AMBASE CORPORATION

                                    FORM 10-K

                   FOR ANNUAL AND TRANSITION REPORTS PURSUANT
         TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                   (Mark One)
            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2005
                                       OR
|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                For the transition period from ________ to ________

                         Commission file number 1-07265

                               AMBASE CORPORATION
             (Exact name of registrant as specified in its charter)

  DELAWARE                                        95-2962743
(State of incorporation)           (I.R.S. Employer Identification No.)

             100 Putnam Green, 3rd Floor, Greenwich, CT 06830-6027
                    (Address of principal executive offices)

      Registrant's telephone number, including area code: (203) 532-2000

      Securities registered pursuant to Section 12(g) of the Act:

                              Title of each class
                        Common Stock ($0.01 par value)

                         Rights to Purchase Common Stock

     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes No X

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant  to  Section  13 or  Section  15(d)  of  the  Act.  Yes  No X

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  12 months,  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one): Large Accelerated Filer  Accelerated Filer  Non-Accelerated  Filer X

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). Yes No X



<PAGE>




     At February 28, 2006, there were 46,233,519  shares of registrant's  Common
Stock  outstanding.  At June 30, 2005 the aggregate market value of registrant's
voting securities  (consisting of its Common Stock) held by nonaffiliates of the
registrant, based on the average bid and asking price on such date of the Common
Stock of $0.67 per share,  was  approximately  $24  million.  The  Common  Stock
constitutes registrant's only outstanding class of security.

     Portions of the registrant's definitive Proxy Statement for its 2006 Annual
Meeting of Stockholders,  which Proxy Statement  registrant intends to file with
the Securities  and Exchange  Commission not later than 120 days after the close
of its  fiscal  year,  is  incorporated  by  reference  with  respect to certain
information contained therein, in Part III of this Annual Report.

     The Exhibit Index is located in Part IV, Item 15, Page 43.

<PAGE>


AmBase Corporation

Annual Report on Form 10-K
December 31, 2005
<TABLE>
<CAPTION>
<S>                                                                                                           <C>
TABLE OF CONTENTS                                                                                              Page
----------------------------------------------                                                               ------

PART I

Item 1.       Business............................................................................................1

Item 1A.      Risk Factors........................................................................................2

Item 1B.      Unresolved Staff Comments...........................................................................5

Item 2.       Properties..........................................................................................5

Item 3.       Legal Proceedings...................................................................................5

Item 4.       Submission of Matters to a Vote of Security Holders.................................................5

              Executive Officers of the Registrant................................................................5


PART II

Item 5.       Market for  Registrant's  Common  Equity,  Related  Stockholder  Matters and Issuer
                Purchases of
                Equity Securities.................................................................................6

Item 6.       Selected Financial Data.............................................................................6

Item 7.       Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results  of
                Operations........................................................................................7

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.........................................14

Item 8.       Financial Statements and Supplementary Data........................................................15

Item 9.       Changes  in  and  Disagreements   with  Accountants  on  Accounting  and  Financial
                Disclosure.......................................................................................41

Item 9A.      Controls and Procedures............................................................................41

Item 9B.      Other Information..................................................................................41

PART III

Item 10.      Directors and Executive Officers of the Registrant.................................................41

Item 11.      Executive Compensation.............................................................................41

Item 12.      Security Ownership of Certain Beneficial Owners & Management.......................................42

Item 13.      Certain Relationships and Related Transactions.....................................................42

Item 14.      Principal Accountant Fees and Services.............................................................42

PART IV

Item 15.      Exhibits and Financial Statement Schedules.........................................................43
</TABLE>



<PAGE>



     PART I

     ITEM 1. BUSINESS

     AmBase  Corporation  (the "Company" or "AmBase") is a Delaware  corporation
that was incorporated in 1975 by City Investing  Company  ("City").  AmBase is a
holding  company that,  through a wholly owned  subsidiary,  owns one commercial
office  building in Greenwich,  Connecticut  that is managed and operated by the
Company.  The building is approximately  14,500 square feet and is available for
lease to  unaffiliated  third  parties  with  approximately  3,500  square  feet
utilized by the Company for its executive  offices.  The executive office of the
Company is located at 100 Putnam  Green,  Third  Floor,  Greenwich,  Connecticut
06830.

     The  Company's  assets  currently   consist  primarily  of  cash  and  cash
equivalents,  investment  securities,  and real estate owned. The Company's main
source of operating  revenue is rental  income  received from real estate owned.
The Company also earns non-operating revenue principally  consisting of interest
income  earned  on  investment  securities  and cash  equivalents.  The  Company
continues to evaluate a number of possible  acquisitions,  and is engaged in the
management of its assets and liabilities,  including the contingent  assets,  as
described  in Part II - Item 8 -  Notes 9 and 10 to the  Company's  consolidated
financial statements. From time to time, the Company and its subsidiaries may be
named as a defendant in various lawsuits or proceedings.  The Company intends to
aggressively  contest all  litigation and  contingencies,  as well as pursue all
sources for  contributions  to  settlements.  The  Company  had 5  employees  at
December 31, 2005.

     In July 2005,  the  Company  completed  the sale of its 38,000  square foot
office  building  at  Two  Soundview  Drive  in  Greenwich,   Connecticut  ("Two
Soundview").  Accordingly,  the results of operations of Two Soundview have been
retroactively  reclassified  as  discontinued  operations  in  the  accompanying
Consolidated  Statement of  Operations  for the periods  presented in accordance
with Financial  Accounting  Standards Board,  Statement of Financial  Accounting
Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets"  ("SFAS  144").  See  Part  II -  Item  8 -  Note  13 to  the  Company's
Consolidated Financial Statements for further information.

     Background

     City  originally  incorporated  AmBase as the holding  company for The Home
Insurance Company,  and its affiliated property and casualty insurance companies
("The  Home").  In 1985,  City,  which owned all the  outstanding  shares of the
Common Stock of the Company,  distributed the Company's  shares to City's common
stockholders. The Home was sold in February 1991.

     In August 1988, the Company acquired Carteret Bancorp Inc. Carteret Bancorp
Inc.,  through its principal wholly owned subsidiary,  Carteret Savings Bank, FA
("Carteret"),  was  principally  engaged in retail  and  consumer  banking,  and
mortgage banking including mortgage  servicing.  On December 4, 1992, the Office
of  Thrift  Supervision  ("OTS")  placed  Carteret  in  receivership  under  the
management of the Resolution  Trust  Corporation  ("RTC") and a new institution,
Carteret  Federal Savings Bank, was established to assume the assets and certain
liabilities  of Carteret.  Following  the seizure of  Carteret,  the Company was
deregistered as a savings and loan holding company by the OTS,  although the OTS
retains jurisdiction for any regulatory violations prior to deregistration.  See
Part II - Item 8 - Note 10 to the Company's  consolidated  financial  statements
for a discussion of Supervisory Goodwill litigation relating to Carteret.

     In December  1997, the Company  formed a new wholly owned  subsidiary,  SDG
Financial Corp. ("SDG Financial"),  to pursue merchant banking  activities.  SDG
Financial  purchased an equity interest in SDG, Inc. ("SDG") and was granted the
exclusive right to act as the investment  banking/financial advisor to SDG, Inc.
and  all  of  its  subsidiaries  and  affiliates.  The  Company  also  purchased
convertible  preferred and common stock in AMDG, Inc. ("AMDG"), a majority owned
subsidiary of SDG. SDG and AMDG are development stage pharmaceutical  companies.
In 2002 the Company recorded a write down of its investments in SDG and AMDG.



<PAGE>


STOCKHOLDER INQUIRIES

     Stockholder inquiries,  including requests for the following: (i) change of
address;  (ii) replacement of lost stock  certificates;  (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material;  and (vii) information regarding  stockholdings,
should be directed to:

           American Stock Transfer and Trust Company
           59 Maiden Lane
           New York, NY  10038
           Attention:  Shareholder Services
           (800) 937-5449 or (718) 921-8200 Ext. 6820

     Copies of Quarterly  Reports on Form 10-Q,  Annual Reports on Form 10-K and
Proxy  Statements can also be obtained  directly from the Company free of charge
by sending a request to the Company by mail as follows:

           AmBase Corporation
           100 Putnam Green, 3rd Floor
           Greenwich, CT 06830
           Attn: Shareholder Services


     The Company is subject to the informational  requirements of the Securities
Exchange Act of 1934 (the "Exchange  Act").  Accordingly,  the Company's  public
reports,  including  Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K
and Proxy  Statements,  can be obtained  through  the  Securities  and  Exchange
Commission  ("SEC")  EDGAR  Database  over the  World  Wide Web at  www.sec.gov.
Materials  filed with the SEC may also be read or copied by  visiting  the SEC's
Public Reference Room, 450 Fifth Street, NW, Washington,  DC 20549.  Information
on the  operation  of the  Public  Reference  Room may be  obtained  by  calling
1-800-SEC-0330.

ITEM 1A.      RISK FACTORS

     The  Company  is subject  to  various  risks,  many of which are beyond the
Company's  control,  which  could have a negative  effect on the Company and its
financial  condition.  As a result of these and other  factors,  the Company may
experience  material  fluctuations in future operating results on a quarterly or
annual  basis,  which  could  materially  and  adversely  affect  the  Company's
business, financial condition,  operating results and stock price. An investment
in the Company's stock involves  various risks,  including those mentioned below
and  elsewhere in this Annual Report on Form 10-K (this  "Annual  Report"),  and
those that are detailed  from time to time in the  Company's  other filings with
the  Securities  and  Exchange  Commission.  You should  carefully  consider the
following risk factors,  together with all of the other information  included or
incorporated  by reference in this Annual  Report,  before you decide whether to
purchase the Company's common stock.

     The  Company is a  plaintiff  in a legal  proceedings  seeking  recovery of
damages for the loss of the Company's  investment  in Carteret.  There can be no
assurances of a favorable outcome for the Company in this legal proceeding.

     The  Company is a  plaintiff  in a legal  proceedings  seeking  recovery of
damages from the United States  Government for the loss of the Company's  wholly
owned  subsidiary,  Carteret  Savings  Bank,  F.A.  This  legal  proceeding  was
commenced in 1993 and will likely  continue  for several more years.  There have
been and may continue to be rulings in other "supervisory  goodwill" cases which
have had and/or may have adverse affects on the Company's  Supervisory  Goodwill
proceeding.  In addition,  due to the extended length of time that  proceedings,
rulings, trial decisions and possible appeals in this matter may take, it is not
possible  for the  Company to predict  when this  matter will be resolved or the
likelihood of a favorable outcome.

     The Company is subject to risks inherent in owning and leasing real estate.

     The  Company is subject to  varying  degrees of risk  generally  related to
leasing and owning real estate many of which are beyond the  Company's  control.
In addition to general  risks  related to owning  commercial  real  estate,  the
Company's risks include, among others:

     o  deterioration  in regional  and local  economic  and real estate  market
conditions,

     o potential changes in supply of, or demand for rental  properties  similar
to the Company's,

     o competition for tenants and changes in rental rates,

     o difficulty in reletting properties on favorable terms or at all,

     o impairments in the Company's ability to collect rent payments when due,

     o the potential for uninsured casualty and other losses,

     o the impact of present or future environmental  legislation and compliance
with environmental laws,
<PAGE>
     o adverse changes in zoning laws and other regulations,

     o changes in federal or state tax laws, and

     o acts of terrorism and war.

     Each  of  these  factors  could  cause a  material  adverse  effect  on the
Company's  financial  condition  and results of  operations.  In addition,  real
estate  investments  are  relatively  illiquid,  which means that the  Company's
ability to  promptly  sell the  Company's  property  in  response  to changes in
economic and other conditions may be limited.

     Property taxes on the Company's property may increase without notice.

