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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 March 31, 2003
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 06830-6027
(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 ______
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
------- -------------
At March 31, 2003, there were 46,208,519 shares outstanding of the registrant's
common stock, $0.01 par value per share.
AmBase Corporation
Quarterly Report on Form 10-Q
March 31, 2003
TABLE OF CONTENTS Page
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................12
Item 4. Controls and Procedures.............................................................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................13
Item 6. Exhibits and Reports on Form 8-K....................................................................13
Signatures.......................................................................................................14
Certifications...................................................................................................15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share amounts)
March 31, December 31,
2003 2002
(unaudited)
======== =========
Assets:
Cash and cash equivalents......................................................... $ 3,226 $ 4,918
Investment securities:
Held to maturity (market value $18,313 and $18,260, respectively)............. 18,312 18,259
Available for sale, carried at fair value .................................... 1,136 621
------- --------
Total investment securities....................................................... 19,448 18,880
------- --------
Accounts receivable............................................................... 41 109
Real estate owned:
Land............................................................................ 6,954 6,954
Buildings....................................................................... 12,772 12,772
------- --------
19,726 19,726
Less: accumulated depreciation................................................. (186) (104)
------- --------
Real estate owned, net............................................................ 19,540 19,622
Other assets...................................................................... 150 127
------- --------
Total assets...................................................................... $ 42,405 $ 43,656
======= ========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities.......................................... $ 679 $ 1,563
Supplemental retirement plan...................................................... 8,000 7,608
Other liabilities................................................................. 290 293
Litigation reserves............................................................... 1,289 1,290
-------- --------
Total liabilities................................................................. 10,258 10,754
-------- --------
Commitments and contingencies..................................................... - -
-------- --------
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized,
46,335,007 issued).............................................................. 463 463
Paid-in capital................................................................... 547,940 547,940
Accumulated other comprehensive income (loss)..................................... (9) 22
Accumulated deficit............................................................... (515,600) (514,876)
Treasury stock, at cost 126,488 shares............................................ (647) (647)
-------- --------
Total stockholders' equity........................................................ 32,147 32,902
-------- --------
Total liabilities and stockholders' equity........................................ $ 42,405 $ 43,656
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31
(Unaudited)
(in thousands, except per share data)
2003 2002
==== ====
Revenues:
Rental income................................................................... $ 614 $ 74
Operating expenses:
Compensation and benefits....................................................... 1,051 931
Professional and outside services............................................... 77 121
Property operating and maintenance.............................................. 119 22
Depreciation.................................................................... 82 16
Insurance....................................................................... 20 16
Other operating................................................................. 29 27
------- -------
1,378 1,133
------- -------
Operating loss.................................................................. (764) (1,059)
------- -------
Interest income................................................................. 85 193
Other income.................................................................... - 205
------- -------
Loss before income taxes........................................................ (679) (661)
Income tax expense.............................................................. (45) (45)
------- -------
Net loss........................................................................ $ (724) $ (706)
======= =======
Net loss per common share:
Net loss - basic................................................................ $ (0.02) $ (0.02)
Net loss - assuming dilution.................................................... (0.02) (0.02)
====== ======
Weighted average common shares outstanding:
Basic........................................................................... 46,209 46,209
====== ======
Diluted......................................................................... 46,209 46,209
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Comprehensive Income (Loss)
Three Months Ended March 31
(Unaudited)
(in thousands)
2003 2002
====== ======
Net loss............................................................................ (724) $ (706)
Unrealized holding gains (losses) on investment securities - available for sale,
net of tax effect of $0........................................................ (9) 18
-------- --------
Comprehensive loss.................................................................. $ (733) $ (688)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31
(Unaudited)
(in thousands)
2003 2002
==== ====
Cash flows from operating activities:
Net loss.......................................................................... $ (724) $ (706)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation and amortization................................................. 82 16
Accretion of discount - investment securities................................. (54) (181)
Changes in other assets and liabilities:
Accounts receivable........................................................... 68 -
Other assets.................................................................. (23) 22
Accounts payable and accrued liabilities...................................... (884) (2,644)
Litigation and contingency reserves uses...................................... (1) (35)
Other liabilities............................................................. 389 189
Other, net........................................................................ - 4
-------- --------
Net cash used by operating activities............................................. (1,147) (3,335)
-------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity............................ 18,287 40,350
Purchases of investment securities - held to maturity............................. (18,286) (39,897)
Purchases of investment securities - available for sale........................... (546) (150)
-------- --------
Net cash (used) provided by investing activities.................................. (545) 303
-------- --------
Net decrease in cash and cash equivalents......................................... (1,692) (3,032)
Cash and cash equivalents at beginning of period.................................. 4,918 6,130
-------- --------
Cash and cash equivalents at end of period........................................ $ 3,226 $ 3,098
======== ========
Supplemental cash flow disclosures:
Income taxes paid................................................................. $ 44 $ 51
======== ========
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 only of normal recurring adjustments unless otherwise disclosed,
necessary for a fair statement 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 prior
year consolidated financial statements to conform with the current year
presentation. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("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 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, 2002.
