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 June 30, 20172018

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.)
   
(State of incorporation)(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

(201) 265-0169
(Registrant'sRegistrant’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.

YESX☒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_____ 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 or an emerging growth company.  See definition of "large“large accelerated filer," "accelerated” “accelerated filer,"” “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):Large Accelerated Filer☐
 Accelerated Filer☐ Non-Accelerated Filer☐ Smaller Reporting CompanyX☒
            
 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☐NOX☒

At July 31, 2017,2018, there were 40,737,751 shares outstanding of the registrant'sregistrant’s common stock, $0.01 par value per share.


AmBase Corporation

Quarterly Report on Form 10-Q
June 30, 20172018

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Page
   
Item 1.
Condensed Consolidated Financial Statements (unaudited)
13
   
Item 2.Management's
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1821
   
Item 4.
Controls and Procedures
2226
   
PART II
OTHER INFORMATION
 
PART IIOTHER INFORMATION
   
Item 1.
Legal Proceedings
2226
   
Item 1A.
Risk Factors
2226
   
Item 2.
Unregistered Sales of Equity and Securities and Use of Proceeds
2226
   
Item 3.
Defaults Upon Senior Securities
2327
   
Item 4.
Mine Safety Disclosures
2327
   
Item 5.
Other Information
2327
   
Item 6.
Exhibits
Exhibits2327
   
Signatures
 2428

PART I - FINANCIAL INFORMATION

ItemItem 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


(in thousands, except per share data)
  Three Months Ended June 30,  Six Months Ended June 30, 
  2017  2016  2017  2016 
Operating expenses:            
Compensation and benefits $278  $356  $602  $830 
Professional and outside services  624   193   1,528   302 
Property operating and maintenance  38   29   71   62 
Depreciation  12   12   24   24 
Insurance  49   45   85   81 
Other operating  48   41   83   94 
Total operating expenses  1,049   676   2,393   1,393 
Operating income (loss)  (1,049)  (676)  (2,393)  (1,393)
                 
Interest income  -   -   -   - 
Interest expense  (13)  -   (18)  - 
Equity income (loss) – 111 West 57th Partners LLC  (7)  (108)  (25)  (500)
Income (loss) before income taxes  (1,069)  (784)  (2,436)  (1,893)
                 
Income tax expense (benefit)  3   35   6   70 
Net income (loss) $(1,072) $(819) $(2,442) $(1,963)
                 
Net income (loss) per common share - basic $(0.03) $(0.02) $(0.06) $(0.05)
Net income (loss) per common share - assuming dilution $(0.03) $(0.02) $(0.06) $(0.05)
                 
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.
  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
  2018  2017  2018  2017 
Operating expenses:            
Compensation and benefits $306  $278  $830  $602 
Professional and outside services  840   624   1,658   1,528 
Property operating and maintenance  14   38   46   71 
Depreciation  -   12   -   24 
Insurance  19   49   81   85 
Other operating  23   48   50   83 
Total operating expenses  1,202   1,049   2,665   2,393 
Operating income (loss)  (1,202)  (1,049)  (2,665)  (2,393)
                 
Interest income  3   -   4   - 
Interest expense  -   (13)  (10)  (18)
Gain on sale of real estate owned  -   -   3,278   - 
Equity income (loss) – 111 West 57th Partners LLC  -   (7)  -   (25)
Income (loss) before income taxes  (1,199)  (1,069)  607   (2,436)
                 
Income tax expense (benefit)  2   3   4   6 
Net income (loss) $(1,201) $(1,072) $603  $(2,442)
                 
Net income (loss) per common share - basic $(0.03) $(0.03) $0.01  $(0.06)
                 
Weighted average common shares outstanding - basic  40,738   40,738   40,738   40,738 

AMBASE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except per share data)

Assets: June 30, 2017  December 31, 2016  
June 30,
2018
  
December 31,
2017
 
Cash and cash equivalents $358  $586  $1,410  $70 
Real estate owned:                
Land  554   554   -   554 
Buildings  1,900   1,900   -   1,900 
Real estate owned, gross  2,454   2,454   -   2,454 
Less: accumulated depreciation  798   774   -   822 
                
Real estate owned, net  1,656   1,680   -   1,632 
                
Investment in 111 West 57th Partners LLC
  63,745   63,770 
Deferred tax asset – tax receivable  20,092   20,092 
Other assets  98   166   65   84 
Total assets $65,857  $66,202  $21,567  $21,878 
                
Liabilities and Stockholders' Equity:        
Liabilities and Stockholders’ Equity:        
Liabilities:                
Accounts payable and accrued liabilities $940  $343  $610  $426 
Loan payable - related party  1,500   - 
Loan payable – related party  -   2,296 
Other liabilities  -   -   -   - 
                
Total liabilities  2,440   343   610   2,722 
                
Commitments and contingencies (Note 9)        
Litigation funding agreement (Note 9)  2,552   1,354 
Commitments and contingencies (Note 8)  -   - 
                
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 
Stockholders’ Equity:        
Common stock ($0.01 par value, 85,000 authorized in 2018 and 85,000 authorized in 2017, 46,410 issued and 40,738 outstanding in 2018 and 46,410 issued and 40,738 outstanding in 2017)  464   464 
Additional paid-in capital  548,304   548,304   548,304   548,304 
Accumulated deficit  (480,183)  (477,741)  (525,195)  (525,798)
Treasury stock, at cost – 2017 - 5,672 shares and 2016 – 5,672 shares  (5,168)  (5,168)
Total stockholders' equity  63,417   65,859 
        
Total liabilities and stockholders' equity $65,857  $66,202 
Treasury stock, at cost – 2018 – 5,672 shares and 2017 – 5,672 shares  (5,168)  (5,168)
Total stockholders’ equity  18,405   17,802 
Total liabilities and stockholders’ equity 
$
21,567
  
$
21,878
 

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

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


 Six Months Ended June 30,  
Six months ended
June 30,
 
(in thousands) 2017  2016  2018  2017 
            
Cash flows from operating activities:            
Net income (loss) $(2,442) $(1,963) $603  $(2,442)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities                
Gain on sale of real estate owned  (3,278)  - 
Depreciation  24   24   -   24 
Other income  -   -   -   - 
Equity (income) loss - 111 West 57th Partners LLC  25   500   -   25 
Changes in operating assets and liabilities:                
Other assets  68   (77)  19   68 
Accounts payable and accrued liabilities  597   (114)  184   597 
Other liabilities  -   -   -   - 
Net cash provided (used) by operating activities  (1,728)  (1,630)  (2,472)  (1,728)
                
Cash flows from investing activities:        
Proceeds from sale of real estate owned, net  4,910   - 
Net cash provided (used) by investing activities  4,910   - 
Cash flows from financing activities:                
Proceeds from loan payable  1,500   - 
Payoff of loan payable – related party  (2,546)  - 
Proceeds from loan payable – related party  250   1,500 
Proceeds from litigation funding agreement  1,198   - 
Net cash provided (used) by financing activities  1,500   -   (1,098)  1,500 
        
                
Net change in cash and cash equivalents  (228)  (1,630)  1,340   (228)
Cash and cash equivalents at beginning of period  586   3,303   70   586 
Cash and cash equivalents at end of period $358  $1,673  
$
1,410  
$
358 
Supplemental cash flow disclosure:                
Income taxes paid $5  $47  $5  $5 

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"(“AmBase” or the "Company"“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'sCompany’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"(“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'sCompany’s consolidated financial statements filed in its Annual Report on Form 10-K10‑K for the year ended December 31, 2016.2017.

The Company'sAt June 30, 2018, the Company’s assets currently consistconsisted primarily of cash and cash equivalents an equity investmentand a deferred tax asset. In January 2018, the Company sold its commercial office building in a real estate development property and real estate owned.Greenwich, Connecticut, see Note 3 herein for additional information. See Note 7 for additional information regarding taxes. The Company ownsis 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 57th Street in New York, New York (the “111 West 57th Street in New York (the "111 West 57th Property"Property”). As further discussed herein belowThe Company has also made significant investments in the 111 West 57th Street Property in 2013, 2014 and in Note 4, Note 9 and Note 11, the2015. The Company is engaged in material disputes and litigation with the sponsorsponsors of the joint venture (the “Sponsor”) and a mezzanine lender to the joint venture. The Company is otherwise engagedventure (“Spruce”). On August 30, 2017, Spruce issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness. By purporting to accept the management of its assets and liabilities.

In April 2016, AmBase initiatedpledged collateral, pursuant to a litigation inStrict Foreclosure process, Spruce claims to have completed the New York State Supreme Court for New York County (the "NY Court"), Index No. 652301/2016, ("AmBase v. 111 West 57th Sponsor LLC, et al.") (the "111 West 57th 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 57th KM Equity LLC, 111 West 57th 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 57th Partners, to develop the 111 West 57th Street Property 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 57th Property which the Sponsors have refused, claiming they have provided all books and records as required. For additional information, see Note 4, Note 9 and Note 11.