     The property the Company owns is subject to real property  taxes.  The real
property  taxes on the  Company's  property  and any other  properties  that the
Company  acquires in the future may increase as property tax rates change and as
those  properties are assessed or reassessed by tax  authorities.  To the extent
that the  Company's  tenants  are unable or  unwilling  to pay such  increase in
accordance with their leases, the Company's net operating expenses may increase.

     The Company's  business is  concentrated in Southern  Connecticut,  and
adverse   conditions  in  the  region  could  negatively  impact  the  Company's
operations.


     The Company's current operations are concentrated in Southern  Connecticut,
specifically in the Greenwich area. As a result, the Company's financial results
are dependent on the economic strength of that region.  Because of the Company's
geographic  concentration and its single property,  the Company's operations are
more  vulnerable  to adverse  changes  in the  Greenwich  economy  than those of
larger, more diversified  companies.  Should the Company experience softening in
the  Company's  market and not be able to offset the potential  negative  market
influences  on price  and  volume,  the  Company's  financial  results  could be
negatively impacted.

     The Company is in a competitive business.

     The real estate industry is highly  competitive.  The Company  competes for
tenants with a large number of real estate  property  owners and other companies
that sublet properties.  The Company's  principal means of competition are rents
charged in  relation  to the income  producing  potential  of the  location.  In
addition, the Company expects other major real estate investors,  some with much
greater  resources  than the Company  has,  may compete  with us for  attractive
acquisition  opportunities.  These competitors include REITs, investment banking
firms and private institutional investors. This competition has increased prices
for commercial  properties and may impair the Company's ability to make suitable
property acquisitions on favorable terms in the future.

     The  Company's  future  cash flow is  dependent  on  renewal  of leases and
reletting of the Company's space.

     The Company is subject to risks that  financial  distress of the  Company's
tenants may lead to vacancies at the Company's property,  that leases may not be
renewed,  that  locations  may not be  relet or that the  terms  of  renewal  or
reletting  (including  the cost of required  renovations)  may be less favorable
than current  lease terms.  In addition,  numerous  properties  compete with the
Company's  property  in  attracting  tenants  to  lease  space.  The  number  of
competitive properties in a particular area could have a material adverse effect
on the  Company's  ability to lease the  Company's  property  or newly  acquired
properties  and on the rents  charged.  If the  Company  were unable to promptly
relet or renew the leases for all or a substantial  portion of these  locations,
or if the rental rates upon such renewal or reletting were  significantly  lower
than  expected,  the  Company's  cash flow could be  adversely  affected and the
resale value or the Company's property could decline.

     The Company may not be able to insure certain risks economically.

     The Company may  experience  economic  harm if any damage to the  Company's
property is not covered by  insurance.  The Company  cannot be certain  that the
Company  will be able to insure  all risks  that the  Company  desires to insure
economically or that all of the Company's insurers will be financially viable if
the Company  make a claim.  The  Company may suffer  losses that are not covered
under the Company's insurance policies. If an uninsured loss or a loss in excess
of insured  limits  should occur,  the Company could lose capital  invested in a
property, as the well as any future revenue from the property.
<PAGE>

     Changes in the composition of the Company's assets and liabilities  through
acquisitions or divestitures may affect the Company's results.

     The Company may make future  acquisitions or  divestitures  of assets.  Any
change  in the  composition  of  the  Company's  assets  and  liabilities  could
significantly  affect the  Company's  financial  position and the risks that the
Company faces.

     The Company may not be able to generate  sufficient taxable income to fully
realize the Company's deferred tax asset.

     The  Company  has  federal  income  tax  net  operating  tax  loss  ("NOL")
carryforwards  and other tax  attributes.  If the  Company is unable to generate
sufficient  taxable  income,  the Company  may not be able to fully  realize the
benefit of the NOL  carryforwards.

     Because the Company from time to time maintains a majority of its assets in
securities,  the Company may in the future be deemed to be an investment company
under the  Investment  Company Act of 1940  resulting  in  additional  costs and
regulatory burdens.

     Currently, the Company believes that either it is not within the definition
of "Investment  Company" as the term is defined under the Investment Company Act
of 1940 (the "1940 Act") or,  alternatively  may rely on one or more of the 1940
Act's exemptions. The Company intends to continue to conduct its operations in a
manner that will exempt the Company from the  registration  requirements  of the
1940 Act.  If the  Company  were to become  deemed to be an  investment  company
because of the Company's investments  securities holdings,  the Company would be
required to register as an  investment  company under the 1940 Act. The 1940 Act
places   significant   restrictions  on  the  capital  structure  and  corporate
governance of a registered  investment  company,  and  materially  restricts its
ability to conduct  transactions  with affiliates.  Compliance with the 1940 Act
could also increase the  Company's  operating  costs.  Such changes could have a
material  adverse  affect on the Company's  business,  results of operations and
financial condition.

     Terrorist  attacks  and other acts of violence or war may affect the market
on which the  Company's  common stock  trades,  the markets in which the Company
operate, the Company's operations and the Company's results of operations.

     Terrorist attacks or armed conflicts could affect the Company's business or
the businesses of the Company's tenants. The consequences of armed conflicts are
unpredictable, and the Company may not be able to foresee events that could have
an adverse effect on the Company's business. More generally, any of these events
could cause consumer  confidence and spending to decrease or result in increased
volatility in the U.S. and worldwide  financial  markets and economy.  They also
could be a factor resulting in, or a continuation  of, an economic  recession in
the U.S. or abroad.  Any of these occurrences  could have a significant  adverse
impact  on the  Company's  operating  results  and  revenues  and may  result in
volatility of the market price for the Company's common stock.



ITEM 1B.  UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     The Company owns one commercial office building in Greenwich,  Connecticut.
The building is  approximately  14,500 square feet and is available for lease to
unaffiliated third parties with approximately  3,500 square feet utilized by the
Company for its executive offices.

ITEM 3.  LEGAL PROCEEDINGS

     For  a  discussion  of  the  Company's  legal  proceedings,  including  the
Company's Supervisory Goodwill litigation, see Part II - Item 8 - Note 10 to the
Company's consolidated financial statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE>
Executive Officers of the Registrant

     Each  executive  officer  is  elected  to  serve in the  executive  officer
capacity set forth opposite his respective name until the next Annual Meeting of
Stockholders.  The Company is not aware of any family relationships  between any
of the executive officers or directors of the Company.

     Set forth below is a list of executive  officers of the Company at December
31, 2005:
<TABLE>
<CAPTION>
<S>                                     <C>                            <C>
Name                                    Age                            Title
====                                    ===                            ==========
Richard A. Bianco                        58                            Chairman, President and
                                                                       Chief Executive Officer


John P. Ferrara                          44                            Vice President, Chief
                                                                       Financial Officer and Controller
</TABLE>

     Mr. Bianco was elected a director of the Company in January  1991,  and has
served as President and Chief  Executive  Officer of the Company since May 1991.
On January 26, 1993,  Mr. Bianco was elected  Chairman of the Board of Directors
of the Company. He served as Chairman,  President and Chief Executive Officer of
Carteret, then a subsidiary of the Company, from May 1991 to December 1992.

     Mr. Ferrara was elected to the position of Vice President,  Chief Financial
Officer and Controller of the Company in December 1995, having previously served
as Acting Chief  Financial  Officer,  Treasurer and Assistant Vice President and
Controller  since January 1995; as Assistant Vice President and Controller  from
January  1992 to  January  1995;  and as  Manager of  Financial  Reporting  from
December 1988 to January 1992.

PART II

     ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES

     The Common Stock of the Company  trades  through one or more market makers,
with  quotations  made available in the "pink sheets"  published by the National
Quotation Bureau, Inc. ("Pink Sheets"),  under the symbol ABCP. The sales prices
per share for the  Company's  Common Stock  represent  the range of the reported
high and low bid  quotations as indicated in the Pink Sheets or as  communicated
orally to the Company by market makers.  Such prices reflect interdealer prices,
without  retail  mark-up,  markdown  or  commission,  and  may  not  necessarily
represent actual transactions.
<TABLE>
<CAPTION>
<S>                                        <C>                <C>                      <C>                <C>
                                                       2005                                        2004
                                           ===========================                 ==========================
                                               High               Low                     High                Low
                                               ====               ===                     ====                ===
First Quarter.......................       $    0.90          $   0.61                 $    0.83          $   0.62
Second Quarter......................            0.75              0.56                      0.80              0.60
Third Quarter.......................            0.70              0.58                      0.99              0.55
Fourth Quarter......................            0.71              0.52                      1.00              0.77
</TABLE>

     As of February 28, 2006, there were approximately  15,000 beneficial owners
of the  Company's  Common  Stock.  No  dividends  were  declared  or paid on the
Company's  Common Stock in 2005 or 2004.  The Company does not intend to declare
or pay dividends in the foreseeable future.

     For information concerning the Company's stockholder rights plan and common
stock  repurchase  plan,  see  Part  II -  Item  8 -  Note  5 to  the  Company's
consolidated financial statements.




<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

     The  selected  financial  data  should  be read  in  conjunction  with  the
Company's consolidated financial statements included in Part II - Item 8 of this
Form 10-K.  The  consolidated  statements of  operations,  for the periods ended
prior to the July 2005 sale of Two Soundview were retroactively  reclassified to
reflect the operations as discontinued operations.
<TABLE>
<CAPTION>
<S>                                               <C>            <C>          <C>           <C>             <C>
                                                                        Years ended December 31
                                                   ====================================================================
(in thousands, except per share data)                 2005(a)        2004         2003         2002 (b)        2001 (c)
                                                      ====           ====         ====         ====           =====
Operating revenue ..........................       $    170      $    176     $    320      $   320         $   179
Interest income.............................          1,034           505          334          705           2,099
                                                   ========       =======     ========      =======         =======
Income (loss) from continuing operations....       $ (5,519)       (4,696)    $ (5,102)     $(5,230)        $62,110
Income from discontinued operations.........         10,647         1,345        1,543           97               -
                                                   --------       -------     --------      -------         -------
Net income (loss).............................     $  5,128       $(3,351)    $ (3,559)     $(5,133)        $62,110
                                                   ========       =======     ========      =======         =======
Income (loss) from continuing operations -
  Basic                                            $  (0.12)     $  (0.10)    $  (0.11)     $ (0.11)        $  1.34
Income from discontinued operations - Basic.           0.23          0.03         0.03            -               -
                                                   --------      --------     --------      -------         -------
Net income (loss) per common share - Basic..       $   0.11     $   (0.07)    $  (0.08)     $ (0.11)        $  1.34
                                                   ========      ========     ========      =======         =======
Dividends ..................................              -             -            -            -               -
                                                   ========      ========     ========      =======         =======
Total assets ...............................       $ 45,883      $ 40,860     $ 41,668      $43,656         $50,445
Total stockholders' equity (deficit)........         29,682        25,574       29,367       32,902          38,013
                                                   ========      ========     ========      =======         =======
</TABLE>

     (a) Net  income in 2005  includes a  $10,298,000  gain from the sale of Two
Soundview.

     (b) Net loss in 2002  includes a $1,600,000  charge to reflect a write down
of the Company's investments in SDG and AMDG.

     (c) Net  income  in 2001  includes  a  $66,388,000  withholding  obligation
reserve  reversal  which  was  reflected  as other  income  in the  Consolidated
Statement of Operations.

     ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations  should  be read  in  conjunction  with  the  consolidated  financial
statements and related  notes,  which are contained in Part II - Item 8, herein.
As a result of the sale of the Company's  38,000 square foot office  building at
Two Soundview Drive in Greenwich, CT ("Two Soundview") in July 2005, the results
of operations of Two Soundview have been designated as discontinued  operations,
and the Consolidated  Statements of Operations for the periods  presented herein
have been  retroactively  reclassified  to report the income  from  discontinued
operations separately from the results of continuing operations by excluding the
operating  revenues and expenses of discontinued  operations from the respective
statement  captions.  See Part I - Item 8 - note 13 for  additional  information
concerning the sale of Two Soundview.

