UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2008
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7265
AMBASE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2962743
(State of incorporation) (I.R.S. Employer Identification No.)
100 PUTNAM GREEN, 3RD FLOOR
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
(203) 532-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer", "accelerated filer", and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer __ Accelerated Filer __ Non-Accelerated Filer X
Smaller Reporting Company __ ----
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
------- --------
At October 31, 2008, there were 43,432,464 shares outstanding of the
registrant's common stock, $0.01 par value per share.
AmBase Corporation
Quarterly Report on Form 10-Q
September 30, 2008
TABLE OF CONTENTS Page
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).....................................................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................18
Item 4T. Controls and Procedures.............................................................................18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................19
Item 1A. Risk Factors........................................................................................19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........................................20
Item 3. Defaults Upon Senior Securities.....................................................................20
Item 4. Submission of Matters to a Vote of Security Holders.................................................20
Item 5. Other Information...................................................................................20
Item 6. Exhibits............................................................................................20
Signatures ....................................................................................................20
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in thousands, except for share and per share amounts)
September 30, December 31,
2008 2007
======== =========
Assets:
Cash and cash equivalents......................................................... $ 3,079 $ 2,894
Investment securities:
Held to maturity (market value $11,802 and $16,329, respectively)............. 11,779 16,313
-------- --------
Total investment securities....................................................... 11,779 16,313
-------- --------
Real estate owned:
Land............................................................................ 554 554
Buildings and improvements...................................................... 1,900 1,900
-------- --------
2,454 2,454
Less: accumulated depreciation................................................. (373) (334)
-------- --------
Real estate owned, net............................................................ 2,081 2,120
Other assets...................................................................... 96 232
-------- --------
Total assets...................................................................... $ 17,035 $ 21,559
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities.......................................... $ 660 $ 962
Other liabilities................................................................. 11 19
-------- --------
Total liabilities................................................................. 671 981
-------- --------
Commitments and contingencies (Note 3)............................................ - -
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized, 46,410,007 issued and
43,496,364 outstanding in 2008 and 43,858,664 outstanding in 2007)............. 464 464
Paid-in capital................................................................... 548,044 548,044
Accumulated deficit............................................................... (530,123) (526,057)
Treasury stock, at cost - 2,913,643 and 2,551,343 shares, respectively............ (2,021) (1,873)
-------- --------
Total stockholders' equity........................................................ 16,364 20,578
-------- --------
Total liabilities and stockholders' equity........................................ $ 17,035 $ 21,559
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Third Quarter and Nine Months Ended September 30
(Unaudited)
(in thousands, except per share data)
Third Quarter Nine Months
2008 2007 2008 2007
==== ==== ==== ====
Operating expenses:
Compensation and benefits......................................... $ 425 $ 535 $ 1,374 $ 2,783
Professional and outside services................................. 176 244 2,949 1,617
Property operating and maintenance................................ 25 35 73 87
Depreciation .................................................... 13 12 39 38
Insurance......................................................... 16 17 60 61
Other operating................................................... 44 15 136 113
-------- --------- --------- ---------
699 858 4,631 4,699
-------- --------- --------- --------
Operating loss.................................................... (699) (858) (4,631) (4,699)
-------- --------- --------- --------
Interest income................................................... 71 244 318 1,103
Realized gains on sales of investment securities.................. - 26 - 310
Other income...................................................... - - 247 -
------- --------- --------- --------
Loss before income taxes.......................................... (628) (588) (4,066) (3,286)
Income tax expense................................................ - - - (50)
------- --------- --------- --------
Net loss.......................................................... $ (628) $ (588) $ (4,066) $ (3,336)
======= ========= ========= =======
Net loss per common share:
Net loss - basic.................................................. $ (0.01) $ (0.01) $ (0.09) $ (0.07)
======= ========= ========= ========
Net loss - assuming dilution...................................... $ (0.01) $ (0.01) $ (0.09) $ (0.07)
======= ========= ========= ========
Weighted average common shares outstanding:
Basic............................................................. 43,566 44,703 43,635 44,845
======= ========= ========= ========
Diluted........................................................... 43,566 44,703 43,635 44,845
======= ========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Third Quarter and Nine Months Ended September 30
(Unaudited)
(in thousands)
Third Quarter Nine Months
2008 2007 2008 2007
===== ===== ==== =====
Net loss............................................................ $ (628) $ (588) $ (4,066) $ (3,336)
Amortization of minimum pension liability adjustment................ - - - 474
Reclassification adjustments for gains realized in net loss......... - (27) - (138)
------ ------- -------- --------
Comprehensive loss................................................... $ (628) $ (615) $ (4,066) $ (3,000)
====== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30
(Unaudited)
(in thousands)
2008 2007
Cash flows from operating activities: ==== ====
Net loss........................................................................ $ (4,066) $ (3,336)
Adjustments to reconcile net loss to net cash used by
operations:
Depreciation and amortization............................................... 39 38
Accretion of discount - investment securities............................... - (34)
Realized gains on sales of investment securities........................... - (310)
Amortization of minimum pension liability adjustment........................ - 474
Changes in other assets and liabilities:
Accrued interest receivable in investment securities........................ 59 57
Other assets................................................................ 136 1,178
Accounts payable and accrued liabilities.................................... (302) (275)
Other liabilities........................................................... (8) 387
Payment of Supplemental Plan lump-sum benefit............................... - (16,676)
Other....................................................................... - (2)
--------- ----------
Net cash used by operating activities........................................... (4,142) (18,499)
--------- ----------
Cash flows from investing activities:
Maturities of investment securities - held to maturity.......................... 25,338 49,433
Purchases of investment securities - held to maturity........................... (20,863) (31,782)
Sales of investment securities - available for sale............................. - 1,620
Purchases of investment securities - available for sale......................... - (31)
--------- ----------
Net cash provided by investing activities....................................... 4,475 19,240
--------- ----------
Cash flows from financing activities:
Common stock repurchased........................................................ (148) (138)
--------- ----------
Net cash used by financing activities........................................... (148) (138)
--------- ----------
Net change in cash and cash equivalents......................................... 185 603
Cash and cash equivalents at beginning of period................................ 2,894 2,601
--------- ----------
Cash and cash equivalents at end of period...................................... $ 3,079 $ 3,204
========= =========
Supplemental cash flow disclosures:
Income taxes paid............................................................... $ 1 $ 83
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization
The accompanying consolidated financial statements of AmBase Corporation
and its wholly-owned subsidiaries (the "Company") are unaudited and subject to
year-end adjustments. All material intercompany transactions and balances have
been eliminated. In the opinion of management, the interim financial statements
reflect all adjustments, consisting only of normal recurring adjustments unless
otherwise disclosed, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows. Results for interim
periods are not necessarily indicative of results for the full year. The
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 10 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 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, 2007.
