLC (“Apollo Lenders”) for breach of the Pledge Agreement in connection with the strict foreclosure. The NY Court dismissed Plaintiff’s claims
for tortious interference with contract against the Spruce Defendants, AIG Defendants, and Apollo Defendants, and Plaintiff’s claim for unjust enrichment against the Atlantic Defendants.
On January 3, 2023, the Apollo Lenders filed a notice of appeal to the Appellate Division seeking review of the December 15, 2022 Order. On January 18,
2023, Plaintiff filed notices of appeal and cross-appeal appealing the December 15, 2022, Order with regard to all Defendants. On August 9, 2023, pursuant to mutual agreement with the Plaintiff and the AIG Defendants, Plaintiff
filed a stipulation to withdraw its appeal against the AIG Defendants. Following briefing and oral argument, the Appellate Division First Department issued its decision on October 5, 2023. The First Department modified the NY
Court’s decision to dismiss Plaintiff’s claim against the Apollo Lenders for breach of the Pledge Agreement in connection with the strict foreclosure, and otherwise affirmed the NY Court’s decision. On November 3, 2023, Plaintiff
filed motions for leave to appeal the First Department’s decision to the Court of Appeals in both the First Department and the Court of Appeals. On December 19, 2023, the First Department denied Plaintiff’s motion for leave to
appeal to the Court of Appeals, which concerned Plaintiff’s claim against the Apollo Lenders for breach of the Pledge Agreement in connection with the strict foreclosure and Plaintiff’s claims against the Spruce Defendants and
Apollo Lenders for tortious interference with contract. On April 23, 2024, the Court of Appeals denied Plaintiff’s motion for leave to appeal to the Court of Appeals, which concerned Plaintiff’s claims against Apollo Commercial
Real Estate Finance, Inc. and Apollo Global Management, Inc. for tortious interference with contract.
On January 13, 2023, the Apollo Lenders filed their answer and affirmative defenses to the Company’s Second Amended Complaint together with crossclaims against 111 W57th Mezz Investor LLC, Spruce Capital
Partners LLC, Joshua Crane, Robert Schwartz, Michael Stern, Kevin Maloney, 111 West 57th Sponsor LLC, 111 West 57th Control LLC, and 111 West 57th Manager LLC (the “Crossclaim Defendants”). The crossclaims were for (1)
contribution against all Crossclaim Defendants; (2) indemnification against 111 W57th Mezz Investor LLC, Spruce Capital, Crane, and Schwartz; and (3) a declaratory judgment that 111 W57th Mezz Investor LLC, through Spruce Capital,
Crane, and Schwartz, has indemnified the Apollo Lenders against any and all loss that the Apollo Lenders have incurred or may incur in defending against this case. On January 23, 2023, the Apollo Lenders filed a notice of
voluntary discontinuance without prejudice, voluntarily discontinuing their first crossclaim for contribution only as it was brought against Stern, Maloney, Sponsor, 111 West 57th Control LLC, and 111 West 57th Manager LLC. On
April 30, 2024, the Apollo Lenders filed a motion for an order of discontinuance of their crossclaims, which the Court granted on June 7, 2024, and which was entered on June 12, 2024.
On July 12, 2024, Plaintiff
served a motion for leave to appeal to the Court of Appeals the judgment, to the extent it was final, against Apollo Lenders, Spruce Capital Partners LLC, Joshua Crane, and Robert Schwartz. Also on July 12, 2024, Plaintiff filed a
notice of appeal to the First Department of the trial court’s order granting Apollo Lenders’ motion for an order of discontinuance of their crossclaims.
On September 26, 2024, Plaintiff voluntarily withdrew its unperfected appeal to the First
Department by filing a letter application to the court under 22 N.Y.C.R.R. § 1250.2(b)(1).
On January 30, 2023, Defendant 111 W57 Mezz Investor LLC filed its answer to Plaintiff’s Second Amended Complaint. Because the Court has resolved the motions to dismiss, discovery has recommenced, and Plaintiffs are actively
seeking the production of documents.
Since the
Company is not a party to the Loan Agreements, it does not have access to communications with the lenders, except for those individual communications that the Sponsor has elected to share or that have been produced in the ongoing
litigation. The Company has continued to demand access to such information, including access to the books and records for the 111 West 57
th
Property both under the JV Agreement and as part of the Sponsor Action and the Lender
Action. For additional information with regard to the Company’s investment in the 111 West 57
th
Property and the Company’s recording of an impairment of its equity investment in the 111 West 57
th
Property in 2017,
see
Note 3
.
