UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934


For the quarterly period ended September 30, 2017

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
 
(State of incorporation)
 
95-2962743
 
(I.R.S. Employer Identification No.)
     
ONE SOUTH OCEAN BOULEVARD, SUITE 301
BOCA RATON, FLORIDA 33432

(Address of principal executive offices) (Zip Code)

(203) 532-2000

(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES
X
 
NO
 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).__ X ___ Yes_____ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

(Check one):
Large Accelerated Filer
   
Accelerated Filer
   
Non-Accelerated Filer
   
Smaller Reporting Company
X
                       
 
Emerging Growth Company
                   
                       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

YES
   
NO
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES
   
NO
X

At October 31, 2017, there were 40,737,751 shares outstanding of the registrant's common stock, $0.01 par value per share.

AmBase Corporation

Quarterly Report on Form 10-Q
September 30, 2017

TABLE OF CONTENTS

PART I
 
FINANCIAL INFORMATION
Page
 
         
Item 1.
 
Condensed Consolidated Financial Statements (unaudited)
1
 
         
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
22
 
         
Item 4.
 
Controls and Procedures
26
 
         
PART II
 
OTHER INFORMATION
   
         
Item 1.
 
Legal Proceedings
27
 
         
Item 1A.
 
Risk Factors
27
 
         
Item 2.
 
Unregistered Sales of Equity and Securities and Use of Proceeds
27
 
         
Item 3.
 
Defaults Upon Senior Securities
27
 
         
Item 4.
 
Mine Safety Disclosures
27
 
         
Item 5.
 
Other Information
27
 
         
Item 6.
 
Exhibits
28
 
         
Signatures
   
29
 

PART I - FINANCIAL INFORMATION
Ite m 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)


(in thousands, except per share data)
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Operating expenses:
                       
Compensation and benefits
 
$
304
   
$
382
   
$
906
   
$
1,212
 
Professional and outside services
   
703
     
482
     
2,231
     
784
 
Property operating and maintenance
   
34
     
31
     
105
     
93
 
Depreciation
   
12
     
12
     
36
     
36
 
Insurance
   
32
     
45
     
117
     
126
 
Other operating
   
39
     
59
     
122
     
153
 
Total operating expenses
   
1,124
     
1,011
     
3,517
     
2,404
 
Operating income (loss)
   
(1,124
)
   
(1,011
)
   
(3,517
)
   
(2,404
)
                                 
Interest income
   
-
     
-
     
-
     
-
 
Interest expense
   
(20
)
   
-
     
(38
)
   
-
 
Other income
   
-
     
128
     
-
     
128
 
Impairment of equity investment in 111 West 57 th Partners LLC
   
(63,745
)
   
-
     
(63,745
)
   
-
 
Equity income (loss) – 111 West 57th Partners LLC
   
-
     
(49
)
   
(25
)
   
(549
)
Income (loss) before income taxes
   
(64,889
)
   
(932
)
   
(67,325
)
   
(2,825
)
                                 
Income tax expense (benefit)
   
-
     
(220
)
   
6
     
(150
)
Net income (loss)
 
$
(64,889
)
 
$
(712
)
 
$
(67,331
)
 
$
(2,675
)
                                 
Net income (loss) per common share - basic
 
$
(1.59
)
 
$
(0.02
)
 
$
(1.65
)
 
$
(0.07
)
Net income (loss) per common share - assuming dilution
 
$
(1.59
)
 
$
(0.02
)
 
$
(1.65
)
 
$
(0.07
)
                                 
Weighted average common shares outstanding - basic
   
40,738
     
40,738
     
40,738
     
40,738
 
Weighted average common shares outstanding - assuming dilution
   
40,738
     
40,738
     
40,738
     
40,738
 
                                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except per share data)

Assets:
 
September 30, 2017
   
December 31, 2016
 
Cash and cash equivalents
 
$
54
   
$
586
 
Real estate owned:
               
  Land
   
554
     
554
 
  Buildings
   
1,900
     
1,900
 
Real estate owned, gross
   
2,454
     
2,454
 
  Less:  accumulated depreciation
   
810
     
774
 
                 
Real estate owned, net
   
1,644
     
1,680
 
                 
Investment in 111 West 57 th Partners LLC
   
-
     
63,770
 
Other assets
   
89
     
166
 
Total assets
 
$
1,787
   
$
66,202
 
                 
Liabilities and Stockholders' Equity:
               
Liabilities:
               
Accounts payable and accrued liabilities
 
$
1,109
   
$
343
 
Loan payable - related party
   
1,650
     
-
 
Other liabilities
   
-
     
-
 
                 
Total liabilities
   
2,759
     
343
 
                 
Litigation funding agreement (Note 10)
   
500
     
-
 
Commitments and contingencies (Note 9)
               
                 
Stockholders' Equity:
               
Common stock ($0.01 par value, 85,000 authorized in 2017, and  85,000 authorized in 2016, 46,410 issued and 40,738 outstanding in 2017 and 46,410 issued and 40,738 outstanding in 2016)
   
464
     
464
 
Additional paid-in capital
   
548,304
     
548,304
 
Accumulated deficit
   
(545,072
)
   
(477,741
)
Treasury stock, at cost – 2017 - 5,672 shares and 2016 – 5,672 shares
   
(5,168
)
   
(5,168
)
Total stockholders' equity  (deficit)
   
(1,472
)
   
65,859
 
                 
Total liabilities and stockholders' equity (deficit)
 
$
1,787
   
$
66,202
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)


   
Nine months ended September 30,
 
(in thousands)
 
2017
   
2016
 
             
Cash flows from operating activities:
           
Net income (loss)
 
$
(67,331
)
 
$
(2,675
)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities
               
Depreciation
   
36
     
36
 
Other income
   
-
     
(128
)
Impairment of equity investment in 111 West 57 th Partners LLC
   
63,745
     
-
 
Equity (income) loss - 111 West 57th Partners LLC
   
25
     
549
 
Changes in operating assets and liabilities:
               
Other assets
   
77
     
(306
)
Accounts payable and accrued liabilities
   
766
     
60
 
Other liabilities
   
-
     
-
 
Net cash provided (used) by operating activities
   
(2,682
)
   
(2,464
)
                 
Cash flows from financing activities:
               
Proceeds from loan payable
   
1,650
     
-
 
Proceeds from litigation funding agreement
   
500
     
-
 
Proceeds from (investment in) real estate limited partnership
   
-
     
263
 
Net cash provided (used) by financing activities
   
2,150
     
263
 
                 
                 
Net change in cash and cash equivalents
   
(532
)
   
(2,201
)
Cash and cash equivalents at beginning of period
   
586
     
3,303
 
Cash and cash equivalents at end of period
 
$
54
   
$
1,102
 
Supplemental cash flow disclosure:
               
Income taxes paid
 
$
16
   
$
103
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – The Company and Basis of Presentation and Going Concern

The accompanying condensed consolidated financial statements of AmBase Corporation and subsidiaries ("AmBase" or the "Company") are unaudited and subject to year-end adjustments. All material intercompany transactions and balances have been eliminated. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments unless otherwise disclosed, necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows. Results for interim periods are not necessarily indicative of results for the full year. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that it deems reasonable, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from such estimates and assumptions. The unaudited interim condensed consolidated financial statements presented herein are condensed and should be read in conjunction with the Company's consolidated financial statements filed in its Annual Report on Form 10-K for the year ended December 31, 2016.

The Company's assets currently consist primarily of cash and cash equivalents and real estate owned.  The Company is otherwise engaged in the management of its assets and liabilities.

In June 2013, the Company purchased an equity interest in a real estate development property through a joint venture agreement to purchase and develop real property located at 105 through 111 West 57 th  Street in New York (the "111 West 57 th Property").  The Company is engaged in material disputes and litigation with the sponsor of the joint venture and a mezzanine lender to the joint venture. In August 2017, the junior mezzanine lender ("Spruce") issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness in which Spruce claims to have retained the collateral securing the junior mezzanine loan (the "Strict Foreclosure")

Despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsors and Spruce in connection with the Company's investment in the 111 West 57 th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57 th Property in the third quarter ended September 30, 2017. The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value. The Company has an appeal pending on its challenge to the Strict Foreclosure which has not yet been resolved. The Company is and will continue to vigorously pursue the recovery of its asset value from all sources of recovery. For additional information see Note 4 and Note 9 .

A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its accompanying condensed consolidated financial statements assuming the Company will continue as a going concern.

The Company has incurred operating losses and used cash for operating activities for the past several years.  The Company has made significant investments in the 111 West 57th Street Property since 2013.  As further discussed below and in Note 4 and Note 9 herein, in the third quarter ended September 30, 2017, the Company recorded an impairment of its equity investment in the 111 West 57 th Property. The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value. The Company has an appeal pending on its challenge to the strict foreclosure which has not yet been resolved. The Company has continued to keep operating expenses at a reduced level; however, there can be no assurance that the Company's current level of operating expenses will not increase or that other uses of cash will not be necessary.  The Company believes that based on its current level of operating expenses, its currently available cash and financial resources, together with the borrowings and line of credit from Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") as further discussed in Note 11 herein, may not be sufficient to cover operating cash needs through the twelve-month period from the financial statement reporting date. Based on the above factors, management determined there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include adjustments to the carrying value of assets and liabilities which might be necessary should the Company not continue in operation.

Over the next several months, the Company will seek to manage its current level of cash and cash equivalents, through various ways, including but not limited to, reducing operating expenses, possible asset sales and/or long-term borrowings, although this cannot be assured. In order to continue on a long-term basis, the Company must raise additional capital through the sale of assets or long-term borrowings.  There can be no assurance that the Company will be able to attain such financing at terms acceptable to the Company, if at all.

In September 2017, the Company and Mr. R. A. Bianco entered into an agreement pursuant to which Mr. R. A. Bianco will fund the Company's litigation expenses in connection with the 111 West 57 th Property (the "Litigation Funding Agreement").  For additional information including the terms of the Litigation Funding Agreement, see Note 10 herein.

With respect to its disputes and litigation relating to its interest in the 111 West 57th Property, the Company is continuing to pursue various legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's interest in and/or rights with respect to the 111 West 57th Property. The Company is continuing to pursue other options to realize the Company's investment value and/or protect its legal rights.

The Company can give no assurances regarding the outcome of the matters described herein, including as to the effect of Spruce's actions described herein, whether the Sponsors will perform their contractual commitments to the Company under the JV Agreement, as to what further action, if any, the lenders may take with respect to the project, as to the ultimate resolution of the ongoing litigation proceedings relating to the Company's investment interest in the 111 West 57 th Property, as to the ultimate effect of the Sponsors', the Company's or the lenders' actions on the project, as to the completion or ultimate success of the project, or the value or ultimate realization of any portion of the Company's equity investment in the 111 West 57 th Street Property.  For additional information on the Company's investment in the 111 West 57 th Property and the Company's legal actions related thereto, see Note 4 and Note 9.

While the Company's management is evaluating future courses of action to recover the value of the Company's equity investment in the 111 West 57 th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful in recovering value for the Company. Any such efforts are likely to require sustained effort over a period of time, and require substantial additional financial resources. Inability to recover all or most of such value would in all likelihood have a material adverse effect on the Company's financial condition and future prospects.

Note 2 – Summary of Significant Accounting Policies

New accounting pronouncements

There are no new accounting pronouncements that would likely materially affect the Company's condensed consolidated financial statements.