     Financial Condition and Liquidity

     The  Company's  assets  at  December  31,  2005,  aggregated   $45,883,000,
consisting  principally of cash and cash  equivalents of $2,852,000,  investment
securities of $40,760,000  and real estate owned of $2,222,000.  At December 31,
2005,  the Company's  liabilities  aggregated  $16,201,000.  Total  stockholders
equity was $29,682,000.

     The liability for the Company's non tax-qualified  supplemental  retirement
plan initially  adopted by the Company in 1985 and as amended and restated (the"
Supplemental Plan"),  which is accrued but not funded,  increased to $14,595,000
at December 31, 2005 from  $11,594,000  at December 31, 2004.  The  Supplemental
Plan  liability  reflects  the  actuarially  determined  accrued  pension  costs
calculated in accordance with accounting  principles  generally  accepted in the
United  States of America  ("GAAP").  The  increased  liability is the result of
additional  accrued  service  vesting,  interest cost on the liability,  and the
recognition of a minimum pension liability  adjustment as a result of the use of
an  updated  mortality  table and  changes  in  certain  assumptions  as further
discussed  in  Applications  of  Critical   Accounting   Policies,   below.  The
Supplemental  Plan liability is further  affected by changes in discount  rates,
mortality, and experience which could be different from those assumed.
<PAGE>
     The  Personnel  Committee  of the Board of  Directors  of the Company  (the
"Personnel  Committee")  had  been  reviewing  the  Supplemental  Plan  and  the
Company's  related  liability,  including  the  desirability  of  continuing  to
maintain and  administer  the  Supplemental  Plan,  the untying of Mr.  Bianco's
future  employment  with the Company  from the timing of his  Supplemental  Plan
benefit  payment(s),   the  Company's  overall  financial   position,   and  the
desirability of future accruals under the  Supplemental  Plan after Mr. Bianco's
current  employment  contract  expires on May 31, 2007. In connection  with this
review, the Personnel Committee had been considering various options,  including
whether or not to terminate  and/or  curtail the  Supplemental  Plan. Mr. Bianco
(the Company's Chairman,  President and Chief Executive Officer,  and the former
President and Chief Executive Officer of Carteret Savings Bank, FA), is the only
current employee of the Company who  participates in the  Supplemental  Plan and
his  Supplemental  Plan benefit is fully  vested.  For purposes of computing his
accrued  benefit  under the  Supplemental  Plan,  Mr.  Bianco had 14.67 years of
credited  service as of December 31, 2005, and,  assuming  continued  employment
with the Company,  will have 16.08 years of credited service upon the expiration
of his current employment contract with the Company on May 31, 2007. His accrual
percentage  under the  Supplemental  Plan is 4%, in effect  from the time of his
initial  employment with the Company,  and in accordance  with the  Supplemental
Plan, he has had the  entitlement  to receive his  Supplemental  Plan benefit in
either a lump-sum or an annuity  upon  termination  of his  employment  with the
Company.

     During March 2006,  the Personnel  Committee  entered into a new employment
agreement  with Mr.  Bianco to extend his  employment  with the  Company  for an
additional  five (5) years  beyond May 31,  2007,  until May 31, 2012 (the "2007
Employment  Agreement").  As part of the 2007 Employment Agreement terms (i) Mr.
Bianco's  annual rate of base salary will not increase  from his current rate of
base salary during the first three years of the 2007 Employment Agreement;  (ii)
Mr. Bianco's service  accruals under the Supplemental  Plan will cease as of May
31,  2007;  (iii)  Mr.  Bianco's  Final  Average  Earnings  (as  defined  in the
Supplemental  Plan) for  Supplemental  Plan benefit  calculation  purposes,  are
capped as of December 31, 2004;  and (iv) Mr.  Bianco's  bonus will no longer be
linked to recovery efforts in connection with the Company's Supervisory Goodwill
litigation. Instead on or about May 31, 2007, Mr. Bianco will receive a lump-sum
payment of his  Supplemental  Plan  benefit  of  $16,676,115,  which  amount was
calculated on the basis of a 5.75% discount rate, a "RP-2000"  projected to 2004
mortality  table; and 16.08 years of credited  service,  and the Company and Mr.
Bianco  have  agreed  to  a  long  term  incentive  bonus  formula,  at  varying
percentages  ranging from 5% to 10%, or more, based upon recoveries  received by
the Company for its investment in Carteret Savings Bank,  through  litigation or
otherwise  (including  the  Company's  Supervisory  Goodwill  litigation).   The
lump-sum  Supplemental  Plan benefit  payment to Mr.  Bianco will be paid to him
from the Company's available financial resources.

     The  Supplemental  Plan has  been  amended  to  provide  for its  automatic
termination  immediately following the payment to Mr. Bianco of his Supplemental
Plan  lump-sum  benefit  on or  about  May 31,  2007.  In  accordance  with  the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007,  in  accordance  with  GAAP,  the  ultimate   liability  relating  to  the
anticipated  termination  of  the  Supplemental  Plan  is not  reflected  in the
financial   statements  presented  herein,  as  all  conditions  for  the  final
termination  of the  Supplemental  Plan  have  not yet  been  met.  Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental  Plan and
the  Supplemental  Plan  liability  will increase  through the date on which the
Supplemental Plan is terminated.

     For  additional  information  with  regard to the  Supplemental  Plan,  see
Application  of Critical  Accounting  Policies - Supplemental  Retirement  Plan,
below  and  Part II - Item 8 - Note 7 to the  Company's  consolidated  financial
statements.
<PAGE>

     In March 2005,  the Company paid  approximately  $1.8 million of previously
incurred  legal fees and other expenses  relating to the Company's  defense of a
withholding obligation issue with the Internal Revenue Service ("IRS") which was
successfully concluded in October 2001. The Company had previously accrued these
costs which were  reflected in other  liabilities  in prior period  consolidated
financial statements.

     For the year  ended  December  31,  2005,  cash of  $5,328,000  was used by
continuing  operations,  including  the payment of operating  expenses and prior
years accruals  (including the legal accrual described above),  partially offset
by the receipt of rental income,  interest income and investment  earnings.  The
cash needs of the Company for 2005 were  principally  satisfied by rental income
and investment  earnings received on investment  securities and cash equivalents
and the Company's  financial  resources.  Management believes that the Company's
cash resources are sufficient to continue operations for 2006. During July 2005,
the  Company  received  $27,442,000  of net cash  proceeds  from the sale of Two
Soundview as further  discussed in Part I - Item 8 - note 13. The proceeds  were
reinvested in treasury bills and are included in investment securities,  held to
maturity in the  Consolidated  Balance  Sheet at December 31, 2005,  included in
Part I - Item 8 herein.

     For the year  ended  December  31,  2004,  cash of  $3,405,000  was used by
continuing  operations,  including  the payment of operating  expenses and prior
year accruals, partially offset by the receipt of rental income, interest income
and investment earnings. The cash needs of the Company for 2004 were principally
satisfied  by rental  income and  investment  earnings  received  on  investment
securities and cash equivalents and to a lesser extent, the Company's  financial
resources.

     For the year  ended  December  31,  2003,  cash of  $3,855,000  was used by
continuing  operations,  including  the payment of operating  expenses and prior
year accruals, partially offset by the receipt of rental income, interest income
and investment earnings. The cash needs of the Company for 2003 were principally
satisfied by rental income and interest income received on investment securities
and cash equivalents and to a lesser extent, the Company's financial resources.

     Real estate owned  consists of a commercial  office  building in Greenwich,
Connecticut  which the Company owns and manages.  The building is  approximately
14,500 square feet and is available for lease to unaffiliated third parties with
approximately  3,500  square feet  utilized  by the  Company  for its  executive
offices.

     See Part I - Item 8 - note 13 for further  information  concerning the sale
of the Company's 38,000 square foot building in July 2005. A gain from the sale,
of  approximately  $10.3  million,  is reflected in the  Company's  Statement of
Operations for the year ending December 31, 2005.
<PAGE>

     The  Company  did not  repurchase  any shares of common  stock  during 2005
pursuant to its common stock repurchase  plan. There are no additional  material
commitments for capital  expenditures as of December 31, 2005. Inflation has had
no material impact on the business and operations of the Company.

     The Company continues to evaluate a number of possible acquisitions, and is
engaged  in  the  management  of  its  assets  and  liabilities,  including  the
contingent  assets.  Discussions  and  negotiations  are ongoing with respect to
certain of these  matters.  The  Company  intends to  aggressively  contest  all
litigation and contingencies, as well as pursue all sources for contributions to
settlements.  For  a  discussion  of  lawsuits  and  proceedings,   including  a
discussion of the Supervisory Goodwill  litigation,  see Part II - Item 8 - Note
10 to the Company's consolidated financial statements.

     RESULTS OF OPERATIONS

     CONTINUING OPERATIONS

     The  Company's  main source of operating  revenue has recently  been rental
income earned on real estate owned. The Company also earns non-operating revenue
consisting  principally  of interest  income on investment  securities  and cash
equivalents.  The Company's management expects that operating cash needs in 2006
will be met principally by the receipt of  non-operating  revenue  consisting of
interest  income  earned on  investment  securities  and cash  equivalents,  the
Company's current financial resources, and rental income on real estate owned.

     For the year ended  December  31,  2005,  the Company  recorded a loss from
continuing operations of $5,519,000 or $0.12 per share.

     For the year ended  December  31,  2004,  the Company  recorded a loss from
continuing operations of $4,696,000 or $0.10 per share.

     For the year ended  December  31,  2003,  the Company  recorded a loss from
continuing operations of $5,102,000 or $0.11 per share.

     As indicated  herein, as a result of the sale, the operating results of the
Company's  Two  Soundview   property  have  been  reclassified  to  discontinued
operations and,  accordingly rental income from real estate owned represents the
Company's  remaining  property and was $170,000 in 2005  compared to $176,000 in
2004, and $320,000 in 2003. The decreased  amount of $170,000 in 2005,  compared
to  $176,000  in 2004,  is  principally  the  result of office  vacancy  in 2005
compared to office  vacancies  during a portion of 2004. The decreased amount of
$176,000 in 2004,  compared to $320,000 in 2003, is principally  the result of a
decrease  in  rental  income  received  in 2004  compared  to 2003 due to office
vacancies during a portion of 2004 versus occupancy in 2003.

     Compensation  and benefits  increased  slightly in 2005 to $4,212,000  from
$4,150,000  in 2004.  The  increase in 2005 versus 2004 is due to an increase in
Supplemental  Retirement  Plan accrual  offset by lower  incentive  compensation
amounts  in 2005.  The  increased  amount of  $4,150,000  in 2004  compared  to
$3,852,000 in 2003 is principally due to an increase in supplemental  retirement
plan  accruals  and an increase in the salary and  benefits  costs.  Included in
compensation and benefits is an accrual for the Supplemental  Retirement Plan of
$2,087,000 for 2005, $1,890,000 for 2004 and $1,722,000 for 2003.

     Professional  and outside  services  increased to  $2,003,000  in 2005 from
$1,422,000 in 2004. The increase in the 2005 period is principally the result of
a higher level of legal fees relating to the Supervisory  Goodwill litigation as
a result of discovery relating to the Show Cause hearing and to a lesser extent,
other corporate professional fees.