14
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
111 West 57th Investment LLC, et al. v. Kasowitz Benson Torres LLP, et al.
, No. 151139/2024 (N.Y. Sup. Ct.). On June 27, 2024, 111 West 57th Investment LLC, derivatively on behalf of 111 West 57th
Partners LLC and 111 West 57th Mezz 1 LLC, and 111 West 57th Manager Funding LLC, derivatively on behalf of 111 West 57th Manager LLC (collectively, “Plaintiffs”), filed a Complaint against Kasowitz Benson Torres LLP and Douglas B.
Heitner (collectively, “Defendants”) in the Supreme Court of the State of New York, County of New York. Plaintiffs’ claims arise out of Defendants’ representation of 111 West 57th Partners LLC, 111 West 57th Mezz 1 LLC, and 111 West 57th
Manager LLC in connection with the real estate development project of 111 West 57th Street (the “Project”) and related financing and other transactions, while simultaneously representing persons and entities with interests adverse to and
in conflict with 111 West 57th Partners LLC’s, 111 West 57th Mezz 1 LLC’s, and 111 West 57th Manager LLC’s interests (and the interests of other members of these represented entities), including but not limited to: Michael Stern, Kevin
Maloney, and various entities owned and/or controlled by them. Specifically, in representing 111 West 57th Partners LLC, 111 West 57th Mezz 1 LLC, and 111 West 57th Manager LLC throughout the restructuring of the financing and the
raising of capital for the Project, including, without limitation, the New York Uniform Commercial Code “strict foreclosure” in 2017 on the Project, Defendants acted to the detriment of these clients to benefit their other, longtime
clients, resulting in 111 West 57th Partners LLC losing an extremely valuable asset in the strict foreclosure. Plaintiffs assert claims for breach of fiduciary duty and legal malpractice. Plaintiffs seek to recover money damages,
improperly paid legal fees, costs, attorneys’ fees, and such other relief as is just and proper (together with interest thereon). On July 2, 2024, Plaintiff voluntarily discontinued their claims, without prejudice and without costs, as
against Defendant Douglas B. Heitner.
On August 16, 2024, Defendant Kasowitz Benson Torres LLP filed a motion to dismiss the Complaint. On August 30, 2024, the parties filed a Stipulation of Discontinuance Without Prejudice, whereby (1) Plaintiffs
agreed to discontinue the action without prejudice and without costs to the parties, (2) the parties agreed that all statutes of limitations, laches, or other time-related doctrines were tolled, and (3) the parties agreed that
Plaintiffs could recommence the action at any time and without prejudice by refiling a new summons and complaint. On September 3, 2024, in light of the stipulation of discontinuance, the court denied the motion to dismiss as moot.
For additional information with regard to the Company’s investment in the 111 West 57th Property,
see Note 3
.
AmBase Corp. et al. v. 111 West 57th Sponsor LLC et al.
, No. 651782/2024 (N.Y. Sup. Ct.). On April 4, 2024, AmBase Corporation, 111 West 57th Manager Funding LLC, and 111 West 57th Investment LLC, on
behalf of itself and derivatively on behalf of 111 West 57th Partners LLC and 111 West 57th Mezz 1 LLC (collectively, “Plaintiffs”), filed a Summons with Notice against 111 West 57th Sponsor LLC, 111 West 57th Control LLC, 111 West 57th
Developer LLC, Kevin Maloney, Michael Stern, JDS Construction Group LLC, JDS Development LLC, PMG Construction Group LLC, Property Markets Group, Inc., 111 Construction Manager LLC, Manager Member 111W57 LLC, and John and Jane Does 1–10
(collectively, “Defendants”) in the Supreme Court of the State of New York, County of New York. Plaintiffs’ claims arise out of alleged fraudulent transfers by, between, and/or to Defendants before and during the pendency of the
underlying litigation
AmBase Corp. et al. v. 111 West 57th Sponsor LLC et al.
