-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kn9fbojBWjmJ35qgRipfdF3gZJtduhzMy2o30YI9qq4VTi/l4MPpSF+PnuL/djz1 x0jbTSw4ozTOwr4rWP7Pjg== 0000020639-99-000025.txt : 19991103 0000020639-99-000025.hdr.sgml : 19991103 ACCESSION NUMBER: 0000020639-99-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMBASE CORP CENTRAL INDEX KEY: 0000020639 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 952962743 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07265 FILM NUMBER: 99739658 BUSINESS ADDRESS: STREET 1: GREENWICH OFFICE PARK BLDG 2 STREET 2: 51 WEAVER STREET CITY: GREENWICH STATE: CT ZIP: 06831-5155 BUSINESS PHONE: 2035322000 MAIL ADDRESS: STREET 1: GREENWICH OFFICE PARK, BLDG 2 STREET 2: 51 WEAVER STREET CITY: GREENWICH STATE: CT ZIP: 06831-5155 FORMER COMPANY: FORMER CONFORMED NAME: HOME GROUP INC DATE OF NAME CHANGE: 19890608 FORMER COMPANY: FORMER CONFORMED NAME: CITYHOME CORP DATE OF NAME CHANGE: 19780917 10-Q 1 FORM 10-Q FOR THE QTR ENDED 9/30/99 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 [ ] 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.) 51 WEAVER STREET, BUILDING 2 GREENWICH, CONNECTICUT 06831-5155 (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 and (2) has been subject to such filing requirements for the past 90 days. YES X NO At September 30, 1999, there were 44,533,519 shares of registrant's common stock, $0.01 par value per share, outstanding, excluding 126,488 treasury shares. AmBase Corporation Quarterly Report on Form 10-Q September 30, 1999 CROSS REFERENCE SHEET FOR PARTS I and II Page ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements.............................................1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............7 Item 3. Quantitative and Qualitative Disclosures About Market Risk......10 PART II - OTHER INFORMATION Item 1. Legal Proceedings...............................................11 Item 2. Changes in Securities...........................................12 Item 3. Defaults Upon Senior Securities.................................12 Item 4. Submission of Matters to a Vote of Security Holders.............12 Item 5. Other Information...............................................12 Item 6. Exhibits and Reports on Form 8-K................................12 PART I - FINANCIAL INFORMATION Item 1. 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 1999 1998 1999 1998 ==== ==== ==== ==== Operating expenses: Compensation and benefits .............................. $ 823 $ 473 $ 2,524 $ 1,431 Professional and outside services ...................... 578 127 1,990 777 Insurance .............................................. 22 20 57 65 Occupancy .............................................. 27 22 78 65 Other operating ........................................ 32 34 116 89 -------- -------- -------- -------- 1,482 676 4,765 2,427 -------- -------- -------- -------- Operating loss ......................................... (1,482) (676) (4,765) (2,427) -------- -------- -------- -------- Interest income ........................................ 544 595 1,598 1,820 Other income ........................................... 50 2,500 154 2,500 -------- -------- -------- -------- Income (loss) before income taxes ...................... (888) 2,419 (3,013) 1,893 Income tax expense ..................................... (46) (59) (169) (187) -------- -------- -------- -------- Net income (loss) ...................................... $ (934) $ 2,360 $ (3,182) $ 1,706 ======== ======== ======== ======== Earnings per common share: Net income (loss) - basic .............................. $ (0.02) $ 0.05 $ (0.07) $ 0.04 Net income (loss) - assuming dilution .................. (0.02) 0.05 (0.07) 0.04 ======== ======== ======== ======== Average shares outstanding ............................. 44,534 44,534 44,534 44,534 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands)
Sept. 30, December 31, 1999 1998 (unaudited) ======== ========= Assets Cash and cash equivalents .................................................... $ 1,687 $ 2,886 Investment securities - held to maturity (market value $45,183 and $47,160, respectively) .................................. 45,170 47,156 Investment in SDG, Inc. at cost ............................................... 1,250 1,250 Other assets .................................................................. 562 346 --------- --------- Total assets .................................................................. $ 48,669 $ 51,638 ========= ========= Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities ..................................... $ 1,698 $ 1,642 Supplemental retirement plan .................................................. 5,429 5,079 Postretirement welfare benefits ................................................ 1,194 1,301 Other liabilities ............................................................. 110 152 Litigation and contingency reserves ............................................ 2,032 2,076 Income tax reserves ........................................................... 66,388 66,388 --------- --------- Total liabilities .............................................................. 76,851 76,638 --------- --------- Commitments and contingencies ................................................. -- -- --------- --------- Stockholders' equity: Common stock .................................................................. 447 447 Paid-in capital ............................................................... 547,712 547,712 Accumulated deficit ........................................................... (575,694) (572,512) Treasury stock ................................................................ (647) (647) --------- --------- Total stockholders' equity .................................................... (28,182) (25,000) --------- --------- Total liabilities and stockholders' equity .................................... $ 48,669 $ 51,638 ========= =========