Note 3 – Real Estate Owned

Real estate owned consists of a commercial office building in Greenwich, Connecticut that is managed and operated by the Company.  A portion of the building is utilized by the Company for office space; the remaining space is currently unoccupied and available for lease. Depreciation expense for the building is calculated on a straight-line basis.

Information relating to the Company's real estate owned in Greenwich, Connecticut is as follows:

   
September 30, 2017
 
Area of building in square feet
   
14,500
 
Square feet utilized by Company
   
3,500
 
Number of years depreciation is based upon
   
39
 


Although the portion of the building not being utilized by the Company is currently unoccupied and available for lease, based on the Company's analysis, the Company believes the property's fair value exceeds the property's current carrying value.  The Company's impairment analysis includes a comprehensive range of factors including but not limited to:  the location of the property; property condition; current market conditions; comparable sales; current market rents in the area; new building zoning restrictions; raw land values; new building construction costs; building operating costs; leasing values; and cap rates for comparable buildings in the area.  Varying degrees of weight are given to each factor.  Based on the Company's analysis these factors, taken together and/or considered individually, form the basis for the Company's analysis that no impairment condition exists.

The Company performs impairment tests on a regular basis and if events or circumstances indicate that the property's carrying value may not be recoverable.  Based on the Company's analysis, the Company believes the carrying value of the real estate owned as of September 30, 2017, has not been impaired; and therefore, the carrying value of the asset is fully recoverable by the Company.  The building is carried at cost, net of accumulated depreciation.


Note 4 – Investment in 111 West 57 th Partners LLC

In June 2013, the Company purchased an equity interest in a real estate development property through a joint venture agreement to purchase and develop real property located at 105 through 111 West 57 th  Street in New York (the "111 West 57 th Property").  The Company is engaged in material disputes and litigation with the sponsor of the joint venture and a mezzanine lender to the joint venture. In August 2017, the junior mezzanine lender ("Spruce") issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness, in which Spruce claims to have retained the collateral securing the junior mezzanine loan (the "Strict Foreclosure").

Despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsors and Spruce in connection with the Company's investment in the 111 West 57 th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57 th Property of $63,745,000 in the third quarter ended September 30, 2017. The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value.

The Company has an appeal pending on its challenge to the Strict Foreclosure which has not yet been resolved. The Company is and will continue to vigorously pursue the recovery of its asset value from all sources of recovery. See Note 9 for further information.

See below for additional information with regard to background information regarding the Company's 111 West 57 th Property equity investment in the 111 West 57 th Property and events leading up to the Strict Foreclosure, as follows:

In June 2013, 111 West 57 th Investment LLC, ("Investment LLC"), a then newly formed subsidiary of the Company, entered into a joint venture agreement (as amended, the "JV Agreement") with 111 West 57 th Sponsor LLC, (the "Sponsors"), pursuant to which Investment LLC invested (the "Investment") in a real estate development property to purchase and develop the 111 West 57 th Street Property (the "111 West 57 th Property").  In consideration for making the Investment, Investment LLC was granted a membership interest in 111 West 57 th Partners LLC ("111 West 57 th Partners"), which indirectly acquired the 111 West 57 th Property on June 28, 2013 (the "Joint Venture," and such date, the "Closing Date").  The Company also indirectly contributed an additional amount to the Joint Venture in exchange for an additional indirect interest in the Joint Venture.  Other members and the Sponsor contributed additional cash and/or property to the Joint Venture.  The Joint Venture plans to redevelop the 111 West 57 th Property into a luxury residential tower and retail project.

Amounts relating to the Company's initial June 2013 investment and other information relating to the 111 West 57 th Property are as follows:

 
($ in thousands)
     
Company's aggregate initial investment
 
$
57,250
 
Company's aggregate initial membership interest %
   
60.3
%
Other members and Sponsor initial investment
 
$
37,750
 
Approximate gross square feet of project
   
346,000
 


The JV Agreement and related operating agreements generally provide that all distributable cash shall be distributed as follows: (i) first, 100% to the members in proportion to their percentage interests until Investment LLC has received distributions yielding a 20% internal rate of return as calculated; (ii) second, 100% to the Sponsor as a return of (but not a return on) any additional capital contributions made by the Sponsor on account of manager overruns; and (iii) thereafter, (a) 50% to the members in proportion to their respective percentage interests at the time of such distribution, and (b) 50% to the Sponsor.

Additionally, the JV Agreement provides that (i) Mr. Richard A. Bianco (the Company's current Chairman, President and Chief Executive Officer) ("Mr. R. A. Bianco"), his immediate family, and/or any limited liability company wholly-owned thereby, and/or a trust in which Mr. R. A. Bianco and/or his immediate family is the beneficiary, shall at all times own, in the aggregate, not less than 20% of the outstanding shares of AmBase; and (ii) Mr. R. A. Bianco shall remain the Chairman of the Board of Directors of AmBase for the duration of the JV Agreement.

In March 2014, the Company entered into an amended and restated operating agreement for Investment LLC (the "Amended and Restated Investment Operating Agreement") to grant a 10% subordinated participation interest in Investment LLC to Mr. R. A. Bianco as contingent future incentive for Mr. R. A. Bianco's past, current and anticipated ongoing role to develop and commercialize the Company's equity investment in the 111 West 57 th Property.  Pursuant to the terms of the Amended and Restated Investment Operating Agreement, Mr. R.A. Bianco has no voting rights with respect to his interest in Investment LLC, and his entitlement to receive 10% of the distributions from Investment LLC is subject to the Company first receiving distributions equal to 150% of the Company's initial aggregate investment in Investment LLC and the Joint Venture, plus any additional investments by the Company , and only with respect to any distributions thereafter. At the current time the Company has not expensed nor accrued any amounts relating to this subordinated participation interest, as no amount or range of amounts can be reasonably estimated or assured.

During 2014, in connection with the funding of additional capital calls under the JV Agreement for required borrowing and development costs for the 111 West 57 th Property, the Company's management and its Board of Directors concluded that, given the continuing development risks of the 111 West 57 th Property and the Company's financial position, the Company should not at that time increase its already significant concentration and risk exposure to the 111 West 57th Property.  Nonetheless, the Company sought to limit dilution of its interest in the Joint Venture resulting from any failure to fund the capital call requirements, but at the same time wished to avoid the time, expense and financial return requirements (with attendant dilution and possible loss of voting rights) that obtaining a replacement third-party investor would require. The Company therefore entered into a second amended and restated operating agreement for Investment LLC ("Second Amended and Restated Investment Operating Agreement") pursuant to which Capital LLC was admitted as a member of Investment LLC. In exchange for Capital LLC contributing toward Investment LLC capital calls in respect of the 111 West 57 th Property, available cash of Investment LLC will be distributed first to Capital LLC until it has received a 20% internal rate of return (calculated as provided for in the JV Agreement as noted above), second to the Company until it has received 150% of its capital, and; thereafter, available cash is split 10/90 with 10% going to Mr. R.A. Bianco as the subordinated participation interest noted above and 90% going to Capital LLC and the Company pari-passu, with Capital LLC receiving one-half of its pro-rata share based on capital contributed and the Company receiving the balance. No other material changes were made to the Amended and Restated Investment Operating Agreement, and neither Mr. R. A. Bianco nor Capital LLC has any voting rights with respect to their interest and investment in Investment LLC.

In accordance with the JV Agreement, Shortfall Capital Contributions may be treated either as a member loan or as a dilutive capital contribution by the funding party valued at one and one-half times the amount actually contributed.  The Sponsors deemed the Shortfall Capital Contributions as dilutive capital contributions to the Company.  The Company disagrees with the Sponsors' investment percentage calculations. The Sponsors have taken the position that the Capital Contribution Requests, if taken together, would have caused the Company's combined ownership percentage to be diluted to approximately 48%. The parties have a dispute with regard to the calculation of the revised investment percentages resulting from the Capital Contribution Requests, along with the treatment and allocation of these Shortfall Capital Contribution amounts.

On June 30, 2015, 111 West 57 th Partners obtained financing for the 111 West 57 th Property.  The financing was obtained in two parts: (i) a first mortgage construction loan with AIG Asset Management (US), LLC (along with its affiliates "AIG"); and (ii) a mezzanine loan with Apollo Commercial Real Estate Finance, Inc. (along with its affiliates "Apollo"), as detailed herein below.  Both loans have a four-year term with a one-year extension option subject to satisfying certain conditions.  The loan agreements (the "Loan Agreements") also include customary events of default and other customary terms and conditions.  Simultaneously with the closing of the AIG and the Apollo financing, 111 West 57 th Partners repaid all outstanding liabilities and obligations to Annaly CRE, LLC under the initial mortgage and acquisition loan agreement, dated June 28, 2013, between joint venture entities and Annaly CRE, LLC.  The remaining loan proceeds were to be drawn down and used as necessary for construction and related costs, loan interest escrow and other related project expenses for development of the 111 West 57 th Property.

Information relating to the June 30, 2015 financing for 111 West 57 th Partners is as follows:

(in thousands)
     
Financing obtained by 111 West 57 th Partners - AIG
 
$
400,000
 
Financing obtained by 111 West 57 th Partners - Apollo
 
$
325,000
 
Annaly CRE LLC initial mortgage and acquisition loan repaid
 
$
230,000
 

In April 2016, AmBase initiated a litigation in the New York State Supreme Court for New York County (the "NY Court"), Index No .  652301/2016, (" AmBase v. 111 West 57 th Sponsor LLC, et al.") (the "111 West 57 th Action").  The defendants in that litigation are 111 West 57th Sponsor LLC, 111 West 57th JDS LLC, PMG West 57th Street LLC, 111 West 57th Control LLC, 111 West 57th Developer LLC, Elliot Joseph, 111 West 57 th KM Equity LLC, 111 West 57 th KM Group LLC, Kevin Maloney, Matthew Phillips, Michael Stern, Ned White and Franklin R. Kaiman (collectively, "Defendants") and nominal defendant 111 West 57th Partners LLC .  AmBase alleges in that action, among other claims, that the Defendants engaged in an unlawful scheme to dilute AmBase's equity interest in the joint real estate venture 111 West 57 th  Partners, and to keep for themselves certain financing opportunities in breach of Defendants' contractual and fiduciary duties. The complaint also alleges that defendants have failed to honor the exercise of AmBase's contractual "equity put right" as set forth in the JV Agreement (the "Equity Put Right"). AmBase is seeking compensatory damages, as well as punitive damages, indemnification and equitable relief including a declaration of the parties' rights, an accounting and a constructive trust over distributions received by the Defendants.  The complaint in this action has been filed, a motion to dismiss is pending and discovery is ongoing.   The Company has also demanded from the Sponsors access to the books and records for the 111 West 57 th Property which the Sponsors have refused, claiming they have provided all books and records as required. For additional information, see Note 9.

The Sponsors proposed for approval a "proposed budget" (the "Proposed Budget"), which the Sponsors claim represented an increase to the aggregate of hard cost line items of an amount slightly below the Equity Put Right threshold amount and a further increase in other costs thus resulting in the need for additional funding in order to complete the project. The Company disputes, among other items, the calculation of the percentage increase of hard costs shown in the Proposed Budget. The Company believes the aggregate projected hard costs in the Proposed Budget exceed a contractually stipulated limit as a percentage of the hard costs set forth in the prior approved budget, thus allowing Investment LLC the option to exercise its Equity Put Right. Consequently, subsequent to the Sponsors' presentation of the Proposed Budget, Investment LLC notified the Sponsors that it was exercising its Equity Put Right pursuant to the JV Agreement. The Sponsors have refused to honor the exercise of Investment LLC's Equity Put Right. The Sponsors claim, among other things, that the conditions precedent were not met in that the increase in aggregate hard costs in the Proposed Budget does not exceed the contractually stipulated limit that would allow exercise of the Equity Put Right.