, Index No. 652301/2016. Specifically, despite knowing of contractual agreements, obligations, and/or claims between
Plaintiffs and the Defendants, following the commencement of the suit by Plaintiffs, Defendants allegedly continued to make transfers and/or incur obligations in violation of the law, for no consideration or equivalent value, which
rendered the transferor(s) insolvent (or when they were already insolvent), and rendering the transferor(s) unable to meet debts as they become due, unable to pay actual or future creditors, unable to meet business/transaction obligations
as they arise, and/or with the actual intent to hinder, delay, and/or defraud Plaintiffs and other creditors. The Summons with Notice further states that, upon information and belief, the scheme included the transfer to one or more
insider(s) and or their affiliates, principals, and/or agents. The scheme was allegedly concealed from Plaintiffs, who were not given the opportunity to consent or to dissent. Plaintiffs allege that they have suffered damages and demand
relief of no less than $
100
million plus Plaintiffs’ own attorneys’ fees and costs, as well as restitution, constructive trust,
the voiding of the fraudulent conveyances, statutory remedies, and such other and further relief as the Court deems proper.
On August 16, 2024, Defendants filed a Demand for Complaint, requesting that Plaintiffs serve the Complaint in the action upon Defendants. On
September 13, 2024, the parties filed a Stipulation of Discontinuance Without Prejudice, whereby (1) Plaintiffs agreed to discontinue the action without prejudice and without costs to the parties, (2) the parties agreed that all
statutes of limitations, laches, or other statutory time-related periods or doctrines were tolled, and (3) the parties agreed that Plaintiffs could recommence the action at any time and without prejudice by filing a summons and
complaint, which could be served on Defendants and Nominal Defendants by email.
For additional information with regard to the Company’s investment in the 111 West 57th Property, see
Note 3
.
15
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
AmBase Corp., et al. v. ACREFI Mortgage Lending LLC, et al.
In June 2018, the Company initiated another litigation in the NY Court, Index No. 655031/2017, (the “Apollo Action”). The defendants in the
Apollo Action were ACREFI Mortgage Lending, LLC, Apollo Credit Opportunity Fund III AIV I LP, AGRE Debt 1 – 111 W 57, LLC, and Apollo Commercial Real Estate Finance, Inc. (collectively, the “Apollo Defendants”). In the Apollo Action, the
Company alleged that the Apollo Defendants aided and abetted the Sponsor, Stern, and Maloney in breaching their fiduciary duties to the Company in connection with the 111 West 57th Property and tortiously interfered with the JV Agreement.
The Company was seeking damages as well as punitive damages for tortious interference with the JV Agreement and aiding and abetting the Sponsor’s breaches of their fiduciary duties to the joint venture. The Apollo Defendants filed a
motion to dismiss on August 17, 2018. On October 22, 2019, the NY Court entered an order dismissing the Company’s complaint in the Apollo Action in its entirety. On November 8, 2019, the NY Court entered judgment (the “Apollo Dismissal”)
dismissing the Apollo Action in favor of the Apollo Defendants. On December 10, 2019, the Company filed a notice of appeal seeking the appeal of the Apollo Dismissal. On August 7, 2020, the Company perfected its appeal of the Apollo
Dismissal. After Investment LLC filed its motion to amend the complaint in the Lender Action to add claims against Apollo, the parties to the Apollo Action filed a stipulation to withdraw the appeal in the Apollo Action. For additional
information with regard to the Company’s investment in the 111 West 57th Property, see
Note 3
.
AmBase Corp., et al. v. Custom House Risk Advisors, Inc., et al.
On April 2, 2020, the Company initiated litigation in the United
States District Court for the Southern District of New York, Case No. 1:20-cv-02763-VSB (the “Custom House Action”). The defendants in the Custom House Action were Custom House Risk Advisors, Inc. and Elizabeth Lowe
(collectively, the “Custom House Defendants”). In the Custom House Action, the Company alleged that the Custom House Defendants (a) aided and abetted Sponsor, Stern, and Maloney in breaching their fiduciary duties to the Company
by structuring an insurance policy to the personal benefit of Sponsor, Stern and Maloney and the detriment of the 111 West 57th Project and concealing the structure and ownership of the insurance policy from the Company and (b)
committed fraud by making material misrepresentations about the terms of the policy to the Company, inducing the Company to contribute additional capital to the 111 West 57th Project to cover the costs of the insurance policy.
The Company sought damages as well as disgorgement of profits the Custom House Defendants earned from their wrongful conduct. On April 10, 2020, the Custom House Defendants waived service of process. In an agreement dated July
31, 2020, the Company and the Custom House Defendants agreed to certain terms for a settlement and entered into a settlement agreement which requires that the Custom House Defendants satisfy certain conditions prior to any
dismissal of the Custom House Action. On December 6, 2021, the Court approved a stipulation dismissing the Company’s claims and agreed to retain jurisdiction to enforce the settlement agreement. For additional information with
regard to the Company’s investment in the 111 West 57
th
Property, see
Note 3
.