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 (in thousands)
1999 1998 ==== ==== Cash flows from operating activities: Net income (loss) ............................................................................ $ (3,182) $ 1,706 Adjustments to reconcile net income (loss) to net cash used by operations: Other assets ................................................................................. 12 56 Accounts payable and accrued liabilities ..................................................... 56 (1,317) Litigation and contingency reserves uses ..................................................... (44) (161) Income tax reserves uses ..................................................................... -- (12,700) Other liabilities ............................................................................ 200 34 Amortization of discount - investment securities ............................................. (1,583) (1,749) Other, net ................................................................................... 13 57 -------- -------- Net cash used by operating activities ........................................................ (4,528) (14,074) -------- -------- Cash flows from investing activities: Maturities of investment securities - held to maturity ....................................... 96,521 44,746 Purchases of investment securities - held to maturity ........................................ (92,952) (48,329) Purchases of other investment securities ..................................................... (250) -- Proceeds from Home Holdings, Inc. receivable ................................................. -- 12,708 Other, net ................................................................................... 10 7 -------- -------- Net cash provided by investing activities .................................................... 3,329 9,132 -------- -------- Net decrease in cash and cash equivalents .................................................... (1,199) (4,942) Cash and cash equivalents at beginning of period ............................................. 2,886 5,548 -------- -------- Cash and cash equivalents at end of period ................................................... $ 1,687 $ 606 ======== ======== Supplemental cash flow disclosures: Income taxes paid ............................................................................ $ 164 $ 12,861 ======== ========
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 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 of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations. Results for interim periods are not necessarily indicative of results for the full year. Certain reclassifications have been made to the 1998 consolidated financial statements to conform with the 1999 presentation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make certain 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 accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Substantial contingent and alleged liabilities exist against the Company through certain lawsuits and governmental proceedings; see Part II - Item 1. These factors raise substantial doubt about the Company's ability to 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 on a long-term basis, the Company must both resolve its contingent and alleged liabilities by prevailing upon or settling these claims for less than the amounts claimed and generate profits by acquiring existing operations and/or by developing new operations. The Company continues to evaluate a number of possible acquisitions, and is engaged in the management of its remaining assets and liabilities, including the contingent and alleged tax and litigation liabilities, as described in Part II - Item 1. The Company intends to aggressively contest all pending and threatened litigation and governmental proceedings, as well as pursue all sources for contributions to settlements. The unaudited interim financial statements presented herein 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, 1998. The Company's main source of non-operating revenue is interest earned on investment securities and cash equivalents. The Company's management expects that operating cash needs for the remainder of 1999 will be met principally by the Company's current financial resources, and the receipt of non-operating revenue consisting of interest income received on investment securities and cash equivalents. Note 2 - Legal Proceedings The Company has significant alleged tax liabilities and is a defendant in certain lawsuits and governmental proceedings, the ultimate outcome of which could have a material adverse