The Company's assets currently consist primarily of cash and cash
equivalents, investment securities, and real estate owned. The Company currently
earns non-operating revenue principally consisting of investment earnings on
investment securities and cash equivalents. The Company continues to evaluate a
number of possible acquisitions, and is engaged in the management of its assets
and liabilities, including the contingent assets associated with its legal
claims. From time to time, the Company and its subsidiaries may be named as a
defendant in various lawsuits or proceedings. The Company intends to
aggressively contest all litigation and contingencies, as well as pursue all
sources for contributions to settlements. For a discussion of lawsuits and
proceedings, including the Supervisory Goodwill litigation see Part I - Item 1 -
Note 3.
The Company's management believes that operating cash needs for the next
twelve months will be met principally by the receipt of earnings on investment
securities and cash equivalents, and the Company's current financial resources.
Note 2 - Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
values, establishes a framework for measuring fair value of assets and
liabilities, and expands disclosure requirements regarding the fair value
measurement. SFAS 157 does not expand the use of fair value measurements. This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. FASB Staff Position (FSP) FAS No. 157-2 was issued in February 2008 and
deferred the effective date of SFAS 157 for nonfinancial assets and liabilities
to fiscal years beginning after November 2008. As such, the Company adopted SFAS
157 as of January 1, 2008 for financial assets and liabilities only. There was
no significant effect on the Company's financial statements. As of September 30,
2008, the Company's financial assets include held to maturity investments. The
Company determines fair value for such investments, based on quoted market
prices in active markets (i.e. Level 1 as defined under SFAS 157). The Company
is continuing to carry such investments at amortized cost. The Company does not
believe that the adoption of SFAS 157 to non-financial assets and liabilities
will significantly effect its financial statements.
In February 2007, the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Liabilities - including an amendment of FASB Statement No.
115" ("SFAS 159"). SFAS 159 expands the use of fair value accounting but does
not affect existing standards which require assets or liabilities to be carried
at fair value. The objective of SFAS 159 is to improve financial reporting by
providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. Under SFAS 159, a company
may elect to use fair value to measure eligible items at specified election
dates and report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. Eligible
items include, but are not limited to, accounts receivable, accounts payable,
and issued debt. If elected, SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company has not elected to measure any additional
assets or liabilities at fair value that are not already measured at fair value
under existing standards.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 141 (revised 2007, "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141(R)
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. SFAS 141(R) is effective for
fiscal years beginning after December 15, 2008. The Company will apply the
provisions of SFAS 141(R) to any acquisition after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, "Accounting for
Noncontrolling Interests" ("SFAS 160"). SFAS 160 clarifies the classification of
noncontrolling interests in consolidated balance sheets and reporting
transactions between the reporting entity and holders of noncontrolling
interests. Under this statement, noncontrolling interests are considered equity
and reported as an element of consolidated equity. Further, net income
encompasses all consolidated subsidiaries with disclosure of the attribution of
net income between controlling and noncontrolling interests. SFAS No. 160 is
effective prospectively for fiscal years beginning after December 15, 2008.
Currently, there are no noncontrolling interests in any of the Company's
subsidiaries.
Note 3 - Legal Proceedings
The information contained in Item 8 - Note 10 in the Company's Annual
Report on Form 10-K for the year ended December 31, 2007, is incorporated by
reference herein and the defined terms set forth below have the same meaning
ascribed to them in that report. There have been no material developments in
such legal proceedings, except as set forth below.
The Company is or has been a party in a number of lawsuits or proceedings,
including the following:
Supervisory Goodwill Litigation - Pursuant to the Court's post-trial scheduling
order as revised, on July 1, 2008, the Company filed its post-trial brief and
proposed findings of fact. The FDIC also filed its post-trial brief on July 1,
2008. In September 2008, the DOJ filed its post-trial brief and proposed
findings of fact. In October 2008, the Company filed its post-trial reply brief
and the FDIC filed its post-trial reply brief in November 2008. Post-trial
briefing is currently scheduled to be concluded in 2008. The Court has currently
scheduled a presentation of closing arguments for January 27, 2009. The Company
believes any decision rendered by Judge Smith on damages, as well as his
decision relating to his authority to review and consider the validity of the
alleged receivership deficit, will likely be appealed to the U.S. Court of
Appeals for the Federal Circuit.