For additional information with regard to, among other items, recent developments concerning the Company's investment in the 111 West 57th Property, information concerning the junior mezzanine lender declaration of an event of default and its proposal to take controlretention of the collateral pledged by the junior mezzanine borrower, and therefore, the Company's entireCompany’s interest in the 111 West 57th Street Property (the “Strict Foreclosure”). Despite ongoing litigation challenging the Company's requestlegitimacy of the actions taken by the Sponsors and Spruce in connection with the Company’s investment in the 111 West 57th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57th Property in the full year period ended December 31, 2017.  The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and net equity value. The Company is currently attempting to have the Appellate Division declare the Strict Foreclosure invalid and to enjoin the Strict Foreclosure. There can be no assurance that the Company will prevail with respect to any of its claims. See Note 4 and Note 8 herein for injunctive relief,additional information concerning the Company’s pending appeal of its challenge to the Strict Foreclosure, the Company’s recording of an impairment of its equity investment in the 111 West 57th Property and the NY Court's issuance of a temporary restraining order pending a preliminary injunction hearing, see Note 4, Note 9, and Note 11Company’s legal proceedings relating to the 111 West 57th Property..

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.

AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

The Company has incurred operating losses and used cash for operating activities for the past several years. The Company has also made significant investments in the 111 West 57th Street Property since 2013.  The Company has continued to keep operating expenses at a reduced level; however, there can be no assurance that the Company'sCompany’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 linenet proceeds from the sale of credit from Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco")its commercial office building in Greenwich, Connecticut as further discussed in Note 103 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'sCompany’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 which may include additional borrowings from affiliates of the Company, 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 sell any of its assets or attain such financing at terms acceptable to the Company, if at all.

In September 2017, the Company and Mr. Richard A. Bianco, the Company’s Chairman, President and Chief Executive Officer (“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 57th Property (the “Litigation Funding Agreement”).  For additional information including the terms of the Litigation Funding Agreement, see Note 9 herein.

With respect to its current disputes and litigation relating to its interest in the 111 West 57th Property, the Company will continueis continuing to pursue all availablevarious legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's investmentCompany’s interest in and/or rights with respect to the 111 West 57th Property. The Company is negotiating with all potential partiescontinuing to protectpursue other options to realize the Company's interests. Additionally, the Company is pursuing alternative financial resources to help finance current and future litigation in the courts to protect the Company'sCompany’s investment value including negotiating possible contingency arrangements with legal counsel and/or raising capital for the Company to pursueprotect its legal rights.


New accounting pronouncementsThe 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 57th 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 as to the value or ultimate realization of any portion of the Company’s equity investment in the 111 West 57th Street Property. For additional information with regard to the Company’s investment in the 111 West 57th Property and the Company’s legal proceedings related thereto, see Note 4 and Note 8.

ThereWhile the Company’s management is evaluating future courses of action to protect and/or recover the value of the Company’s equity investment in the 111 West 57th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful. Any such efforts are no new accounting pronouncements thatlikely 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 likely materially affectin all likelihood have a material adverse effect on the Company's condensed consolidatedCompany’s financial statements.condition and future prospects.

In May 2016, the Company and 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. Pursuant to this agreement, Mr. Bianco had made several loans to the Company, for use as working capital. In January 2018, in connection with the sale by the Company of its office building in Greenwich, Connecticut, the Company repaid the full amount of the working capital loan, plus accrued interest to Mr. R. A. Bianco, and in connection therewith the working capital line of credit was terminated. For additional information, see Note 10 herein.

AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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 OwnedSold

Real estate owned consists of a commercial officeIn January 2018, the Company sold its building in Greenwich, Connecticut, thatto Maria USA, Inc. an unaffiliated third party. A gain from the sale is managed and operated byreflected in the Company.  ACompany’s condensed consolidated statement of operations for the six months ended June 30, 2018.  The Company used a portion of the building is utilized bysale proceeds to repay the Companyfull amount of the working capital loan plus accrued interest to Mr. R. A. Bianco. See Note 11 for office space; theadditional information.  The remaining space is currently unoccupied and availableproceeds will be used for lease. Depreciation expense for the building is calculated on a straight-line basis.working capital.

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

June 30, 2017
Area of building in square feet14,500
Square feet utilized by Company3,500
Number of years depreciation is based upon39
(in thousands) Amounts 
Gross sales price $5,200 
Less: Transactions costs  (290)
Proceeds from the sale of real estate owned, net  4,910 
Less: Real estate carrying value, (net of accumulated depreciation)  (1,632)
Net gain on sale of real estate $3,278 


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 June 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 57th Partners LLC

In June 2013, the Company purchased an equity interest in the 111 West 57th Property.  The Company is engaged in material disputes and litigation with the Sponsor and Spruce. On August 30, 2017, Spruce issued a Notice of Retention of Pledged Collateral in Full Satisfaction of Indebtedness. By purporting to accept 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.  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 57th Property as further discussed herein, in accordance with GAAP, the Company recorded an impairment of its equity investment in the 111 West 57th Property in the full year period ended December 31, 2017. The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and net equity value. The Company is currently attempting to have the Appellate Division declare the Strict Foreclosure invalid and to enjoin the Strict Foreclosure. There can be no assurance that the Company will prevail with respect to any of its claims. For additional information with regard to the Company’s legal proceedings relating to the 111 West 57th Property, see Note 8 herein.

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

In June 28, 2013, 111 West 57th Investment LLC, ("(“Investment LLC"LLC”), a then newly formed subsidiary of the Company, entered into a joint venture agreement (as amended, the "JV Agreement"“JV Agreement”) with 111 West 57th57th Sponsor LLC, (the "Sponsors"“Sponsor”), pursuant to which Investment LLC invested (the "Investment"“Investment”) in a real estate development property to purchase and develop the 111 West 57th Street Property (the "111“111 West 57th Property"Property”).  In consideration for making the Investment, Investment LLC was granted a membership interest in 111 West 57th Partners LLC ("(“111 West 57th Partners"Partners”), which indirectly acquired the 111 West 57th Property on June 28, 2013 (the "Joint“Joint Venture,"” and such date, the "Closing Date"“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 were to redevelop the 111 West 57th57th Property into a luxury residential tower and retail project.

8
Table of Contents
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Amounts relating to the Company'sCompany’s initial June 2013 investment and other information relating to the 111 West 57th 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 


On June 30, 2015, 111 West 57th Partners obtained financing for the 111 West 57th 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 57th Partners repaid all outstanding liabilities and obligations to Annaly CRE, LLC under the initial mortgage and acquisition loan agreement, dated June 28, 2013, between 111 West 57th Partners and Annaly CRE, LLC.  The remaining loan proceeds will 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 57th Property.

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

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

In July 2015, based on available net proceeds received from the financing and equity previously invested in the project, funds were distributed to the members of 111 West 57th Partners (the "July 2015 Distribution").  In connection therewith, the Company, principally through Investment LLC, received a distribution but reserved its rights to dispute the actual amount to which it is entitled based on the 111 West 57th Partners Operating Agreement and the Company's percentage interests thereunder.  In accordance with the Second Amended and Restated Investment Operating Agreement as noted herein, the Company through Investment LLC fully repaid 111 West 57th Capital LLC, an entity wholly owned by Mr. R.A. Bianco ("Capital LLC"), its capital contributions as noted below. The remaining amount was retained by the Company.

Information relating to the July 2015 Distribution is as follows:

(in thousands)   
Distribution attributable to Company's investment $11,699 
Distribution retained by the Company, net of amounts repaid to Capital LLC $1,831 
($ 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'sCompany’s current Chairman, President and Chief Executive Officer) ("(“Mr. R. A. Bianco"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“Amended and Restated Investment Operating Agreement"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'sBianco’s past, current and anticipated ongoing role to develop and commercialize the Company'sCompany’s equity investment in the 111 West 57th 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'sCompany’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 57th Property, the Company'sCompany’s management and its Board of Directors concluded that, given the continuing development risks of the 111 West 57th Property and the Company'sCompany’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"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 57th 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;and, thereafter, available cash is split 10/90, with 10% going to Mr. R.A.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.

9
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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 57th Partners obtained financing for the 111 West 57th 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 57th 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 57th Property.