The Company further contends that a portion of the Proposed Budget increases should be manager overruns (as defined in the JV Agreement) and thus should be paid for by the Sponsors. The Sponsors deny that the Proposed Budget increases were manager overruns. The Company continues to challenge the nature and substance of the Proposed Budget increases and how they should be treated pursuant to the JV Agreement.

In March 2017, the Company and Mr. R. A. Bianco entered into an agreement for Mr. R. A. Bianco to provide to the Company a financial commitment in the form of a line of credit up to ten million dollars ($10,000,000) or additional amount(s) as may be necessary and agreed to enable AmBase to contribute capital to Investment LLC and/or other affiliated subsidiaries of the Company to meet capital calls for the of 111 West 57 th Property if and when the case may be necessary on terms agreeable to/by the Company (as determined by the independent members of the Board of Directors) and Mr. R. A. Bianco at such time.  The agreement provides that additional borrowings from Mr. R. A. Bianco pursuant to this line of credit shall be secured by the Company's commercial office building in Greenwich, Connecticut.

As a result of the projected Proposed Budget increase, the Sponsors claimed that additional borrowings of $60 million to $100 million were needed to complete the project. In addition, the Company had been informed by the Sponsors, that Apollo had indicated that due to budget increases, it believed the current loan had been "out of balance" (meaning, according to Apollo, the projected budget exceeds the original budget approved in connection with the loan); and thus 111 West 57th Partners LLC ("111 West 57th Partners"), or its subsidiaries would need additional funding in order to bring the loan back into balance. The Company considered approving the additional financing, but informed the Sponsors that it  had concerns about the Proposed Budget and the implications of the Proposed Budget, as well as other questions which needed to  be addressed first. Apollo had previously provided loan forbearances to the borrowers and guarantors in order to allow the Sponsors time (while the building continued to be built) to raise the additional financing that it claimed would be needed in order to complete the 111 West 57th project. This forbearance period ended on June 29, 2017. Around this date, the Company was advised that Apollo sold $25 million of the mezzanine loan—broken off as a junior mezzanine loan—to an affiliate of Spruce Capital Partners LLC, ("Spruce") (the "Junior Mezzanine Loan").

On June 30, 2017, Spruce declared an event of default under the Junior Mezzanine Loan and demanded immediate payment of the full outstanding balance of the Junior Mezzanine Loan.  Spruce gave notice to the junior mezzanine borrower that it proposed to accept the pledged collateral (including the joint venture members' collective interest in the property) in full satisfaction of the joint venture's indebtedness under the Junior Mezzanine Loan (i.e., a "Strict Foreclosure").

On July 25, 2017, the Company filed a complaint against Spruce and the Sponsors and requested injunctive relief halting the Strict Foreclosure from the New York State Supreme Court for New York County, (the "NY Court") Index No. 655031/2017 , (the "111 West 57 th Spruce Action") . The defendants in the 111 West 57 th Spruce action are 111 W57 Mezz Investor, LLC, Spruce Capital Partners LLC, 111 West 57th Sponsor LLC, Michael Z. Stern, and Kevin P. Maloney (collectively, "Defendants") and nominal defendants 111 West 57th Partners LLC and 111 West 57 th Mezz 1 LLC.

Pursuant to the Strict Foreclosure process, Spruce claims to have completed the retention of the collateral pledged by the junior mezzanine borrower, and therefore, the Company's interest in the 111 West 57th Street Property.  That investment represents substantially all of the Company's assets and net equity value.  The Company's motion for a stay or injunctive relief pending appeal has not yet been resolved. 111 W57 Mezz Investor, LLC and Spruce Capital Partners LLC filed an opposition to that motion and the Company filed its reply brief. For additional information see Note 9 .

As noted above, despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsors and Spruce in connection with the Company's investment in the 111 West 57 th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57 th Property in the third quarter ended September 30, 2017. The Company is and will continue to vigorously pursue the recovery of its asset value from all sources of recovery. For additional information with regard to the Company's legal proceedings related to the 111 West 57 th Property, see Note 9 .

For information relating to the Litigation Funding Agreement entered into between the Company and Mr. Richard A. Bianco, the Company's President and Chief Executive Officer, see Note 10.

With respect to its disputes and litigation relating to its interest in the 111 West 57th Property, the Company is continuing to pursue various legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's interest in and/or rights with respect to the 111 West 57th Property. The Company is continuing to pursue other options to realize the Company's investment value and/or protect its legal rights.

The Company can give no assurances regarding the outcome of the matters described herein, including as to the effect of Spruce's actions described herein, whether the Sponsors will perform their contractual commitments to the Company under the JV Agreement, as to what further action, if any, the lenders may take with respect to the project, as to the ultimate resolution of the ongoing litigation proceedings relating to the Company's investment interest in the 111 West 57 th Property, as to the ultimate effect of the Sponsors', the Company's or the lenders' actions on the project, or as to the completion or ultimate success of the project, or the value or ultimate realization of any portion of the Company's equity investment in the 111 West 57 th Street Property.

While the Company's management is evaluating future courses of action to recover the value of the Company's equity investment in the 111 West 57 th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful in recovering value for the Company. Any such efforts are likely to require sustained effort over a period of time, and require substantial additional financial resources. Inability to recover all or most of such value would in all likelihood have a material adverse effect on the Company's financial condition and future prospects.

The Company recorded its investment in 111 West 57 th Partners utilizing the equity method of accounting. Despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsors and Spruce in connection with the Company's investment in the 111 West 57 th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57 th Property in the third quarter ended September 30, 2017. As a result, the operations of 111 West 57 th only through June 30, 2017 are included in the Company's condensed consolidated operations for the year to date period ended September 30, 2017.
 
As a result of the matters described herein, the following tables present summarized financial information for 111 West 57 th Partners solely for the periods indicated.  The amounts shown represent 100% of the financial position and results of operations of 111 West 57 th Partners for the dates indicated below.

(in thousands)
Assets:
 
December 31, 2016
 
Real estate held for development, net
 
$
563,133
 
Escrow deposits
   
9,000
 
Other assets
   
6,908
 
Total assets
 
$
579,041
 
Liabilities:
       
Loans payable
 
$
441,749
 
Other liabilities
   
16,788
 
Total liabilities
   
458,537
 
Equity:
       
Total members' equity
   
120,504
 
Total liabilities and members' equity
 
$
579,041
 

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
September 30, 2016
   
September 30, 2016
 
             
Rental income
 
$
-
   
$
-
 
Expenses
   
81
     
910
 
Net income (loss)
 
$
(81
)
 
$
(910
)

Note 5 – Savings Plan

The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"), which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code").  The Savings Plan permits eligible employees to make contributions of up to a percentage of their compensation, which are matched by the Company at a percentage of the employees' elected deferral.  Employee contributions to the Savings Plan are invested at the employee's discretion, in various investment funds.  The Company's matching contributions are invested in the same manner as the compensation reduction contributions.  All contributions are subject to maximum limitations contained in the Code.

The Company's matching contributions to the Savings Plan, charged to expense, were as follows:

($ in thousands )
 
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2017
   
September 30, 2016
   
September 30, 2017
   
September 30, 2016
 
Company matching contributions
 
$
3
   
$
-
   
$
15
   
$
25
 
Employer match %
   
33
%
   
33
%
   
33
%
   
33
%

Note 6 – Common Stock Repurchase Plan

The Company's common stock repurchase plan (the "Repurchase Plan") allows for the repurchase by the Company of its common stock in the open market. The Repurchase Plan is conditioned upon favorable business conditions and acceptable prices for the common stock.  Purchases under the Repurchase Plan may be made, from time to time, in the open market, through block trades or otherwise.  Depending on market conditions and other factors, purchases may be commenced or suspended any time or from time to time without prior notice.  Pursuant to the Repurchase Plan the Company repurchased shares of common stock from unaffiliated parties at various dates at market prices at their time of purchase, including broker commissions.

Information relating to the Repurchase Plan is as follows:

(in thousands )
 
Nine months ended
September 30, 2017
 
Common shares repurchased to treasury during period
   
-
 
Aggregate cost of shares repurchased during period
 
$
-
 

 (in thousands)
 
September 30, 2017
 
Total number of common shares authorized for repurchase
   
10,000
 
Total number of common shares repurchased to date
   
6,226
 
Total number of shares that may yet be repurchased
   
3,774
 

Note 7 – Incentive Plans

Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), the Company may grant to officers and employees of the Company and its subsidiaries, stock options ("Options"), stock appreciation rights ("SARs"), restricted stock awards ("Restricted Stock"), merit awards ("Merit Awards") and performance share awards ("Performance Shares") through May 28, 2018.  A pre-determined number of shares of the Company's Common Stock are reserved for issuance under the 1993 Plan (upon the exercise of Options and Stock Appreciation Rights, and awards of Restricted Stock and Performance Shares); however, only a portion of such shares are available for the issuance of Restricted Stock Awards and Merit Awards. Such shares shall be authorized but unissued shares of Common Stock. Options may be granted as incentive stock options ("ISOs") intended to qualify for favorable tax treatment under Federal tax law or as nonqualified stock options ("NQSOs"). SARs may be granted with respect to any Options granted under the 1993 Plan and may be exercised only when the underlying Option is exercisable. The 1993 Plan requires that the exercise price of all Options and SARs be equal to or greater than the fair value of the Company's Common Stock on the date of grant of that Option. The term of any NQSO, ISO or related SAR cannot exceed terms under federal tax law and/or as prescribed in the 1993 Plan. Subject to the terms of the 1993 Plan and any additional restrictions imposed at the time of grant, Options and any related SARs ordinarily will become exercisable pursuant to a vesting period prescribed at the time of grant.  In the case of a "Change of Control" of the Company (as defined in the 1993 Plan), Options granted pursuant to the 1993 Plan may become fully exercisable as to all optioned shares from and after the date of such Change in Control in the discretion of the Committee or as may otherwise be provided in the grantee's Option agreement. Death, retirement, or absence for disability will not result in the cancellation of any Options.

The fair values of option awards are estimated on the date of grant using the Black-Scholes-Merton option valuation model ("Black-Scholes") that uses certain assumptions at the time of valuation. Expected volatilities are based on historical volatility of the Company's stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is estimated based on the contractual lives of option grants, option vesting period and historical data and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury bond yield in effect at the time of grant.

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions utilized represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if other assumptions had been used, our recorded stock-based compensation expense could have been materially different from the amounts previously recorded. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be materially different.  The Company believes that the use of the Black-Scholes model meets the fair value measurement objectives of accounting principles generally accepted in the United States of America and reflects all substantive characteristics of the instruments being valued.

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.

Information relating to the Company's 1993 Plan is as follows:

   
Period Ending
 
(in thousands )
 
September 30, 2017
   
December 31, 2016
 
Stock option grants
   
-
     
-
 
Stock options exercisable
   
-
     
-
 
Stock options outstanding
   
-
     
-
 

Common stock reserved for issuance under the Company's 1993 Stock Incentive Plan and other non-related employee benefit plans is as follows:

(in thousands)
 
September 30, 2017
 
1993 Stock Incentive Plan
   
4,320
 
Other employee benefit plan
   
110
 
Total common shares reserved for issuance
   
4,430
 

Note 8 – Income Taxes

The Company and its 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 condensed consolidated 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, a greater than 50% probability exists that the tax benefits will actually be realized sometime in the future.