effect on its financial condition and results of operations. Because of the nature of the contingent and alleged tax and litigation liabilities described in Part II - Item 1, and the inherent difficulty in predicting the outcome of the litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Although the basis for the calculation of the litigation and contingency reserves and income tax reserves are regularly reviewed by the Company's management and outside legal counsel, the assessment of these reserves includes an exercise of judgment and is a matter of opinion. At September 30, 1999, the litigation and contingency reserves, other than for income tax issues, were $2,032,000. For a discussion of alleged tax liabilities, lawsuits and governmental proceedings, see Part II - Item 1. In addition to the litigation and contingency reserves, the Company has a reserve for income taxes of $66,388,000 at September 30, 1999. For a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles). See Part II - Item 1 - Legal Proceedings, for a discussion of Supervisory Goodwill Litigation and information regarding the Company's claims against Home Holdings, Inc. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 3 - Cash and Cash Equivalents Highly liquid investments, consisting principally of funds held in short-term money market accounts, are classified as cash equivalents. Note 4 - Investment Securities Investment securities - held to maturity consist of U.S. Treasury Bills with original maturities of one year or less and which are carried at amortized cost based upon the Company's intent and ability to hold these investments to maturity. Investment securities - held to maturity at September 30, 1999 and December 31, 1998 consist of the following:
September 30, 1999 December 31, 1998 ===================================== ===================================== Cost or Cost or Carrying Amortized Fair Carrying Amortized Fair (in thousands) Value Cost Value Value Cost Value ====== ========= ====== ======== ========= ======= U.S. Treasury Bills $ 45,170 $ 45,170 $ 45,183 $ 47,156 $ 47,156 $ 47,160 ====== ====== ====== ====== ====== ======
The gross unrealized gains on investment securities at September 30 and December 31 consist of the following: 1999 1998 ====== ====== (in thousands) Held to Maturity - Gross unrealized gains $ 13 $ 4 ====== ======
Other investment securities consist of convertible preferred and/or common stock in AMDG, Inc., which were purchased through private placements, are classified as other assets, and are carried at cost which approximates market value; $350,000 at September 30, 1999 and $100,000 at December 31, 1998. Note 5 - 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, unless a greater than 50% probability exists that the tax benefits will not actually be realized sometime in the future. The Company has calculated a net deferred tax asset of $28 million as of September 30, 1999 and $25 million as of December 31, 1998, arising primarily from net operating loss ("NOL") carryforwards, the excess of book over tax reserves and alternative minimum tax credits (not including the anticipated tax effects of NOL's expected to 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. As a result of the Office of Thrift Supervision's ("OTS") December 4, 1992 placement of Carteret in receivership, under the management of the Resolution Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and 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"), but this information has not yet been received. Since the Company did not make the election decision, as described above, once it receives the requested information from the RTC/FDIC, the Company will amend its consolidated federal income tax returns to include the federal income tax effects of Carteret and Carteret FSB. Based on the information currently available, the Company does not believe a material increase in the Company's tax liabilities will result. The Company anticipates that, as a result of filing consolidated federal income tax returns with Carteret FSB, approximately $170 million of tax NOL carryforwards will be generated from the Company's tax basis in Carteret/Carteret FSB as tax losses are incurred by Carteret FSB, of which $145 million are still available. The NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB would expire no earlier than 2007, and would be available to offset future taxable income, in addition to the NOL carryforwards as noted below. In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated interest in full satisfaction of the Company's Fresh Start tax liability, which related to a 1987 tax dispute with the IRS. In connection with the Company's payment to the IRS, the Company also utilized approximately $40 million of NOL's. As a result, the Company has remaining NOL carryforwards of approximately $14 million expiring beginning in 2008, and $145 million of additional NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB expiring no earlier than 2007. The Company contractually assumed the tax liabilities of City Investing Company ("City"), which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. For all periods through 1992, the IRS and the Company disagree only with respect to withholding taxes in connection with a Netherlands Antilles finance subsidiary of City. The Company's federal income tax returns for years subsequent to 1992 have not been reviewed by the IRS. The Company has a reserve for income taxes of $66,388,000 at September 30, 1999. For a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Item 1, herein. FINANCIAL CONDITION The Company's assets at September 30, 1999 aggregated $48,669,000 consisting principally of cash and cash equivalents of $1,687,000 and investment securities of $45,170,000. At September 30, 1999, the Company's liabilities, including reserves for contingent and alleged liabilities, as further described in Part II - - Item 1, exceeded total recorded assets by $28,182,000. The Company contractually assumed the tax liabilities of City Investing Company ("City"), which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. For all periods through 1992, the IRS and the Company disagree only with respect to withholding taxes in connection with a Netherlands Antilles finance subsidiary of City. The Company's federal income tax returns for years subsequent to 1992 have not been reviewed by the IRS. With respect to the Withholding Taxes issue, in connection with a Netherlands Antilles finance subsidiary of City, on May 11, 1995, the IRS issued a Notice of Deficiency for withholding taxes on interest payments for the years 1979 through 1985. In the Notice of Deficiency, the IRS contends that City's wholly owned Netherlands Antilles finance subsidiary should be disregarded for tax purposes. The Company vigorously contested the IRS's position in accordance with the IRS's internal appeals procedures. In January 1992, the National Office of the IRS issued technical advice supporting the auditing agent's position. In October 1992, the Company appealed this technical advice to the National Office. The National Office advised the Company that it expected to issue technical advice supporting the auditing agent's position, whereupon the Company advised the IRS that it was withdrawing its technical advice request. On June 30, 1995, the Company filed a petition in the United States Tax Court ("Tax Court") contesting the Notice of Deficiency. The IRS filed its answer on August 23, 1995. The Company filed a motion for summary judgment in its favor on February 13, 1996. On April 17, 1996, the IRS filed a Notice of Objection to the Company's motion for summary judgment. The Tax Court requested, and the Company filed, on July 3, 1996, a reply to the IRS's Notice of Objection. On September 19, 1996, the Court denied the Company's motion for summary judgment without prejudice. Based on the Tax Court's examination of the record and the status of the discovery process, the Tax Court concluded that summary adjudication at this time was inappropriate. The Tax Court directed the parties to engage in full and complete discovery as expeditiously as possible. A trial was held in this case on March 24, 1997, after which the Judge asked the IRS and the Company to submit post-trial briefs, which have subsequently been submitted to the Tax Court. If the IRS were to prevail on this issue, the Company would be liable for taxes and interest in excess of the Company's financial resources. In a case dealing with a similar withholding tax issue, the Tax Court ruled in favor of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana"), in November 1995. The Tax Court rejected the IRS's contention that interest paid to Northern Indiana's foreign subsidiary were subject to United States tax withholding. The IRS appealed this decision (Northern Indiana Public Service Co. v. Commissioner) to the United States Court of Appeals for the 7th Circuit (the "Appeals Court"). The Appeals Court affirmed the Tax Court's ruling in favor of Northern Indiana. Although the Appeals Court decision in the Northern Indiana case could be beneficial to the Company's case, it is not necessarily indicative of the ultimate result of the final settlement of the Netherlands Antilles issue between the Company and the IRS. Based on an evaluation of the IRS's contention, counsel has advised the Company that, although the outcome in litigation can by no means be assured, the Company has a very strong case and should prevail. Notwithstanding counsel's opinion and the Tax Court's ruling in the Northern Indiana case, it is not possible at this time to determine the final disposition of this issue, when the issues will be resolved, or their final financial effect. A final disposition of this issue in the Company's favor would have a material positive effect on the Company's Consolidated Statement of Operations and Financial Condition. The Company has a reserve for income taxes of $66,388,000 at September 30, 1999. For a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles). At September 30, 1999, the litigation and contingency reserves, other than for income tax issues, were $2,032,000. For a discussion of alleged tax liabilities, lawsuits and governmental proceedings, see Part II Item 1. The Company has significant alleged tax liabilities and is a defendant in certain lawsuits and governmental proceedings, the ultimate outcome of which could have a material adverse effect on its financial condition and results of operations. Because of the nature of the contingent and alleged liabilities and the inherent difficulty in predicting the outcome of the litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Although the basis for the calculation of the litigation and contingency reserves and the income tax reserves are regularly reviewed by the Company's management and outside legal counsel, the assessment of these reserves includes an exercise of judgment, and is a matter of opinion. For a discussion of alleged tax liabilities, lawsuits and governmental proceedings, see Part II - Item 1. The cash needs of the Company for the first nine months of 1999 were principally satisfied by interest income received on investment securities and cash equivalents, and the Company's current financial resources. Management believes that the Company's cash resources are sufficient to continue operations for 1999. For the nine months ended September 30, 1999, cash of $4,528,000 was used by operations, including the payment of prior year accruals and operating expenses, partially offset by the receipt of interest income. For the nine months ended September 30, 1998, cash of $14,074,000 was used by operations, including the payment of $12,700,000 to the IRS for the Company's Fresh Start tax liability (which related to a 1987 tax dispute with the IRS), the payment of prior year accruals and the payment of operating expenses, partially offset by the receipt of interest income and amounts received pursuant to the Home Holdings Revised Bankruptcy Plan. The Company continues to evaluate a number of possible acquisitions and is engaged in the management of its remaining assets and liabilities, including the contingent and alleged tax and litigation liabilities, as described above. Extensive discussions and negotiations are ongoing with respect to certain of these matters. The Company intends to aggressively contest all pending and threatened litigation and governmental proceedings, as well as pursuing all sources of contributions to settlements. In order to continue on a long-term basis, the Company must both resolve its contingent and alleged liabilities by prevailing upon or settling these claims for less than the amounts claimed, and generate profits by acquiring existing operations and/or by developing new operations. There were no material commitments for capital expenditures as of September 30, 1999. Results of Operations
Summarized financial information of the Company for the third quarter and nine months ended September 30 is as follows: Third Quarter Nine Months (in thousands) 1999 1998 1999 1998 ======= ======= ======= ======= Operating expenses: Compensation and benefits .............................................................. $ 823 473 $ 2,524 $ 1,431 Professional and outside services ...................................................... 578 127 1,990 777 Insurance .............................................................................. 22 20 57 65 Occupancy .............................................................................. 27 22 78 65 Other operating ........................................................................ 32 34 116 89 ------- ------- ------- ------- 1,482 676 4,765 2,427 ------- ------- ------- ------- Operating loss ......................................................................... (1,482) (676) (4,765) (2,427) ------- ------- ------- ------- Interest income ........................................................................ 544 595 1,598 1,820 Other income ........................................................................... 50 2,500 154 2,500 ------- ------- ------- ------- Income (loss) before income taxes ...................................................... (888) 2,419 (3,013) 1,893 Income tax expense ..................................................................... (46) (59) (169) (187) ------- ------- ------- ------- Net income (loss) ...................................................................... $ (934) $ 2,360 $(3,182) $ 1,706 ======= ======= ======= =======
The Company's main source of non-operating revenue is interest income earned on investment securities and cash equivalents. The Company's management expects that operating cash needs for the remainder of 1999 will be met principally by the Company's current financial resources and the receipt of non-operating revenue consisting of interest income earned on investment securities and cash equivalents. The Company recorded a net loss of $ 934,000, or $ 0.02 per share, and $ 3,182,000, or $ 0.07 per share for the third quarter and nine months ended September 30, 1999, respectively. The Company recorded net income of $2,360,000 or $0.05 per share and $1,706,000, or $0.04 per share for the third quarter and nine months ended September 30, 1998, respectively. The 1998 third quarter and nine-month period includes $2,500,000 of other income received in connection with the Home Holdings Revised Bankruptcy Plan. Excluding the $2,5000,000 of other income, the Company would have reported a net loss of $140,000 and $794,000 in the third quarter and nine-month period ended September 30, 1998, respectively. Compensation and benefits increased to $823,000 and $2,524,000 in the third quarter and nine months ended September 30, 1999, respectively, compared with $473,000 and $1,431,000, in the respective 1998 periods. The increase in the 1999 periods is due to the accrual