Both the Court of Federal Claims and the Court of Appeals for the Federal
Circuit have issued numerous decisions in cases that involve claims against the
United States based upon its breach of its contracts with savings and loan
institutions through its 1989 enactment of FIRREA. In particular, the Federal
Circuit has issued decisions rejecting Takings Clause claims advanced by
shareholders of failed thrifts. See e.g., Castle v. United States, 301 F.3d 1328
(Fed. Cir. 2002); Bailey v. United States, 341 F. 3d 1342 (Fed. Cir 2003). In
June 2004, the United States Supreme Court denied the petition for certiorari
filed by Bailey. The Court of Federal Claims decisions and certain filings in
the Company's case, as well as other decisions in Winstar related cases, are
publicly available on the Court of Federal Claims website at
www.cofc.uscourts.gov. In addition, decisions in Winstar related cases that have
been issued by the U.S. Court of Appeals, the court that hears appeals from
decisions by the Court of Claims, may be found on that court's website at
www.cafc.uscourts.gov. Decisions in other Winstar related cases may be relevant
to the Company's Supervisory Goodwill claims, but are not necessarily indicative
of the ultimate outcome of the Company's actions. The Company can give no
assurances regarding the ultimate outcome of the litigation.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Cash and Cash Equivalents
Highly liquid investments, consisting principally of funds held in
short-term money market accounts with original maturities of less than three
months, are classified as cash equivalents.
Note 5 - Investment Securities
Investment securities - held to maturity, consist of U.S. Treasury Bills
with original maturities over three months and are carried at amortized cost
(which includes accrued interest), based upon the Company's intent and ability
to hold these investments to maturity.
Investment securities consist of the following:
September 30, 2008 December 31, 2007
====================================== ======================================
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
======== ========= ===== ======== ========= =====
Held to Maturity:
U.S. Treasury Bills........ $ 11,779 $ 11,779 $ 11,802 $ 16,313 $ 16,313 $ 16,329
========= ========= ========= ========= ========= =========
The gross unrealized gains (losses) on investment securities, at September
30, 2008 and December 31, 2007 consist of the following:
(in thousands) 2008 2007
======= =======
Held to Maturity:.
Gross unrealized gains.................................................................. $ 23 $ 17
========= =======
Gross unrealized losses................................................................. $ - $ (1)
========= =======
Realized gains on the sales of investment securities available for sale for the
third quarter and nine months ended September 30 follow:
Third Quarter Nine Months
(in thousands) 2007 2007
======= =======
Net sale proceeds....................................................................... $ 276 $ 1,620
Less: Cost basis....................................................................... 250 1,310
------ -------
Realized gains.......................................................................... $ 26 $ 310
====== =======
No investment securities were sold during the third quarter or nine month
periods ended September 30, 2008.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Property Owned
The Company owns one commercial office building in Greenwich, Connecticut
that contains approximately 14,500 square feet. The Company utilizes
approximately 3,500 square feet for its executive offices; the remaining space
is currently unoccupied and available for lease.
Although the portion of the building not being utilized by the Company is
currently unoccupied and available for lease, based on the Company's analysis,
including but not limited to current market rents in the area, leasing values,
and comparable property sales, the Company believes the property's fair market
value exceeds the property's current carrying value, and; therefore, the
carrying value of the property as of September 30, 2008, has not been impaired.
Depreciation expense for buildings is calculated on a straight-line basis
over 39 years. Tenant improvements, if any, would typically be depreciated over
the lesser of the remaining life of the tenants' lease or the estimated useful
lives of the improvements.
Note 7 - Income Taxes
The Company and its 100% owned 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 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, greater than 50% probability exists that the tax benefits will actually be
realized sometime in the future.
The Company has calculated a net deferred tax asset of $39 million as of
September 30, 2008 and $32 million as of December 31, 2007, arising primarily
from net operating loss ("NOL") carryforwards, alternative minimum tax ("AMT")
credits (not including the anticipated tax effects of NOL's which could be
generated from the Company's tax basis in Carteret Savings Bank, F.A. and
subsidiaries ("Carteret"), resulting from the election decision, as more fully
described below). A valuation allowance has been established for the entire net
deferred tax asset as management, at the current time, has no basis to conclude
that realization is more likely than not.
There were no unrecognized tax benefits at December 31, 2007 or September
30, 2008. Further, no significant changes in unrecognized income tax benefits
are currently expected to occur over the next year. Interest and/or penalties
related to underpayments of income taxes, if applicable, would be included in
interest expense and operating expenses, respectively. The accompanying
financial statements do not include any amounts for any such interest and/or
penalties. The Company's federal income tax returns for the years subsequent to
1992 have not been reviewed by the Internal Revenue Service ("IRS") or state
authorities and the Company has not been notified of any potential tax audits by
any federal, state or local tax authorities. As such, the Company believes the
statute of limitations for federal and state purposes are generally closed for
tax years prior to 2004.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Based upon the Company's federal income tax returns as filed from 1993 to
2007 (subject to IRS audit adjustments), excluding all effects of the inclusion
of Carteret/Carteret FSB from December 4, 1992 forward as noted herein, as of
September 30, 2008, the Company has NOL carryforwards aggregating approximately
$53 million, available to reduce future federal taxable income which expire if
unused beginning in 2009.
The utilization of certain carryforwards is subject to limitations under
U.S. federal income tax laws. In addition, the Company has approximately $21
million of AMT credit carryforwards ("AMT Credits"), which are not subject to
expiration. Based on the filing of the Carryback Claims, as defined and further
discussed below, the Company is seeking to realize approximately $8 million of
the $21 million of AMT Credits.
As a result of the Office of Thrift Supervision's December 4, 1992
placement of Carteret in receivership, under the management of the Resolution
Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and
then proposed Treasury Reg. ss.1.597-4(g), the Company had previously filed its
1992 and subsequent federal income tax returns with Carteret disaffiliated from
the Company's consolidated federal income tax return. Based upon the impact of
Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20,
1995, a continuing review of the Company's tax basis in Carteret, and the impact
of prior year tax return adjustments on the Company's 1992 federal income tax
return as filed, the Company decided not to make an election pursuant to final
Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's
consolidated federal income tax return effective as of December 4, 1992 (the
"Election Decision").
