Item 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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, 2020.
BUSINESS OVERVIEW
AmBase Corporation (the “Company” or “AmBase”) is a Delaware corporation that was incorporated in 1975. AmBase is a holding company. At June 30, 2021, the Company’s assets consisted primarily of cash and cash
equivalents. The Company is engaged in the management of its assets and liabilities.
In 2020, the Company received federal tax refunds based on the Company’s 2019 federal income tax return as filed. For additional information see herein and Part I – Item 1 – Note 5
to the Company’s unaudited condensed consolidated financial statements.
In June 2013, the Company purchased an equity interest in a real estate development property through a joint venture agreement to purchase and develop real property located at 105 through 111 West 57th Street in New York, New York (the “111 West 57th Property”). The Company is engaged in
material disputes and litigation with regard to the 111 West 57th Property. Despite ongoing litigation challenging the legitimacy of the actions taken in connection
with the “Strict Foreclosure”, (as defined and further discussed herein), in accordance with GAAP, the Company recorded an impairment for the full amount of its equity investment in the 111 West 57th Property in 2017. Prior to the Strict
Foreclosure, the carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and net
equity value.
For additional information concerning the Company’s recording of an impairment of its equity investment in the 111 West 57th Property
in 2017 and the Company’s legal proceedings relating to the 111 West 57th Property, including the Company’s challenge to the Strict Foreclosure, see Part I – Item 1 – Note 3 and Note 6 to the Company’s unaudited condensed consolidated financial statements.
FINANCIAL CONDITION AND LIQUIDITY
The Company’s assets at June 30, 2021, aggregated $5,193,000, consisting principally of cash and cash equivalents of $5,193,000. At June 30, 2021, the Company’s liabilities aggregated $455,000. Total stockholders’
equity was $4,738,000.
In 2020, the Company received federal tax refunds of alternative minimum tax (“AMT”) credit carryforwards as provided for in the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”), based on the Company’s 2019 federal
income tax returns as filed. 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. For additional information see herein and Part I – Item 1 – Note 5 to the Company’s unaudited condensed consolidated financial statements.
In 2019, the Company received a letter from the Federal Deposit Insurance Corporation (“FDIC”), requesting the Company reimburse the FDIC for 2012 federal taxes of approximately $501,000 that the FDIC had previously
reimbursed the Company, pursuant to a 2012 settlement agreement which was approved by the United States Court of Federal Claims (the “Court of Federal Claims”) in October 2012 (the “2012 Tax Amount”). The Company is currently reviewing the FDIC
request, along with the SGW 2012 Settlement Agreement and Court of Federal Claims August 2013 ruling, with its outside legal and tax advisors. The Company is unable to predict at this time whether the 2012 Tax Amount is refundable back to the FDIC
in current and/or future years. For additional information, see Part I – Item 1 – Note 5 to the Company’s unaudited condensed consolidated financial statements.
A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations
and the realization of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its accompanying 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 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.
Over the next several months, the Company will seek to manage its current level of cash and cash equivalents, through various ways, including but not limited to, reducing operating expenses, possible asset sales
and/or long term borrowings which may include additional borrowings from affiliates of the Company, although this cannot be assured. In order to continue on a long-term basis, the Company must raise additional capital through the sale of assets or
long term borrowings. There can be no assurance that the Company will be able to sell any of its assets or attain such financing at terms acceptable to the Company, if at all.
As noted herein above, in June 2013, the Company purchased an equity interest in the 111 West 57th Property. The Company is engaged in
material disputes and litigation with regard to the 111 West 57th Property. Despite ongoing litigation challenging the legitimacy of the actions taken in connection
with the “Strict Foreclosure”, (as defined and further discussed herein), in accordance with GAAP, the Company recorded an impairment for the full amount of its equity investment in the 111 West 57th Property of $63,745,000 in 2017. Prior to the
Strict Foreclosure, the carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and
net equity value. The Company has several legal proceedings pending against various parties with regard to the 111 West 57th Street Property. For additional
information concerning the Company’s recording of an impairment of its equity investment in the 111 West 57th Property in 2017 and the Company’s legal proceedings
relating to the 111 West 57th Property, including the Company’s challenge to the Strict Foreclosure, see Part I – Item 1 – Note 3
and Note 6 to the Company’s unaudited condensed consolidated financial statements.
In 2017, the Company entered into a Litigation Funding Agreement (the “LFA”) with Mr. R. A. Bianco. Pursuant to the LFA, Mr. R. A. Bianco agreed to provide litigation funding to the Company, to satisfy actual
documented litigation costs and expenses of the Company, including attorneys’ fees, expert witness fees, consulting fees and disbursements in connection with the Company’s legal proceedings related to the Company’s equity investment in the 111 West
57th Street Property. In 2019, the Company and Mr. R. A. Bianco entered into an amendment to the LFA (the “Amendment). For additional information including the terms of the Litigation Funding Agreement, as amended by the Amendment, see Part I – Item 1 – Note 7 to the Company’s unaudited condensed consolidated financial statements.