The components of income tax expense (benefit) are as follows:

(in thousands)
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Federal – current
 
$
-
   
$
-
   
$
-
   
$
-
 
State – current
   
-
     
(220
)
   
6
     
(150
)
Total current
   
-
     
(220
)
   
6
     
(150
)
                                 
Federal – deferred
   
-
     
-
     
-
     
-
 
State - deferred
   
-
     
-
     
-
     
-
 
Total deferred
   
-
     
-
     
-
     
-
 
                                 
Income tax expense (benefit)
 
$
-
   
$
(220
)
 
$
6
   
$
(150
)

A reconciliation of the United States federal statutory rate to the Company's effective income tax rate is as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Tax at statutory federal rate
   
35.0
%
   
35.0
%
   
35.0
%
   
35.0
%
State income taxes
   
-
     
(23.6
)
   
-
     
(5.3
)
Permanent differences
   
-
     
-
     
-
     
-
 
Other
   
-
     
-
     
-
     
-
 
Change in valuation allowance
   
(35.0
)
   
(35.0
)
   
(35.0
)
   
(35.0
)
Effective income tax rate
   
-
%    
(23.6
)%
   
-
%    
(5.3
)%

The Company has not been notified of any potential tax audits by any federal, state or local tax authorities.  As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2013.  Interest and/or penalties related to underpayments of income taxes, or on uncertain tax positions, if applicable, would be included as a component of income tax expense (benefit).  The accompanying financial statements do not include any amounts for penalties.

State income tax amounts for the three months and nine months ended September 30, 2017, and the three and nine months ended September 30, 2016, reflect a provision for a tax on capital imposed by the state jurisdictions.

The utilization of certain carryforwards and carrybacks is subject to limitations under U.S. federal income tax laws. Based on the Company's federal tax returns as filed, the Company estimates it has federal NOL carryforwards and federal alternative minimum tax credit carryforwards ("AMT Credits"), available to reduce future federal taxable income which would expire if unused, as indicated below.

The federal NOL carryforwards as of December 31, 2016, are as follows:

Tax Year Originating
 
Tax Year Expiring
 
Amount
 
           
           
2006
 
2026
 
$
500,000
 
2007
 
2027
   
12,700,000
 
2008
 
2028
   
4,600,000
 
2009
 
2029
   
2,400,000
 
2010
 
2030
   
1,900,000
 
2011
 
2031
   
1,900,000
 
2013
 
2033
   
3,700,000
 
2014
 
2034
   
4,900,000
 
2015
 
2035
   
4,200,000
 
2016
 
2036
   
3,400,000
 
        
$
40,200,000
 

AMT Credits available which are not subject to expiration are as follows:

   
Amount
 
AMT Credits
 
$
21,000,000
 

Based on the Company's state tax returns as filed, the Company estimates that it has state NOL carryforwards available to reduce future state taxable income, which would expire if unused, as indicated below.

The state NOL carryforwards as of December 31, 2016,are as follows:

Tax Year Originating
 
Tax Year Expiring
 
Amount
 
           
2011
 
2031
 
$
1,800,000
 
2013
 
2033
   
2,700,000
 
2014
 
2034
   
4,200,000
 
2015
 
2035
   
4,100,000
 
2016
 
2036
   
3,200,000
 
        
$
16,000,000
 

The Company has calculated a deferred tax asset arising primarily from NOL carryforwards and AMT credits as follows:

   
September 30, 2017
   
December 31, 2016
 
Deferred tax asset
 
$
63,300,000
   
$
36,400,000
 
Valuation allowance
   
(63,300,000
)
   
(36,400,000
)
Net deferred tax asset recognized
 
$
-
   
$
-
 

A valuation allowance has been established for the entire deferred tax asset, as management has no basis to conclude that realization is more likely than not.

Note 9 - Legal Proceedings

From time to time, the Company and its subsidiaries may be named as a defendant in various lawsuits or proceedings.  At the current time except as set forth below, the Company is unaware of any legal proceedings pending against the Company.  The Company intends to aggressively contest all litigation and contingencies, as well as pursue all sources for contributions to settlements.

The Company is a party to a lawsuit as follows:

AmBase Corp., et al. v. 111 West 57 th Sponsor LLC, et al.   In April 2016, AmBase initiated a litigation in the New York State Supreme Court for New York County (the "NY Court"), Index No. 652301/2016, (" AmBase v. 111 West 57 th Sponsor LLC, et al.") (the "111 West 57 th Action").  The defendants in that litigation are 111 West 57th Sponsor LLC, 111 West 57th JDS LLC, PMG West 57th Street LLC, 111 West 57th Control LLC, 111 West 57th Developer LLC, Elliot Joseph, 111 West 57 th KM Equity LLC, 111 West 57 th KM Group LLC, Kevin Maloney, Matthew Phillips, Michael Stern, Ned White and Franklin R. Kaiman (collectively, "Defendants") and nominal defendant 111 West 57th Partners LLC .  AmBase alleges in that action, among other claims, that the Defendants engaged in an unlawful scheme to dilute AmBase's equity interest in the joint real estate venture 111 West 57 th  Partners, and to keep for themselves certain financing opportunities in breach of Defendants' contractual and fiduciary duties. The complaint also alleges that defendants have failed to honor the exercise of AmBase's contractual "equity put right" as set forth in the JV Agreement (the "Equity Put Right"). AmBase is seeking compensatory damages, as well as punitive damages, indemnification and equitable relief including a declaration of the parties' rights, an accounting and a constructive trust over distributions received by the Defendants.  The complaint in this action has been filed, a motion to dismiss is pending and discovery is ongoing.   The Company has also demanded from the Sponsors access to the books and records for the 111 West 57 th Property which the Sponsors have refused, claiming they have provided all books and records as required.  For additional information with regard to the Company's investment in the 111 West 57 th Property, see Note 4 .

AmBase Corp., et al. v. Spruce Capital Partners, et al. In July 2017, the Company initiated a second litigation in the NY Court, Index No. 655031/2017 , (the "111 West 57 th Spruce Action") . The defendants in the 111 West 57 th Spruce action are 111 W57 Mezz Investor, LLC, Spruce Capital Partners LLC, 111 West 57th Sponsor LLC, Michael Z. Stern, and Kevin P. Maloney (collectively, "Defendants") and nominal defendants 111 West 57th Partners LLC and 111 West 57 th Mezz 1 LLC.

Spruce had given notice to the junior mezzanine borrower that it proposed to accept the pledged collateral (including the joint venture members' collective interest in the property) in full satisfaction of the joint venture's indebtedness under the Junior Mezzanine Loan (i.e., a "Strict Foreclosure"). After the Sponsors refused to object to Spruce's proposal on behalf of the junior mezzanine borrower, and Spruce refused to commit to honor Investment LLC's objection on its own behalf, the Company initiated this litigation to obtain injunctive relief halting the Strict Foreclosure.  For additional information on the events leading to this litigation see Note 4 .

On July 26, 2017, the NY Court issued a temporary restraining order barring Spruce from accepting the collateral, pending a preliminary injunction hearing scheduled for August 14, 2017. Spruce and the Sponsors subsequently filed papers in opposition to the request for a preliminary injunction and cross-motions to dismiss and quash subpoenas. On August 14, 2017, the NY Court postponed the hearing until August 28, 2017, keeping the temporary restraining order preventing a Strict Foreclosure in effect until the August 28, 2017, hearing. Subsequently the Company filed response briefs in support of their request for injunctive relief halting the Strict Foreclosure process and briefs in opposition to the motions to quash the subpoenas.

On August 28, 2017, the NY Court held a preliminary injunction hearing, lifted the temporary restraining order, denied Plaintiffs' request for a preliminary injunction, and granted Defendants' cross-motions. In order to prevent the Strict Foreclosure process from going forward, the Company immediately obtained an interim stay from the New York Supreme Court Appellate Division, First Judicial Department ("Appellate Division"). That stay remained in place until four (4) P.M. August 29, 2017, permitting the Company to obtain an appealable order, notice an appeal, and move for a longer-term stay or injunctive relief pending appeal. The Appellate Division held a hearing on August 29, 2017, to consider the Company's motion for an interim stay or injunctive relief pending appeal, both of which it denied, thus allowing the purported Strict Foreclosure to move forward. The Company will continue to challenge the validity of the actions that led to this purported transfer of title, including appeal.

On August 30, 2017, Spruce issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness. By accepting the pledged collateral, pursuant to a Strict Foreclosure process, Spruce claims to have completed the retention of the collateral pledged by the junior mezzanine borrower, and therefore, the Company's interest in the 111 West 57th Street Property.  That investment represented substantially all of the Company's assets and net equity value.

The Company's motion for a stay or injunctive relief pending appeal has not yet been resolved. 111 W57 Mezz Investor, LLC and Spruce Capital Partners LLC filed an opposition to that motion on September 15, 2017, and the Company filed its reply brief on September 22, 2017.

Since the Company is not party to the Loan Agreements, it does not have access to communications with the lenders, except for those individual communications the Sponsors have elected to share.  The Company has continued to demand access to such information, including access to the books and records for the 111 West 57 th Property both under the JV Agreement and as part of the 111 West 57 th Action and the 111 West 57 th Spruce Action.

For additional information with regard to the Company's recording of an impairment of its equity investment in the 111 West 57 th Property; see   Note 4.   The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value.

For information relating to the Litigation Funding Agreement entered into between the Company and Mr. Richard A. Bianco, the Company's President and Chief Executive Officer, see Note 10 .

With respect to its disputes and litigation relating to its interest in the 111 West 57th Property, the Company is continuing to pursue various legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's interest in and/or rights with respect to the 111 West 57th Property. The Company is continuing to pursue other options to realize the Company's investment value and/or protect its legal rights.

The Company can give no assurances regarding the outcome of the matters described herein, including as to the effect of Spruce's actions described herein, whether the Sponsors will perform their contractual commitments to the Company under the JV Agreement, as to what further action, if any, the lenders may take with respect to the project, as to the ultimate resolution of the ongoing litigation proceedings relating to the Company's investment interest in the 111 West 57 th Property, as to the ultimate effect of the Sponsors', the Company's or the lenders' actions on the project, or as to the completion or ultimate success of the project, or the value or ultimate realization of any portion of the Company's equity investment in the 111 West 57 th Street Property.

While the Company's management is evaluating future courses of action to recover the value of the Company's equity investment, the adverse developments make it uncertain as to whether any such courses of action will be successful in recovering value for the Company. Any such efforts are likely to require sustained effort over a period of time, and require substantial additional financial resources. Inability to recover all or most of such value would in all likelihood have a material adverse effect on the Company's financial condition and future prospects.

Note 10 – Litigation Funding Agreement

In September 2017, the Company's executive officers and its Board of Directors concluded that it was in the Company's interest to obtain a litigation funding commitment to finance litigation with respect to the ongoing disputes with the Sponsors and the lenders in the 111 West 57 th Street Property project, and to seek to recover value for the Company with respect to its equity investment in 111 West 57 th Street Property, whether by direct recovery or from asserting claims against the Sponsors, their principals and/or certain of the lenders (collectively, "Future Recovery Litigation").