The Company has made numerous requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"); however, all of the information still has not
been received. The Company believes, as a result of remaining consolidated with
Carteret FSB for federal income tax return purposes, that the Company's tax
basis in Carteret/Carteret FSB can be converted into NOL's, as tax losses are
incurred, which could be available to carryforward/carryback into various
federal income tax return years. However; since all of the Carteret FSB tax
information has not been received, the Company is unable to determine with
certainty, the amount of or the years in which any NOL's may ultimately be
generated; if the NOL carryforwards/carrybacks will be utilized in prior federal
income tax return years; or the final expiration dates of any of the NOL
carryforwards/carrybacks ultimately generated.
Based on information received to date, and prior to the recognition of the
1992 tax losses reflected on the Company's 1992 amended federal income tax
return, as further described below, the Company estimated that as of December
1992 it initially had a remaining tax basis in Carteret/Carteret FSB of
approximately $158 million.
Based on the Company's Election Decision, described above, and the receipt
of some of the requested information from the RTC/FDIC, the Company amended its
1992 consolidated federal income tax return to include the federal income tax
effects of Carteret and Carteret FSB, (the "1992 Amended Return"). As part of
the 1992 Amended Return, approximately $56 million, (of the initial $158
million), of Carteret/Carteret FSB tax basis is expected to be converted into
NOL carryforwards, (as tax losses are incurred), in tax year 1992 and will have
expired in 2007, unless they are absorbed in earlier years based on inclusion of
certain items in the consolidated group. The Company is still in the process of
reviewing its consolidated federal income tax returns for 1993 and subsequent
years.
The Carteret/Carteret FSB tax basis, of approximately $102 million,
remaining after recognition of the 1992 Amended Return, may be converted into
NOL carryforwards/carrybacks as additional tax losses are incurred by
Carteret/Carteret FSB and may be carried back or carried forward to other tax
years; utilized in other tax years; or could begin to expire in 2008 based upon
the year any NOL's are ultimately generated. The Company can give no assurances
with regard to the 1992 Amended Return, subsequent year returns, or the final
amount or expiration of NOL carryforwards/carrybacks ultimately generated, if
any, from the Company's tax basis in Carteret/Carteret FSB.
Any NOL's ultimately generated from the Company's tax basis in
Carteret/Carteret FSB, would be in addition to the NOL carryforwards/carrybacks
generated based on the Company's federal income tax returns as previously filed,
as further detailed above.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March 2000, the Company filed several carryback claims and amendments to
previously filed carryback claims with the IRS (the "Carryback Claims") seeking
refunds from the IRS of alternative minimum tax and other federal income taxes
paid by the Company in prior years plus applicable IRS interest, based on the
filing of the 1992 Amended Return. In April 2003, IRS examiners issued a letter
to the Company proposing to disallow the Carryback Claims. The Company sought
administrative review of the letter by protesting to the Appeals Division of the
IRS. In February 2005, IRS appeals officials completed their review of the
Carryback Claims, and disallowed them. On April 29, 2008, the Company filed suit
against the United States in the U.S. District Court for the District of
Connecticut for the tax refunds it seeks, plus interest, with respect to the
Carryback Claims. On July 1, 2008, the United States filed its answer to the
Company's complaint, denying the allegations set forth in the complaint. The
Company can give no assurances as to the final amounts of refunds, if any, or
when they might be received as a result of this tax refund suit.
The FDIC has previously filed a federal income tax return for Carteret FSB
for 1995 (as well as other years), which indicates that Carteret FSB allegedly
could owe a 1995 federal income tax liability of $32 million, which including
interest and penalty thereon, could be in excess of $110 million. The FDIC has
stated to the United States Court of Federal Claims ("Court of Claims") that the
tax amounts are only estimates and are highly contingent. Based on proceedings
in other Supervisory Goodwill cases, it is possible that the IRS may try to
collect the alleged Carteret FSB federal income taxes from the Carteret FSB
receivership.
The Company believes the Carteret FSB federal income tax returns filed by
the FDIC were improperly filed and are neither accurate nor valid. As part of
the Supervisory Goodwill legal proceedings, the Company presented to the Court
of Claims various arguments to support the position that no federal income tax
would be owed as a result of the Carteret FSB receivership operations for tax
year 1995, or any other tax year; however, the Department of Justice and the
FDIC have stated to the Court of Claims that they do not believe the Court of
Claims has jurisdiction over that issue. The Supervisory Goodwill proceedings
remain pending in the Court of Claims.
Based on the information received to date, if the correct Carteret FSB
federal income tax results were included with the Company's originally filed
federal income tax returns, the Company, based upon consultation with its legal
and tax advisors, believes that no additional material federal income tax would
be owed by the Company for tax year 1995 (or any other tax year), although this
can not be assured based on the information currently available. This analysis
included among other items, a review of the Carteret FSB federal income tax
returns as prepared by the FDIC and the correction of errors originally reported
therein, the proper application of federal NOL carryforwards and carrybacks, and
the adherence to provisions contained in the Internal Revenue Code, as amended.
The Company; however, can give no assurances of the final amounts, if any, of
federal income taxes owed by the Carteret FSB receivership or by the Company as
a result of the Carteret FSB receivership operations.
The Company is continuing to attempt to resolve these matters as part of
the Supervisory Goodwill legal process and is also continuing to review the
Carteret FSB federal income tax returns and the results of their inclusion with
the Company's federal income tax returns as previously filed. The Company is
also pursuing the Carryback Claims, as further described above, which could have
an impact on the analysis of the prior year tax information. For further
information on the Supervisory Goodwill legal proceedings, see Note 3 herein.