The Company's assets currently consist primarily of cash and cash equivalents,
investment securities, and real estate owned. The Company's main source of
operating revenue is rental income earned on real estate owned. The Company also
earns non-operating revenue principally consisting of interest earned 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 and alleged litigation
liabilities, as described in Part II - Item 1. The Company intends to
aggressively contest all pending and threatened litigation and contingencies, as
well as pursue all sources for contributions to settlements.
The Company's management expects that operating cash needs for the remainder of
2003 will be met principally by rental income received, the Company's current
financial resources, and the receipt of non-operating revenue consisting of
interest income on investment securities and cash equivalents.
Note 2 - Legal Proceedings
The Company has certain alleged liabilities and is a defendant in certain
lawsuits. The accompanying consolidated financial statements do not include
adjustments that might result from an ultimate unfavorable outcome of these
uncertainties. Although the basis for the calculation of the litigation reserves
is 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 March 31, 2003, the litigation reserves were $ 1,289,000. See Part
II - Item 1 - Legal Proceedings, for a discussion of the Company's legal
proceedings.
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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills with
original maturities of one year or less and are carried at amortized cost based
upon the Company's intent and ability to hold these investments to maturity.
Investment securities - available for sale, consist of investments in equity
securities held for an indefinite period and are carried at fair value with net
unrealized gains and losses recorded directly in a separate component of
stockholders' equity.
Investment securities consist of the following:
March 31, 2003 December 31, 2002
===================================== ======================================
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 maturing
within one year............ $ 18,312 $ 18,312 $ 18,313 $ 18,259 $ 18,259 $ 18,260
Available for Sale:
Equity Securities......... 1,136 1,145 1,136 621 599 621
-------- --------- -------- -------- -------- -------
$ 19,448 $ 19,457 $ 19,449 $ 18,880 $ 18,858 $ 18,881
======== ========= ======== ======== ======== =======
The gross unrealized gains and losses on investment securities, at March 31,
2003 and December 31, 2002 consist of the following:
(in thousands) 2003 2002
======= =======
Held to Maturity:.
Gross unrealized gains........................................................... $ 1 $ 1
======= =======
Available for Sale:
Gross unrealized gains (losses).................................................. $ (9) $ 22
======= =======
No investment securities - available for sale were sold in the first three
months of 2003.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 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 $31 million as of March 31, 2003 and December 31, 2002, respectively
arising primarily from net operating loss ("NOL") carryforwards, alternative
minimum tax ("AMT") 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 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. Based on the Company's Election Decision, as described above, and
the receipt of some of the requested information from the RTC/FDIC, the Company
has amended its 1992 consolidated federal income tax return to include the
federal income tax effects of Carteret and Carteret FSB (the "1992 Amended
Return"). The Company is still in the process of amending its consolidated
federal income tax returns for 1993 and subsequent years.
The Company anticipates that, as a result of filing a consolidated federal
income tax return with Carteret FSB, a total of 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 $158
million are still available for future use. Based on the Company's filing of the
1992 Amended Return, approximately $56 million of NOL carryforwards are
generated for tax year 1992 which expire in 2007, with the remaining
approximately $102 million of NOL carryforwards to be generated, expiring no
earlier than 2008. These NOL carryforwards would be available to offset future
taxable income, in addition to the NOL carryforwards as further detailed below.