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

(in thousands)   
Financing obtained by 111 West 57th Partners - AIG
 $400,000 
Financing obtained by 111 West 57th 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 57th Sponsor LLC, et al.”) (the “111 West 57th 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, 111 West 57th KM Equity LLC, 111 West 57th KM Group LLC, Kevin Maloney, Matthew Phillips, Michael Stern, Ned White, 111 Construction Manager LLC, Property Markets Group, Inc., JDS Development LLC, JDS Construction Group LLC (collectively, “Defendants”) and nominal defendant 111 West 57th Partners LLC. In June 2018, Defendants removed the complaint to the U.S. District Court for the Southern District of New York, where it is docketed as case number 18-cv-5482-AT. For additional information with regard to the Company’s legal proceedings relating to the 111 West 57th Property, see Note 8 herein.

In December 2016, the Sponsor proposed for approval a “proposed budget” (the “Proposed Budget”), which the Sponsor claims 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 Sponsor that it was exercising its Equity Put Right pursuant to the JV Agreement. The Sponsor refused to honor the exercise of Investment LLC’s Equity Put Right. The Sponsor claims, among other things, that the conditions precedent were not met because they claim 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 Sponsor. The Sponsor denies 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.

10
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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 57th 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'sCompany’s commercial office building in Greenwich, Connecticut.

Capital contributed by Capital LLC in December 2014 and April 2015, which was fully repaid as part of the July 2015 Distribution, was as follows:

(in thousands)   
Capital contributed by Capital LLC $9,868 

As part of the July 2015 Distribution, Capital LLC was repaid the full amount of its capital investment.  Additional amounts may still be payable to Capital LLC based on investment returns received on the 111 West 57th Property as further described herein.

Pursuant to various capital contribution requests in December 2014, February 2015 and April 2015, the Company was requested to contribute funds to the Joint Venture (the "Capital Contribution Requests").  The Company chose to contribute only a portion of the amounts requested pursuant to the Capital Contribution Requests.  The remaining amounts requested pursuant to the Capital Contribution Requests (not funded by the Company) were contributed by either the Sponsor, which deemed its capital contributions on behalf of the Company to be Shortfall Capital Contributions ("Shortfall Capital Contributions") or by the Company from Capital LLC, pursuant to the terms of the Second Amended and Restated Investment Operating Agreement as noted herein.

The Company made additional capital contributions to the Joint Venture as indicated below:

(in thousands)
Six Months Ended
June 30, 2017
Capital contributions$-

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 cause 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.

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 57th Sponsor LLC, et al.") (the "111 West 57th 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 57th KM Equity LLC, 111 West 57th 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 57th Partners, to develop the 111 West 57th Street Property 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 57th Property which the Sponsors have refused, claiming they have provided all books and records as required. For additional information, see Note 9 – Legal Proceedings.

The Sponsors have proposed for approval a "proposed budget" (the "Proposed Budget"), which the Sponsors claim represents 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. As previously disclosed, 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 have not been 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 represent 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 are 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.

As a result of the projected Proposed Budget increase,sale of the Sponsors haveCompany’s commercial office building in Greenwich CT. in January 2018, any borrowings from Mr. R.A. Bianco under this line of credit would be unsecured.

The Sponsor claimed that additional borrowings of $60 million to $100 million may bewere 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 believesbelieved the current loan has been "outwas “out of balance"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 has considered approving the additional financing, but has informed the SponsorsSponsor that it hashad concerns about the Proposed Budget and the implications of the Proposed Budget, as well as other questions that mustwhich needed to be addressed first. Apollo had previously provided loan forbearances to the borrowers and guarantors in order to allow the SponsorsSponsor time (while the building continuescontinued to be built) to raise the additional financing whichthat 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 had sold $25 milliona portion of the mezzanine loan—broken off as a junior mezzanine loan—to an affiliate of Spruce Capital Partners LLC, ("Spruce"(“Spruce”) (the "Junior“Junior Mezzanine Loan"Loan”).

On June 30, 2017, Spruce declared an event of default under the Junior Mezzanine Loan now held by it and demanded immediate payment of the full outstanding balance of the Junior Mezzanine Loan.  By letter dated July 7, 2017, Spruce then gave notice to the junior mezzanine borrower that it proposed to accept the pledged collateral (including the joint venture members'members’ collective interest in the property) in full satisfaction of the joint venture'sventure’s indebtedness under the junior mezzanine loanJunior Mezzanine Loan (i.e., a "Strict Foreclosure"“Strict Foreclosure”). The Company informed the Sponsors that they objected to Spruce's proposal and demanded that the Sponsors inform the Company as to how they intended to respond on behalf of the junior mezzanine borrower. The Sponsors refused to commit to filing an objection on behalf of the junior mezzanine borrower. Thus, on July 23, 2017, the Company sent Spruce a letter objecting to the Strict Foreclosure on behalf of Investment LLC. Spruce likewise gave no indication that it would honor the Company's objection.

By accepting the pledged collateral, Spruce would have taken control of the collateral pledged by the junior mezzanine borrower, and therefore, the Company's entire interest in the 111 West 57th Street Property, representing practically all of the Company's equity investment in the 111 West 57th Street project.

On July 25, 2017, the Company filed a complaint against Spruce and the SponsorsSponsor 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“NY Court”) Index No. 655031/2017, (the “111 West 57th Spruce Action"Action”). The defendants in the 111 West 57th TROSpruce 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"“Defendants”) and nominal defendants 111 West 57th Partners LLC and 111 West 57th Mezz 1 LLC.

On July 26, 2017, the Court issued a temporary restraining order barring Spruce from accepting the collateral pending a preliminary injunction hearing scheduled for August 14, 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 continuedsince voluntarily discontinued its claims against Sponsor, Stern, and Maloney, without prejudice to demand access to suchreinstating them in the 111 West 57th Spruce Action or any other action. For additional information including accesswith regard to the books and records forCompany’s legal proceedings relating to the 111 West 57th Property, both undersee Note 8 herein.

In June 2018, the Company initiated another litigation in the NY Court, Index No. 655031/2017, (the “Apollo Action”). The defendants in the Apollo Action are ACREFI Mortgage Lending, LLC, Apollo Credit Opportunity Fund III AIV I LP, AGRE Debt 1 – 111 W 57, LLC, and Apollo Commercial Real Estate Finance, Inc. (collectively, the “Apollo Defendants”). In the Apollo Action, the Company alleges that the Apollo Defendants aided and abetted the Sponsor, Stern, and Maloney in breaching their fiduciary duties to the Company in connection with the 111 West 57th Property and tortiously interfered with the JV Agreement. The Company is seeking damages as well as punitive damages for tortious interference with the JV Agreement and as partaiding and abetting the Sponsors’ breaches of their fiduciary duties to the joint venture. For additional information with regard to the Company’s legal proceedings relating to the 111 West 57th Action and the 111 West 57th Spruce Action.Property, see Note 8 herein.

For additional informationAs further discussed herein, despite ongoing litigation challenging the legitimacy of the actions taken by the Sponsor and Spruce in connection with regard to, among other items, recent developments concerning the Company'sCompany’s investment in the 111 West 57th Property, information concerningin accordance with GAAP, the junior mezzanine lender declarationCompany recorded an impairment for the full amount of an event of default and its proposal to take control of the collateral pledged by the junior mezzanine borrower and therefore, the Company's entire interestequity investment in the 111 West 57th Street57th Property, in the Company's request for injunctive relief,full year period ended December 31, 2017. The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and net equity value. The Company is and will continue to pursue the NY Court's issuancerecovery of a temporary restraining order pending a preliminary injunction hearing, see its asset value from various sources of recovery; however, there can be no assurance that the Company will prevail with respect to any of its claims.

Note 9 and Note 11.
Table of Contents
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

With respect to its current disputes and litigation relating to its interest in the 111 West 57th Property, the Company will continueis continuing to pursue all availablevarious legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's investmentCompany’s interest in and/or rights with respect to the 111 West 57th Property. The Company is negotiating with all potential partiescontinuing to protectpursue other options to realize the Company's interests. Additionally, the Company is pursuing alternative financial resources to help finance current and future litigation in the courts to protect the Company'sCompany’s investment value including negotiating possible contingency arrangements with legal counsel and/or raising capital for the Company to pursueprotect its legal rights.

The Company can give no assurances regarding the outcome of the matters described above,herein, including as to the effect of Spruce’s actions described herein, whether the SponsorsSponsor 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 orproceedings relating to the Company’s investment interest in the 111 West 57th Property, as to the ultimate effect of the Sponsors'Sponsors’, the Company'sCompany’s or the lenders'lenders’ actions on the project, or as to the completion or ultimate success of the project, or as to the value or ultimate realization of any portion of the Company'sCompany’s equity interestinvestment in the 111 West 57th Street Property. For additional information with regard to the Company’s legal proceedings relating to the 111 West 57th Property, see Note 8 herein.

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 9.