The discussion of the Carteret FSB federal income tax results is intended
to provide details as to the potential inter-relationship of the Carteret FSB
federal income tax returns with the Company's federal income tax positions. It
is not a reflection of any federal income tax liability of the Company arising
from the Carteret receivership operations.
In June 2008, the Company recorded other income of $247,000 attributable to
an IRS interest refund, consented to by the IRS in June 2008, and received by
the Company in July 2008. The refund resulted from the Company's pursuit of
interest refund claims for several prior tax years under a tax code provision
which allowed for the retroactive recovery of the interest differential where a
taxpayer had a tax underpayment (subject to higher interest payment rates) for
one tax year and a simultaneous tax overpayment (subject to lower interest
refund rates) for another tax year.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Comprehensive Income (Loss)
Comprehensive income (loss) is composed of net loss and other comprehensive
income (loss) which includes the change in unrealized gains (losses) on
investment securities available for sale and recognition and amortization of
additional minimum pension liability, as follows:
Third Quarter Ended Nine Months Ended
(in thousands) September 30, 2007 September 30, 2007
========================================= ========================================
Minimum Unrealized Accumulated Minimum Unrealized Accumulated
Pension Gains (Losses) Other Pension Gains (Losses) Other
Liability on Investment Comprehensive Liability on Investments Comprehensive
Adjustment Securities Income (Loss) Adjustment Securities Income (Loss)
========== ============= ============= ========== ============= =============
Balance beginning of period....$ - $ 27 $ 27 $ (474) $ 138 $ (336)
Reclassification adjustment for
gains realized in net loss.... - (27) (27) - (211) (211)
Change during the period........ - - - 474 73 547
---------- ------------- ------------- ---------- ------------- -------------
Balance end of period..........$ - $ - $ - $ - $ - $ -
========== ============= =============== ========= ============= =============
Note 9 - Stock-Based Compensation
Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), the
Company may grant to officers and employees of the Company and its subsidiaries,
stock options ("Options"), stock appreciation rights ("SARs"), restricted stock
awards ("Restricted Stock"), merit awards ("Merit Awards") and performance share
awards ("Performance Shares"), through May 28, 2018. In 2008, the Board of
Directors and the Company's stockholders approved an amendment to the 1993 Plan
to extend the termination date for the period during which awards may be granted
under the 1993 Plan for an additional 10 years to May 28, 2018 from May 28,
2008. An aggregate of 5,000,000 shares of the Company's Common Stock are
reserved for issuance under the 1993 Plan (upon the exercise of Options and
Stock Appreciation Rights, upon awards of Restricted Stock and Performance
Shares); however, of such shares, only 2,500,000 shares in the aggregate shall
be available for issuance for Restricted Stock Awards and Merit Awards. Such
shares shall be authorized but unissued shares of Common Stock. As of September
30, 2008, there were 4,134,000 shares available for future stock option grants.
Options may be granted as incentive stock options ("ISOs") intended to qualify
for favorable tax treatment under Federal tax law or as nonqualified stock
options ("NQSOs"). SARs may be granted with respect to any Options granted under
the 1993 Plan and may be exercised only when the underlying Option is
exercisable. The 1993 Plan requires that the exercise price of all Options and
SARs be equal to or greater than the fair market value of the Company's Common
Stock on the date of grant of that Option. The term of any ISO or related SAR
cannot exceed ten years from the date of grant, and the term of any NQSO cannot
exceed ten years and one month from the date of grant. Subject to the terms of
the 1993 Plan and any additional restrictions imposed at the time of grant,
Options and any related SARs ordinarily will become exercisable commencing one
year after the date of grant. Options granted generally have a ten year
contractual life and generally have vesting terms of two years from the date of
grant. In the case of a "Change of Control" of the Company (as defined in the
1993 Plan), Options granted pursuant to the 1993 Plan may become fully
exercisable as to all optioned shares from and after the date of such Change of
Control in the discretion of the Committee or as may otherwise be provided in
the grantee's Option agreement. Death, retirement, or absence for disability
will not result in the cancellation of any Options.
No stock based compensation expense was recorded in the third quarter and
nine months ended September 30, 2008 and September 30, 2007, as all previously
granted options vested as of January 2, 2007. No stock option awards have been
granted since January 2005. Compensation expense relating to stock options would
be recorded in the Consolidated Statement of Operations with a corresponding
increase to paid in capital.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of option awards are estimated on the date of grant using
the Black-Scholes-Merton option valuation model ("Black-Scholes") that uses
certain assumptions at the time of valuation. Expected volatilities are based on
historical volatility of the Company's stock. The Company uses historical data
to estimate option exercises and employee terminations within the valuation
model. The expected term of options granted is estimated based on the
contractual lives of option grants, option vesting period and historical data
and represents the period of time that options granted are expected to be
outstanding. The risk-free interest rate for periods within the contractual life
of the option is based on the U.S. Treasury bond yield in effect at the time of
grant. No adjustments were made to the input assumptions for the calculation of
the fair value of stock options granted in 2005 from the pro forma amounts
previously presented in the Company's prior period financial statements.
The Black-Scholes option valuation model requires the input of highly
subjective assumptions, including the expected life of the stock-based award and
stock price volatility. The assumptions utilized were management's best
estimates, but these estimates involve inherent uncertainties and the
application of management's judgment. As a result, if other assumptions had been
used, our recorded stock-based compensation expense could have been materially
different from the amounts previously recorded. In addition, the Company is
required to estimate the expected forfeiture rate and only recognize expense for
those shares expected to vest. If our actual forfeiture rate is materially
different from our estimate, the share-based compensation expense could be
materially different. The Company believes that the use of the Black-Scholes
model meets the fair value measurement objectives of SFAS 123R and reflects all
substantive characteristics of the instruments being valued.