With respect to its disputes and litigation relating to its interest in the 111 West 57th Property, the Company is pursuing, and will continue to pursue, other options to realize the Company’s investment value,
various legal courses of action to protect its legal rights, recovery of its asset value from various sources of recovery, as well as considering other possible economic strategies, including the possible sale of the Company’s interest in and/or
rights with respect to the 111 West 57th Property; however, there can be no assurance that the Company will prevail with respect to any of its claims.
The Company can give no assurances regarding the outcome of the matters described herein, including as to the effect of Spruce’s actions described herein, whether the Sponsors will perform their contractual
commitments to the Company under the JV Agreement, as to what further action, if any, the lenders may take with respect to the project, as to the ultimate resolution of the ongoing litigation proceedings relating to the Company’s investment
interest in the 111 West 57th Property, as to the ultimate effect of the Sponsors’, the Company’s or the lenders’ actions on the project, as to the completion or
ultimate success of the project, or as to the value or ultimate realization of any portion of the Company’s equity investment in the 111 West 57th Street. For
additional information with regard to the Company’s investment in the 111 West 57th Property and the legal proceedings related thereto, see Part I – Item 1 – Note 3 and Note 6 to the Company’s unaudited condensed consolidated financial statements.
While the Company’s management is evaluating future courses of action to protect and/or recover the value of the Company’s equity investment in the 111 West 57th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful. Any such efforts are likely to require sustained effort over a period of time and substantial
additional financial resources. Inability to recover all or most of such value would in all likelihood have a material adverse effect on the Company’s financial condition and future prospects. The Company can give no assurances with regard to if it
will prevail with respect to any of its claims.
For the six months ended June 30, 2021, cash of $2,732,000 was used by operations as a result of the payment of operating expenses and prior year accruals.
For the six months ended June 30, 2020, cash of $2,995,000 was provided by operations as a result of the federal tax refund received in 2020, partially offset by the payment of operating expenses and prior year
accruals.
Accounts payable and accrued liabilities as of June 30, 2021 increased from December 31, 2020, principally relating to an increase in current period accruals for legal expenses in connection with the 111 West 57th Property litigations.
There are no other material commitments for capital expenditures as of June 30, 2021. Inflation has had no material impact on the business and operations of the Company.
Results of Operations for the Three Months and Six Months Ended June 30, 2021 vs. the Three Months and Six Months Ended June 30, 2020
The Company recorded a net loss of $1,234,000 or $0.03 per share and $2,869,000 or $0.07 per share in the three months and six months ended June 30, 2021, respectively, compared to a net loss of
$964,000 or $0.02 per share and a net loss of $2,382,000 or $0.06 per share in the respective 2020 periods.
Compensation and benefits increased to $345,000 and $762,000 in the three months and six months ended June 30, 2021, respectively, compared to $328,000 and $747,000 in the respective 2020 periods. The increase in
the 2021 three month and six month periods is due to an increase in benefit costs in the 2021 periods versus the comparable 2020 periods.
Professional and outside services increased to $812,000 and $1,947,000 in the three months and six months ended June 30, 2021, respectively, compared to $566,000 and $1,486,000 in the respective 2020 periods. The
increase in the 2021 periods as compared to the 2020 periods is principally the result of a higher level of legal and professional fees incurred in 2021 in connection with the Company’s legal proceedings relating to the Company’s investment in the
111 West 57th Property. For additional information with regard to the Company’s investment in the 111 West 57th Property and the legal proceedings related thereto, see Part I – Item 1 – Note 3 and Note 6 to the Company’s unaudited condensed consolidated financial statements.
Property operating and maintenance expenses were $2,000 and $11,000 for the three months and six months ended June 30, 2021, respectively, compared to $3,000 and $11,000 in the respective 2020
periods. The slight decrease in the 2021 three month period versus 2020 period is primarily due to a general decrease in costs.
Insurance expenses were $63,000 and $124,000 in the three months and six months ended June 30, 2021, respectively, compared to $43,000 and $86,000 in the respective 2020 periods. The increase in the three months and
six months ended June 30, 2021, is generally due to an increase in insurance premium costs.
Other operating expenses were $12,000 and $25,000 in the three and six months ended June 30, 2021, respectively, compared with $27,000 and $56,000 in the respective 2020 periods. The decrease in the 2021 periods
compared to the June 30, 2020 three and six month periods is due to a generally lower level of related expenses in the 2021 periods.
Interest income in the three months and six months ended June 30, 2021, decreased to $- and $1,000, respectively from $4,000 and $6,000 in the respective 2020 periods. The decreased interest income is due to a lower
interest rate yield on cash equivalents in 2021 versus 2020.
The Company recognized an income tax expense of $- and $1,000 for the three months and six months ended June 30, 2021, respectively compared with an income tax expense of $1,000 and $2,000 for the three months and
six months ended June 30, 2020, respectively. State income tax amounts for the six months ended June 30, 2021, and for the three months and six months ended June 30, 2020, reflect a provision for a tax on capital imposed by the state
jurisdictions.
Income taxes applicable to operating income (loss) are generally determined by applying the estimated effective annual income tax rates to pretax income (loss) for the year-to-date interim period. Income taxes
applicable to unusual or infrequently occurring items are provided in the period in which such items occur. For additional information including a discussion of income tax matters, see Part I – Item 1 – Note 5
to the Company’s unaudited condensed consolidated financial statements.