As a result of developments in the legal proceedings concerning the Company's equity investment in the 111 West 57 th Property, the Company's interest to obtain a litigation funding commitment to finance litigation with respect to the ongoing disputes with the Sponsors and the lenders in the 111 West 57 th Street Property project, and the Company's efforts to seek to recover value for the Company with respect to its equity investment in the 111 West 57 th Property, the Company's Board of Directors negotiated and accepted an offer from Mr. Richard Bianco, its long-time chief executive officer, to provide a litigation fund of seven million dollars ($7,000,000) (along with additional amounts as may be necessary from time to time as agreed to by the Company and Mr. Bianco), to fund the Company's litigation expenses in connection with Future Recovery Litigation, (the "Litigation Funding Agreement").

In consideration of such financial commitment, the Litigation Funding Agreement provides that any financial recovery in such Future Recovery Litigation shall be distributed as follows:

i.
first, to reimburse Mr. Bianco on a dollar-for-dollar basis for any Company litigation expenses and/or other unpaid amounts advanced by him in connection with Future Recovery Litigation; and
 
ii.
thereafter, a percentage of the recovery to the Company and a percentage of the recovery to Mr. Bianco, respectively, (the "Recovery Sharing Ratio"); with the ratio and percentages of 30% to 45% depending on the length of time to obtain recovery.

The payment of the amounts pursuant to the Litigation Funding Agreement could become payable by the Company in the future based on the recovery by the Company of amounts relating to the 111 West 57 th Property.  The recovery, by the Company, of any amounts are not within the control of the Company and cannot be predicted at this time, and therefore, the aggregate amounts funded pursuant to the Litigation Funding Agreement are presented in a temporary equity classification below total liabilities in the Company's condensed consolidated balance sheets for the periods presented, until such time that the legal proceedings or the Litigation Funding Agreement are concluded. The Company shall not be obligated to repay such funded amounts except as described herein.

Legal expenses incurred attributable to the Litigation Funding Agreement for the quarterly and year-to-date periods ended are included in the Company's condensed consolidated statement of operations as part of professional and outside services.
 
Included in professional and outside services are legal expenses attributable to the Litigation Funding Agreement as follows:

(in thousands )
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30, 2017
   
September 30, 2016
   
September 30, 2017
   
September 30, 2016
 
Legal expenses attributable to the Litigation Funding Agreement
 
$
1,169
     
-
   
$
1,169
   
$
-
 

In October 2017, Mr. R. A. Bianco funded an additional $700,000 of legal expenses pursuant to the Litigation Funding Agreement.
 
Note 11 – Loans Payable

In May 2016, the Company and Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") entered into an agreement for Mr. R. A. Bianco to provide to the Company a secured working capital line of credit of up to one million dollars ($1,000,000) or additional amount(s) as may be necessary and agreed to on an as needed basis, if and when necessary, subject to customary and market terms and conditions to be agreed upon at such time (the "WC Agreement").

Pursuant to the WC Agreement, Mr. R. A. Bianco made loans to the Company for use as working capital.  The loans are due on the earlier of the date the Company receives funds from any source sufficient to pay all amounts due under the loans, including accrued interest thereon, or the due date noted below.  Accrued interest payable associated with the loans are included in accounts payable and accrued liabilities in the Company's condensed consolidated balance sheet.

Information regarding the loans payable is as follows:

Date of Loan
 
Rate
 
Due Date
 
September 30, 2017
   
December 31, 2016
 
Loan payable
January 2017
   
5.25
%
December 31, 2019
 
$
500,000
   
$
-
 
Loan payable
April 2017
   
5.25
%
December 31, 2019
   
500,000
   
$
-
 
Loan payable
June 2017
   
5.25
%
December 31, 2019
   
500,000
   
$
-
 
Loan payable
September 2017
   
5.25
%
December 31, 2019
   
150,000
         
                  
$
1,650,000
   
$
-
 

Information regarding accrued interest expense on the loans payable is as follows:

 
(in thousands)
 
September 30, 2017
   
December 31, 2016
 
Accrued interest expense
 
$
38
   
$
-
 

The amounts noted above pursuant to the WC Agreement are distinct from the line of credit agreement for the 111 West 57 th Property as discussed in Note 4 herein and distinct from the Litigation Funding Agreement amounts as discussed in Note 10 herein.

In October 2017, pursuant to the WC Agreement, Mr. R.A. Bianco made an additional loan of $300,000 to the Company for use as working capital in accordance with the same terms of the loans payable noted above.


Note 12 - Subsequent Events

The Company has performed a review of events subsequent to the balance sheet dated September 30, 2017, through the report issuance date.

Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement for Forward-Looking Information

This quarterly report, together with other statements and information publicly disseminated by the Company, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or make oral statements that constitute forward looking statements. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. The forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, anticipated market performance, anticipated litigation results or the timing of pending litigation, and similar matters. When used in this Quarterly Report, the words "estimates," "expects," "anticipates," "believes," "plans," "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties.  The Company cautions readers that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements.  These risks and uncertainties, many of which are beyond the Company's control, include, but are not limited to those set forth in "Item 1A, Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K and in the Company's other public filings with the Securities and Exchange Commission including, but not limited to: (i) risks with regard to the ability of the Company to continue as a going concern; (ii) assumptions regarding the outcome of legal and/or tax matters, based in whole or in part upon consultation with outside advisors; (iii) risks arising from unfavorable decisions in tax, legal and/or other proceedings; (iv) transaction volume in the securities markets; (v) the volatility of the securities markets; (vi) fluctuations in interest rates; (vii) risks inherent in the real estate business, including, but not limited to, insurance risks, tenant defaults, risks associated with real estate development activities, changes in occupancy rates or real estate values; (viii) changes in regulatory requirements which could affect the cost of doing business; (ix) general economic conditions; (x) risks with regard to whether or not the Company's current financial resources will be adequate to fund operations over the next twelve months from financial statement issuance date and/or continue operations; (xi) changes in the rate of inflation and the related impact on the securities markets; and xii changes in federal and state tax laws; These are not the only risks that we face.  There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and/or financial position.

Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that the Company's expectations will be realized.

Management's Discussion and Analysis of Financial Condition and Results of Operations, which follows, should be read in conjunction with the consolidated financial statements and related notes, which are contained in Part I - Item 1, herein and in Part II – Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

BUSINESS OVERVIEW

AmBase Corporation ("AmBase" or the "Company") is a holding company which owns a commercial office building in Greenwich, Connecticut. The Company's assets currently consist primarily of cash and cash equivalents and real estate owned. The Company is otherwise engaged in the management of its assets and liabilities.

In June 2013, the Company purchased an equity interest in a real estate development property through a joint venture agreement to purchase and develop real property located at 105 through 111 West 57 th Street in New York, New York (the "111 West 57 th Property"). As further discussed herein below and in Part I – Item 1 - Note 4 and Note 9 to the Company's condensed consolidated financial statements, the Company is engaged in material disputes and litigation with the sponsor of the joint venture and a mezzanine lender to the joint venture. As further discussed below, the Company recorded an impairment of its equity investment in the 111 West 57 th Property of $63,745,000, in the third quarter ended September 30, 2017. The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets at September 30, 2017, aggregated $1,787,000 consisting principally of cash and cash equivalents of $54,000, and real estate owned, net of $1,644,000.  At September 30, 2017, the Company's liabilities aggregated $2,759,000.  In addition, the Company has a litigation funding amount of $500,000 as further discussed in Part I – Item 1 – Note 10 of the Company's condensed consolidated financial statements.  Total stockholders' equity was negative $1,472,000.

A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its accompanying condensed consolidated financial statements assuming the Company will continue as a going concern.

The Company has incurred operating losses and used cash for operating activities for the past several years.  The Company made significant investments in the 111 West 57th Street Property since 2013.  As further discussed herein, the Company recorded an impairment of its equity investment in the 111 West 57 th Property in the third quarter ended September 30, 2017.

The Company has continued to keep operating expenses at a reduced level; however, there can be no assurance that the Company's current level of operating expenses will not increase or that other uses of cash will not be necessary.  The Company believes that based on its current level of operating expenses, its currently available cash and financial resources together with the borrowings and the line of credit from Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") as noted herein, may not be sufficient to cover operating cash needs through the twelve-month period from the financial statement reporting date. Based on the above factors, management determined there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include adjustments to the carrying value of assets and liabilities which might be necessary should the Company not continue in operation.

Over the next several months, the Company will seek to manage its current level of cash and cash equivalents, through various ways, including but not limited to, reducing operating expenses, possible asset sales and/or long-term borrowings, although this cannot be assured. In order to continue on a long-term basis, the Company must raise additional capital through the sale of assets or long-term borrowings.  There can be no assurance that the Company will be able to attain such financing at terms acceptable to the Company, if at all.

In May 2016, the Company and Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") entered into an agreement for Mr. R. A. Bianco to provide to the Company a secured working capital line of credit of up to one million dollars ($1,000,000) or additional amount(s) as may be necessary and agreed to on an as needed basis, if and when necessary, subject to customary and market terms and conditions to be agreed upon at such time (the "WC Agreement").  Pursuant to the WC Agreement, Mr. R. A. Bianco made several loans to the Company aggregating $1,650,000 as of September 30, 2017 for use as working capital.  The loans accrue interest at 5.25% per annum and are due on the earlier of the date the Company receives funds from any source sufficient to pay all amounts due under the loans, including accrued interest thereon, or December 31, 2019.  Copies of such agreements are filed as exhibits to the Company's current and previously filed periodic filings.  For additional information, see Part I – Item 1 – Note 11 to the Company's condensed consolidated financial statements.

In October 2017, pursuant to the WC Agreement, Mr. R.A. Bianco made an additional loan of $300,000 to the Company for use as working capital in accordance with the same terms of the loan payable noted above.  A copy of the loan agreement is filed as Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended September 30, 2017.

In April 2016, the Company filed an action in New York State Supreme Court against the Sponsors, et al., pursuant to which the Company is seeking compensatory damages, as well as punitive damages, indemnification and equitable relief, including a declaration of the parties' rights, an accounting, and a constructive trust over distributions received by the Defendants.  For additional information, see Part I – Item 1 – Note 4 and Note 9 to the Company's condensed consolidated financial statements.

For additional information with regard to, among other items, developments concerning the junior mezzanine lender ("Spruce") issuance of a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness pursuant to a Strict Foreclosure process, Spruce's claims to have completed the retention of the collateral pledged by the junior mezzanine borrower, the Company's pending appeal of its challenge to the strict foreclosure and the Company's recording of an impairment of its equity investment in the 111 West 57 th Property, see Part I – Item 1 – Note 4 and Note 9 to the Company's condensed consolidated financial statements. The collateral Spruce purports to have retained includes the Company's equity investment in the 111 West 57th Property.  The carrying value of the Company's equity investment in the 111 West 57 th Property represented substantially all of the Company's assets and net equity value.

In September 2017, the Company and Mr. R. A. Bianco entered into an agreement pursuant to which Mr. R. A. Bianco will fund the Company's litigation expenses in connection with the 111 West 57 th Property (the "Litigation Funding Agreement").   For additional information including the terms of the Litigation Funding Agreement; see Part I – Item 1 – Note 10 herein.

With respect to its disputes and litigation relating to its interest in the 111 West 57th Property, the Company is continuing to pursue various legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's interest in and/or rights with respect to the 111 West 57th Property.  The Company is continuing to pursue other options to realize the Company's investment value and/or protect its legal rights.