The following table reports stock option activity during the nine month
period ended September 30, 2008:
Weighted
Weighted Average
Average Remaining
Number of Exercise Contractual
Shares Price Life (in years)
---------- ----------- -----------------
Outstanding at January 1, 2008...... 876,000 $0.93
Expired............................. (10,000) 3.65
---------- =====
Outstanding at September 30, 2008... 866,000 $0.90 5.04
========== ===== ====
Exercisable at September 30, 2008... 866,000 $0.90 5.04
========== ===== ====
At September 30, 2008, the exercise price of stock options outstanding and
exercisable was greater than the market price of the Company's stock; therefore,
no intrinsic value for stock options is included herein.
There were no outstanding option shares vesting during the nine month
period ended September 30, 2008. The total fair value of shares vested during
the nine month period ended September 30, 2007, was $96,000. As of September 30,
2008, there was no unamortized compensation cost related to non-vested
share-based compensation arrangements for stock options granted under the 1993
Plan.
Options to purchase 866,000 shares of common stock for the nine months
ended September 30, 2008, and 876,000 shares of common stock for the nine months
ended September 30, 2007, were excluded from the computation of diluted earnings
per share because these options were antidilutive.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Pension and Savings Plans
The Company previously sponsored a non tax-qualified supplemental
retirement plan, initially adopted by the Company in 1985, and as amended and
restated (the "Supplemental Plan"), under which only one current executive
officer of the Company was the sole participant. The cost of the Supplemental
Plan was accrued but not funded.
In accordance with an amendment to the Supplemental Plan, as previously
adopted in March 2006, the liability for the Supplemental Plan was fully
satisfied on May 31, 2007, by the lump-sum benefit payment of $16,676,115 (to
Mr. Bianco, the Company's Chairman, President and Chief Executive Officer), and
immediately thereafter, the Supplemental Plan automatically terminated. The
lump-sum Supplemental Plan benefit payment was paid from the Company's available
financial resources. There was no Supplemental Plan expense for the nine months
ended September 30, 2008, compared to $868,000 for the nine months ended
September 30, 2007. As a result of the termination of the Supplemental Plan, as
of June 1, 2007, no further Supplemental Plan expense will be recognized by the
Company. See the Company's Annual Report on Form 10-K for the year ended
December 31, 2007, Item 8 - Note 7 for further information.
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 up to 15% of compensation, which are matched by the
Company at a percentage determined annually. The employer match is currently
100% of the amount the employee elects to defer. 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. The Company's matching contributions
to the Savings Plan, charged to expense, were $11,000 and $68,000 for the third
quarter and nine months ended September 30, 2008, respectively and $4,000 and
$57,000 for the third quarter and nine months ended September 30, 2007,
respectively. All contributions are subject to maximum limitations contained in
the Code.
Note 11 - Common Stock Repurchase Plan
In January 2002, the Company announced a common stock repurchase plan (the
"Repurchase Plan") which 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.
Average
Price Paid
Total per Share Total Number
Number of (including Shares Purchased Maximum Number
Shares broker as Part of Publicly Shares that may yet be
Purchased commission) Announced Plans Purchased under the Plan
--------- ----------- -------------------- ------------------------
Beginning balance January 1, 2008......... 2,424,855 7,575,145
January 1, 2008 - January 31, 2008........ 189,100 $0.43 2,613,955 7,386,045
February 1, 2008 - February 28, 2008...... - - 2,613,955 7,386,045
March 1, 2008 - March 31, 2008............ - - 2,613,955 7,386,045
April 1, 2008 - April 30, 2008............ 70,400 0.38 2,684,355 7,315,645
May 1, 2008 - May 31, 2008................ - - 2,684,355 7,315,645
June 1, 2008 - June 30, 2008.............. - - 2,684,355 7,315,645
July 1, 2008 - July 31, 2008.............. - - 2,684,355 7,315,645
August 1, 2008 - August 31, 2008.......... 50,000 0.41 2,734,355 7,265,645
September 1, 2008 - September 30, 2008.... 52,800 0.38 2,787,155 7,212,845
---------
Total.................................... 362,300
=========
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
FORWARD LOOKING STATEMENTS
This quarterly report may contain "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 Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, 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: (i) transaction
volume in the securities markets; (ii) the volatility of the securities markets;
(iii) fluctuations in interest rates; (iv) risks inherent in the real estate
business, including, but not limited to tenant defaults, changes in occupancy
rates or real estate values; (v) changes in regulatory requirements which could
affect the cost of doing business; (vi) general economic conditions; (vii)
changes in the rate of inflation and the related impact on the securities
markets; (viii) changes in federal and state tax laws; and (ix) risks arising
from unfavorable decisions in our current material litigation matters, or
unfavorable decisions in other Supervisory Goodwill cases. 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 the Company's Annual Report on Form 10-K for the year ended December
31, 2007.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
AmBase is a holding company which, through a wholly-owned subsidiary, owns
a commercial office building in Greenwich, Connecticut. The Company previously
owned an insurance company and a savings bank.
In February 1991, the Company sold its ownership interest in The Home
Insurance Company and its subsidiaries. On December 4, 1992, Carteret Savings
Bank, FA ("Carteret") was placed in receivership by the Office of Thrift
Supervision ("OTS").