<PAGE>
     In 2004, professional and outside services decreased slightly to $1,422,000
from  $1,432,000  in 2003.  The 2004 period  includes an  additional  accrual of
approximately  $0.5  million of fees  relating  to the costs  associated  with a
withholding  obligation  issue with the IRS as further  discussed  in  Financial
Condition and Liquidity, herein. Excluding this additional expense, professional
and outside  services  would have  decreased for the year 2004 compared with the
year 2003 primarily due to an overall decrease in legal expenses incurred during
2004 as a result of a lower  level of legal  fees  relating  to the  Supervisory
Goodwill  litigation and the resolution of legal  proceedings which were pending
during 2003.

     Property operating and maintenance expenses were $124,000 in 2005, $102,000
in 2004, and $119,000 in 2003.  The slight  increase in 2005 compared to 2004 is
due to increased  utilities  costs,  and repairs and maintenance  expenses.  The
slight decrease in 2004 compared to 2003 is due to decreased utilities, security
and other maintenance costs.

     Interest  income was $1,034,000 in 2005,  $505,000 in 2004, and $334,000 in
2003. The increase in 2005 compared to 2004 is principally due to an increase in
the aggregate amount of cash equivalents and investment securities invested as a
result of the cash proceeds  received in connection with the sale of real estate
owned in July 2005,  and to a lesser extent,  an increased  yield on investments
due to  rising  interest  rates.  The  increase  in  2004  compared  to  2003 is
principally due to increased  investment return from higher yielding investments
classified as investments available for sale.

     During 2005, realized gains on sales of investment securities available for
sale were  $20,000  compared  to $747,000  during  2004 and  compared to $64,000
during 2003.  The increase in 2004 is the result of a higher level of investment
securities  available for sale and  realization  of gains on sales due to market
appreciation.

     In the year ended  December  31, 2003,  other  income  represents a federal
income tax refund for the tax year 1996.

     The income tax provision for continuing  operations of $95,000 for the year
ending  December 31, 2005, is  attributable  to a provision for a minimum tax on
capital  to the  State of  Connecticut.  The  Company  expects  to  utilize  net
operating loss ("NOL")  carryforwards  and  alternative  minimum tax ("AMT") NOL
carryforwards  as available to offset taxable income  generated from the sale of
Two Soundview as discussed in Part II - Item 8 - Notes 9 and 13 to the Company's
consolidated financial statements.  However, due to limitations on the amount of
NOL carryforwards  that may be utilized against current year taxable income, the
income tax provision of $400,000 for discontinued  operations is attributable to
a provision for federal  alternative  minimum tax of $150,000 and a provision of
$250,000 for Connecticut state taxes.

     The income tax  provisions  of $120,000 and $125,000 for the years 2004 and
2003, respectively,  are primarily attributable to a provision for a minimum tax
on capital to the state of Connecticut.

     A  reconciliation  between income taxes  computed at the statutory  federal
rate and the provision for income taxes is included in Part II - Item 8 - Note 9
to the Company's consolidated financial statements.

     DISCONTINUED OPERATIONS

     As discussed in Item 8, note 13, in July 2005, the Company completed to the
sale of Two Soundview.  The sale price was  $28,000,000  less normal real estate
closing costs and adjustments.  A gain from the sale of $10,298,000 is reflected
in the Company's financial statements for the year ended December 31, 2005.

     Income from discontinued operations before gain on disposition was $749,000
for the year ended  December 31, 2005,  which reflects the results of operations
for Two Soundview for the period  through July 15, 2005 (date of sale).  For the
full  year  2004 and 2003  periods,  income  from  discontinued  operations  was
$1,345,000 and $1,543,000, respectively.



<PAGE>
     Tabular Disclosure of Contractual Obligations
<TABLE>
<CAPTION>
<S>                                                        <C>    <C>         <C>         <C>          <C>

(in thousands)                                                            Payment Due By Period
                                                           ======================================================
                                                                  Less Than   One to      Three to     More than
                                                           Total  One Year    Three Years Five Years   Five Years
                                                           -----  ---------   ----------- ----------   ----------

Operating leases............................              $   17  $       9   $         8 $        -   $        -
                                                          ------  ---------   ----------- ----------   ----------
Total obligations...........................              $   17  $       9   $         8 $        -   $        -
                                                          ======  =========   =========== ==========   ==========
</TABLE>

     Application of Critical Accounting Policies

     Our  consolidated  financial  statements  are  based on the  selection  and
application of accounting  principles generally accepted in the United States of
America,  which require us to make estimates and assumptions about future events
that  affect  the  amounts   reported  in  our  financial   statements  and  the
accompanying  notes.  Future events and their effects cannot be determined  with
absolute  certainty.  The  determination  of estimates  requires the exercise of
judgment.  Actual  results  could  differ  from  those  estimates,  and any such
differences  may be material to the  financial  statements.  We believe that the
following accounting policies, which are important to our financial position and
results of  operations,  require a higher  degree of judgment and  complexity in
their  application  and represent the critical  accounting  policies used in the
preparation of our financial statements.  If different assumptions or conditions
were to prevail,  the results  could be materially  different  from our reported
results. For a summary of all our accounting policies,  including the accounting
policies  discussed  below,  see  Part  II - Item  8 -  Note 2 to the  Company's
consolidated financial statements.

     Supplemental   Retirement  Plan:  Our  supplemental  retirement  plan  (the
"Supplemental  Plan")  accrued  liability and benefit costs are developed on the
basis  of  actuarial  calculations.  Inherent  in  these  calculations  are  key
assumptions including discount rates, actuarially determined mortality tables, a
retirement  date  assumption,  form of benefit  payment  such as annuity  versus
lump-sum,  and projected future earnings. The assumptions are typically reviewed
on an annual basis at the  beginning  of each year.  We are required to consider
current market conditions,  including changes in interest rates, in making these
assumptions.  Material  changes in our accrued  Supplemental  Plan liability and
annual  costs  may  occur in the  future  due to  retirement  prior to age 60, a
lump-sum  payment  prior to  retirement,  changes in  assumptions  or experience
different than that assumed.  The Supplemental  Plan liability is not funded and
is net of  unrecognized  losses of  $1,326,000.  In  accordance  with GAAP,  the
amortization of unrecognized losses is recognized to financial statement expense
and liability over the remaining employment period for the participant.

     In connection with the Board of Directors' determination that the Company's
Supplemental  Plan is to terminate  automatically  following  the payment to Mr.
Bianco of his  lump-sum  benefit on or about May 31, 2007 (the date on which Mr.
Bianco's  current  employment  agreement  with the  Company  will  expire by its
terms),  the  Personnel  Committee's  agreement  with Mr.  Bianco to extend  his
employment  with the  Company for an  additional  five (5) years with no further
Supplemental Plan accruals, and the Company's amendment to the Supplemental Plan
to provide for the payment to Mr. Bianco of his Supplemental  Plan benefit on or
about May 31, 2007,  certain  assumptions  utilized by the Company in developing
the Supplemental Plan 2005 benefit costs and accrued liability were changed from
those utilized in prior years. The 2005 assumptions,  versus assumptions in 2004
are as follows: (i) we have assumed that Mr. Bianco's  Supplemental Plan benefit
(Mr. Bianco is the sole participant in the Supplemental  Plan) will be paid in a
lump-sum,  versus the assumption made in prior years that annuity payments would
be made; (ii) we have assumed Mr. Bianco's Supplemental Plan benefit entitlement
date to be May 31, 2007 (his current employment contract expiration date and the
date on or about his Supplemental  Plan lump-sum benefit payment is to be paid),
versus  December 30, 2007 (age 60) in prior years;  and (iii) we have  projected
that Mr.  Bianco's total  compensation  in 2006 and 2007 for the  calculation of
Supplemental  Plan  benefits  will not increase the average of the three highest
years of  compensation  previously  earned under the  Supplemental  Plan, as Mr.
Bianco's  Final  Average  Earnings  (as  defined in the  Supplemental  Plan) for
Supplemental  Plan  benefit  calculation  purposes is capped as of December  31,
2004.  In  addition,  a 5.50%  discount  rate and a "RP-2000"  projected to 2004
mortality  table  were  utilized  in 2005,  versus a 5.75%  discount  rate and a
"GAM-94" mortality table utilized in 2004.



<PAGE>
     The 5.50%  discount rate,  (utilitzed  for 2005 actuarial  calculations),is
consistent  with Moody's Aa bond index rate at December 31, 2005, and the change
in the  mortality  table  reflects an update to a more modern  mortality  table,
which is being utilized for the  calculation of Mr. Bianco's  Supplemental  Plan
lump-sum benefit payment, pursuant to the agreements.

     See Financial Condition and Liquidity, above, and Part II - Item 8 - Note 7
to the Company's consolidated  financial statements,  for additional information
with regard to the Supplemental Plan.

     Legal  Proceedings:  From time to time the Company and its subsidiaries may
be  named as a  defendant  in  various  lawsuits  or  proceedings.  The  Company
presently is not aware of any pending or threatened  litigation which could have
a material adverse effect on the  consolidated  financial  statements  presented
herein.  Management  of the Company in  consultation  with outside legal counsel
continually  reviews the likelihood of liability and associated costs of pending
and  threatened  litigation  including  the  basis  for the  calculation  of any
litigation  reserves  which may be  necessary.  The  assessment of such reserves
includes an exercise of judgment and is a matter of opinion. The Company intends
to aggressively contest all threatened litigation and contingencies,  as well as
pursue all  sources  for  contributions  to  settlements.  For a  discussion  of
lawsuits and proceedings, see Part II - Item 8 - Note 10.

     Income Tax Audits: The Company's federal, state and local tax returns, from
time to time,  may be  audited by the tax  authorities,  which  could  result in
proposed assessments or a change in the net operating loss ("NOL") carryforwards
currently  available.  The  Company's  federal  income tax returns for the years
subsequent to 1992 have not been reviewed by the Internal Revenue  Service.  The
accrued amounts for income taxes reflects  management's  best judgment as to the
amounts payable for all open tax years.

     Deferred Tax Assets:  As of December 31, 2005, the Company had deferred tax
assets arising  primarily from net operating loss  carryforwards and alternative
minimum tax credits  available to offset  taxable  income in future  periods.  A
valuation  allowance has been  established for the entire net deferred tax asset
of $32 million,  as  management,  at the current time,  has no basis to conclude
that realization is more likely than not. The valuation allowance was calculated
in  accordance  with the  provisions  of Financial  Accounting  Standards  Board
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes" ("SFAS 109"), which places primary  importance on a company's  cumulative
operating  results for the current and preceding  years. We intend to maintain a
valuation  allowance for the entire deferred tax asset until sufficient positive
evidence exists to support a reversal. See Part II - Item 8 - Note 9.