The Company's condensed consolidated balance sheet for September 30, 2017, includes $500,000 as a litigation funding amount which reflects the aggregate amounts funded pursuant to the Litigation Funding Agreement for the periods presented.

The amounts noted above pursuant to the WC Agreement are distinct from the line of credit agreement for the 111 West 57 th Property as noted below and as discussed in Part I – Item 1 – Note 4 to the Company's condensed consolidated financial statements and distinct from the Litigation Funding Agreement amounts as noted below and as discussed in Part I – Item I – Note 10 to the Company's condensed consolidated financial statements.

For the nine months ended September 30, 2017, cash of $2,682,000 was used by operations for the payment of operating expenses and prior year accruals.  The cash needs of the Company for the nine months ended September 30, 2017, were satisfied by the loans from Mr. R.A. Bianco as noted above and the Company's financial resources.

For the nine months ended September 30, 2016, cash of $2,464,000 was used by operations, for the payment of operating expenses and prior year accruals.  The cash needs of the Company for the nine months ended September 30, 2016, were principally satisfied by the Company's financial resources.

In March 2017, the Company and Mr. R. A. Bianco entered into an agreement for Mr. R. A. Bianco to provide to the Company a financial commitment in the form of a line of credit up to ten million dollars ($10,000,000) or additional amount(s) as may be necessary and agreed to enable AmBase to contribute capital to Investment LLC and/or other affiliated subsidiaries of the Company to meet capital calls for the of 111 West 57 th Property if and when the case may be necessary on terms agreeable to/by the Company (as determined by the independent members of the Board of Directors) and Mr. R. A. Bianco at such time. The agreement provides that additional borrowings from Mr. R. A. Bianco pursuant to this line of credit shall be secured by the Company's commercial office building in Greenwich, Connecticut.  A copy of such agreement was filed as an exhibit to the Company's current and previously filed periodic filings.

Real estate owned consists of a commercial office building in Greenwich, Connecticut that is managed and operated by the Company.  The building is approximately 14,500 square feet with approximately 3,500 square feet utilized by the Company for its offices; the remaining space is currently unoccupied and available for lease.  Although the portion of the building not being utilized by the Company is currently unoccupied and available for lease, based on the Company's analysis, including but not limited to current market rents in the area, leasing values, and comparable property sales, the Company believes the property's fair value exceeds the property's current carrying value.  Therefore, the Company believes the carrying value of the property as of September 30, 2017, has not been impaired.

Accounts payable and accrued liabilities as of September 30, 2017, increased from December 31, 2016, principally as a result of current period accruals for legal expenses in connection with the 111 West 57 th Property litigation which were paid in October 2017, including accrued interest expense relating to the loan payable to Mr. R. A. Bianco.

There are no other material commitments for capital expenditures as of September 30, 2017. Inflation has had no material impact on the business and operations of the Company.

Results of Operations for the Three Months and Nine Months Ended September 30, 2017 vs. the Three Months and Nine Months Ended September 30, 2016

The Company recorded a net loss of $64,889,000 or $1.59 per share and $67,331,000 or $1.65 per share in the three months and nine months ended September 30, 2017 respectively, compared to a net loss of $712,000 or $0.02 per share and $2,675,000 or $0.07 per share in the respective 2016 periods.  As further discussed herein, and in Part I – Item 1 – Note 4 and Note 9 to the Company's condensed consolidated financial statements, the net loss for the third quarter and nine month periods ended September 30, 2017 includes a $63,745,000 impairment of the Company's equity investment in the 111 West 57 th Property.

Compensation and benefits were $304,000 and $906,000 in the three months and nine months ended September 30, 2017, respectively, compared to $382,000 and $1,212,000 in the respective 2016 periods.  No stock based compensation expense was recorded in the nine months ended September 30, 2017 or September 30, 2016.  The decrease in the 2017 three-month and nine-month periods is due to a decrease in incentive compensation accruals in the 2017 periods versus the comparable 2016 periods.

Professional and outside services increased to $703,000 and $2,231,000 in the three months and nine months ended September 30, 2017, respectively, compared to $482,000 and $784,000 in the respective 2016 periods.  The increase in the 2017 periods as compared to the 2016 periods   is the result of a higher level of legal and professional fees incurred in 2017 in connection with the Company's legal proceedings relating to the Company's investment in the 111 West 57 th property.  Included in professional and outside services are legal expenses attributable to the Litigation Funding Agreement aggregating $1,169,000 in the three-month and nine month periods ended September 30, 2017; see Part I – Item 1 – Note 10 to the Company's condensed consolidated financial statements herein for additional information including terms of the Litigation Funding Agreement.

Property operating and maintenance expenses were $34,000 and $105,000 for the three months and nine months ended September 30, 2017, compared to $31,000 and $93,000 in the respective 2016 periods.  The increased expense in the nine months ended September 30, 2017 compared to the respective 2016 period is due to an increase in the overall level of repairs and maintenance expenses.

Insurance expenses decreased to $32,000 and $117,000 in the three months and nine months ended September 30, 2017, compared to $45,000 and $126,000 in the respective 2016 periods.  The decrease is generally due to a decrease in insurance coverage levels and insurance premium costs

Other operating expenses were $39,000 and $122,000 in the three and nine months ended September 30, 2017, respectively, compared with $59,000 and $153,000 in the respective 2016 periods.  The decrease in the September 30, 2017 nine-month period is due to a general lower level of related expenses including decreased Delaware franchise tax expenses in the 2017 period.

Interest expense of $20,000 and $38,000 in the three months and nine months ended September 30, 2017, represents accrued interest expense on the loan payable to Mr. R. A. Bianco which is included in accrued liabilities in the Company's condensed consolidated balance sheet.  See Part I – Item 1 -   Note 11 to the Company's condensed consolidated financial statements for further information.

Despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsors and Spruce in connection with the Company's investment in the 111 West 57 th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57 th Property of $63,745,000 in the third quarter ended September 30, 2017. The Company is and will continue to vigorously pursue the recovery of its asset value from all sources of recovery.

Equity income (loss) - 111 West 57 th Partners of $25,000 for the nine months ended September 30, 2017, respectively represents the Company's share of the 111 West 57 th Partners' loss for the year to date period ended June 30, 2017, versus $49,000 for the three months ended September 30, 2016, and $549,000 for the nine months ended September 30, 2016.  The equity loss in the 2017 and 2016 periods is due to sales and marketing expenses incurred.

The Company recognized income tax provisions of $0 and $6,000 for the three months and nine months ended September 30, 2017, respectively, as compared with income tax benefits of $220,000 and $150,000 for the three months and nine months ended September 30, 2016, respectively.  The income tax provisions for the 2017 periods are attributable to a provision for a tax on capital imposed by the state jurisdictions.  The income tax benefit for the 2016 periods are related to current year and prior year state tax true-ups.

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.

A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes is included in Part I -   Item 1 – Note 8 to the Company's condensed consolidated financial statements.

Item 4. CONTROLS AND PROCEDURES

Our disclosure controls and procedures include our controls and other procedures to ensure that information required to be disclosed in this and other reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and to ensure that such information is recorded, processed, summarized and reported within the time periods.

Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of our disclosure controls and procedures as of September 30, 2017.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported with adequate timeliness.

There have been no changes during the most recent fiscal quarter in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS
 

For a discussion of the Company's legal proceedings, see Part I - Item 1- Note 9 – Legal Proceedings.


Item 1A.
RISK FACTORS
 

There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 in response to Item 1A of Part I of Form 10-K.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
     
 
a. Not applicable
 
 
b. Not applicable
 
 
c. None
 

Common Stock Repurchase Plan

The Company's common stock repurchase plan (the "Repurchase Plan") allows for the repurchase by the Company of up to 10 million shares of its common stock in the open market.  The Repurchase Plan is conditioned upon favorable business conditions and acceptable prices for the common stock. Purchases under the Repurchase Plan may be made, from time to time, in the open market, through block trades or otherwise.  Depending on market conditions and other factors, purchases may be commenced or suspended any time or from time to time without prior notice.  No common stock repurchases have been made pursuant to the Repurchase Plan during year to date 2017 period.

Item 4.
MINE SAFETY DISCLOSURES
Not applicable.


Item 5.
OTHER INFORMATION
   
 
In September 2017, pursuant to the WC Agreement, Mr. R. A. Bianco made an additional loan of $150,000 to the Company for use as working capital in accordance with the same terms of the January 2017 loan payable agreement.  A copy of the loan agreement is filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ending September 30, 2017, in lieu of under Items 1.01 and 9.01 of Form 8-K.
 
 
In October 2017, pursuant to the WC Agreement, Mr. R. A. Bianco made an additional loan of $300,000 to the Company for use as working capital in accordance with the same terms of the previous loan payable agreements.  A copy of the loan agreement is filed as Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ending September 30, 2017, in lieu of under Items 1.01 and 9.01 of Form 8-K.
 
 
In September 2017, the Company and Mr. R. A. Bianco entered into a Litigation Funding Agreement.  A copy of the Litigation Funding Agreement was filed as Exhibit 10.1 to the Company's current report on Form 8-K dated September 26, 2017 and is filed herewith as Exhibit 10.3 .
 


Item 6.
EXHIBITS
 
     
10.1*
 
     
10.2*
 
     
10.3*
 
 
Rule 13a-14(a) Certification of Chief Executive Officer
 
Rule 13a-14(a) Certification of Chief Financial Officer
 
Section 1350 Certification of Chief Executive Officer
 
Section 1350 Certification of Chief Financial Officer
 
101.1*
The following financial statements from AmBase Corporation's quarterly report on Form 10-Q for the quarter ended September 30, 2017 formatted in XBRL:  (i) Condensed Consolidated Statement of Operations (unaudited); (ii) Condensed Consolidated Balance Sheets (unaudited); (iii) Condensed Consolidated Statements of Cash Flow (unaudited); and (iv) Notes to Condensed Consolidated Financial Statements (unaudited).
 
 
_______________
 
 
* filed herewith
 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMBASE CORPORATION



 
/s/ John Ferrara
 
By
JOHN FERRARA
Vice President, Chief Financial Officer and Controller
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
 
 
     
Date:
November 14, 2017
 


PROMISSORY NOTE

$150,000.00

FOR VALUE RECEIVED, AMBASE CORPORATION (" AmBase " or the "Company") promises to pay, without setoff, deduction or counterclaim of any kind or nature to RICHARD A. BIANCO , his heirs or assigns (collectively, " Richard A. Bianco "), the principal sum of ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS (US $150,000) , or so much thereof as has been advanced and remains unpaid, to be paid in lawful money of the United States together with interest thereon at a rate equal to 5.25% per annum, as follows:

Interest and Maturity Date .  Interest shall accrue on the outstanding principal balance due hereunder commencing on the date hereof and continuing on all outstanding amounts until this Promissory Note (the "Note") has been paid in full.  Interest shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).  The entire outstanding principal balance due hereunder, all accrued interest, and any other charges or fees provided for by this Note shall be and become due and payable from AmBase to Richard A. Bianco upon the first to occur (the "Maturity Date") of the following: (a) within one (1) week after the date the Company receives funds from any source sufficient to pay all amounts due under this this Note, including  all accrued interest thereon, including without limitation, from any sale or refinancing of the Company's building at 100 Putnam Green, Greenwich, CT  06830, or (b) December 31, 2019.  As used herein the term "business day" shall mean a day of the week that is not a Saturday, Sunday or Federal banking holiday.