The Company's assets currently consist primarily of cash and cash
equivalents, investment securities, and real estate owned. The Company earns
non-operating revenue principally consisting of investment earnings on
investment securities and cash equivalents. The Company continues to evaluate a
number of possible acquisitions and is engaged in the management of its assets
and liabilities, including the contingent assets associated with its legal
claims. Discussions and negotiations are ongoing with respect to certain of
these matters. From time to time, the Company and its subsidiaries may be named
as a defendant in various lawsuits or proceedings. The Company intends to
aggressively contest all litigation and contingencies, as well as pursue all
sources for contributions to settlements. For a discussion of lawsuits and
proceedings, including the Supervisory Goodwill litigation see Part I - Item 1 -
Note 3.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets at September 30, 2008, aggregated $17,035,000
consisting principally of cash and cash equivalents of $3,079,000, investment
securities of $11,779,000 and real estate owned of $2,081,000. At September 30,
2008, the Company's liabilities aggregated $671,000. Total stockholders equity
was $16,364,000.
For the nine months ended September 30, 2008, cash of $4,142,000 was used
by operations, primarily due to the payment of legal expenses relating to the
Supervisory Goodwill trial and to a lesser extent the payment of prior year
accruals and operating expenses, partially offset by the receipt of interest
income and investment earnings. The cash needs of the Company for the nine
months ended September 30, 2008 were satisfied by the receipt of investment
earnings received on investment securities and cash equivalents and the
Company's financial resources. Management believes that the Company's liquid
assets are sufficient to continue operations for the next twelve months.
For the nine months ended September 30, 2007, cash of $18,499,000 was used
by operations, primarily due to the payment of the Supplemental Plan lump-sum
benefit payment of $16,676,115, and to a lesser extent the payment of prior year
accruals and operating expenses, partially offset by the receipt of interest
income and investment earnings. The cash needs of the Company for the first nine
months of 2007 were satisfied by the Company's financial resources and the
receipt of investment earnings on investment securities and cash equivalents.
The Company continues to evaluate a number of possible acquisitions and is
engaged in the management of its assets and liabilities, including the
contingent assets associated with its legal claims. Discussions and negotiations
are ongoing with respect to certain of these matters. From time to time, the
Company and its subsidiaries may be named as a defendant in various lawsuits or
proceedings. The Company intends to aggressively contest all litigation and
contingencies, as well as pursue all sources for contributions to settlements.
For a discussion of lawsuits and proceedings, including the Supervisory Goodwill
litigation see Part I - Item 1 - Note 3.
As of September 30, 2008, the Company owns one commercial office building
in Greenwich, Connecticut. The building is approximately 14,500 square feet;
approximately 3,500 square feet is utilized by the Company for its executive
offices; the remaining space is currently unoccupied and available for lease.
Although the portion of the building not being utilized by the Company is
currently unoccupied and available for lease, based on the Company's analysis
including but not limited to current market rents in the area, leasing values,
and comparable property sales, the Company believes the property's fair market
value exceeds the property's current carrying value; and, therefore the carrying
value of the property as of September 30, 2008, has not been impaired.
There are no material commitments for capital expenditures as of September
30, 2008. Inflation has had no material impact on the business and operations of
the Company.
Pursuant to the Company's common stock repurchase plan (the "Repurchase
Plan"), during the nine months ended September 30, 2008, the Company repurchased
for approximately $148,000 an aggregate of 362,300 shares of common stock from
unaffiliated parties at various prices. See Part I - Item 1 - Note 11 for
further details with regard to the Repurchase Plan.
Results of Operations for the Third Quarter and Nine months ended September
30, 2008 vs. the Third Quarter and Nine months ended September 30, 2007
The Company currently earns non-operating revenue consisting principally of
investment earnings on investment securities and cash equivalents. The Company's
management believes that operating cash needs for the next twelve months will be
met principally by the receipt of investment earnings on investment securities
and cash equivalents and the Company's current financial resources. The
Company's main source of revenue in 2008 was non-operating revenue consisting of
investment earnings.
No rental income from real estate owned was earned for the 2008 or 2007
periods.
Compensation and benefits decreased to $425,000 and $1,374,000 in the third
quarter and nine months ended September 30, 2008, respectively, compared with
$535,000 and $2,783,000 in the respective 2007 periods. The decrease is
primarily due to no Supplemental Plan expense in the nine month period ended
September 30, 2008, as a result of the Supplemental Plan termination as of May
31, 2007, versus the same 2007 period as further described below and a lower
level of incentive compensation accruals in the 2008 periods versus the same
2007 periods.
There was no Supplemental Plan expense for the nine months ended September
30, 2008, compared to $868,000 for the nine months ended September 30, 2007. As
a result of the termination of the Supplemental Plan, as of June 1, 2007, no
further Supplemental Plan expense will be recognized by the Company.
The Supplemental Plan expense for the nine months ended September 30, 2007,
reflects recognition of an expense of $394,000 recorded to increase the
Supplemental Plan liability to the present value of the May 31, 2007 lump-sum
payment amount of $16,676,115, utilizing a 5.75% discount rate factor based on
the 2007 Employment Agreement between the Company and Mr. Bianco and the
amendment of the Supplemental Plan. An additional Supplemental Plan expense of
$474,000 in the nine months ended September 30, 2007, was recorded to amortize
the Supplemental Plan minimum pension liability adjustment. The minimum pension
liability adjustment, which was included as a component of stockholders' equity
within accumulated other comprehensive loss in the Company's consolidated
financial statements, was $1,326,000 as of March 31, 2006, and was amortized on
a straight line basis over the 14-month period from April 1, 2006, through May
31, 2007, as an additional Supplemental Plan expense of $284,000 per quarter.
The amortization of the additional minimum pension liability in the 2007 period,
although recorded as a component of compensation expense in the Company's
consolidated statement of operations, did not result in a decrease in total
stockholders' equity, as its recognition results in an increase in one component
and a corresponding decrease in another component of stockholders' equity.