     New  Accounting  Pronouncements  - FASB  Statement No. 123 (revised  2005),
Share-Based Payment - In December 2004, the Financial Accounting Standards Board
("FASB")  released  Statement  of  Financial   Accounting  Standards  No.  123R,
"Share-Based  Payment" ("SFAS 123R").  This standard requires issuers to measure
the cost of  equity-based  service  awards based on the grant date fair value of
the award. That cost will be recognized over the period during which an employee
is  required  to provide  service  in  exchange  for the award or the  requisite
service  period  (typically  the  vesting  period).   No  compensation  cost  is
recognized  for  equity  instruments  for  which  employees  do not  render  the
requisite  service.  The Company  will  initially  measure the cost of liability
based service  awards based on their current fair value.  The fair value of that
award  will be  reimbursed  subsequently  at each  reporting  date  through  the
settlement date.  Changes in fair value during the requisite service period will
be recognized as compensation  cost over that period.  The grant date fair value
of employee  share  options  and similar  instruments  will be  estimated  using
option-pricing   models  adjusted  for  the  unique   characteristics  of  those
instruments.  If an equity award is modified  after the grant date,  incremental
compensation cost will be recognized in an amout equal to the excess of the fair
value  of  the  modified  award  over  the  fair  value  of the  original  award
immediately  before the modification.  Companies can comply with SFAS 123R using
one of three transition  methods:  (1) the modified  prospective  method;  (2) a
variation of the modified prospective method; or (3) the modified  retrospective
method.  The  provisions of this  statement are effective for interim and annual
periods  beginning  after June 15, 2005.  The Company will adopt SFAS 123R as of
January 1, 2006, and is still  evaluating the financial  impact on the Company's
Consolidated Financial Statements.
<PAGE>

     FIN47,  Accounting for Conditional Asset Retirement  Obligations - In March
2005, the FASB released FASB Intterpretation No. 47, "Accounting for Conditional
Asset  Retirement  Obligations",   ("FIN47").  FIN47  clarifies  that  the  term
conditional  asset  retirement  obligation as used in SFAS 143.  "Accounting for
Asset Retirement  Obligations" ("SFAS 143"), as a legal obligation to perform an
asset  retirement  activity in which the timing and/or method of settlement  are
conditional  on a future  event that may or may not be within the control of the
entity.  The obligation to perform the asset retirment activity is unconditional
even though  uncertainty  exists about the timing and/or  method of  settlement.
Thus,  the timing and/or of  settlement  may be  conditional  on a future event.
Accordingly,  an entity is required to recognize a liability  for the fair value
of a conditional asset retirement  obligation if the fair value of the liability
can be reasonably  estimated.  The fair value of a liability for the conditional
asset retirement obligation should be recognizedd when incurred - generally upon
acquisition, construction, or development and/or through the normal operation of
the  asset.  Uncertainty  about the  timing  and/or  method of  settlement  of a
conditional asset retirement  obligation should be factored into the measurement
of the liability when sufficient  information exists. SFAS 143 acknowledges that
in some  cases,  sufficient  information  may  not be  available  to  reasonably
estimate the fair value of an asset retirement obligation. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement  obligation.  The Company adopted FIN47 during 2005
and does not believe that any asbestos  exists in the building that would result
in ARO treatment.



<PAGE>

     Cautionary Statement for Forward-Looking Information

     This Annual 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, and
Section 21E of the  Securities  Exchange  Act of 1934,  as amended.  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 Annual
Report, the words "estimates,"  "expects,"  "anticipates,"  "believes," "plans,"
"intends" and variations of such words and similar  expressions  are intended to
identify forward-looking statements that involve risks and uncertainties.  These
risks  and  uncertainties,  many of which  are  beyond  the  Company's  control,
include,  but are not limited to those set forth in "Item 1A, Risk  Factors" and
elsewhere in this Annual Report and in the Company's  other public  filings with
the  Securities  and  Exchange  Commission  including,  but not  limited to: (i)
transaction  volume  in the  securities  markets,  (ii)  the  volatility  of the
securities markets, (iii) fluctuations in interest rates, (iv) risks inherent in
the real  estate  business,  including,  but not limited  to,  tenant  defaults,
changes in  occupancy  rates or real estate  values,  (v) changes in  regulatory
requirements  which  could  affect  the cost of  doing  business,  (vi)  general
economic  conditions,  (vii)  changes in the rate of  inflation  and the related
impact on the securities markets,  (viii) changes in federal and state tax laws,
and (ix) risks  arising  from  unfavorable  decisions in the  Company's  current
material  litigation  matters,  or  unfavorable  decisions in other  supervisory
goodwill cases.

     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 Annual  Report or to
reflect  the  occurrence  of  unanticipated  events.  Accordingly,  there  is no
assurance that the Company's expectations will be realized.



<PAGE>
     ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company holds  short-term  investments  as a source of  liquidity.  The
Company's  interest rate  sensitive  investments  at December 31, 2005 and 2004,
with maturity dates of less than one year consist of the following:
<TABLE>
<CAPTION>
<S>                                                             <C>      <C>         <C>        <C>

                                                                    2005                  2004
(in thousands)                                              ===================    =================
                                                            Carrying    Fair       Carrying   Fair
                                                             Value      Value       Value     Value
                                                            --------   -------     --------  --------

U.S. Treasury Bills.......................................  $39,031    $39,034      $8,590    $ 8,586
                                                            =======    ========     =======   =======

Weighted average interest rate............................     3.81%                  1.71%
                                                            =======                 =======
</TABLE>

     The Company's  current  policy is to minimize the interest rate risk of its
short-term  investments by investing in U.S.  Treasury Bills with  maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the year.

     The Company's  portfolio of equity  securities has exposure to equity price
risk. Equity price risk is defined as the potential loss in fair value resulting
from an adverse  change in prices.  The equity  securities  are primarily in the
form of preferred stock in utility companies. The equity securities are held for
an indefinite period and are carried at fair value with net unrealized gains and
losses recorded directly in a separate component of stockholder's equity.

     The table below  summarizes  the Company's  equity price risk and shows the
effect of a  hypothetical  20% increase and a 20% decrease in market price as of
the  dates  indicated   below.  The  selected   hypothetical   changes  are  for
illustrative  purposes  only and are not  necessarily  indicative of the best or
worse case scenarios.
<TABLE>
<CAPTION>
<S>                                                                    <C>            <C>

(in thousands)
                                                                       12/31/2005     12/31/2004
Equity Securities Available for Sale:                                  ==========     ==========

Fair value..........................................................     $1,729          $2,112
                                                                         =======         =======
Hypothetical fair value at a 20% increase in market price...........     $2,075          $2,534
                                                                         =======         =======
Hypothetical fair value at a 20% decrease in market price...........     $1,383          $1,690
                                                                         =======         =======
</TABLE>

<PAGE>

     ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors
and Stockholders of
AmBase Corporation

     In our opinion, the accompanying  consolidated  financial statements listed
in the  index  appearing  under  Item  15(a)  (1) and the  related  consolidated
statement of operations,  comprehensive  income,  shareholders'  equity and cash
flows present fairly, in all material respects, the financial position of AmBase
Corporation  and its  subsidiaries at December 31, 2005 and 2004 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December  31,  2005  in  conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the financial  statement schedule listed in the index appearing under Item 15(a)
(2) presents fairly, in all material respects, the information set forth therein
when read in conjunction  with the related  consolidated  financial  statements.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with the  standards  of the  Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.



New York, New York
March 30, 2006



<PAGE>


                   AMBASE CORPORATION AND SUBSIDIARIES
                   Consolidated Statements of Operations
                           Years Ended December 31
<TABLE>
<CAPTION>
<S>                                                                         <C>              <C>               <C>

(in thousands, except per share data)                                       2005             2004              2003
                                                                            ====             ====              ====
Revenues:
Rental income.................................................          $    170         $    176          $    320
                                                                        --------         --------          --------
Operating expenses:
Compensation and benefits.....................................             4,212            4,150             3,852
Professional and outside services.............................             2,003            1,422             1,432
Property operating and maintenance ...........................               124              102               119
Depreciation .................................................                51               50                50
Insurance.....................................................                79               90                86
Other operating...............................................               179              190               182
                                                                        --------         --------          --------
                                                                           6,648            6,004             5,721
                                                                        --------         --------          --------
Operating loss................................................            (6,478)          (5,828)           (5,401)
                                                                        --------         --------          --------
Interest income...............................................             1,034              505               334
Realized gains of the sales of investment securities
  available for sale..........................................                20              747                64
Other income..................................................                 -                -                26
                                                                        --------         --------          --------
Loss from continuing operations before income taxes...........            (5,424)          (4,576)           (4,977)
Income tax expense on continuing operations...................               (95)            (120)             (125)
                                                                        --------         --------          --------
Loss from continuing operations...............................            (5,519)          (4,696)           (5,102)
                                                                        --------         --------          --------
Income from operation of discontinued property................               749            1,345             1,543
Gain on disposition...........................................            10,298                -                 -
Income tax expense on discontinued operations.................              (400)               -                 -
                                                                        -------         --------          --------
Income from discontinued operations...........................            10,647            1,345             1,543
                                                                        --------         --------          --------
Net income (loss).............................................          $  5,128         $ (3,351)         $ (3,559)
                                                                        ========         ========          ========
Per share data:
Basic:
Loss from continuing operations...............................          $  (0.12)        $  (0.10)         $  (0.11)
Income from discontinued operations...........................              0.23             0.03              0.03
                                                                        --------         --------          --------
Net income (loss) attributable to common stockholders.........          $   0.11         $  (0.07)         $  (0.08)
                                                                        ========         ========          ========
Assuming dilution:
Loss from continuing operations................................         $  (0.12)        $  (0.10)         $  (0.11)
Income from discontinued operations............................             0.23             0.03              0.03
                                                                        --------         --------          --------
Net income (loss) attributable to common stockholders..........             0.11            (0.07)            (0.08)
                                                                        ========         ========          ========
Weighted average common shares outstanding:
Basic..........................................................           46,234           46,225            46,182
                                                                        ========         ========          ========
Assuming dilution..............................................           46,234           46,225            46,182
                                                                        ========         ========          ========
</TABLE>

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


<PAGE>
                    AMBASE CORPORATION AND SUBSIDIARIES
                         Consolidated Balance Sheets
                                 December 31
<TABLE>
<CAPTION>
<S>                                                                                     <C>                 <C>

(in thousands, except for share and per share amounts)                                       2005              2004
                                                                                             ====              ====
Assets:
Cash and cash equivalents.......................................................        $   2,852           $10,124
Investment securities:
    Held to maturity (market value $39,034 and $8,586, respectively)............           39,031             8,590
    Available for sale, carried at fair value...................................            1,729             2,112
                                                                                        ---------           -------
Total investment securities.....................................................           40,760            10,702
                                                                                        ---------           -------
Accounts receivable ............................................................                -                 1
Real estate owned:
     Land.......................................................................              554             6,954
     Buildings..................................................................            1,900            12,810
                                                                                        ---------           -------
                                                                                            2,454            19,764
     Less: accumulated depreciation ............................................             (232)             (763)
                                                                                        ---------           -------
Real estate owned, net..........................................................            2,222            19,001
                                                                                        ---------           -------
Other assets....................................................................               49             1,032
                                                                                        ---------           -------
Total assets....................................................................        $  45,883           $40,860
                                                                                        =========           =======
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities........................................        $   1,568           $ 1,495
Supplemental retirement plan....................................................           14,595            11,594
Other liabilities...............................................................               38             2,197
                                                                                        ---------           -------
Total liabilities...............................................................           16,201            15,286
                                                                                        ---------           -------
Commitments and contingencies...................................................                -                 -
                                                                                        ---------           -------
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized,
   46,410,007 issued and 46,233,519 outstanding)................................              464               464
Paid-in capital.................................................................          547,956           547,956
Accumulated other comprehensive loss............................................           (1,395)             (375)
Accumulated deficit.............................................................         (516,658)         (521,786)
Treasury stock, at cost - 176,488 shares........................................             (685)             (685)
                                                                                        ---------           -------
Total stockholders' equity......................................................           29,682            25,574
                                                                                        ---------           -------
Total liabilities and stockholders' equity......................................        $  45,883           $40,860
                                                                                        =========           =======
</TABLE>

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


<PAGE>
<TABLE>
<CAPTION>

                                                        AMBASE CORPORATION AND SUBSIDIARIES
                                            Consolidated Statements of Changes in Stockholders' Equity

<S>                             <C>          <C>             <C>                    <C>            <C>           <C>

                                                             Accumulated other
(in thousands)                  Common       Paid-in           comprehensive        Accumulated    Treasury
                                 stock       capital           income (loss)          deficit        stock       Total
                                =======      ========        =================      ===========    ========      =====
December 31, 2002.............  $   463    $  547,940        $          22          $  (514,876)   $   (647)    $32,902
Net loss......................        -             -                    -               (3,559)          -      (3,559)
Common stock repurchased              -             -                    -                    -         (38)        (38)
Other comprehensive
      income .................        -             -                   62                    -           -          62
                                -------    ----------        ------------------     -----------    ---------    -------
December 31, 2003.............      463       547,940                   84             (518,435)       (685)     29,367