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 57
th
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 Sponsor 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 57
th
Property, as to the ultimate effect of the Sponsor’s, 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 57
th
Property. For additional information with regard to the Company’s investment in the 111 West 57
th
Property, see
Note 3
.
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 57
th
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.
16
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 7 – Litigation Funding
Agreement
In 2017, the
Company entered into a Litigation Funding Agreement (the “2017 LFA”) with Mr. R.A. Bianco, to provide litigation funding to the Company for litigation costs in connection with the Company’s legal proceedings relating to the Company’s
equity investment in the 111 West 57
th
Property.
In 2019, after receiving approval from the Special
Committee, the Company and Mr. R.A. Bianco entered into an amendment to the 2017 LFA (the “2019 LFA Amendment”). In summary the 2019 LFA Amendment provided for the release of Mr. R.A. Bianco from all further funding obligations under
the 2017 LFA and that, in the event the Company receives any litigation proceeds from the 111 West 57
th
Litigation, such litigation proceeds shall be distributed as follows:
|
|
(i) |
first,
|
|
|
(ii) |
thereafter, any
additional amounts shall be distributed (a)
|
Note 8 – Loan(s) Payable – Related Party – BARC Investments LLC
The Company and BARC Investments, LLC, (“BARC”) an affiliate of the Company owned and controlled by
two
of the Company’s directors and their sibling, entered into an agreement(s) for BARC to provide senior loan(s) to the Company for working capital.
The loan(s) are due on the earlier of the date the Company receives funds from any source, (excluding funds received by the Company by any litigation funding entity to fund any of the 111 West 57
th
legal proceedings), sufficient to pay
all amounts due under the loan(s), including all accrued interest thereon, including without limitation, from a settlement of the 111 West 57
th
legal proceedings or (b) the date(s) indicated herein.
The Company and BARC further agreed that amounts due pursuant to the loan(s) plus interest can be converted by BARC, at its option, into a litigation funding agreement
pari-pasu with any litigation funding agreement entered into by the Company with a litigation funding entity.
Information regarding the loan(s) payable – related party - BARC, is as follows:
($ in thousands)
|
Date of loan(s)
|
Rate
|
Due Date
|
September 30,
2024
|
||||||
|
|
|
%
|
|
$
|
|
||||
|
$
|
|
||||||||
Information regarding accrued interest expense on the loan(s) payable – related party - BARC is as follows:
|
(in thousands)
|
September 30,
2024
|
December 31,
2023
|
||||||
|
Accrued interest expense
|
$
|
|
$
|
|
||||
For additional information regarding the Company’s litigation funding effort, see
Note 1.
For additional information
regarding the Company’s legal proceedings relating to the 111 West 57
th
Property, including the Company’s challenge to the Strict Foreclosure, see
Note 3
and
Note
6.
17
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 9 – Loan(s) Payable – Related Party – R.A. Bianco
The Company and Mr. R.A. Bianco entered into an agreement(s) for Mr. R.A. Bianco to provide senior loan(s) to the Company
for working capital. The loan(s) are due on the earlier of the date the Company receives funds from any source, (excluding funds received by the Company by any litigation funding entity to fund any of the 111 West 57
th
legal
proceedings), sufficient to pay all amounts due under the loan(s), including all accrued interest thereon, including without limitation, from a settlement of the 111 West 57
th
legal proceedings or (b) the date(s) indicated herein.
The Company and Mr. R.A. Bianco further agreed that amounts due pursuant to the loan(s) plus interest can be converted by
Mr. R.A. Bianco, at his option, into a litigation funding agreement pari-pasu with any litigation funding agreement entered into by the Company with a litigation funding entity.
Information regarding the loan(s) payable - related party, entered into January 2023 through December 2023, which were
repaid in April 2024 is as follows:
($ in thousands)
|
Date of loan(s)
|
Rate
|
Due Date
|
December 31,
2023
|
||||||
|
|
|
%
|
|
$
|
|
||||
|
|
% |
|
|
||||||
|
|
% |
|
|
||||||
|
|
% |
|
|
||||||
|
|
% |
|
|
||||||
|
|
% |
|
|
||||||
|
|
|
% |
|
|
|||||
|
|
|
% |
|
|
|||||
|
|
|
% |
|
|
|||||
| $ |
|
||||||||
In January 2024 through March 2024, the Company and Mr.