While the Company’s management is evaluating future courses of action to protect and/or recover the value of the Company’s equity investment in the 111 West 57th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful. 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 has recorded theits investment in 111 West 57th Partners utilizing the equity method of accounting, as pursuant toaccounting. As a result of the various agreementsmatters described herein, the Company has significant influence, but does not have control, as defined under GAAP. Accordingly, the results of operations of 111 West 57th Partners are included in equity income (loss) in the Company's condensed consolidated statements of operations.  As of June 30, 2017, the Company's carrying amount of its investment in 111 West 57th Partners, as noted in the Company's condensed consolidated balance sheet, is greater than the Company's equity in the underlying net assets of 111 West 57th Partners by $867,000, categorized as goodwill, due to a difference resulting from the reduction in equity for syndication fees paid relating to 111 West 57th Partners.  The Company reviews its investments and ownership interests recorded under the equity method for impairment on a regular basis and if events or changes in circumstances indicate that a loss in the value of its investment may be other than temporary. Based on the Company's analysis, the Company believes, there was no impairment on the Company's equity method investment for the periods ended June 30, 2017.


The following tables present summarized financial information for the Company's equity method investment in 111 West 57th Partners.Partners solely for the periods indicated.  The amounts shown represent 100% of the financial position and results of operations of 111 West 57th Partners for the datesdate indicated below.

(in thousands)
Assets: June 30, 2017  December 31, 2016 
Real estate held for development, net $635,676  $563,133 
Escrow deposits  9,250   9,000 
Other assets  14,374   6,908 
Total assets $659,300  $579,041 
Liabilities:        
Loans payable $518,961  $441,749 
Other liabilities  19,876   16,788 
Total liabilities  538,837   458,537 
Equity:        
Total members' equity  120,463   120,504 
Total liabilities and members' equity $659,300  $579,041 
(in thousands) 
Three Months
Ended
June 30, 2017
  
Six Months
Ended
June 30, 2017
 
Rental income $-  $- 
Expenses  7   25 
Net income (loss) $(7) $(25)

  Three Months Ended  Six Months Ended 
(in thousands) June 30, 2017  June 30, 2016  June 30, 2017  June 30, 2016 
             
Rental income $-  $-  $-  $- 
Expenses  10   179   41   829 
Net income (loss) $(10) $(179) $(41) $(829)

Note 5 –- Savings Plan

The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"“Savings Plan”), which is a "Section“Section 401(k) Plan"Plan” within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"“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'employees’ elected deferral.  Employee contributions to the Savings Plan are invested at the employee'semployee’s discretion, in various investment funds. The Company'sCompany’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'sCompany’s matching contributions to the Savings Plan, charged to expense, were as follows:

($ in thousands)
 Three Months Ended  Six Months Ended  Three Months Ended  Six Months Ended 
 June 30, 2017  June 30, 2016  June 30, 2017  June 30, 2016  
June 30,
2018
  
June 30,
2017
  
June 30,
2018
  
June 30,
2017
 
Company matching contributions $3  $2  $15  $25  $3  $3  $28  $15 
Employer match %  33%  33%  33%  33%  33%  33%  33%  33%

12
Table of Contents
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Note 6 – Common Stock Repurchase Plan

The Company'sCompany’s common stock repurchase plan (the "Repurchase Plan"“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)
 
Six Months Endedmonths ended
June 30, 20172018
 
Common shares repurchased to treasury during period  - 
Aggregate cost of shares repurchased during period $- 

 (in(in thousands) 
June 30, 20172018
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)
June 30, 2017December 31, 2016
Stock option grants--
Stock options exercisable--
Stock options outstanding--3,774 

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)June 30, 2017
1993 Stock Incentive Plan4,320
Other employee benefit plan110
Total common shares reserved for issuance4,430

Note 8 –7 - 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 June 30,  Six Months Ended June 30, 
  2017  2016  2017  2016 
Federal – current $-  $-  $-  $- 
State – current  3   35   6   70 
Total current  3   35   6   70 
                 
Federal – deferred  -   -   -   - 
State - deferred  -   -   -   - 
Total deferred  -   -   -   - 
                 
Income tax expense (benefit) $3  $35  $6  $70 

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

  Three Months Ended June 30,   Six Months Ended June 30, 
  2017  2016   2017  2016 
Tax at statutory federal rate 35.0%  35.0%   35.0%  35.0% 
State income taxes 0.3  4.5   0.3%  3.7% 
Permanent differences -  -   -  - 
Other -  -   -  - 
Change in valuation allowance (35.0)  (35.0)   (35.0)%  (35.0)% 
Effective income tax rate 0.3%  4.5%   0.3%  3.7% 

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 2013.2014. 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 interest and/or penalties.

State income tax amounts for the three and six months ended June 30, 2017,2018 and the three months and six months ended June 30, 2016,2017, 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'sCompany’s federal tax returns as filed and to be 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.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

The federal NOL carryforwards as of December 31, 20162017, are as follows:

Tax Year OriginatingTax Year Expiring Amount  
Tax Year
Expiring
 Amount 
    
         
20062026 $500,000  2026 $500,000 
20072027  12,700,000  2027  12,700,000 
20082028  4,600,000  2028  4,600,000 
20092029  2,400,000  2029  2,400,000 
20102030  1,900,000  2030  1,900,000 
20112031  1,900,000  2031  1,900,000 
20132033  3,700,000  2033  3,700,000 
20142034  4,900,000  2034  4,900,000 
20152035  4,200,000  2035  4,200,000 
20162036  2,600,000  2036  3,400,000 
2017 2037  4,400,000 
   $39,400,000     $44,600,000 

AMT CreditsAlternative Minimum Tax (“AMT”) Credit carryforwards available, which can be used to offset income generated in future years which are not subject to expiration, are as follows:follows:

  Amount 
AMT Credits $21,000,000 
  Amount 
AMT Credits carryforwards $21,600,000 

As noted above the Company has AMT Credit carryforwards from prior tax years. In accordance with the 2017 Tax Act AMT Credit carryforwards, subject to certain estimated reduction adjustments to the amount indicated above, are expected to be claimed by the Company as refundable on tax returns to be filed in future tax years and at various percentages as noted below.

The Company’s AMT Credit carryforward amount(s) projected to be claimed as refundable for each tax year are as follows:

Tax Year (a)
 
Declining balance of the
AMT Credit
carryforward
amount(s) available for
each tax year (a) (b)
  
% of AMT Credit
carryforward
amount(s)
available to be
claimed as
refundable for
each tax year
  
AMT Credit
carryforward
amount(s) projected
to be claimed as
refundable for each
tax year (a) (b)
 
2018 $20,092,000   50% $10,046,000 
2019  10,046,000   50%  5,023,000 
2020  5,023,000   50%  2,511,500 
2021  2,511,500   100%  2,511,500 
          $20,092,000 


(a)Assumes no regular federal income tax liability in tax years presented above which would reduce any AMT Credit carryforward amount(s) ultimately refunded.


(b)The declining balance of the AMT Credit carryforward amount(s) available for each tax year and the AMT Credit carryforward amount(s) projected to be claimed as refundable for each tax year are net of certain estimated adjustments from the previously disclosed AMT Credit carryforward amounts.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

The 2017 Tax Act makes broad and complex changes to the Internal Revenue Code of 1986, as amended (the “Code”), including, among other changes, significant changes to the U.S. corporate tax rate and certain other changes to the Code that impact the taxation of corporations. The U.S. Treasury Department, the Internal Revenue Service (“IRS”), and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that differs from our interpretation. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. Additionally, there is risk relating to assumptions regarding the outcome of tax matters, based in whole or in part upon consultation with outside advisors; risk relating to potential unfavorable decisions in tax proceedings; and risks regarding changes in, and/or interpretations of federal and state income tax laws. Additionally, the Company’s tax advisors indicate that the IRS typically has broad discretion to examine taxpayer tax returns, even after refunds have been paid to taxpayers, which could result in adjustments to AMT Credit carryforward amounts claimed as refundable and/or AMT Credit carryforward amounts ultimately received.

The Company’s management is continuing to work closely with outside advisors on the Company’s tax matters as they relate to the 2017 Tax Act and on the various federal tax return matters for the numerous interrelated tax years, including the provisions and application of the 2017 Tax Act along with the amounts and timing of any AMT Credit carryforward refunds.  The AMT Credit carryforward amounts from prior tax years and related refund(s) could potentially be subject to IRS or other tax authority audits, including possible IRS Joint Committee review and/or approval.  Neither the Company nor its outside advisors can predict whether or not the IRS and/or other tax authorities will review the Company’s tax returns to be filed and/or as filed in prior years.