The IRS is currently reviewing the Company's 1992 Amended Return in connection
with several carryback claims filed by the Company, as further described below.
The Company can give no assurances with regard to the 1992 Amended Return, or
amended returns for subsequent years, or the final amount or expiration of NOL
carryforwards ultimately generated from the Company's tax basis in Carteret.
In March 2000, the Company filed several 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. The Carryback
Claims and the 1992 Amended Return are currently being reviewed by the IRS. In
April 2003, IRS examiners issued a letter to the Company proposing to disallow
the Carryback Claims. The Company is seeking administrative review of the letter
by protesting to the Appeals Division of the IRS. The Company can give no
assurances that the Carryback Claims will be ultimately allowed by the IRS, the
final amount of the refunds, if any, or when they might be received.
Based upon the Company's federal income tax returns as filed from 1993 to 2001
(subject to IRS audit adjustments), and excluding the NOL carryforwards
generated from the Company's tax basis in Carteret/Carteret FSB, as noted above,
at March 31, 2003 the Company has NOL carryforwards, aggregating approximately
$30.6 million, available to reduce future federal taxable income which expire if
unused beginning in 2008. The Company's federal income tax returns for years
subsequent to 1992 have not been reviewed by the IRS.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 further discussed
above, the Company is seeking to realize approximately $8 million of the $21
million of AMT Credits.
Note 6 - Comprehensive Income (Loss)
Comprehensive income (loss), is composed of net income (loss) and other
comprehensive income (loss) which includes the change in unrealized gains
(losses) on investment securities available for sale, as follows:
(in thousands) Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
=========================== ===========================
Unrealized Accumulated Unrealized Accumulated
Gains (Losses) Other Gains Other
on Investment Comprehensive on Investment Comprehensive
Securities Income Securities Income
============= ============= ============ ============
Balance beginning of period................. $ 22 $ 22 $ - $ -
Change during the period.................... (31) (31) 18 18
-------------- ------------- ----------- -----------
Balance end of period....................... $ (9) $ (9) $ 18 $ 18
============== ============= =========== ===========
Note 7 - Property Owned
The Company owns two office buildings in Greenwich, Connecticut. The first
building is approximately 14,500 square feet, is substantially leased to
unaffiliated third parties with a small amount utilized by the Company for its
executive offices. The second building, purchased in December 2002, is
approximately 38,000 square feet and is fully leased to unaffiliated third
parties.
The buildings are carried at cost, net of accumulated depreciation of $186,000
and $104,000 at March 31, 2003 and December 31, 2002, respectively. Depreciation
expense is recorded on a straight-line basis over 39 years. Tenant security
deposits of $226,000 at March 31, 2003 and December 31, 2002, respectively, are
included in other liabilities.
Minimum rental revenue attributable to operating leases is recognized when
earned and due from tenants. Revenue from tenant reimbursement of common area
maintenance, utilities and other operating expenses are recognized pursuant to
the tenant's lease. The effects of scheduled rent increases and rent
concessions, if any, are presented on a straight line basis over the term of the
lease.
Included in property operating and maintenance are expenses for common area
maintenance, utilities, real estate taxes and other reimbursable operating
expenses, which have not been reduced by amounts reimbursable by tenants
pursuant to applicable lease agreements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Stock Based Compensations
The Company adopted the disclosure requirements of Financial Accounting
Standards Board, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123") and continues to
account for stock compensation using APB Opinion 25, "Accounting for Stock
Issued to Employees" ("APB 25"), making pro forma disclosures of net income
(loss) and earnings per share as if the fair value based method had been
applied. No compensation expense, attributable to stock incentive plans, has
been charged to earnings.
The Black-Scholes option pricing model was used to estimate the fair value of
the options at date of grant based on various factors including dividend yield,
stock price volatility, interest rates, and expected life of options.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, and given the
substantial changes in the price per share of the Company's Common Stock, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. If the Company had
elected to recognize compensation cost for stock options based on the fair value
at date of grant for stock options, consistent with the method prescribed by
Statement 123, net loss and net loss per share, would have been changed to the
pro forma amounts indicated below.