Net loss......................        -                                  -               (3,351)          -      (3,351)
Stock options exercised.......        1            16                    -                    -           -          17
Other comprehensive
      loss ...................        -             -                 (459)                   -           -        (459)
                                -------    ----------        ------------------     -----------    ---------    --------
December 31, 2004.............      464       547,956                 (375)            (521,786)       (685)     25,574
                                -------    ----------        ------------------     -----------    ---------    --------
Net income....................        -             -                    -                5,128           -       5,128
Other comprehensive
      loss ...................        -             -               (1,020)                   -           -      (1,020)
                                -------    ----------        ------------------     -----------    ---------    ---------
December 31, 2005.............  $   464    $  547,956        $      (1,395)         $  (516,658)   $    (685)   $29,682
                                =======    ==========        ==================     ===========    =========    =========
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>

                                                       AMBASE CORPORATION AND SUBSIDIARIES
                                            Consolidated Statements of Comprehensive Income (Loss)
                                                            Years Ended December 31
                                                                (in thousands)
<S>                                                                                         <C>         <C>          <C>
                                                                                             2005        2004         2003
                                                                                            ======      ======       ======
Net income
(loss).........................................................................            $ 5,128      $(3,351)     $(3,559)

Minimum pension liability adjustment, net of tax effect of $0..................               (914)        (412)           -

Unrealized holding gains on investment securities - available for sale, net of
       tax effect of $0........................................................               (106)         (47)          62
                                                                                           -------      -------      -------
Comprehensive income
(loss).........................................................................            $ 4,108      $(3,810)     $(3,497)
                                                                                           =======      =======      =======
</TABLE>

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



<PAGE>
<TABLE>
<CAPTION>

                                                    AMBASE CORPORATION AND SUBSIDIARIES
                                                   Consolidated Statements of Cash Flows
                                                            Years Ended December 31
<S>                                                                               <C>              <C>            <C>

(in thousands)                                                                       2005             2004           2003
                                                                                     ====             ====           ====
Cash flows from operating activities:
Loss from continuing operations..........................................         $(5,519)         $(4,696)       $(5,102)
Adjustments to reconcile loss from continuing operations to net cash used by
     continuing operations:
    Accretion of discount - investment securities........................            (575)            (115)          (198)
    Depreciation and amortization........................................              51               50             50
    Realized gains on investment securities available for sale...........             (20)            (747)           (64)
Changes in other assets and liabilities:
    Accounts receivable .................................................               1                -              -
    Other assets.........................................................             426             (454)             -
    Accounts payable and accrued liabilities.............................              73              119           (187)
    Other liabilities....................................................             233            2,440          1,646
Other, net...............................................................               2               (2)             -
                                                                                  -------          -------        -------
Net cash used by continuing operating activities.........................          (5,328)          (3,405)        (3,855)
                                                                                  -------          -------        -------
Income from discontinuing operations....................................           10,647            1,345          1,543
Adjustments to reconcile income from discontinued operations to net cash
provided by discontinued operations:
    Gain from sale of discontinued operations...........................          (10,298)               -              -
    Depreciation and amortization related to discontinued operations....              140              280            279
Changes in other assets and liabilities related to discontinued operations:
    Other assets & other liabilities....................................             (305)            (116)          (125)
                                                                                  -------          -------        -------
Net cash provided by discontinued operations............................              184            1,509          1,697
                                                                                  -------          -------        -------
Net cash used by operating activities...................................           (5,144)          (1,896)        (2,158)
                                                                                  -------          -------        --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity...................          81,627           25,894         50,001
Purchases of investment securities - held to maturity....................        (111,493)         (17,040)       (48,873)
Purchases of investment securities - available for sale..................            (252)         (17,426)        (1,668)
Sales of investment securities - available for sale......................             548           17,790            641
Building improvements....................................................               -                -            (38)
Proceeds from sale of real estate owned..................................          27,442                -              -
                                                                                  -------          -------        -------
Net cash (used) provided by investing activities.........................          (2,128)           9,218             63
                                                                                  -------          -------        -------
Cash flows from financing activities:
Stock options exercised..................................................               -               17              -
Common stock repurchased.................................................               -                -            (38)
                                                                                  -------          -------        -------
Net cash (used) provided by financing activities.........................               -               17            (38)
                                                                                  -------          -------        -------
Net (decrease) increase in cash and cash equivalents.....................          (7,272)           7,339         (2,133)
Cash and cash equivalents at beginning of year...........................          10,124            2,785          4,918
                                                                                  -------          -------        -------
Cash and cash equivalents at end of year.................................         $ 2,852          $10,124        $ 2,785
                                                                                  =======          =======        =======
Supplemental cash flow disclosure:
Income taxes paid........................................................         $   100          $   162        $   135
                                                                                  =======          =======        =======
</TABLE>

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


<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

     Note 1 - Organization

     AmBase  Corporation  (the "Company") is a holding company which,  through a
wholly  owned  subsidiary,  owns a  commercial  office  building  in  Greenwich,
Connecticut and a 6.3% ownership  interest in SDG, Inc.  ("SDG"),  a development
stage pharmaceutical  company. The Company previously owned an insurance company
and a savings bank.

     In February  1991,  the  Company  sold its  ownership  interest in The Home
Insurance  Company  ("The  Home") and its  subsidiaries.  On  December  4, 1992,
Carteret  Savings Bank, FA ("Carteret") was placed in receivership by the Office
of Thrift Supervision ("OTS").

     The Company's  main source of operating  revenue is rental income earned on
real estate  owned.  The Company also earns  non-operating  revenue  principally
consisting of interest earned on investment securities and cash equivalents. The
Company continues to evaluate a number of possible acquisitions,  and is engaged
in the  management  of its  assets and  liabilities,  including  the  contingent
assets, as described in Notes 9 and 10.

     In July 2005,  the  Company  completed  the sale of its 38,000  square foot
office  building  at  Two  Soundview  Drive  in  Greenwich,   Connecticut  ("Two
Soundview").  Accordingly,  the results of operations of Two Soundview have been
retroactively  reclassified  as  discontinued  operations  in  the  accompanying
Consolidated  Statement of  Operations  for the periods  presented in accordance
with Financial  Accounting  Standards Board,  Statement of Financial  Accounting
Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets"  ("SFAS  144").  See  Part  II -  Item  8 -  Note  13 to  the  Company's
Consolidated Financial Statements.

     Note 2 - Summary of Significant Accounting Policies

     The consolidated financial statements have been prepared in accordance with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP").   Certain   reclassifications   have  been  made  to  the  prior  year
consolidated financial statements to conform to the 2005 presentation.

     Use of estimates in the preparation of financial statements:

     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.

     Principles of consolidation:

     The consolidated  financial statements are comprised of the accounts of the
Company  and  its  majority  owned  subsidiaries.   All  material   intercompany
transactions and balances have been eliminated.  The Company continually reviews
its  investments  to  determine  whether a decline in fair value  below the cost
basis is other  than  temporary.  If the  decline  in fair value is judged to be
other than  temporary,  the cost basis of the  security is written  down to fair
market  value and the amount of the write down is included  in the  Consolidated
Statement of Operations.

     Cash and cash equivalents:

     Highly  liquid  investments,   consisting  principally  of  funds  held  in
short-term  money market  accounts,  are  classified  as cash  equivalents  with
original maturities of less than three months.

<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (continued)

     Investment securities:

     Securities  that the  Company has both the  positive  intent and ability to
hold to maturity are classified as investment  securities - held to maturity and
are carried at amortized cost. Investment securities - available for sale, which
are those  securities  that may be sold prior to  maturity,  are carried at fair
value, with any net unrealized gains or losses reported in a separate  component
of stockholders' equity, net of taxes.

     Interest and  dividends on  investment  securities  are  recognized  in the
Consolidated  Statement of Operations when earned.  Realized gains and losses on
the sale of investment  securities - available for sale are calculated  using an
average cost basis for determining  the cost basis of the  securities.  The fair
value of publicly  traded  investment  securities  is determined by reference to
current market quotations.

     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 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. At the present time, management has no basis to
conclude that  realization  is more likely than not and a valuation  reserve has
been recorded against net deferred tax assets.

     Earnings per share:

     Basic  earnings  per share  ("EPS")  excludes  dilution  and is computed by
dividing income (loss) from continuing operations by the weighted average number
of common shares outstanding for the period.  Diluted EPS reflects the potential
dilution  of EPS  that  could  occur  if  options  to issue  common  stock  were
exercised.

     Stock-based compensation:

     The Company adopted the disclosure requirements of the Financial Accounting
Standards  Board,   Statement  of  Financial   Accounting   Standards  No.  123,
"Accounting for Stock-Based  Compensation" ("SFAS 123") and continues to account
for stock  compensation  using APB Opinion 25,  "Accounting  for Stock Issued to
Employees"  ("APB 25"),  making pro forma  disclosures  of net income (loss) and
earnings  per share as if the fair  value  based  method  had been  applied.  No
compensation expense, attributable to stock incentive plans, has been charged to
earnings.  For a further  discussion and a summary of assumptions used, see Note
8.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period. If the Company
had elected to recognize  compensation  cost for stock options based on the fair
value  at the  date of grant  for  stock  options,  consistent  with the  method
prescribed by Statement  123, net loss and net loss per share for the year ended
December 31, would have been changed to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
<S>                                                                        <C>                 <C>                <C>

(in thousands, except per share data)                                          2005                2004               2003
Net income (loss):                                                            =====               =====              =====
As reported.....................................................           $   5,128           $  (3,351)         $  (3,559)
Deduct: pro forma stock based compensation expense for
    stock options pursuant to Statement 123.....................                (126)                (79)              (104)
                                                                           ---------           ---------          ---------
Pro forma.......................................................           $   5,002           $  (3,430)         $  (3,663)
                                                                           =========           =========          =========
Net income (loss) per common share:
Basic - as reported.............................................           $    0.11           $   (0.07)         $   (0.08)
Basic - pro forma...............................................                0.11               (0.07)             (0.08)
Assuming dilution - as reported.................................                0.11               (0.07)             (0.08)
Assuming dilution - pro forma ..................................                0.11               (0.07)             (0.08)
                                                                           =========           =========          =========
</TABLE>


<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (continued)

     Deferred rent receivable and revenue recognition:

     The Company  earns  rental  income  under  operating  leases with  tenants.
Minimum lease rentals are recognized on a  straight-line  basis over the term of
the leases.  The cumulative  difference  between lease revenue  recognized under
this method and the contractual lease payment terms is recorded as deferred rent
receivable  and the  balances of $5,000 and $505,000 as of December 31, 2005 and
December 31, 2004, respectively are included in other assets on the Consolidated
Balance  Sheets.  The amount of deferred rent receivable as of December 31, 2004
includes $493,000 relating to Two Soundview.  Revenue from tenant  reimbursement
of  common  area  maintenance,   utilities  and  other  operating  expenses  are
recognized pursuant to the tenant's lease when earned and due from tenants.

     Property operating and maintenance:

     Included in property operating and maintenance are expenses for common area
maintenance,  utilities,  real  estate  taxes and other  reimbursable  operating
expenses,  which  have not been  reduced  by  amounts  reimbursable  by  tenants
pursuant to lease agreements.

     Depreciation:

     Depreciation  expense for buildings is calculated on a straight-line  basis
over 39 years. Tenant improvements are typically  depreciated over the remaining
life of the tenants lease.