R.A. Bianco entered into additional agreements pursuant to which Mr. R.A. Bianco made additional loans to the Company aggregating $
350,000
,
for use as working capital in accordance with the same terms of the loan(s) payable noted herein.
In April 2024, with funds received from the Equity Offering, the Company repaid Mr.
R.A. Bianco the full amount of the loan(s) payable outstanding of $
3,548,000
noted above, plus accrued interest. For additional
information, see N
ote
10
.
In September 2024, the Company and Mr. R.A. Bianco made an additional loan to the Company, for use as working capital in accordance with the
same terms of the loan(s) payable noted herein.
Information regarding the loan(s) payable - related party – R.A. Bianco, entered into September 2024 forward, is as follows:
($
in thousands)
|
Date of loan(s)
|
Rate
|
Due Date
|
September 30,
2024
|
||||||
|
|
|
%
|
|
$
|
|
||||
|
$
|
|
||||||||
Information regarding accrued interest expense on the loan(s) payable is as follows:
|
(in thousands)
|
September 30,
2024
|
December 31,
2023
|
||||||
|
Accrued interest expense
|
$
|
|
$
|
|
||||
For additional information regarding the Company’s litigation funding effort, see
Note 1.
For
additional information regarding the Company’s legal proceedings relating to the 111 West 57
th
Property, including the Company’s challenge to the Strict Foreclosure, see
Note 3
and
Note 6
.
18
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 10 - Stockholders’ Equity
As
disclosed in the Company’s periodic financial reports, as previously filed with the Securities and Exchange Commission (“SEC”), on February 28, 2024, the Company commenced a private placement offering (the “Equity Offering”) of shares of the
Company’s common stock (the “Shares”).
On April 1, 2024, the Company completed the issuance and sale of all the Shares in
the Equity Offering in accordance with the terms and conditions thereof, including Shares purchased by an institutional investor not affiliated with the Company and Shares purchased by BARC Investments, LLC, an affiliate of the Company owned and
controlled by
two
of the Company’s directors and their sibling. The Shares sold consisted of authorized unissued shares and treasury
shares held. The offer and sale of the Shares in the Equity Offering was completed in reliance on the exemption from registration under Rule 506(c) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended. The
Equity Offering is more fully described in the Equity Offering documents and disclosed in the Company’s reports as previously filed with the SEC.
Summary information of private placement Equity Offering is as follows:
| ($ in thousands, except per share data) | ||||
|
Number of Shares purchased by BARC
|
|
|||
|
Number of Shares purchased by others
|
|
|||
|
Total number of Shares offered and purchased
|
|
|||
|
Equity Offering – purchase price per Share
|
$
|
|
||
|
Total proceeds received from the Equity Offering
|
$
|
|
||
At the Company’s June 2, 2024, Annual Meeting of Stockholders, the Company’s
stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock. A copy of the Company’s Amended and Restated Certificate of Incorporation was filed
and recorded with the Secretary of State of the State of Delaware effective as of July 23, 2024.
Authorized common stock consists of the following:
|
(shares in thousands)
|
September 30,
2024
|
December 31,
2023
|
||||||
|
Par value
|
$
|
|
$
|
|
||||
|
Authorized shares
|
|
|
||||||
|
Issued shares
|
|
|
||||||
|
Outstanding shares
|
|
|
||||||
Note 11 – Subsequent Events
The Company has performed a review of events
subsequent to the balance sheet dated September 30, 2024, through the filing of these interim financial statements. Other than as discussed herein, the Company has no events, subsequent to September 30, 2024, and through the date these
unaudited condensed consolidated financial statements were issued.
| 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, 2023.
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, 2024, 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 57
th
Street in New York, New York (the “111 West 57
th
Property”). The Company is
engaged in material disputes and litigation with regard to the 111 West 57
th
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 57
th
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 57
th
Property in 2017 and the Company’s legal proceedings relating to the 111 West 57
th
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, 2024, aggregated $515,000 consisting of cash and cash equivalents of $515,000. At September 30, 2024, the Company’s liabilities aggregated $3,327,000. Total stockholders’
deficit was $2,812,000.
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 equity or debt securities or long-term borrowings, which may include additional borrowings from affiliates of the Company, litigation funding agreements, 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 raise capital or obtain financing on terms acceptable to the Company, if at all.