Three months Three months
ended ended
March 31, March 31,
(in thousands, except per share data) 2003 2002
============ ============
Net loss:
As reported..................................................... $ (724) $ (706)
Deduct: pro forma stock based compensation expense for
stock options pursuant to Statement 123..................... (26) (54)
------------ ------------
Pro forma....................................................... $ (750) $ (760)
============ ============
Net loss per common share:
Basic - as reported............................................. $ (0.02) $ (0.02)
Basic - pro forma............................................... (0.02) (0.02)
Assuming dilution - as reported................................. (0.02) (0.02)
Assuming dilution - pro forma .................................. (0.02) (0.02)
============ ===========
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 Part I - Item I,
herein.
FINANCIAL CONDITION
The Company's assets at March 31, 2003 aggregated $42,405,000 consisting
principally of cash and cash equivalents of $3,226,000, investment securities of
$19,448,000 and real estate owned of $19,540,000. At March 31, 2003, the
Company's liabilities, including reserves for litigation liabilities, described
in Part II - Item 1, aggregated $10,258,000. Total stockholders equity was
$32,147,000.
The liability for the supplemental retirement plan (the "Supplemental Plan"),
which is accrued but not funded, increased to $8,000,000 at March 31, 2003 from
$7,608,000 at December 31, 2002. The Supplemental Plan liability reflects the
actuarially determined accrued pension costs in accordance with GAAP. The
increased liability is the result of additional accrued service vesting and
interest cost on the liability. The Supplemental Plan liability is further
affected by changes in discount rates and experience which could be different
from that assumed.
For the three months ended March 31, 2003, cash of $1,147,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of rental income and interest income. The cash
needs of the Company for the first three months of 2003 were satisfied by the
receipt of rental income, 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 2003.
For the three months ended March 31, 2002, cash of $3,335,000 was used by
operations, including the payment of prior year accruals and 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 assets and alleged litigation liabilities. 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
contingencies, as well as pursue all sources for contributions to settlements.
Management of the Company in consultation with outside legal counsel,
continually reviews the likelihood of liability and associated costs of pending
and threatened litigation. At March 31, 2003, the litigation reserves were
$1,289,000. For a discussion of alleged liabilities, lawsuits and proceedings,
see Part II - Item 1 - Legal Proceedings.
The Company has certain alleged liabilities and is a defendant in certain
lawsuits. Based upon an assessment of these proceedings the Company believes the
ultimate outcome of the proceedings will not have a material adverse effect on
its financial condition and results of operations. The accompanying consolidated
financial statements do not include adjustments that might result from an
ultimate unfavorable outcome of these uncertainties. Although the basis for the
calculation of the litigation 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.
The Company owns two office buildings in Greenwich, Connecticut. The first
building is approximately 14,500 square feet, is substantially leased to
unaffiliated third parties with a small amount utilized by the Company for its
executive offices. The second building, purchased in December 2002, is
approximately 38,000 square feet and is fully leased to unaffiliated third
parties.
The Company has made no purchases under its common stock repurchase plan as of
March 31, 2003. There are no material commitments for capital expenditures as of
March 31, 2003. Inflation has had no material impact on the business and
operations of the Company.
Results of Operations for the Three Months ended March 31, 2003 vs. the Three
Months Ended March 31, 2002
The Company's main source of operating revenue is rental income earned on real
estate owned. The Company also earns non-operating revenue consisting
principally of interest income earned on investment securities and cash
equivalents. The Company's management expects that operating cash needs for the
remainder of 2003 will be met principally by rental income and the receipt of
non-operating revenue consisting of interest income earned on investment
securities and cash equivalents, and the Company's current financial resources.
The Company recorded a net loss of $724,000 or $0.02 per share for the first
quarter ended March 31, 2003, compared with a net loss of $706,000 or $0.02 per
share for the first quarter ended March 31, 2002.