Based on the Company'sCompany’s state tax returns as filed and to be 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, 2016,2017, are as follows:

Tax Year OriginatingTax Year Expiring Amount  
Tax Year
Expiring
 Amount 
         
20112031 $1,800,000  2031 $1,800,000 
20132033  2,700,000  2033  2,700,000 
20142034  4,200,000  2034  4,200,000 
20152035  4,100,000  2035  4,100,000 
20162036  2,800,000  2036  2,800,000 
2017 2037  1,200,000 
   $15,600,000     $16,800,000 

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

  June 30, 2017  December 31, 2016 
Deferred tax asset $37,300,000  $36,400,000 
Valuation allowance  (37,300,000)  (36,400,000)
Net deferred tax asset recognized $-  $- 

ACredit carryforwards. At December 31, 2017, a valuation allowance has been established forwas released in relation to the entireAMT Credit carryforwards which are projected to be refundable as part of the 2017 Tax Act enacted in December 2017.  A full valuation allowance remains on the remaining deferred tax asset amounts, as management has no basis to conclude that realization is more likely than not.  Management does not believe that any significant changes in unrecognized income tax benefits are expected to occur over the next year.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Note 98 - 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 lawsuitmaterial legal proceedings as follows:

AmBase Corp., et al. v. 111 West 57th 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"“NY Court”), Index No. No. 652301/2016, ("(“AmBase v. 111 West 57th Sponsor LLC, et al."”) (the "111“111 West 57th Action"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 57th KM Equity LLC, 111 West 57th KM Group LLC, Kevin Maloney, Matthew Phillips, Michael Stern, Ned White, and Franklin R. Kaiman111 Construction Manager LLC, Property Markets Group, Inc., JDS Development LLC, JDS Construction Group LLC (collectively, "Defendants"“Defendants”) and nominal defendant 111 West 57th Partners LLC. In the current version of the complaint, AmBase alleges in that action, among other claims, that the Defendants engaged in an unlawful scheme to dilute AmBase's equity interestviolated multiple provisions in the joint real estate venture 111 West 57th Partners, to develop the 111 West 57th Street Property and to keep for themselves certain financing opportunities in breach of Defendants' contractual and fiduciary duties. The complaint also alleges that defendants have failedJV Agreement, including by failing to honor the exercise of AmBase'sAmBase’s contractual "equity“equity put right"right” as set forth in the JV Agreement (the "Equity“Equity Put Right"Right”)., and committed numerous acts of fraud and breaches of fiduciary duty. AmBase is seeking compensatory damages, as well as treble damages under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), punitive damages, indemnification and equitable relief including a declaration of the parties'parties’ rights, and 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 ongoingaccounting. The Company has also demanded from the SponsorsSponsor access to the books and records for the 111 West 57th Property which the Sponsors haveSponsor refused, claiming they have provided all books and records as required. The Defendants filed motions to dismiss, and on January 12, 2018, the NY Court issued an opinion allowing some of AmBase’s claims to go forward and dismissing others. Among other claims that the NY Court declined to dismiss was AmBase’s claim that the Defendants violated the implied covenant of good faith and fair dealing by frustrating AmBase’ s Equity Put Right. Claims that the NY Court dismissed included AmBase’s claim that the Defendants breached their contract with AmBase by financing capital contributions for the project through funds obtained from third parties. On January 16, 2018, some of the Defendants wrote to the NY Court suggesting that the opinion contained certain clerical errors and was missing a page. On January 18, 2018, the NY Court removed its previous opinion from the docket and on January 29, 2018, posted a revised opinion. A discovery conference in this case is was held on February 27, 2018. On April 27, 2018, the Company filed a third amended complaint adding federal RICO claims, and new claims for declaratory judgment, breach of contract, fraud, and breach of fiduciary duty, based on information discovered during the course of discovery and events that have transpired since the Company filed its previous complaint in the 111 West 57th Action. For additional information with regard to the Company’s investment in the 111 West 57th Property, see Note 4. On June 18, 2018, Defendants removed the complaint to the U.S. District Court for the Southern District of New York, where it is docketed as case number 18-cv-5482-AT. Defendants filed a motion to dismiss on August 7, 2018, and the Company is expected to file its opposition brief by September 11, 2018.

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“111 West 57th Spruce Action"Action”). The defendants in the 111 West 57th TROSpruce 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"“Defendants”) and nominal defendants 111 West 57th Partners LLC and 111 West 57th Mezz 1 LLC. The Company has since voluntarily discontinued its claims against Sponsor, Stern, and Maloney, without prejudice to reinstating them in the 111 West 57th Spruce Action or any other action.

Spruce had given notice to the junior mezzanine borrower that it proposed to accept the pledged collateral (including the joint venture members'members’ collective interest in the property) in full satisfaction of the joint venture'sventure’s indebtedness under the Junior Mezzanine Loan (i.e., a "Strict Foreclosure"“Strict Foreclosure”). After the Sponsors refused to object to Spruce'sSpruce’s proposal on behalf of the junior mezzanine borrower, and Spruce refused to commit to honor Investment LLC'sLLC’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.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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. For additional informationSpruce 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 events leadingCompany’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 litigation see Note 4.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 purporting to accept 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.  The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion 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 currently attempting to have the Appellate Division declare the Strict Foreclosure invalid and to enjoin the Strict Foreclosure. The Company moved for a stay or injunctive relief pending appeal, and that motion was denied by the appellate court on January 18, 2018.

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 that the Sponsors have elected to share.share or that have been produced in the ongoing litigation.  The Company has continued to demand access to such information, including access to the books and records for the 111 West 57th Property both under the JV Agreement and as part of the 111 West 57th Action and the 111 West 57th Spruce Action.

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

AmBase Corp., et al. v. ACREFI Mortgage Lending LLC, et al. In June 2018, the Company initiated another litigation in the NY Court, Index No. 655031/2017, (the “Apollo Action”). The defendants in the Apollo Action are ACREFI Mortgage Lending, LLC, Apollo Credit Opportunity Fund III AIV I LP, AGRE Debt 1 – 111 W 57, LLC, and Apollo Commercial Real Estate Finance, Inc. (collectively, the “Apollo Defendants”). In the Apollo Action, the Company alleges that the Apollo Defendants aided and abetted the Sponsor, Stern, and Maloney in breaching their fiduciary duties to the Company in connection with the 111 West 57th Property and tortiously interfered with the JV Agreement. The Company is seeking damages and punitive damages for tortious interference with the JV Agreement and aiding and abetting the Sponsors’ breaches of their fiduciary duties to the joint venture. For additional information with regard to the Company’s investment in the 111 West 57th Property and the JV Agreement; see Note 4.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

With respect to its current disputes and litigation relating to its interest in the 111 West 57th Property, the Company will continueis continuing to pursue all availablevarious legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's investmentCompany’s interest in and/or rights with respect to the 111 West 57th Property. The Company is negotiating with all potential partiescontinuing to protectpursue other options to realize the Company's interests. Additionally, the Company is pursuing alternative financial resources to help finance current and future litigation in the courts to protect the Company'sCompany’s investment value including negotiating possible contingency arrangements with legal counsel and/or raising capital for the Company to pursueprotect its legal rights.

For additional information with regard to, among other items, recent developments concerning the Company's investment in the 111 West 57th Property, information concerning the junior mezzanine lender declaration of an event of default and its proposal to take control of the collateral pledged by the junior mezzanine borrower and therefore, the Company's entire interest in the 111 West 57th Street Property, the Company's request for injunctive relief, and the NY Court's issuance of a temporary restraining order pending a preliminary injunction hearing, see Note 4 and Note 11.

The Company can give no assurances regarding the outcome of the matters described above,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 orproceedings relating to the Company’s investment interest in the 111 West 57th Property, as to the ultimate effect of the Sponsors'Sponsors’, the Company'sCompany’s or the lenders'lenders’ actions on the project, or as to the completion or ultimate success of the project, or as to the value or ultimate realization of any portion of the Company'sCompany’s equity interestinvestment in the 111 West 57th Street Property. For additional information onwith regard to the Company'sCompany’s investment in the 111 West 57th Property see Note 4 and Note 11.4.

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 9.

While the Company’s management is evaluating future courses of action to protect and/or recover the value of the Company’s equity investment in the 111 West 57th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful. 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.

IsZo Capital L.P. derivatively and on behalf of AmBase Corporation v. Richard A. Bianco, et al. In February 2018, IsZo Capital L.P. commenced an action, IsZo Capital L.P. derivatively and on behalf of AmBase Corporation v. Richard A. Bianco, et al., Index No. 650812/2018 in the New York State Supreme Court for New York County (the “IsZo Capital L.P. action”). The defendants in the action include all officers and directors of AmBase Corporation and AmBase Corporation as a nominal defendant.  The plaintiff alleges various breaches of fiduciary duty against all of the directors and officers concerning the decisions made in the 111 West 57th Street Property investment and a certain litigation funding agreement.  IsZo Capital L.P. also seeks declaratory judgment relief concerning a litigation funding agreement and the 111 West 57th Street Property.  AmBase and the officers and directors intend to vigorously defend themselves. Service of the summons and complaint has been accepted by counsel on behalf of all defendants and a motion to dismiss was served and filed in early May 2018. The motion was returnable on July 17, 2018 and all motion papers have now been submitted to the Court.  AmBase awaits a decision on the motion. The Company can give no assurances regarding the outcome of the matters described herein.

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Note 9 – 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 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 (collectively, “Future Recovery Litigation”).

As a result of developments in the legal proceedings concerning the Company’s equity investment in the 111 West 57th Property, the Company’s interest in obtaining a litigation funding commitment to finance litigation with respect to the ongoing disputes with the Sponsors and the lenders in the 111 West 57th 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 57th 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 57th 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 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 are included in the Company’s condensed consolidated statement of operations as part of professional and outside services, as follows:

($ in thousands)
 Three Months Ended  Six Months Ended 
  
June 30,
2018
  
June 30,
2017
  
June 30,
2018
  
June 30,
2017
 
Legal expenses attributable to the Litigation Funding Agreement $590  $-  
$
1,271  
$
- 

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AMBASE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Note 10 – Loans Payable

In May 2016, the Company and Mr. Richard A. Bianco, the Company'sCompany’s Chairman, President and Chief Executive Officer ("(“Mr. R. A. Bianco"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"“WC Agreement”).

Pursuant to the WC Agreement, Mr. R. A. Bianco made several loans to the Company for use as working capital.  The loans arewere due on the earlier of the date the Company receivesreceived 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 arewas included in accounts payable and accrued liabilities in the Company'sCompany’s consolidated balance sheet.

In January 2018, pursuant to the WC Agreement, Mr. R.A. Bianco made an additional loan to the Company, as noted in the condensed consolidated balance sheet.statement of cash flows, for use as working capital as reflected and in accordance with the same terms of the loans payable noted herein.

Information regarding the loans payable is as follows:



 Date of Loan Rate  Due Date 
June 30,
2018
  
December 31,
2017
 
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 
Loan payable October 2017  5.25% December 31, 2019  -   446,000 
Loan payable December 2017  5.25% December 31, 2019  -   200,000 
             $-  $2,296,000 
Date of Loan Rate Due Date June 30, 2017  December 31, 2016 
Loan payableJanuary 2017  5.25%December 31, 2019 $500,000  $- 
Loan payableApril 2017  5.25%December 31, 2019  500,000   - 
Loan payableJune 2017  5.25%December 31, 2019  500,000   - 
           $1,500,000  $- 

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

(in thousands)
 June 30, 2017  December 31, 2016  
December 31,
2017
 
Accrued interest expense $18  $-  $67 

The amounts noted above pursuant to the WC Agreement are distinct from the line of credit agreement for the 111 West 57th Property as discussed in Note 4 herein and distinct from the Litigation Funding Agreement amounts as discussed in Note 9 herein.

In January 2018, in connection with the sale by the Company of its commercial office building in Greenwich, Connecticut, the Company repaid the full amount of the working capital loan, plus accrued interest aggregating $2,623,000 to Mr. R. A. Bianco, and the working capital line of credit agreement was terminated. See Note 3 herein for additional information.

Note 11 - Subsequent Events

The Company has performed a review of events subsequent to the balance sheet dated June 30, 2017,2018, through the report issuance date.

For additional information with regard to, among other items, recent developments concerning the Company's investment in the 111 West 57th Property, information concerning the junior mezzanine lender declaration
20
Table of an event of default and its proposal to take control of the collateral pledged by the junior mezzanine borrower and therefore, the Company's entire interest in the 111 West 57th Street Property, the Company's request for injunctive relief, and the NY Court's issuance of a temporary restraining order pending a preliminary injunction hearing, see Note 4 and Note 9.Contents

Item 2.  MANAGEMENT'S
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"“Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“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"“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'sCompany’s actual results to differ materially from the anticipated results or other expectations expressed in the Company'sCompany’s forward-looking statements.  These risks and uncertainties, many of which are beyond the Company'sCompany’s control, include, but are not limited to those set forth in "Item“Item 1A, Risk Factors"Factors” and elsewhere in the Company'sCompany’s Annual Report on Form 10-K and in the Company'sCompany’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; (ii)(v) the volatility of the securities markets; (iii)(vi) fluctuations in interest rates; (iv)(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; (v)(viii) changes in regulatory requirements which could affect the cost of doing business; (vi)(ix) general economic conditions; (vii)(x) risks with regard to whether or not the Company'sCompany’s current financial resources will be adequate to fund operations over the next twelve months from financial statement issuance date and/or continue operations; (viii)(xi) changes in the rate of inflation and the related impact on the securities markets; (ix)(xii) changes in federal and state tax laws; (x)laws and (xiii) additionally, there is risk relating to assumptions regarding the outcome of legal and/or tax matters, based in whole or in part upon consultation with outside advisors; (xi) risks arising fromrisk relating to potential unfavorable decisions in tax legalproceedings; risks regarding changes in, and/or other proceedings;interpretations of federal and risks with reard to the abilitystate income tax laws; and risk of the Company to continue as a going concern.IRS and/or state tax authority assessment of additional tax plus interest. 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/orand 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 QuarterlyAnnual Report or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that the Company'sCompany’s expectations will be realized.

Management'sManagement’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 III – Item 81 in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.

BUSINESS OVERVIEW

AmBase Corporation ("AmBase"(the “Company” or the "Company"“AmBase”) is a Delaware corporation that was incorporated in 1975.  AmBase is a holding company which has an equity investment in a real estate development property in New York, New York and owns a commercial office building in Greenwich, Connecticut.company.

The Company'sAt June 30, 2018, the Company’s assets currently consistconsisted primarily of cash and cash equivalents an equity investmentand a deferred tax asset.  In January 2018, the Company sold its commercial office building in a real estate development property and real estate owned.Greenwich, Connecticut, see Part I – Item 1 – Note 3 to the Company’s condensed consolidated financial statements for additional information.  See Part I – Item 1 – Note 7 to the Company’s condensed consolidated financial statements for additional information regarding taxes.  The Company ownsis engaged in the management of its assets and liabilities.

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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 57th Street in New York, New York (the "111“111 West 57th Property"Property”). As further discussed herein below and in Part I – Item 1 - Note 4, Note 9 and Note 11 to the Company's condensed consolidated financial statements, theThe Company is engaged in material disputes and litigation with the sponsorsponsors of the joint venture (the “Sponsor”) and a mezzanine lender to the joint venture.venture (“Spruce”). The Company is otherwise engagedrecorded an impairment of its equity investment in the management111 West 57th Property in the full year period ended December 31, 2017. The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion 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 See Part I – Item 1 – Note 4 and Note 8 to the Company’s condensed consolidated financial statements for additional information concerning the Company’s pending appeal of its assetschallenge to the Strict Foreclosure, the Company’s recording of an impairment of its equity investment in the 111 West 57th Property, and liabilities.the Company’s legal proceedings relating to the 111 West 57th Property.

LIQUIDITYFINANCIAL CONDITION AND CAPITAL RESOURCESLIQUIDITY

The Company'sCompany’s assets at June 30, 2017,2018, aggregated $65,857,000,$21,567,000 consisting principally of cash and cash equivalents of $358,000, an equity investment in$1,410,000 and a real estate development propertydeferred tax asset of $63,745,000 and real estate owned, net of $1,656,000.$20,092,000.  At June 30, 2017,2018, the Company'sCompany’s liabilities aggregated $2,440,000.$610,000.  In addition, the Company has a litigation funding amount of $2,552,000 as further discussed in Part I – Item 1 – Note 9 of the Company’s condensed consolidated financial statements.  Total stockholders'stockholders’ equity was $63,417,000.$18,405,000.

The Company’s deferred tax asset at June 30, 2018, is due to a valuation allowance which was released as of December 31, 2017, in relation to the AMT Credit carryforwards which are projected to be refundable as part of the Tax Cuts and Jobs Act enacted in December 2017.  See herein below and Part I – Item 1 – Note 7 to the Company’s condensed consolidated financial statements, for additional information.

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 also made significant investmentscarrying value of the Company’s equity investment in the 111 West 57th Street57th Property since 2013.represented a substantial portion of the Company’s assets and net equity value. The Company has continued to keep operating expenses at a reduced level; however, there can be no assurance that the Company'sCompany’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 andnet proceeds from the linesale of credit from Mr. Richard A. Bianco,its commercial office building in Greenwich, Connecticut as further discussed in Part I – Item 1 – Note 3 to the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") as noted herein,Company’s condensed consolidated financial statements, 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'sCompany’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying 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 which may include additional borrowings from affiliates of the Company, 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 sell any of its assets or attain such financing at terms acceptable to the Company, if at all.

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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. Pursuant to this agreement, Mr. Bianco made several loans to the Company for use as working capital.  The loans accrued interest at 5.25% per annum and were due on the earlier of the date the Company received funds from any source sufficient to pay all amounts due under the loans, including accrued interest thereon, or December 31, 2019. In January 2018, pursuant to the WC Agreement, Mr. R. A. Bianco made an additional loan to the Company for use as working capital in accordance with the same terms of the loans payable noted above. On January 26, 2018, in connection with the sale by the Company of its commercial office building in Greenwich, Connecticut, the Company repaid the full amount of the working capital loan, plus accrued interest aggregating $2,623,000 to Mr. R. A. Bianco, and the working capital line of credit agreement was terminated. For additional information, see Part I – Item 1 – Note 11 to the Company’s condensed consolidated financial statements.

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 treble damages under RICO, punitive damages, indemnification and equitable relief, including a declaration of the parties'parties’ rights, and an accounting, and a constructive trust over distributions received by the Defendants.accounting. That complaint has since been removed to federal court.  For additional information, see Part I – Item 1 – Note 4 Note 9 and Note 118 to the Company'sCompany’s condensed consolidated financial statements.statements.

For additional information with regard to, among other items, recent developments concerningIn July 2017, the Company's investmentCompany initiated a second litigation in the NY Court, Index No. 655031/2017, (the “111 West 57th Spruce Action”). The defendants in the 111 West 57th Spruce action were 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 57th Property, information concerning Mezz 1 LLC. The Company has since voluntarily discontinued its claims against Sponsor, Stern, and Maloney, without prejudice to reinstating them in the 111 West 57th Spruce Action or any other action. The junior mezzanine lender (“Spruce”) had given notice to the junior mezzanine lender declarationborrower that it proposed to accept the pledged collateral (including the joint venture members’ collective interest in the property) in full satisfaction of an eventthe joint venture’s indebtedness under the Junior Mezzanine Loan (i.e., a “Strict Foreclosure”).

On August 30, 2017, Spruce issued a Notice of default and its proposalRetention of Pledged Collateral in Full Satisfaction of Indebtedness. By purporting to take controlaccept 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 entireCompany’s interest in the 111 West 57th Street Property. The Company has an appeal pending on its challenge to the Strict Foreclosure, which has not yet been resolved. 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 57thProperty as further discussed herein, in accordance with GAAP, the Company's requestCompany recorded an impairment of its equity investment in the 111 West 57th Property of $63,745,000 in the full year period ended December 31, 2017. The carrying value of the Company’s equity investment in the 111 West 57th Property represented a substantial portion of the Company’s assets and net equity value. The Company is and will continue to pursue the recovery of its asset value from various sources of recovery; however, there can be no assurance that the Company will prevail with respect to any of its claims. See Part I – Item 1 – Note 4 and Note 8 to the Company’s condensed consolidated financial statements for injunctive relief,additional information concerning the Company’s pending appeal of its challenge to the Strict Foreclosure, the Company’s recording of an impairment of its equity investment in the 111 West 57th Property, and the Company’s legal proceedings relating to the 111 West 57th Property.

In June 2018, the Company initiated another litigation in the NY Court's issuanceCourt, Index No. 655031/2017, (the “Apollo Action”). The defendants in the Apollo Action are ACREFI Mortgage Lending, LLC, Apollo Credit Opportunity Fund III AIV I LP, AGRE Debt 1 – 111 W 57, LLC, and Apollo Commercial Real Estate Finance, Inc. (collectively, “Apollo Defendants”). In the Apollo Action, the Company alleges that the Apollo Defendants aided and abetted the Sponsors in their scheme to convert the Company’s equity interest in the joint venture that owns the 111 West 57th Property and tortiously interfered with the JV Agreement. See Part I – Item 1 – Note 8 to the Company’s condensed consolidated financial statements for additional information regarding the Apollo Action.

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 57th Property (the “Litigation Funding Agreement”). The Company’s condensed consolidated balance sheet for June 30, 2018, includes $2,552,000 as a litigation funding amount which reflects the aggregate amounts funded pursuant to the Litigation Funding Agreement as of a temporary restraining order pending a preliminary injunction hearing, seeJune 30, 2018. See Part I – Item 1 – Note 4, Note 9 and Note 11,to the Company'sCompany’s condensed consolidated financial statements.


statements for additional information including terms of the Litigation Funding Agreement. With respect to its current disputes and litigation relating to its interest in the 111 West 57th Property, the Company will continueis continuing to pursue all availablevarious legal courses of action, as well as considering other possible economic strategies, including the possible sale of the Company's investmentCompany’s interest in and/or rights with respect to the 111 West 57th Property. The Company is negotiating with all potential partiescontinuing to protectpursue other options to realize the Company's interests. Additionally, the Company is pursuing alternative financial resources to help finance current and future litigation in the courts to protect the Company'sCompany’s investment value including negotiating possible contingency arrangements with legal counsel and/or raising capital for the Company to pursueprotect its legal rights. For additional information, see Part I – Item 1 – Note 4, Note 9 and Note 11 to the Company's condensed consolidated financial statements.

In May 2016,
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The Company can give no assurances regarding the Company and Mr. Richard A. Bianco,outcome of the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") entered into an agreement for Mr. R. A. Biancomatters described herein, including as to providethe effect of Spruce’s actions described herein, whether the Sponsors will perform their contractual commitments to the Company a secured working capital line of credit of upunder the JV Agreement, as to one million dollars ($1,000,000) or additional amount(s)what further action, if any, the lenders may take with respect to the project, 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").  A copythe ultimate resolution of the WC Agreement was filed as exhibit 10.1ongoing litigation proceedings relating to the Company's Form 10-Q forCompany’s investment interest in the quarterly period ended March 31, 2016.  Pursuant111 West 57th Property, as to the WC Agreement, Mr. R. A. Bianco made a $500,000 loanultimate effect of the Sponsors’, the Company’s or the lenders’ actions on the project, as to the Companycompletion or ultimate success of the project, or as to the value or ultimate realization of any portion of the Company’s equity investment in January 2017the 111 West 57th Street Property.

While the Company’s management is evaluating future courses of action to protect and/or recover the value of the Company’s equity investment in the 111 West 57th Property, the adverse developments make it uncertain as to whether any such courses of action will be successful. Any such efforts are likely to require sustained effort over a period of time, and anrequire substantial additional $500,000 loanfinancial resources. Inability to recover all or most of such value would in April 2017 for use as working capital.  The loans accrue interest at 5.25% per annum and are dueall likelihood have a material adverse effect 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.  A copy of such agreements are filed as exhibits to the Company's previously filed periodic filings.Company’s financial condition and future prospects.

In June 2017, Mr. R. A. Bianco made an additional $500,000 loan to the Company for use as working capital in accordance with the same terms of the loans payable noted above.  A copy of the loan agreement is filed as exhibit 10.4 to the Company's Form 10-Q for the quarterly period ended June 30, 2017.

The amounts noted aboveherein pursuant to the WC Agreement are distinct from the line of credit agreement for the 111 West 57th Property as noted belowherein and as discussed in Part I – Item 1 – Note 4 to the Company'sCompany’s condensed consolidated financial statements and distinct from the Litigation Funding Agreement amounts as noted herein and as discussed in Part I – Item I – Note 9 to the Company’s condensed consolidated financial statements.

For the six months ended June 30, 2018, cash of $2,472,000 was used by operations for the payment of operating expenses and prior year accruals.  The cash needs of the Company in 2018 were satisfied by net proceeds received by the Company in connection with the sale of its commercial office building in Greenwich, CT. and proceeds from Mr. R. A. Bianco pursuant to the Litigation Funding Agreement as noted above and to a lesser extent the Company’s financial resources.

For the six months ended June 30, 2017, cash of $1,728,000 was used by operations for the payment of operating expenses and prior year accruals.  The cash needs of the Company for the six months ended June 30, 2017, were principally satisfied by the loan from Mr. R.A. Bianco as noted above and Company'sCompany’s financial resources.

For the six months ended June 30, 2016, cash of $1,630,000 was used by operations, for the payment of operating expenses and prior year accruals.  The cash needs of the Company for the six months ended June 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 57th 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'sCompany’s commercial office building in Greenwich, Connecticut. A copyAs a result of such agreement was filed as exhibit 10.9 to the Company's Form 10-K forsale of the annual period ended December 31, 2016.

Real estate owned consists of aCompany’s 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 portionCT. in January 2018, any borrowings from Mr. R.A. Bianco under this line 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 June 30, 2017, has not been impaired.credit would be unsecured.

Accounts payable and accrued liabilities as of June 30, 2017,2018, increased from December 31, 2016,2017, principally as a result of current period accruals including $18,000 of accrued interest expense relating tofor legal expenses in connection with the loan payable to Mr. R. A. Bianco.111 West 57th Property litigation which were paid in July 2018.

There are no other material commitments for capital expenditures as of June 30, 2017.2018.  Inflation has had no material impact on the business and operations of the Company.


Results of Operations for the Three Months and Six Months Ended June 30, 20172018 vs. the Three Months and Six Months Ended June 30, 20162017

The Company recorded a net loss of $1,201,000 or $0.03 per share and net income of $603,000 or $0.01 per share in the three months and six months ended June 30, 2018, respectively, compared a net loss of $1,072,000 or $0.03 per share and $2,442,000 or $0.06 per share in the three months andrespective 2017 periods. Net income in the six monthsmonth period ended June 30, 2017 respectively, compared2018, is attributable to a net lossgain on the sale of $819,000 or $0.02 per share and $1,963,000 or $0.05 per share in the respective 2016 periods.real estate owned of $3,278,000, as further discussed herein.

Compensation and benefits were $278,000$306,000 and $602,000$830,000 in the three months and six months ended June 30, 2017,2018, respectively compared to $356,000$278,000 and $830,000$602,000 in the respective 20162017 periods. No stock based compensation expense was recordedThe increase in the six months ended June 30, 2017 or June 30, 2016.  The decrease in the 20172018 three month and six month periods is due to a decreasean increase in incentive compensation accruals in the 20172018 periods versus the comparable 20162017 periods.

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Professional and outside services increased to $624,000$840,000 and $1,528,000$1,658,000 in the three months and six months ended June 30, 2017,2018, respectively, compared to $193,000$624,000 and $302,000$1,528,000 in the respective 20162017 periods.  The increase in the 20172018 periods as compared to the 20162017 periods is principally the result of a higher level of legal and professional fees incurred in 20172018 in connection with the Company'sCompany’s legal proceedings relating to the Company'sCompany’s investment in the 111 West 57th property. Included in professional and outside services are legal expenses attributable to the Litigation Funding Agreement aggregating $590,000 and $1,271,000 in the three and six month periods ended June 30, 2018, respectively. See Part I – Item 1 – Note 9 to the Company’s condensed consolidated financial statements for additional information including terms of the Litigation Funding Agreement.

Property operating and maintenance expenses were $38,000$14,000 and $71,000$46,000 for the three months and six months ended June 30, 2017,2018, respectively, compared to $29,000$38,000 and $62,000$71,000 in the respective 20162017 periods. The decreased expensedecrease in the six months ended June 30, 2017 compared to the respective 2016 period2018 periods versus 2017periods is primarily due to a decrease in costs resulting from the overall levelsale of repairsthe Company’s building in January 2018. As a result, the Company anticipates that property operating and maintenance expenses.expenses will decrease in 2018 compared with prior year periods.

Insurance expenses increased to $49,000$19,000 and $85,000$81,000 in the three months and six months ended June 30, 2017,2018, respectively, compared to $45,000$49,000 and $81,000$85,000 in the respective 20162017 periods.  The increasedecrease is generally due to an increasea decrease in insurance coverage levels and insurance premium costscosts.

Other operating expenses were $48,000$23,000 and $83,000$50,000 in the three and six months ended June 30, 2017,2018, respectively, compared with $41,000$48,000 and $94,000$83,000 in the respective 20162017 periods.  The decrease in the June 30, 20172018 three and six month periodperiods is due to a general lower level of related expenses including decreased Delaware franchise tax expenses in the 2017 period.2018 periods.

Interest income in the three months and six months ended June 30, 2018, increased to $3,000 and $4,000, respectively from $- and $- in the respective 2017 periods.  The increased interest income is due to a higher average level of cash and cash equivalents and investments on hand in the 2018 periods compared with the 2017 periods due to the Company’s sale of its building in January 2018.

Interest expense of $10,000 for the six months ended June 30, 2018, and $13,000 and $18,000 in the three months and six months ended June 30, 2017, represents accrued interest expense on the loan payable to Mr. R. A. Bianco.  See Part I – Item 1 - Note 10 to the Company'sCompany’s condensed consolidated financial statements for furtheradditional information.

On January 26, 2018, the Company sold its commercial office building in Greenwich, Connecticut, to Maria USA, Inc. an unaffiliated third party. The sale price was $5,200,000, less normal real estate closing adjustments.  A gain from the sale, of $3,278,000 is reflected in the Company’s condensed consolidated financial statements for the six month period ended June 30, 2018. The Company used the sale proceeds to repay the full amount of the working capital loan plus accrued interest aggregating $2,623,000, to Mr. Richard A. Banco, the Company’s Chairman, President and Chief Executive Officer. The remaining proceeds will be used for working capital. See Part I – Item 1– Note 3 and Note 10 to the Company’s condensed consolidated financial statements for additional information.

Equity income (loss) - 111 West 57th Partners of $7,000 and $25,000 for the three months and six months ended June 30, 2017, respectively represents the Company'sCompany’s share of the 111 West 57th Partners'Partners’ loss for the periods indicated versus $108,000 for the three months ended June 30, 2016, and $500,000 for the six months ended June 30, 2016.indicated. The equity loss in the 2017 and 2016 periodsperiod is due to sales and marketing expenses incurred. Beginning January 1, 2015, all tenants had vacated the building and expenses incurred for the building's operations are being capitalized as part of development costs.

The Company recognized income tax provisions of $2,000 and $4,000 for the three months and six months ended June 30, 2018, respectively, as compared with income tax provisions of $3,000 and $6,000 for the three months and six months ended June 30, 2017, respectively, as compared with income tax provisions of $35,000 and $70,000 for the three months and six months ended June 30, 2016, respectively.  The income tax provisions for the 20172018 periods and 20162017 periods are attributable to a provision for a tax on capital imposed by the state jurisdictions.

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  For additional information including a discussion of income taxes computed at the statutory federal rate and the provision for income taxes is included intax matters, see Part I -– Item 1 – Note 87 to the Company'sCompany’s condensed consolidated financial statements.

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Item 4.
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"“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 June 30, 2017.2018.  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'sCompany’s legal proceedings, see Part I - Item 1- Note 98 – Legal Proceedings.


Item 1A.RISK FACTORS

There have been no material changes to the risk factors previously disclosed in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 20162017 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
a. Not applicable
b. Not applicable
c. None

Common Stock Repurchase Plan

The Company'sCompany’s common stock repurchase plan (the "Repurchase Plan"“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 20172018 period.

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Item 3.DEFAULTS UPON SENIOR SECURITIESDEFAULTS UPON SENIOR SECURITIES

None.Not Applicable.

Item 4.
MINE SAFETY DISCLOSURES

Not applicable.Applicable.


Item 5.
OTHER INFORMATION
In April 2017, pursuant to the WC Agreement, Mr. R. A. Bianco made an additional loan of $500,000 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 10.3 to the Company's Form 10-Q for the quarterly period ending March 31, 2017, in lieu of under Items 1.01 and 9.01 of Form 8-K.
In June 2017, Mr. R. A. Bianco made an additional loan of $500,000 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 10.4, hereto. in lieu of under Items 1.01 and 9.01 of Form 8-K.
None.

Item 6.
EXHIBITS
10.1Loan Agreement dated January 31, 2017 between Mr. Richard A. Bianco, the Company's Chairman President and Chief Executive Officer ("R. A. Bianco") and the Company (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference).
10.2Agreement dated March 17, 2017 between Mr. Richard A. Bianco, the Company's Chairman President and Chief Executive Officer ("R. A. Bianco") and the Company 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 the 111 West 57th Property (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference).

10.3
10.4*
Loan Agreement dated April 2017, between Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco') and the Company.
Loan Agreement dated June 2017, between Mr. Richard A. Bianco, the Company's Chairman, President and Chief Executive Officer ("Mr. R. A. Bianco") and the Company.
31.1 *31.1*
Rule 13a-14(a) Certification of Chief Executive Officer
31.2 *31.2*
Rule 13a-14(a) Certification of Chief Financial Officer
32.1 *32.1*
Section 1350 Certification of Chief Executive Officer
32.2 *32.2*
Section 1350 Certification of Chief Financial Officer
101.1 *
101.1*		The following financial statements from AmBase Corporation'sCorporation’s quarterly report on Form 10-Q for the quarter ended June 30, 20172018 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)
 Accounting Officer)
  
Date:August 11, 201713, 2018


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