In June 2013, the Company purchased an equity interest in the 111 West 57
th
Property. The Company is engaged in material disputes
and litigation with regard to the 111 West 57
th
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 57
th
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 57
th
Property and the Company’s legal proceedings relating to the 111 West 57
th
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.
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 57
th
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 57
th
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 57
th
Street. For
additional information with regard to the Company’s investment in the 111 West 57
th
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 57
th
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.
As previously disclosed in a Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 28, 2024, the Company commenced a private placement offering
(the “Equity Offering”) of up to
44,200,460 shares (the “Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”) for $0.20 per share of Common Stock.
On April 1, 2024, the Company completed the issuance and sale of all Shares in the Equity Offering on the previously disclosed terms and conditions. The offer and sale of the Shares in the Equity Offering was
completed in reliance on the exemption from registration under Rule 506(c) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended. Total proceeds received from the Equity Offering were $8,840,000. For
additional information, see
Part I – Item 1 – Note 10
to the Company’s unaudited condensed consolidated financial statements.
The Company will continue to consider and explore other litigation funding agreements with third party litigation funders that it could enter into for portions of the litigation costs for up to $5 million of
funding, at market terms to be agreed upon at such times. In general, litigation funding agreements are structured so that the litigation funder would receive back their initial funding amount first (i.e. before any recovery is received by the
Company), plus an additional multiple ranging from 1.0 times to 3.5 times the amount funded (depending on various factors), plus depending on the funder, additional fees, expenses, interest and potentially an additional percentage of the total
recovery received. There can be no assurance that the Company would be able to secure any such additional litigation funding on acceptable terms or at all.
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 nine months ended September 30, 2024, cash of $8,205,000 was used by operations as a result of the payment of operating expenses and prior year accruals.
For the nine months ended September 30, 2023, cash of $2,174,000 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, 2024, decreased from December 31, 2023, principally relating to the payment of outstanding accrued expenses in April 2024, with funds received from the
Equity Offering. For additional information, see
Part I – Item 1 – Note 10
to the Company’s unaudited condensed consolidated financial statements.
Loan(s) payable – related party – BARC Investments LLC was $2,000,000 as of September 30, 2024, compared to $0 as of December 31, 2023, relating to loans made to
the Company from BARC Investments, LLC, (“BARC”) an affiliate of the Company owned and controlled by two of the Company’s directors and their sibling, for working capital. For additional information, see
Part I – Item 1 – Note 8
to the Company’s unaudited condensed consolidated financial statements.
Loan(s) payable – related party – R.A. Bianco was $1,000,000 as of September 30, 2024, compared to $3,198,000 as of December 31, 2023, relating to loans made to the Company from Mr. R.A. Bianco, for working
capital. In January 2024 through March 2024, the Company and Mr. R.A. Bianco entered into additional agreements pursuant to which Mr. R.A. Bianco made additional loans to the Company aggregating $350,000, for use as working capital. In April
2024, with funds received from the Equity Offering, the Company repaid Mr. R.A. Bianco the full amount of the loan(s) payable outstanding at that time aggregating $3,548,000 plus accrued interest. In September 2024, Mr. R.A. Bianco made an
additional loan to the Company aggregating $1,000,000, for use as working capital. For additional information, see
Part I – Item 1 – Note 9
to the Company’s unaudited condensed consolidated financial
statements.
There are no other material commitments for capital expenditures as of September 30, 2024. Inflation has had no material impact on the business and operations of the Company.
Results of Operations for the Three Months and Nine months Ended September 30, 2024 vs. the Three Months and Nine months Ended September 30, 2023
The Company recorded a net loss of $1,533,000 or $0.02 per share and $5,307,000 or $0.08 per share in the three months and nine months ended September 30, 2024, respectively, compared to a
net loss of $1,399,000 or $0.03 per share and $3,888,000 or $0.10 per share in the respective 2023 periods.
Compensation and benefits were $345,000 and $1,056,000 in the three months and nine months ended September 30, 2024, respectively, compared to $323,000 and $1,055,000 in the respective 2023 periods. The increase
in the nine month period ended September 30, 2024, versus the respective 2023 period, is due to an increase in compensation related expenses recorded in the 2024 three month period ended September 30, 2024.