For the three months ended March 31, 2003 the Company earned rental income from
real estate owned of $614,000 as compared to $74,000 for the three months ended
March 31, 2002. The increase in the 2003 period reflects increased rental income
as a result of the ownership of a 38,000 square foot office building purchased
in December 2002.
Compensation and benefits increased to $1,051,000 in the first quarter ended
March 31, 2003, compared with $931,000 in respective 2002 period. The increase
was principally the result of a higher level of benefit accruals.
Professional and outside services decreased to $77,000 in the first quarter
ended March 31, 2003, compared to $121,000 in the respective 2002 period. The
decrease in the 2003 period is due to decreases in legal and tax related
professional fees.
Property operating and maintenance expenses were $119,000 for the first three
months of 2003, compared to $22,000 in the 2002 period. The 2003 three month
period includes expenses relating to a 38,000 square foot building purchased in
December 2002. The lower expense in 2002 compared to 2003 is due to the fact
that the respective 2002 period reflects property ownership expenses for the
14,500 square foot building only. Property operating and maintenance expenses
have not been reduced by tenant reimbursements.
Depreciation increased in the first quarter of 2003 to $82,000 from $16,000 in
the first quarter of 2002 as a result of depreciation for the building purchased
in December 2002.
Interest income in the three months ended March 31, 2003, decreased to $85,000
from $193,000 in the respective 2002 period. The decrease is principally due to
a lower level of investments held during the 2003 period as a result of the real
estate investment in December 2002. The decrease to a lesser extent is also
attributable to continued decrease in the yield on investments in 2003 as
compared to the 2002. Interest rates on investments in treasury bills were
slightly lower in the first three months of 2003 compared to the 2002 period.
Other income of $205,000 for the first quarter ended March 31, 2002 is
attributable to the collection of an investment previously written off.
The income tax provisions of $45,000 in the three months ended March 31, 2003
and March 31, 2002, 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.
From time to time, the Company may publish "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, or
make oral statements that constitute forward-looking statements. The
forward-looking statement may relate to such matters as anticipated financial
performance, future revenues or earnings, business prospects, projected
ventures, anticipated market performance, and similar matters. 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) changes in occupancy rates or real estate value; (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. The Company does not undertake any obligation to
update or revise any forward-looking statements whether as a result of future
events, new information or otherwise.
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 March 31, 2003 and December 31, 2002 with
maturity dates of less than one year consist of the following:
2003 2002
========================= ========================
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) -------- ------- -------- --------
U.S. Treasury Bills......................... $ 18,312 $ 18,313 $ 18,259 $ 18,260
======== ======== ======== ========
Weighted average interest rate.............. 1.14% 1.24%
======== ========
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.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, the Company has
investments in certain unconsolidated entities. As the Company does not control
or manage these entities, its controls and procedures with respect to such
entities are necessarily substantially more limited than those it maintains with
respect to its consolidated subsidiaries.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
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
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
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. Materials filed with the SEC may also be read or copied by visiting
the SEC's Public Reference Room, 450 Fifth Street, NW, 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
The information contained in Item 8 - Note 11 in AmBase's Annual Report on Form
10-K for the year ended December 31, 2002, 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.
Litigation with SDG, Inc. - Trial in this matter is currently scheduled to be
completed in May 2003. The Company will continue to monitor the status of SDG
and its subsidiary, AMDG, Inc. ("AMDG"), and vigorously pursue the matter.
AmBase Corporation v. City Investing Company Liquidating Trust, et al. - New
York Court Action. On April 3, 2003, a panel of the Second Circuit issued a
decision affirming the dismissal of the Company's complaint. The Company has
filed a petition for rehearing to the Second Circuit. No assurance can be given
regarding the ultimate disposition of any such petition, or this litigation.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on 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
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
Date: May 12, 2003
CERTIFICATION
I, Richard A. Bianco certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmBase Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Richard A. Bianco
-----------------------------------------------
Date: May 12, 2003 Richard A. Bianco
Chairman, President and Chief Executive Officer
CERTIFICATION
I, John P. Ferrara certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmBase Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ John P. Ferrara
---------------------------------------------------
John P. Ferrara
Vice President, Chief Financial Officer, and Controller