Prepayment .   AmBase may, at any time and from time to time without premium, penalty or advance notice (written or otherwise) from AmBase to Richard A. Bianco, prepay to Richard A. Bianco all or any portion of the outstanding balance under this Note.  Any partial prepayment shall not affect the obligation to continue to pay in full the amount outstanding hereunder until the entire unpaid principal balance hereof, along with all accrued interest, if any, and any other charges and fees, have been paid in full.

Method and Application of Payment .   AmBase shall pay all amounts payable under this Note in cash of immediately available funds: (a) by wire transfer to an account designated by Richard A. Bianco; or (b) if no account has been designated, by bank check delivered to Richard A. Bianco at the address for Richard A. Bianco set forth herein or at such other place as may be designated in writing by Richard A. Bianco.  All such payments shall be made without setoff, deduction or counterclaim.  All payments received by Richard A. Bianco under in connection with this Note shall be applied: first, to any charges or fees due under the Note; second, to accrued and unpaid interest; and third, to outstanding and unpaid principal due in connection with the Note.



Collateral.   As security for repayment of all amounts due under this Note, AmBase hereby grants to Richard A. Bianco a first priority security interest in and pledge of all shares of stock of its wholly-owned subsidiary, Maiden Lane Associates, Ltd. ("MLA"). AmBase and MLA acknowledge and agree that MLA is benefiting directly from the extension of credit to AmBase provided under this Note. AmBase hereby further agrees to cause MLA to grant to Richard A. Bianco a first priority security interest in and mortgage on the Company's building at 100 Putnam Green, Greenwich, CT  06830 (the "Building"), which is wholly owned by MLA, as security for all indebtedness under this Note.

AmBase shall take any action reasonably requested by Richard A. Bianco  to perfect his security interest in the foregoing collateral, including filing any UCC-1 financing statements with respect to MLA shares and/or the Building, and filing or recording any mortgage or other security documentation with respect to the Building.  AmBase shall pay all reasonable expenses incurred in connection with the foregoing.

Notices .  All notices, consents or other communications required or permitted to be given under this Note shall be in writing and shall be deemed to have been duly given when delivered personally or one (1) business day after being sent by a nationally recognized overnight delivery service, postage or delivery charges prepaid or five (5) business days after being sent by registered or certified mail, return receipt requested, postage charges prepaid to the addresses set forth below, or may be given by facsimile and shall be effective on the date transmitted if confirmed within 48 hours thereafter by a signed original sent in one of the manners provided in the preceding sentence:

If to AmBase Corporation:
AmBase Corporation
 
100 Putnam Green, 3 rd Floor
 
Greenwich, CT  06830
 
ATTN:  John Ferrara
 
Vice President & Chief Financial Officer
 
Facsimile Number:  203-532-1115
   
If to Richard A. Bianco:
Richard A. Bianco
 
c/o AmBase Corporation
 
One South Ocean Boulevard, Suite 301
 
Boca Raton, FL  33432
   

Miscellaneous .

•
This Note and all matters arising out of or relating to this Note shall be governed by and construed in accordance with the laws of the State of Connecticut, applicable to agreements made and to be performed solely therein, without giving effect to principles
of conflicts of  law.

•
Subject to applicable law, this Note may be amended, extended, supplemented or otherwise modified only by written agreement entered into by AmBase and Richard A. Bianco.

•
The section headings set forth in this Note are solely for the purpose of reference and shall not in any way affect the meaning or construction of this Note.  Ambiguities and uncertainties in the wording of this Note shall not be construed for or against either AmBase or Richard A. Bianco, but shall be construed in the manner that most accurately reflects AmBase and Richard A. Bianco's intent as of the date of this Note.  AmBase and Richard A. Bianco acknowledge that each has been represented by counsel in connection with the review and execution of this Note and, accordingly, there shall be no presumption that this Note, or any provision hereof, be construed against AmBase.

•
If any provision of this Note is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

•
This Note is and shall be binding upon the successors and assigns of AmBase.

•
The rights and remedies of Richard A. Bianco under this Note shall be cumulative and not alternative.  No waiver by Richard A. Bianco of any right or remedy under this Note shall be effective unless in writing signed by Richard A. Bianco.  Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege by Richard A. Bianco will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law:  (i) no claim or right of Richard A. Bianco arising out of this Note can be discharged, in whole or in part, by a waiver or renunciation of the claim or right unless in a writing signed by Richard A. Bianco; (ii) no waiver that may be given by Richard A. Bianco will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on AmBase will be deemed to be a waiver of any obligations of AmBase or of the right of Richard A. Bianco to take further action without notice or demand as provided in this Note.  AMBASE HEREBY WAIVES PRESENTMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR AND PROTEST AND OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE DELIVERY, ACCEPTANCE OR ENFORCEMENT OF THIS NOTE.

•
AMBASE ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO, FOLLOWING ANY DEFAULT IN ITS OBLIGATIONS UNDER THIS NOTE, ANY PREJUDGMENT REMEDY WHICH RICHARD A. BIANCO MAY DESIRE TO USE.

•

IN WITNESS WHEREOF, AmBase has caused this Note to be duly executed and delivered as of the date set forth below.


AmBase Corporation


/s/ John Ferrara  
John Ferrara
Vice President & Chief Financial Officer
AmBase Corporation
Dated:  September 7, 2017



/s/ Richard A. Bianco  
Richard A. Bianco
Dated:  September 7, 2017



PROMISSORY NOTE

$300,000.00

FOR VALUE RECEIVED, AMBASE CORPORATION (" AmBase " or the "Company") promises to pay, without setoff, deduction or counterclaim of any kind or nature to RICHARD A. BIANCO , his heirs or assigns (collectively, " Richard A. Bianco "), the principal sum of THREE HUNDRED THOUSAND AND NO/100 DOLLARS (US $300,000) , or so much thereof as has been advanced and remains unpaid, to be paid in lawful money of the United States together with interest thereon at a rate equal to 5.25% per annum, as follows:

Interest and Maturity Date .  Interest shall accrue on the outstanding principal balance due hereunder commencing on the date hereof and continuing on all outstanding amounts until this Promissory Note (the "Note") has been paid in full.  Interest shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).  The entire outstanding principal balance due hereunder, all accrued interest, and any other charges or fees provided for by this Note shall be and become due and payable from AmBase to Richard A. Bianco upon the first to occur (the "Maturity Date") of the following: (a) within one (1) week after the date the Company receives funds from any source sufficient to pay all amounts due under this this Note, including  all accrued interest thereon, including without limitation, from any sale or refinancing of the Company's building at 100 Putnam Green, Greenwich, CT  06830, or (b) December 31, 2019.  As used herein the term "business day" shall mean a day of the week that is not a Saturday, Sunday or Federal banking holiday.

Prepayment .   AmBase may, at any time and from time to time without premium, penalty or advance notice (written or otherwise) from AmBase to Richard A. Bianco, prepay to Richard A. Bianco all or any portion of the outstanding balance under this Note.  Any partial prepayment shall not affect the obligation to continue to pay in full the amount outstanding hereunder until the entire unpaid principal balance hereof, along with all accrued interest, if any, and any other charges and fees, have been paid in full.

Method and Application of Payment .   AmBase shall pay all amounts payable under this Note in cash of immediately available funds: (a) by wire transfer to an account designated by Richard A. Bianco; or (b) if no account has been designated, by bank check delivered to Richard A. Bianco at the address for Richard A. Bianco set forth herein or at such other place as may be designated in writing by Richard A. Bianco.  All such payments shall be made without setoff, deduction or counterclaim.  All payments received by Richard A. Bianco under in connection with this Note shall be applied: first, to any charges or fees due under the Note; second, to accrued and unpaid interest; and third, to outstanding and unpaid principal due in connection with the Note.



Collateral.   As security for repayment of all amounts due under this Note, AmBase hereby grants to Richard A. Bianco a first priority security interest in and pledge of all shares of stock of its wholly-owned subsidiary, Maiden Lane Associates, Ltd. ("MLA"). AmBase and MLA acknowledge and agree that MLA is benefiting directly from the extension of credit to AmBase provided under this Note. AmBase hereby further agrees to cause MLA to grant to Richard A. Bianco a first priority security interest in and mortgage on the Company's building at 100 Putnam Green, Greenwich, CT  06830 (the "Building"), which is wholly owned by MLA, as security for all indebtedness under this Note.

AmBase shall take any action reasonably requested by Richard A. Bianco  to perfect his security interest in the foregoing collateral, including filing any UCC-1 financing statements with respect to MLA shares and/or the Building, and filing or recording any mortgage or other security documentation with respect to the Building.  AmBase shall pay all reasonable expenses incurred in connection with the foregoing.

Notices .  All notices, consents or other communications required or permitted to be given under this Note shall be in writing and shall be deemed to have been duly given when delivered personally or one (1) business day after being sent by a nationally recognized overnight delivery service, postage or delivery charges prepaid or five (5) business days after being sent by registered or certified mail, return receipt requested, postage charges prepaid to the addresses set forth below, or may be given by facsimile and shall be effective on the date transmitted if confirmed within 48 hours thereafter by a signed original sent in one of the manners provided in the preceding sentence:

If to AmBase Corporation:
AmBase Corporation
 
100 Putnam Green, 3 rd Floor
 
Greenwich, CT  06830
 
ATTN:  John Ferrara
 
Vice President & Chief Financial Officer
 
Facsimile Number:  203-532-1115
   
If to Richard A. Bianco:
Richard A. Bianco
 
c/o AmBase Corporation
 
One South Ocean Boulevard, Suite 301
 
Boca Raton, FL  33432
   

Miscellaneous .

•
This Note and all matters arising out of or relating to this Note shall be governed by and construed in accordance with the laws of the State of Connecticut, applicable to agreements made and to be performed solely therein, without giving effect to principles
of conflicts of  law.

•
Subject to applicable law, this Note may be amended, extended, supplemented or otherwise modified only by written agreement entered into by AmBase and Richard A. Bianco.

•
The section headings set forth in this Note are solely for the purpose of reference and shall not in any way affect the meaning or construction of this Note.  Ambiguities and uncertainties in the wording of this Note shall not be construed for or against either AmBase or Richard A. Bianco, but shall be construed in the manner that most accurately reflects AmBase and Richard A. Bianco's intent as of the date of this Note.  AmBase and Richard A. Bianco acknowledge that each has been represented by counsel in connection with the review and execution of this Note and, accordingly, there shall be no presumption that this Note, or any provision hereof, be construed against AmBase.

•
If any provision of this Note is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

•
This Note is and shall be binding upon the successors and assigns of AmBase.

•
The rights and remedies of Richard A. Bianco under this Note shall be cumulative and not alternative.  No waiver by Richard A. Bianco of any right or remedy under this Note shall be effective unless in writing signed by Richard A. Bianco.  Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege by Richard A. Bianco will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law:  (i) no claim or right of Richard A. Bianco arising out of this Note can be discharged, in whole or in part, by a waiver or renunciation of the claim or right unless in a writing signed by Richard A. Bianco; (ii) no waiver that may be given by Richard A. Bianco will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on AmBase will be deemed to be a waiver of any obligations of AmBase or of the right of Richard A. Bianco to take further action without notice or demand as provided in this Note.  AMBASE HEREBY WAIVES PRESENTMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR AND PROTEST AND OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE DELIVERY, ACCEPTANCE OR ENFORCEMENT OF THIS NOTE.