     New Accounting Pronouncements:

     FASB Statement No. 123 (revised  2005),  Share-Based  Payment - In December
2004, the Financial  Accounting  Standards Board ("FASB") released  Statement of
Financial  Accounting Standards No. 123R,  "Share-Based  Payment" ("SFAS 123R").
This  standard  requires  issuers to measure  the cost of  equity-based  service
awards  based on the  grant  date  fair  value of the  award.  That cost will be
recognized  over the period  during  which an  employee  is  required to provide
service in exchange for the award or the requisite service period (typically the
vesting period).  No compensation cost is recognized for equity  instruments for
which employees do not render the requisite service.  The Company will initially
measure the cost of liability  based service  awards based on their current fair
value.  The fair  value of that award will be  reimbursed  subsequently  at each
reporting  date through the  settlement  date.  Changes in fair value during the
requisite  service  period will be  recognized  as  compensation  cost over that
period.  The  grant  date fair  value of  employee  share  options  and  similar
instruments  will be  estimated  using  option-pricing  models  adjusted for the
unique  characteristics  of those  instruments.  If an equity  award is modified
after the grant date,  incremental  compensation  cost will be  recognized in an
amout equal to the excess of the fair value of the modified  award over the fair
value of the original award immediately  before the modification.  Companies can
comply with SFAS 123R using one of three  transition  methods:  (1) the modified
prospective  method; (2) a variation of the modified  prospective method; or (3)
the  modified  retrospective  method.  The  provisions  of  this  statement  are
effective  for interim and annual  periods  beginning  after June 15, 2005.  The
Company will adopt SFAS 123R as of January 1, 2006, and is still  evaluating the
financial impact on the Company's Consolidated Financial Statements.

     FIN47,  Accounting for Conditional Asset Retirement  Obligations - In March
2005, the FASB released FASB Intterpretation No. 47, "Accounting for Conditional
Asset  Retirement  Obligations",   ("FIN47").  FIN47  clarifies  that  the  term
conditional  asset  retirement  obligation as used in SFAS 143.  "Accounting for
Asset Retirement  Obligations" ("SFAS 143"), as a legal obligation to perform an
asset  retirement  activity in which the timing and/or method of settlement  are
conditional  on a future  event that may or may not be within the control of the
entity.  The obligation to perform the asset retirment activity is unconditional
even though  uncertainty  exists about the timing and/or  method of  settlement.
Thus,  the timing and/or of  settlement  may be  conditional  on a future event.
Accordingly,  an entity is required to recognize a liability  for the fair value
of a conditional asset retirement  obligation if the fair value of the liability
can be reasonably  estimated.  The fair value of a liability for the conditional
asset retirement obligation should be recognizedd when incurred - generally upon
acquisition, construction, or development and/or through the normal operation of
the  asset.  Uncertainty  about the  timing  and/or  method of  settlement  of a
conditional asset retirement  obligation should be factored into the measurement
of the liability when sufficient  information exists. SFAS 143 acknowledges that
in some  cases,  sufficient  information  may  not be  available  to  reasonably
estimate the fair value of an asset retirement obligation. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement  obligation.  The Company adopted FIN47 during 2005
and does not believe that any asbestos  exists in the building that would result
in ARO treatment.


<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
               Notes to Consolidated Financial Statements (continued)



     Note 3 - Investment Securities

     Investment  securities - held to maturity  consist of U.S.  Treasury  Bills
with original  maturities of one year or less and are carried at amortized  cost
based upon the  Company's  intent  and  ability  to hold  these  investments  to
maturity.

     Investment  securities  - available  for sale,  consist of  investments  in
equity  securities  held for an indefinite  period and are carried at fair value
with net unrealized gains and losses recorded  directly in a separate  component
of stockholders' equity.

     Investment securities at December 31 consist of the following:
<TABLE>
<CAPTION>
<S>                           <C>             <C>               <C>            <C>             <C>              <C>
                                               2005                                            2004
                             ==========================================     ===========================================
                                                Cost or                                         Cost or
                              Carrying        Amortized           Fair        Carrying         Amortized           Fair
(in thousands)                   Value             Cost          Value           Value              Cost          Value
                                ======         ========          =====          ======          ========          =====
Held to Maturity:
    U.S. Treasury Bills....... $  39,031       $ 39,031       $ 39,034        $   8,590         $  8,590        $ 8,586
Available for Sale:
     Equity Securities........     1,729          1,798          1,729            2,112            2,075          2,112
                               ---------       --------       --------        ---------         --------       --------
                               $  40,760       $ 40,829       $ 40,763        $  10,702         $ 10,665       $ 10,698
                               =========       ========       ========        =========         ========       ========
</TABLE>

     The gross  unrealized  gains (losses) on investment  securities at December
31, consist of the following:
<TABLE>
<CAPTION>
<S>                                                                                         <C>                  <C>

(in thousands)                                                                                 2005                2004
                                                                                               ====                ====
Held to Maturity:
Gross unrealized gains (losses).....................................................        $     3              $   (4)
                                                                                            =======              ======
Available for Sale:
Gross unrealized gains..............................................................        $     -              $   41
                                                                                            =======              ======
Gross unrealized losses.............................................................        $   (69)             $   (4)
                                                                                            =======              ======
</TABLE>

     The realized gain on the sale of investment  securities  available for sale
for the years ended December 31, 2005 and 2004, is as follows:
<TABLE>
<CAPTION>
<S>                                                                                         <C>                  <C>

(in thousands)                                                                                 2005                2004
                                                                                               ====                ====
Net sale proceeds...................................................................        $   548              $17,790
Cost basis..........................................................................           (528)             (17,043)
                                                                                            -------              -------
Realized gain.......................................................................        $    20              $   747
                                                                                            ========             =======
</TABLE>
<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements (continued)

     During 2004, the Company purchased and sold a $7 million U.S. Treasury Note
and an $8 million U.S.  Treasury Note resulting in gains of $89,000 and $24,000,
respectively  which are included in realized  gains on investment  securities in
the 2004 Consolidated Statement of Operations.

     Note 4 - Earnings Per Share

     The  calculation  of basic and diluted  earnings per share,  including  the
effect of dilutive securities, for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
<S>                                                             <C>                 <C>                     <C>

(in thousands, except per share data)                                 2005                2004                  2003
                                                                     =====              ======                ======

Loss from continuing operations...............................  $   (5,519)         $  (4,696)              $  (5,102)
                                                                ==========          =========               =========

Weighted average common shares outstanding ...................      46,234             46,225                  46,182

Effect of Dilutive Securities:
Assumed stock option exercise.................................           -                  -                       -
                                                                ----------          ---------               ---------
Weighted average common shares outstanding assuming dilution..      46,234             46,225                  46,182
                                                                ==========          =========               =========
Loss from continuing operations per common share:
Basic.........................................................  $    (0.12)         $   (0.10)              $   (0.11)
Assuming dilution ............................................       (0.12)             (0.10)                  (0.11)
                                                                ==========          =========               =========
</TABLE>

     Options to purchase  common  stock of 1,440,000  shares in 2005,  1,245,000
shares in 2004 and 1,125,000  shares in 2003 were excluded from the  computation
of diluted  earnings per share because these  options were  antidilutive  in the
computation of earnings per share from continuing operations.

     Note 5 - Stockholders' Equity

     Authorized  capital  stock  consists  of  50,000,000  shares of  cumulative
preferred stock,  $0.01 par value, and 200,000,000 shares of Common Stock, $0.01
par value.

     Changes in the  outstanding  shares of Common  Stock of the  Company are as
follows:
<TABLE>
<CAPTION>
<S>                                                               <C>                 <C>                   <C>

                                                                      2005                2004                  2003
                                                                     =====              ======                ======
Balance at beginning of year....................................  46,233,519          46,158,519            46,208,519

Issuance of common shares.......................................           -              75,000                     -

Common shares repurchased.......................................           -                   -               (50,000)
                                                                  ----------          ----------            ----------
Balance at end of year..........................................  46,233,519          46,233,519            46,158,519
                                                                  ==========          ==========            ==========
</TABLE>

     The Company  issued  75,000  previously  authorized  common  shares  during
February  2004, in connection  with the exercise of an employee  stock option at
the exercise price of $0.21 per share.




<PAGE>


                       AMBASE CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements (continued)

     At December 31, 2005,  December  31,  2004,  and December 31, 2003,  Common
Stock balances  exclude  176,488  treasury  shares carried at an average cost of
$3.88 per share, aggregating approximately $685,000.

     At December 31,  2005,  there were  5,110,000  common  shares  reserved for
issuance under the Company's stock option and other employee benefit plans.

     Stockholder Rights Plan:

     On January 29, 1986, the Company's  Board of Directors  declared a dividend
distribution  of one right  for each  outstanding  share of Common  Stock of the
Company.  The rights, as amended,  which entitle the holder to purchase from the
Company a common share at a price of $75.00,  are not exercisable until either a
person or group of  affiliated  persons  acquires  25% or more of the  Company's
outstanding common shares or upon the commencement or disclosure of an intention
to  commence  a tender  offer or  exchange  offer for 20% or more of the  common
shares.  The rights are redeemable by the Company at $0.05 per right at any time
until the earlier of the tenth day following an  accumulation  of 20% or more of
the Company's shares by a single acquirer or group, or the occurrence of certain
Triggering Events (as defined in the Stockholder  Rights Plan). In the event the
rights become exercisable and thereafter, the Company is acquired in a merger or
other business combination,  or in certain other circumstances,  each right will
entitle the holder to purchase from the surviving corporation,  for the exercise
price,  Common Stock  having a market  value of twice the exercise  price of the
right.  The rights are subject to adjustment  to prevent  dilution and expire on
February 10, 2011.

     Common Stock Repurchase Plan:

     The Company's Board of Directors has approved and authorized  management to
establish and implement a common stock repurchase plan (the "Repurchase  Plan").
The  Repurchase  Plan  is  dependent  upon  favorable  business  conditions  and
acceptable purchase prices for the common stock and allows for the repurchase of
up to 10 million shares of the Company's common stock in the open market. During
June 2003, the Company  repurchased  50,000 shares of common stock at a purchase
price of $0.75 per share pursuant to the Repurchase Plan.  During February 2006,
the Company  repurchased  970,000  shares of common  stock from an  unaffiliated
party at a purchase price of $0.58 per share pursuant to the Repurchase Plan.

     Note 6 - Comprehensive Income (Loss)

     Comprehensive  income (loss), for the year ended December 31 is composed of
net income  (loss) and other  comprehensive  income  (loss)  which  includes the
change in unrealized  gains on  investment  securities  available for sale,  and
recognition of additional minimum pension liability as follows:
<TABLE>
<CAPTION>
<S>                          <C>         <C>        <C>            <C>         <C>         <C>

(in thousands)                                 2005                                2004
                               ==================================    ==================================
                               Minimum   Unrealized   Accumulated    Minimum   Unrealized   Accumulated
                               Pension     Gains on         Other    Pension     Gains on         Other
                             Liability   Investment Comprehensive  Liability   Investment Comprehensive
                            Adjustment   Securities        Income  Adjustment   Securities       Income
                            ==========   ========== =============  ==========  =========== ============
Balance beginning of period..$   (412)   $       37 $        (375) $       -   $        84 $         84
Reclassification adjustment for
  gains realized in net loss.       -            (5)           (5)         -          (432)        (432)
Change during the period.....    (914)         (101)       (1,015)      (412)          385          (27)
                             --------    ---------- -------------  ---------   ----------- ------------
Balance end of period........$ (1,326)   $      (69)$      (1,395) $    (412)  $        37 $       (375)
                             ========    ========================  =========   =========== ============
</TABLE>




<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (continued)

     Note 7 - Pension and Savings Plans

     The  Company   sponsors  a  non-qualified   supplemental   retirement  plan
("Supplemental  Plan") under which one current  executive officer of the Company
is  currently  the  sole  participant.  The  cost  of the  Supplemental  Plan is
actuarially determined and is accrued but not funded.