Professional and outside services increased to $1,100,000 and $3,981,000 in the three months and nine months ended September 30, 2024, respectively, compared to $858,000 and $2,399,000 in the respective 2023
periods. The increase in the 2024 periods as compared to the 2023 periods is principally the result of a higher level of legal and professional fees incurred in 2024 in connection with the Company’s legal proceedings relating to the Company’s
investment in the 111 West 57
th
Property. For additional information with regard to the Company’s investment in the 111 West 57
th
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 $8,000 and $18,000 for the three months and nine months ended September 30, 2024, respectively, compared to $7,000 and $17,000 in the
respective 2023 periods. The slight increase in the 2024 three and nine month periods versus the respective 2023 periods is principally due to timing of payments in the three months and nine months ended September 30, 2024, compared to the
respective September 30, 2023, periods.
Insurance expenses were $59,000 and $103,000 in the three months and nine months ended September 30, 2024, respectively, compared to $95,000 and $210,000 in the respective 2023 periods. The decrease is generally
due to a decrease in certain policy coverages in the three months and nine months ended September 30, 2024, compared to the respective 2023 periods.
Other operating expenses were $11,000 and $95,000 in the three and nine months ended September 30, 2024, respectively, compared with $18,000 and $59,000 in the respective 2023 periods. The increase in the
September 30, 2024, nine months ended compared to the September 30, 2023, nine months ended is due to a generally higher level of related expenses in the respective 2024 period.
Interest income in the three months and nine months ended September 30, 2024, was $7,000 and $26,000, respectively, compared with $1,000 and $2,000 in the respective 2023 periods. The increased interest income
in the September 30, 2024, three and nine month periods is due to a higher level of cash and cash equivalents in the 2024 periods versus the respective 2023 periods based on funds received from the Equity Offering in April 2024 and Company
borrowings. For additional information, see
Part I – Item 1 – Note 8, Note 9, and Note 10
to the Company’s unaudited condensed consolidated financial statements.
Interest expense in the three months and nine months ended September 30, 2024, was $17,000 and $80,000, respectively, compared with $99,000 and $150,000 in the
respective 2023 periods. The interest expense for the 2024 three month period is attributable to interest expense relating to the loan(s) payable –
related
party
- BARC
and loans payable – related party
– R.A. Bianco.
Interest expense for the 2024 nine month period
is
principally
attributable to interest expense relating to the loan(s) payable – related party
– R.A.
Bianco
, net of $51,000 of negative interest expense for the 2024 nine month period attributable to the reversal of interest expense owed to a professional firm for outstanding invoices that did not have to be paid due to the Company
fully paying the outstanding amounts due in April 2024. Interest expense for the 2023 period
is attributable to interest expense to a professional firm for outstanding and unpaid professional fees and interest
expense relating to the loan(s) payable – related party
– R.A. Bianco.
For additional information see
Part I – Item 1 – Note 8 and Note 9 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 September 30, 2024. 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
| Item 1. |
LEGAL PROCEEDINGS
|
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.
| Item 1A. |
RISK FACTORS
|
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, 2023, 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
|
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 2024 period.
| Item 3. |
DEFAULTS UPON SENIOR SECURITIES
|
Not Applicable.
| Item 4. |
MINE SAFETY DISCLOSURES
|
Not Applicable.
| (a) |
|
| (b) |
None.
|
| (c) |
None.
|
| Item 6. |
EXHIBITS
|
|
Amended and Restated Certificate of Incorporation AmBase Corporation effective as of July 23, 2024, (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on August 9,
2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $100,000, between Richard A. Bianco, the Company’s President and Chief Executive Officer (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC
on January 26, 2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $50,000, 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 8, 2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $100,000, 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 27, 2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $100,000, 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 March 11, 2024, and incorporated herein by reference).
|
|
|
Form of Subscription Agreement (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K as filed with the SEC on March 18, 2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $2,000,000, between BARC Investments LLC, an affiliate of the Company and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on
August 21, 2024, and incorporated herein by reference).
|
|
|
Senior Promissory Note for $1,000,000, 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 September 24, 2024, and incorporated herein by reference).
|
|
|
31.1*
|
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 September 30, 2024 formatted in XBRL: (i) Condensed Consolidated Statements 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
(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.
|
|
|
|||
|
*
|
filed herewith
|
||
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
|
/s/ John Ferrara
|
|
|
By
|
JOHN FERRARA
Vice President, Chief Financial Officer and Controller
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
|
|
Date:
|
November 13, 2024
|
25
TABLE OF CONTENTS
Part IItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits