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 June 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 June 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.
<PAGE>
AmBase Corporation
Quarterly Report on Form 10-Q
June 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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Second Quarter and Six Months Ended June 30
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Second Quarter Six Months
1999 1998 1999 1998
==== ==== ==== ====
<S> <C> <C> <C> <C>
Operating expenses:
Compensation and benefits............... $ 817 $ 444 $ 1,701 $ 958
Professional and outside services....... 1,347 380 1,412 650
Insurance............................... 17 22 35 45
Occupancy............................... 28 22 51 43
Other operating......................... 36 12 84 55
------ ------ ------ ------
2,245 880 3,283 1,751
------ ------ ------ ------
Operating loss.......................... (2,245) (880) (3,283) (1,751)
------ ------ ------ ------
Interest income......................... 523 593 1,054 1,225
Other income............................ 61 - 104 -
------ ------ ------ ------
Loss before income taxes................ (1,661) (287) (2,125) (526)
Income tax expense...................... (68) (64) (123) (128)
------ ------ ------ ------
Net loss................................ $(1,729) $ (351) $(2,248) $ (654)
====== ====== ====== ======
Earnings per common share:
Net loss - basic........................ $ (0.04) $ (0.01) $ (0.05) $ (0.02)
Net loss - assuming dilution............ (0.04) (0.01) (0.05) (0.02)
====== ====== ====== ======
Average shares outstanding.............. 44,534 44,534 44,534 44,534
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
========= ============
<S> <C> <C>
Assets
Cash and cash equivalents..................... $ 998 $ 2,886
Investment securities - held to maturity
(market value $46,625 and $47,160,
respectively).............................. 46,647 47,156
Investment in SDG, Inc. at cost............... 1,250 1,250
Other assets.................................. 506 346
-------- ----------
Total assets.................................. $ 49,401 $ 51,638
======== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities...... $ 1,533 $ 1,642
Supplemental retirement plan.................. 5,312 5,079
Postretirement welfare benefits............... 1,234 1,301
Other liabilities............................. 112 152
Litigation and contingency reserves........... 2,070 2,076
Income tax reserves........................... 66,388 66,388
-------- ----------
Total liabilities............................. 76,649 76,638
-------- ----------
Commitments and contingencies................. - -
-------- ----------
Stockholders' equity:
Common stock.................................. 447 447
Paid-in capital............................... 547,712 547,712
Accumulated deficit........................... (574,760) (572,512)
Treasury stock................................ (647) (647)
-------- ----------
Total stockholders' equity.................... (27,248) (25,000)
-------- ----------
Total liabilities and stockholders' equity.... $ 49,401 $ 51,638
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30
(in thousands)
<TABLE>
<CAPTION>
1999 1998
==== ====
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (2,248) $ (654)
Adjustments to reconcile net loss to net
cash used by operations:
Other assets........... ....................... 73 58
Accounts payable and accrued liabilities....... (109) (1,224)
Litigation and contingency reserves uses....... (6) (115)
Income tax reserves uses....................... - (12,700)
Other liabilities.............................. 126 (24)
Amortization of discount - investment
securities.................................. (1,043) (1,170)
Other, net..................................... 7 46
-------- --------
Net cash used by operating activities.......... (3,200) (15,783)
-------- --------
Cash flows from investing activities:
Maturities of investment securities
- held to maturity.......................... 60,006 39,692
Purchases of investment securities
- held to maturity.......................... (58,454) (27,428)
Purchases of other investment securities....... (250) -
Proceeds from Home Holdings, Inc. receivable... - 8
Other, net..................................... 10 35
-------- --------
Net cash provided by investing activities...... 1,312 12,307
-------- --------
Net decrease in cash and cash equivalents...... (1,888) (3,476)
Cash and cash equivalents at beginning
of period................................... 2,886 5,548
-------- --------
Cash and cash equivalents at end of period..... $ 998 $ 2,072
===== =====
Supplemental cash flow disclosures:
Income taxes paid.............................. $ 126 $ 12,861
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
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 June 30, 1999, the
litigation and contingency reserves, other than for income tax issues, were
$2,070,000. 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 June 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.
-4-
<PAGE>
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.
<TABLE>
<CAPTION>
Investment securities - held to maturity at June 30, 1999 and December 31, 1998
consist of the following:
June 30, 1999 December 31, 1998
===================================== ======================================
<S> <C> <C> <C> <C> <C> <C>
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
====== ========= ======= ======== ========= =======
U.S. Treasury Bills $ 46,647 $ 46,647 $ 46,625 $ 47,156 $ 47,156 $ 47,160
====== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
The gross unrealized gains (losses) on investment securities at June 30 and
December 31 consist of the following:
1999 1998
==== ====
(in thousands)
<S> <C> <C>
Held to Maturity - Gross unrealized
gains (losses) $ (22) $ 4
====== ======
</TABLE>
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 June 30, 1999 and $100,000 at December 31, 1998.
-5-
<PAGE>
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 $25 million, as of June 30, 1999 and 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 June 30, 1999. For
a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with
Internal Revenue Service, Withholding Taxes (Netherlands Antilles).