•
AMBASE ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO, FOLLOWING ANY DEFAULT IN ITS OBLIGATIONS UNDER THIS NOTE, ANY PREJUDGMENT REMEDY WHICH RICHARD A. BIANCO MAY DESIRE TO USE.

•

IN WITNESS WHEREOF, AmBase has caused this Note to be duly executed and delivered as of the date set forth below.


AmBase Corporation


/s/ John Ferrara  
John Ferrara
Vice President & Chief Financial Officer
AmBase Corporation
Dated:  October 6, 2017



/s/ Richard A. Bianco  
Richard A. Bianco
Dated:  October 6, 2017



September 26, 2017



Mr. Richard A. Bianco
350 South Ocean Boulevard, Apt. 9A
Boca Raton, FL 33432

Re:
Future Recovery Litigation Funding

Dear Mr. Bianco:

This letter agreement (the " Agreement ") is by and between AmBase Corporation, a Delaware Corporation (the " Company "), and you, Richard A. Bianco (" Bianco ", and together with any entity that is currently in existence or is formed by Bianco hereafter that is either wholly-owned by, or controlled directly or indirectly by, Bianco, the " Funder ").

On June 28, 2013, 111 West 57th Investment LLC, a subsidiary of the Company (" Investment LLC "), entered into a joint venture agreement with 111 West 57th Sponsor LLC (the " Sponsors "), pursuant to which Investment LLC invested in a real estate development property to purchase and develop certain real property located at 111 West 57th Street (the " 111 West 57th Property ").  In consideration for making the investment, Investment LLC was granted a membership interest in 111 West 57th Partners LLC (" 111 West 57th Partners "), which indirectly acquired the 111 West 57th Property (the " Joint Venture ").

On June 30, 2017, Spruce Capital Partners LLC, a junior mezzanine lender to the Joint Venture (" Spruce "), declared an event of default under its $25.2 million loan and demanded immediate payment of the full outstanding balance of the junior mezzanine loan. Spruce gave notice that it proposed to accept the pledged collateral (including the Joint Venture members' collective interest in the property) in full satisfaction of the Joint Venture's indebtedness under the junior mezzanine loan (i.e. a " Strict Foreclosure ").

On July 25, 2017, the Company filed a complaint against Spruce and the Sponsors and requested injunctive relief halting the Strict Foreclosure from the New York State Supreme Court for New York County, (the " NY Court ") Index No. 655031/2017. On July 26, 2017, the NY Court issued a temporary restraining order barring Spruce from accepting the collateral.  After a hearing and an appeal the temporary restraining order was ultimately lifted and the Strict Foreclosure was permitted to proceed.

On August 30, 2017, Spruce issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness. By accepting the pledged collateral, pursuant to the Strict Foreclosure process, Spruce has taken control of, and asserts that it has completed retention of, collateral representing the Company's entire interest in the 111 West 57th Street Property.  The pledged collateral includes all of the Company's equity investment in the 111 West 57th Street project and a substantial part the Company's assets and net equity value.

The Company intends to pursue litigation to recover the value of its equity investment in the 111 West 57th Street Property.  The Company and the Funder have agreed that the Funder shall provide up to an aggregate amount of Seven Million Dollars ($7,000,000) plus such additional amounts as may be necessary from time to time and as agreed to by the Company and the Funder at such time (such amounts, collectively, the " Litigation Fund Amount "), to finance the Company's litigation expenses with respect to certain ongoing disputes with the Sponsors and the lenders in the 111 West 57th Street Property project, and to seek to recover value for the Company with respect to its equity investment in 111 West 57th Street Property, whether by direct recovery or from asserting claims against the Sponsors, their principals and/or certain of the lenders, and including any appeals with respect to such proceedings (collectively, " Future Recovery Litigation ").

This letter agreement shall memorialize the mutual agreement of the Funder and the Company with respect to any amounts to be provided by the Funder to fund Future Recovery Litigation and the sharing of any financial recovery resulting from such litigation. The parties hereto acknowledge and agree as follows:

•
The Funder shall, within ten (10) business days of a written request from the Company, provided any such request is received on or before September 30, 2024, pay to the Company by wire transfer of immediately available funds, such amounts as the Company shall reasonably request, up to the then agreed upon Litigation Fund Amount, to satisfy actual documented litigation costs and expenses, including attorneys' fees, expert witness fees, consulting fees and disbursements incurred by the Company or reasonably anticipated to be incurred by the Company within the next twenty (20) business days in connection with any proceedings (i) involving the Sponsors and/or the lenders in the 111 West 57th Street Property project, or (ii) seeking to recover value for the Company with respect to its equity investment in the 111 West 57th Street Property. For the purposes of this Agreement, "business day" means a day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close.
•
In consideration for the Funder's commitment to provide the Litigation Fund Amount, the Company shall distribute any and all consideration it actually receives in connection with any Future Recovery Litigation, including an amount in cash equal to the fair market value of any non-cash consideration received, whether by judgment, award, order, settlement or otherwise, including, without limitation, any damages (punitive or otherwise), penalties, or interest (such amounts, collectively, the " Litigation Proceeds ") as follows:
•
first, to reimburse the Funder on a dollar-for-dollar basis for (i) the then outstanding Litigation Fund Amount advanced by him to the Company or on behalf of the Company and not previously repaid, and (ii) any reasonable and documented costs and expenses incurred by the Funder in connection with any Future Recovery Litigation, until such amount is satisfied in full; and
•
thereafter, the remaining Litigation Proceeds, if any, shall be distributed as follows:
 
•   If and to the extent the Litigation proceeds are received on or before thirty-six (36) months from the date of this Agreement: (A) 70% to the Company and 30% to the Funder; and
 
•   If and to the extent the Litigation proceeds are received after thirty-six (36) months from the date of this Agreement until the termination of this Agreement: (A) 55% to the Company and 45% to the Funder.
For avoidance of doubt, Litigation Proceeds shall include anything of value, including any property or other non-cash consideration, received   from any Sponsor, lender, and/or their respective affiliates, shareholders, partners, members, managers, officers and directors or any other individuals connected to the 111 West 57th Property project, as a result of any Future Recovery Litigation.  If there is a dispute regarding the appropriate valuation of any non-cash portion of the Litigation Proceeds and the parties are unable to resolve such dispute within twenty (20) business days then either party may submit the dispute for arbitration pursuant to Section 10 of this Agreement.
•
The Company acknowledges and agrees that the Funder has previously provided the Company with One Million Six Hundred Fifty Thousand Dollars ($1,650,000) under a secured working capital line of credit and is the senior creditor to the Company on the date hereof.  The Company hereby agrees that it shall not, without the prior written consent of the Funder, create, incur, assume or permit to exist any lien or encumbrance on the Litigation Proceeds, grant any other person or entity any rights in the Litigation Proceeds superior to the rights of the Funder, or otherwise grant any person or entity any rights that have the effect or could reasonably have the effect of hindering, delaying, or diluting the Funder's right to receive the payments provided in this Agreement.
•
The Company shall distribute any Litigation Proceeds it receives within five (5) business days of receipt of such amounts in accordance with the terms of this Agreement. For avoidance of doubt, the Litigation Fund Amount shall only become due and payable by the Company upon the receipt of, and to the extent of, any Litigation Proceeds.
•
This Agreement commenced on the date hereof and shall continue in effect until (a) the final resolution of all Future Recovery Litigation pursuant to (i) a final, nonappealable judgment of a court of competent jurisdiction or (ii) a written settlement agreement between the Company and the respective defendants in such proceedings, and (b) the disbursement in full of all Litigation Proceeds, if any, in accordance with this Agreement, unless the Agreement is earlier terminated by the mutual written agreement of both parties hereto.
•
This Agreement commenced on the date hereof and shall continue in effect until (a) the final resolution of all Future Recovery Litigation pursuant to (i) a final, nonappealable judgment of a court of competent jurisdiction or (ii) a written settlement agreement between the Company and the respective defendants in such proceedings, and (b) the disbursement in full of all Litigation Proceeds, if any, in accordance with this Agreement, unless the Agreement is earlier terminated by the mutual written agreement of both parties hereto.
•
This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter.
•
This Agreement shall inure to the benefit of, and be binding upon, the successors, heirs and permitted assigns of each of the parties hereto.  The Company may not assign the Agreement or its rights and obligations hereunder to another person without the Funder's prior written consent, which consent may be withheld in the Funder's sole discretion.  The Funder may, at any time, without the consent of the Company, assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including the right to receive all or a portion of the Litigation Proceeds due to the Funder hereunder).
•
This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. Any claim or dispute arising out of or in any way relating to this agreement or its alleged breach shall be determined in a binding arbitration by a single arbitrator that is a retired State or Federal court judge.  The arbitration shall be administered by the American Arbitration Association under its commercial dispute resolution procedures which are in effect at the time of the arbitration.  The arbitration shall take place in New York City.  The parties may seek, from a court of competent jurisdiction, provisional remedies or injunctive relief in support of their respective rights and remedies hereunder without waiving their right to arbitration and, for such purposes, each party irrevocably consents to the jurisdiction of any of the courts of the State of New York in New York County, and the United States District Court for the Southern District of New York.  However, the merits of the action that involves such provisional remedies or injunctive relief, including without limitation, the terms of any permanent injunction, shall be determined by arbitration under this Section 10.  Judgment on the arbitrator's award may be entered in any court of competent jurisdiction.
•
This Agreement shall not be modified, amended or supplemented except by a written agreement signed by the parties hereto. This Agreement may be executed in any number of counterparts (and by facsimile), each of which will be deemed an original, but all of which together will constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Agreement by facsimile, electronic portable document format (PDF) file or other means of electronic transmission will be as effective as delivery of a manually executed counterpart to this Agreement.

[Remainder of page left intentionally blank; signature page follows]


Please confirm your agreement to the foregoing by signing a copy of this Agreement where indicated below and returning it to the undersigned.

 
Sincerely,
 
AMBASE CORPORATION ,
a Delaware corporation
 
By:   /s/ John Ferrara
John Ferrara
Vice President and Chief Financial Officer   and Controller
 
   


Acknowledged and Agreed:
 
/s/ Richard A. Bianco
Richard A. Bianco
 
 
 


       
Exhibit 31.1
         
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
         
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 report does not contain any untrue statement of a 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 report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.
 
     
/s/ Richard A. Bianco
     
Richard A. Bianco
     
Chairman, President and Chief Executive Officer
     
AmBase Corporation
     
Date:  November 14, 2017

       
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
         
I, John Ferrara, certify that:
     
         
1.
I have reviewed this quarterly report on Form 10-Q of AmBase Corporation;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a 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 report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.
 
         
     
/s/ John Ferrara
     
John Ferrara
     
Vice President, Chief Financial Officer, and Controller
     
AmBase Corporation
     
Date:  November 14, 2017

     
Exhibit 32.1
       
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
       
In connection with the annual report of AmBase Corporation (the "Company") on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard A. Bianco, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
       
       
   
/s/ Richard A. Bianco
   
Richard A. Bianco
   
Chairman, President and Chief Executive Officer
   
AmBase Corporation
   
Date: November 14, 2017






     
Exhibit 32.2
       
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
       
In connection with the quarterly report of AmBase Corporation (the "Company") on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Ferrara, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
       
       
   
/s/ John Ferrara
   
John Ferrara
   
Vice President and Chief Financial Officer
   
AmBase Corporation
   
Date: November 14, 2017