on a monthly basis of 1999 incentive compensation, which is not guaranteed, as compared to accruing these amounts at year-end, and also a higher level of benefit accruals. Professional and outside services were $578,000 and $1,990,000 in the third quarter and nine month periods ended September 30, 1999 respectively, compared to $127,000 and $777,000 in the respective 1998 periods. The increase in the 1999 periods is primarily the result of legal fees attributable to supervisory goodwill litigation, offset to some extent by a reduction of legal fees attributable to the Home Holdings, Inc. bankruptcy case, which were incurred in the respective 1998 periods. Insurance expenses decreased to $57,000 for the nine month period ended September 30, 1999, compared to $65,000 in the same 1998 period, due to management's continued renegotiations of insurance premiums. Interest income in the third quarter and nine months ended September 30, 1999 decreased to $544,000 and $1,598,000, respectively, from $595,000 and $1,820,000 in the respective 1998 periods. The decrease was attributable to a decreased yield on cash equivalents and investment securities during the 1999 periods and a lower average level of investments held in 1999 compared with 1998. Other income of $ 50,000 in the 1999 third quarter and $154,000 for the nine months ended September 30, 1999 is principally due to the collection by an inactive subsidiary of a receivable previously considered uncollectible. As noted above, the $2,500,000 of other income in the 1998 third quarter and nine-month periods represents a portion of the amounts received pursuant to the Home Holdings Revised Bankruptcy Plan. The income tax provisions of $46,000 and $169,000 in the third quarter and nine months ended September 30, 1999, respectively, and $59,000 and $187,000 in the third quarter and nine months ended September 30, 1998, respectively, are primarily attributable to provisions for state taxes. 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. Year 2000 Issue The Company has completed its review of year 2000 issues and has determined it will not have a material effect on the Company's business, results of operations or financial condition. 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 at September 30, 1999 consist of the following: Maturity Date Less Than Fair (in thousands) One Year Value ======= ===== U.S. Treasury Bills............................ $ 45,170 $ 45,183 ===== ===== Weighted average interest rate................. 4.68% ===== 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 quarter. 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 40 Wall Street, 46th Floor New York, NY 10005 Attention: Shareholder Services (800) 937-5449 or (718) 921-8200 In addition, 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 EDGAR Database over the Internet, at www.sec.gov. Part II - OTHER INFORMATION Item 1. Legal Proceedings The information contained in Item 8 - Note 13 in AmBase's Annual Report on Form 10-K for the year ended December 31, 1998 and in AmBase's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1999 and June 30, 1999 are incorporated by reference herein and the defined terms set forth below have the same meaning ascribed to them in those reports. There have been no material developments in such legal proceedings, except as set forth below. The actions against the Company are in various stages. Nevertheless, the allegations and claims are material and, if successful, could result in substantial judgments against the Company. To the extent the aggregate of any such judgments were to exceed the resources available, these matters would have a material adverse effect on the Company's financial condition and results of operations. Due to the nature of these proceedings, the Company and its counsel are unable to express any opinion as to their probable outcome. Supervisory Goodwill Litigation. On September 9, 1999, the Company filed a motion in its lawsuit against the United States in the U.S. Court of Federal Claims entitled Plaintiffs' Motion For Partial Summary Judgment On Liability. AmBase Corporation v. Zurich SF Holdings, Inc. (f/k/a Reorganized Home Holdings, Inc.). On October 20, 1999, Zurich's motion to dismiss the Company's complaint in its entirety was denied. However, under the relevant statute of limitations, such portion of the Company's claims which accrued more than six years prior to the filing of the complaint were deemed dismissed. ITEM 2. CHANGES IN SECURITIES Does not apply. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Does not apply. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Does not apply. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (only submitted to SEC in electronic format) (b) Form 8-K None 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 By JOHN P. FERRARA Vice President, Chief Financial Officer and Controller (Principal Financial and Accounting Officer) Date: November 2, 1999 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 27 Financial Data Schedule - September 30, 1999 -13- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 Sep-30-1999 1,687 45,170 0 0 0 0 0 0 48,669 0 0 0 0 447 (28,629) 48,669 0 0 0 0 4,765 0 0 (3,013) 169 (3,182) 0 0 0 (3,182) (0.07) (0.07)
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