-6-
<PAGE>
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 June 30, 1999 aggregated $49,401,000, consisting
principally of cash and cash equivalents of $998,000 and investment securities
of $46,647,000. At June 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 $27,248,000.
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.
-7-
<PAGE>
The Company has a reserve for income taxes of $66,388,000 at June 30, 1999. For
a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with
Internal Revenue Service, Withholding Taxes (Netherlands Antilles).
At June 30, 1999, the litigation and contingency reserves, other than for income
tax issues, were $2,070,000. 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 six 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 six months ended June 30, 1999, cash of $3,200,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income.
For the six months ended June 30, 1998, cash of $15,783,000 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.
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 June 30, 1999.
-8-
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Summarized financial information of the Company for the second quarter ended
June 30 is as follows:
Second Quarter Six Months
1999 1998 1999 1998
==== ==== ==== ====
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Operating expenses:
Compensation and benefits........... $ 817 $ 444 $ 1,701 $ 958
Professional and outside services... 1,347 380 1,412 650
Insurance........................... 17 22 35 45
Occupancy........................... 28 22 51 43
Other operating..................... 36 12 84 55
------ ------- ------ -------
2,245 880 3,283 1,751
------ ------- ------ -------
Operating loss...................... (2,245) (880) (3,283) (1,751)
------ ------- ------ -------
Interest income..................... 523 593 1,054 1,225
Other income........................ 61 - 104 -
------ ------- ------ -------
Loss before income taxes............ (1,661) (287) (2,125) (526)
Income tax expense.................. (68) (64) (123) (128)
------ ------- ------ -------
Net loss............................ $(1,729) $ (351) $ (2,248) $ (654)
====== ======= ======== =======
</TABLE>
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 $1,729,000, or $0.04 per share, and
$2,248,000, or $0.05 per share for the second quarter and six months ended June
30, 1999, respectively, compared to a net loss of $351,000, or $0.01 per share,
and $654,000, or $0.02 per share, for the second quarter and six months ended
June 30, 1998, respectively. The increase in the net loss for the second quarter
and six month periods ended June 30, 1999 is due principally to an increase in
professional and outside services fees, as further described below.
Compensation and benefits increased to $817,000 and $1,701,000 in the second
quarter and six months ended June 30, 1999, respectively, compared with $444,000
and $958,000 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 increased to $1,347,000 in the second quarter
ended June 30, 1999, and to $1,412,000 in the six months ended June 30, 1999,
compared to $380,000 and $650,000 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 $17,000 and $35,000 for the second quarter and
six months ended June 30, 1999, respectively, compared to $22,000 and $45,000 in
the same 1998 periods, due to management's continued renegotiation of insurance
premiums.
Interest income in the second quarter and six months ended June 30, 1999
decreased to $523,000 and $1,054,000, respectively, from $593,000 and $1,225,000
in the respective 1998 periods. The decrease was primarily attributable to a
decreased yield on cash equivalents and investment securities during the 1999
periods.
Other income of $61,000 in the 1999 second quarter and $104,000 for the six
months ended June 30, 1999 is principally due to the collection by an inactive
subsidiary of a receivable previously considered uncollectible.
The income tax provisions of $68,000 and $123,000 in the second quarter and six
months ended June 30, 1999, respectively, and $64,000 and $128,000 in the second
quarter and six months ended June 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.
-9-
<PAGE>
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 June 30, 1999 consist of the following:
Maturity Date
Less Than Fair
(in thousands) One Year Value
======= =====
U.S. Treasury Bills............................ $ 46,647 $ 46,625
===== =====
Weighted average interest rate................ 4.39%
=====
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.
-10-
<PAGE>
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 Report on
Form 10-Q for the quarterly period ended March 31, 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.
Marshall Manley v. AmBase Corporation. The trial of this case has been
adjourned by the Court until January 4, 2000.
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. In June 1999, the Court extended the deadline
for completing case-specific fact discovery in the Company's case to November
30, 1999.
AmBase Corporation v. Zurich SF Holdings, Inc. (f/k/a Reorganized Home Holdings,
Inc.). On or about June 4, 1999, Zurich SF Holdings, Inc. (f/k/a Reorganized
Home Holdings, Inc.) filed a motion to dismiss the complaint filed by the
Company. The Company filed a response to the motion to dismiss in July 1999.
These motions are presently under submission with the Court.
-11-
<PAGE>
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
At the Annual Meeting of Stockholders on May 14, 1999, the following proposals
were voted upon:
The following persons were nominated to be elected as directors, as set forth
below:
Number of Shares
For Withheld
Richard A. Bianco 38,021,859 234,470
John B. Costello 38,027,684 228,645
There were no broker non-votes.
Stockholders approved the appointment of PricewaterhouseCoopers LLP as the
independent accountants of the Company for the year ending December 31, 1999.
The shares were voted as follows: 38,147,545 shares for and 64,086 against, with
44,698 shares abstaining. There were no broker non-votes.
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: August 9, 1999
-12-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule - June 30, 1999
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 998
<SECURITIES> 46,647
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,401
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 447
<OTHER-SE> (26,801)
<TOTAL-LIABILITY-AND-EQUITY> 49,401
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,125)
<INCOME-TAX> (123)
<INCOME-CONTINUING> (2,248)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,248)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