No stock based compensation expense was recorded in the nine months ended
September 30, 2008 or September 30, 2007, as all previously granted outstanding
options vested as of January 2, 2007. No stock option awards have been granted
since January 2005.
Professional and outside services increased to $2,949,000 in the nine
months ended September 30, 2008, compared to $1,617,000 in the respective 2007
period. The increase in the 2008 nine month period as compared to the respective
2007 period is principally the result of a higher level of legal and
professional fees relating to the Supervisory Goodwill litigation in 2008 versus
2007. The Supervisory Goodwill litigation expenses for the 2008 nine month
period include expenses relating to the preparation for the trial, actual trial
expenses, including damage experts and post trial brief preparation incurred
during the nine months of 2008. The Supervisory Goodwill litigation expenses in
the 2007 period included expenses incurred in connection with discovery and
preparation of expert reports and deposition of the Company's and government
witnesses.
Professional and outside services expenses in the third quarter ended
September 30, 2008 decreased to $176,000 versus $244,000 in the respective 2007
period. The decrease is due to the timing of Supervisory Goodwill legal expenses
incurrred in the last half of 2007 versus the first half of 2008, due to costs
incurred for the Supervisory Goodwill trial which commenced in February 2008.
Interest income in the third quarter and nine months ended September 30,
2008, decreased to $71,000 and $318,000, respectively, from $244,000 and
$1,103,000 in the respective 2007 periods. The decrease is principally due to a
lower level of cash equivalents and investment securities as a result of the
Supplemental Plan lump-sum benefit payment to Mr. Bianco in May 2007. The
payment decreased the Company's cash equivalents and investment securities by
approximately $16.7 million, resulting in a decrease in the interest income
earned by the Company beginning in June 2007. The decreased interest income is
also due to a decreased investment yield in the nine months ending September 30,
2008, compared with the respective 2007 period. See Item 3 - Quantitative and
Qualitative Disclosure about Market Risk for information concerning the
Company's weighted average interest rate yield on investment securities as of
September 30, 2008.
For the third quarter and nine months ended September 30, 2007, realized
gains on sales of investment securities available for sale were $26,000 and
$310,000, respectively. No investment securities available for sale were sold in
the third quarter and nine months ended September 30, 2008.
Other income of $247,000 in the nine months ended September 30, 2008, is
attributable to an Internal Revenue Service ("IRS") interest refund consented to
by the IRS in June 2008 and received by the Company in July 2008. The IRS refund
resulted from the Company's pursuit of interest refund claims for several prior
tax years under a tax code provision which allowed for the retroactive recovery
of the interest differential where a taxpayer had a tax underpayment (subject to
higher interest payment rates) for one tax year and a simultaneous tax
overpayment (subject to lower interest refund rates) for another tax year.
The Company recognized no income tax provision for the third quarter and
nine months ended September 30, 2008, as compared with $50,000 for the nine
months ended September 30, 2007. The income tax provision is primarily
attributable to a provision for a minimum tax on capital to the state of
Connecticut. 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.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
(in thousands) Payment Due By Period
================================================================
Less Than One to Three to More than
Total One Year Three Years Five Years Five Years
------- ---------- ------------- ------------- -----------
Operating leases............................ $ 32 $ 13 $ 19 $ - $ -
------- ---------- ------------- ------------- -----------
Total obligations........................... $ 32 $ 13 $ 19 $ - $ -
======= ========== ============= ============== ===========
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds short-term investments as a source of liquidity. The
Company's interest rate sensitive investments with maturity dates of less than
one year consist of the following:
September 30, 2008 December 31, 2007
=================== =================
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) -------- ----- -------- -----
U.S. Treasury Bills and Notes............... $ 11,779 $ 11,802 $ 16,313 $16,329
======== ======== ======== =======
Weighted average interest rate.............. 1.88% 4.77%
======== ========
The Company's current policy is to minimize the interest rate risk of its
short-term investments by investing in U.S. Treasury Bills with maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the period.
The Company held no portfolio of equity securities as of September 30, 2008
or December 31, 2007.
Item 4T. 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 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, 2008.
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 Rule 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.
STOCKHOLDER INQUIRIES
Stockholder inquiries, including requests for the following: (i) change of
address; (ii) replacement of lost stock certificates; (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material; and (vii) information regarding stock holdings,
should be directed to:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200 Ext. 6820
As the Company does not maintain a website, copies of Quarterly reports on
Form 10-Q, Annual Reports on Form 10-K and Proxy Statements can also be obtained
directly from the Company free of charge by sending a request to the Company by
mail as follows:
AmBase Corporation
100 Putnam Green, 3rd Floor
Greenwich, CT 06830
Attn: Shareholder Services
The Company is subject to the informational requirements of the Exchange
Act. Accordingly, the Company's public reports, including Quarterly Reports on
Form 10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained
through the Securities and Exchange Commission ("SEC") EDGAR Database available
on the SEC's website at www.sec.gov. Materials filed with the SEC may also be
read or copied by visiting the SEC's Public Reference Room, 100 F Street, NE,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling 1-800-SEC-0330.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For a discussion of the Company's legal proceedings, including a discussion
of the Company's Supervisory Goodwill litigation, see Part I - Item 1 - Note 3 -
Legal Proceedings.
Item 1A. RISK FACTORS
There have been no material changes from risk factors previously disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31, 2007
in response to Item 1A to Part I of Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBASE CORPORATION
/s/ John P. Ferrara
------------------------------
By JOHN P. FERRARA
Vice President, Chief Financial Officer and Controller
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
Date: November 12, 2008