     Pension expense for the  Supplemental  Plan for the years ended December 31
was as follows:
<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>                     <C>

(in thousands)                                                              2005                2004               2003
                                                                            ====                ====               ====
Service cost of current period................................       $     1,031        $        948            $   870
Interest cost on projected benefit obligation.................               769                 710                646
Amortization of unrecognized losses...........................               287                 232                206
                                                                     -----------        ------------            -------
                                                                     $     2,087        $      1,890            $ 1,722
                                                                     ============       ============            =======
</TABLE>

     A reconciliation  of the changes in the projected  benefit  obligation from
the beginning of the year to the end of the year is as follows:
<TABLE>
<CAPTION>
<S>                                                                                     <C>                  <C>

(in thousands)                                                                               2005                  2004
                                                                                             ====                 ====
Projected benefit obligation at beginning of year...............................        $  13,382            $   11,022
Service cost....................................................................            1,031                   948
Interest cost...................................................................              769                   710
Actuarial (gain) loss, including effect of change in assumptions................             (587)                  702
                                                                                        ---------            ----------
Projected benefit obligation at end of year.....................................        $  14,595            $   13,382
                                                                                        =========            ==========
</TABLE>

     Accrued  pension  costs for the  Supplemental  Plan at December 31, and the
major assumptions used to determine these amounts, are summarized below:
<TABLE>
<CAPTION>
<S>                                                                                     <C>                  <C>

(dollars in thousands)                                                                       2005                  2004
                                                                                             ====                  ====
Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested...................................        $  14,595            $   11,594
                                                                                        =========            ==========
Projected benefit obligation for service rendered to date.......................        $  14,595            $   13,382
Unrecognized net loss...........................................................           (1,326)               (2,200)
Accumulated other comprehensive loss............................................            1,326                   412
                                                                                        ---------            ----------
Accrued pension costs...........................................................        $  14,595            $   11,594
                                                                                        =========            ==========
Major assumptions:
Discount rate...................................................................             5.50%                 5.75%
Rate of increase in future compensation.........................................                -                   6.0%
                                                                                        =========            ===========
</TABLE>

     The Company's  accrued pension  liability under the Supplemental Plan as of
December 31, 2005, was increased by an additional  minimum  liability to reflect
the amount of the unfunded accumulated benefit obligation under the Supplemental
Plan at December 31, 2005. This additional  minimum  liability was recorded as a
charge to other  comprehensive  loss in 2005.

<PAGE>
     The  liability  for the  Supplemental  Plan  increased  to  $14,595,000  at
December 31, 2005 from $11,594,000 at December 31, 2004. The increased liability
is the  result of  additional  accrued  service  vesting,  interest  cost on the
liability,  and the recognition of a minimum pension  liability  adjustment as a
result  of the  use  of an  updated  mortality  table  and  changes  in  certain
assumptions.  The Supplemental  Plan liability is further affected by changes in
discount rates,  mortality,  and experience  which could be different from those
assumed.

     The  Personnel  Committee  of the Board of  Directors  of the Company  (the
"Personnel  Committee")  had  been  reviewing  the  Supplemental  Plan  and  the
Company's  related  liability,  including  the  desirability  of  continuing  to
maintain and  administer  the  Supplemental  Plan,  the untying of Mr.  Bianco's
future  employment  with the Company  from the timing of his  Supplemental  Plan
benefit  payment(s),   the  Company's  overall  financial   position,   and  the
desirability of future accruals under the  Supplemental  Plan after Mr. Bianco's
current  employment  contract  expires on May 31, 2007. In connection  with this
review, the Personnel Committee had been considering various options,  including
whether or not to terminate  and/or  curtail the  Supplemental  Plan. Mr. Bianco
(the Company's Chairman,  President and Chief Executive Officer,  and the former
President and Chief Executive Officer of Carteret Savings Bank, FA), is the only
current employee of the Company who  participates in the  Supplemental  Plan and
his  Supplemental  Plan benefit is fully  vested.  For purposes of computing his
accrued  benefit  under the  Supplemental  Plan,  Mr.  Bianco had 14.67 years of
credited  service as of December 31, 2005, and,  assuming  continued  employment
with the Company,  will have 16.08 years of credited service upon the expiration
of his current employment contract with the Company on May 31, 2007. His accrual
percentage  under the  Supplemental  Plan is 4%, in effect  from the time of his
initial  employment with the Company,  and in accordance  with the  Supplemental
Plan, he has had the  entitlement  to receive his  Supplemental  Plan benefit in
either a lump-sum or an annuity  upon  termination  of his  employment  with the
Company.

     During March 2006,  the Personnel  Committee  entered into a new employment
agreement  with Mr.  Bianco to extend his  employment  with the  Company  for an
additional  five (5) years  beyond May 31,  2007,  until May 31, 2012 (the "2007
Employment  Agreement").  As part of the 2007 Employment Agreement terms (i) Mr.
Bianco's  annual rate of base salary will not increase  from his current rate of
base salary during the first three years of the 2007 Employment Agreement;  (ii)
Mr. Bianco's service  accruals under the Supplemental  Plan will cease as of May
31,  2007;  (iii)  Mr.  Bianco's  Final  Average  Earnings  (as  defined  in the
Supplemental  Plan) for  Supplemental  Plan benefit  calculation  purposes,  are
capped as of December 31, 2004;  and (iv) Mr.  Bianco's  bonus will no longer be
linked to recovery efforts in connection with the Company's Supervisory Goodwill
litigation. Instead on or about May 31, 2007, Mr. Bianco will receive a lump-sum
payment of his  Supplemental  Plan  benefit  of  $16,676,115,  which  amount was
calculated on the basis of a 5.75% discount rate, a "RP-2000"  projected to 2004
mortality  table; and 16.08 years of credited  service,  and the Company and Mr.
Bianco  have  agreed  to  a  long  term  incentive  bonus  formula,  at  varying
percentages  ranging from 5% to 10%, or more, based upon recoveries  received by
the Company for its investment in Carteret Savings Bank,  through  litigation or
otherwise  (including  the  Company's  Supervisory  Goodwill  litigation).   The
lump-sum  Supplemental  Plan benefit  payment to Mr.  Bianco will be paid to him
from the Company's available financial resources.

     The  Supplemental  Plan has  been  amended  to  provide  for its  automatic
termination  immediately  following  the payment to Mr.  Bianco of his  lump-sum
benefit under the Supplemental Plan on or about May 31, 2007. In accordance with
the accounting for the Supplemental Plan's scheduled termination on or about May
31,  2007,  in  accordance  with GAAP,  the ultimate  liability  relating to the
anticipated  termination  of  the  Supplemental  Plan  is not  reflected  in the
financial   statements  presented  herein,  as  all  conditions  for  the  final
termination  of the  Supplemental  Plan  have  not yet  been  met.  Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental  Plan and
the  Supplemental  Plan  liability  will increase  through the date on which the
Supplemental Plan is terminated.
<PAGE>

                     AMBASE CORPORATION AND SUBSIDIARIES
           Notes to Consolidated Financial Statements (continued)

     The Company  sponsors the AmBase 401(k) Savings Plan (the "Savings  Plan"),
which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code"). The Savings Plan permits eligible employees to
make  contributions  of up to 15% of  compensation,  which  are  matched  by the
Company at a percentage  determined  annually.  The employer  match is currently
100%  of  the   employee's   compensation   eligible  for   deferral.   Employee
contributions to the Savings Plan are invested at the employee's discretion,  in
various investment funds. The Company's  matching  contributions are invested in
the same  manner as the  compensation  reduction  contributions.  The  Company's
matching  contributions to the Savings Plan,  charged to expense,  were $50,000,
$45,000 and $36,000 in 2005, 2004 and 2003, respectively.  All contributions are
subject to maximum limitations contained in the Code.

     Note 8- Incentive Plans

     Under the Company's 1994 Senior Management Incentive Compensation Plan (the
"1994  Plan"),  any  executive  officer of the  Company  whose  compensation  is
required to be reported to  stockholders  under the  Securities  Exchange Act of
1934 (the  "Participants")  and who is  serving  as such at any time  during the
fiscal  year as to which an award is  granted,  may  receive  an award of a cash
bonus  ("Bonus"),  in an amount  determined  by the  Personnel  Committee of the
Company's Board of Directors (the  "Committee") and payable from an annual bonus
fund (the "Annual Bonus  Pool").  The Committee may award Bonuses under the 1994
Plan to  Participants  not later than 120 days after the end of each fiscal year
(the "Reference Year").

     If the  Committee  grants a Bonus  under the 1994  Plan,  the amount of the
Annual Bonus Pool will be an amount equal to the sum of (i) plus (ii), where:

     (i) is ten  percent  (10%) of the  amount  by  which  the  Company's  Total
Stockholders'  Equity, as defined, on the last day of a Reference Year increased
over the Company's Total  Stockholders'  Equity, as defined,  on the last day of
the immediately preceding Reference Year; and

     (ii) is five  percent  (5%) of the  amount  by which the  Company's  market
value,  as defined,  on the last day of the Reference  Year  increased  over the
Company's  market value on the last day of the immediately  preceding  Reference
Year.

     Notwithstanding the foregoing,  the 1994 Plan provides that in the event of
a decrease in either or both of items (i) and/or (ii)  above,  the Annual  Bonus
Pool is determined by reference to the last Reference Year in which there was an
increase in such item.  If the  Committee  determines  within the  120-day  time
period to award a Bonus,  the share of the Annual  Bonus Pool to be allocated to
each  Participant  shall be as  follows:  45% of the Annual  Bonus Pool shall be
allocated to the Company's Chief Executive Officer,  and 55% of the Annual Bonus
Pool  shall be  allocated  pro  rata to each of the  Company's  Participants  as
determined  by the  Committee.  The Committee in its  discretion  may reduce the
percentage of the Annual Bonus Pool to any  Participant  for any Reference Year,
and such reduction  shall not increase the share of any other  Participant.  The
1994 Plan is not the  exclusive  plan under  which the  Executive  Officers  may
receive cash or other incentive  compensation  or bonuses.  No Bonuses were paid
attributable to the 1994 Plan for 2005, 2004, or 2003.

     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, 2008. An aggregate of 5,000,000
shares of the  Company's  Common Stock are reserved for issuance  under the 1993
Plan (upon the exercise of Options and Stock Appreciation Rights, upon awards of
Restricted  Stock  and  Performance  Shares);  however,  of  such  shares,  only
2,500,000 shares in the aggregate shall be available for issuance for 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 market value of the
Company's Common Stock on the date of grant of that Option.  The term of any ISO
or related SAR cannot  exceed ten years from the date of grant,  and the term of
any NQSO cannot  exceed ten years and one month from the date of grant.  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
commencing  one year  after  the date of  grant.  In the  case of a  "Change  of
<PAGE>

                     AMBASE CORPORATION AND SUBSIDIARIES
           Notes to Consolidated Financial Statements (continued)

     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.

     As a condition  to any award of  Restricted  Stock or Merit Award under the
1993 Plan, the Committee may require a participant to pay an amount equal to, or
in excess of, the par value of the shares of  Restricted  Stock or Common  Stock
awarded to him or her. Restricted Stock may not be sold, assigned,  transferred,
pledged or otherwise encumbered during a "Restricted Period",  which in the case
of grants to  employees  shall not be less than one year from the date of grant.
The Restricted Period with respect to any outstanding shares of Restricted Stock
awarded to  employees  may be reduced by the  Committee  at any time,  but in no
event  shall  the  Restricted  Period be less  than one  year.  Except  for such
restrictions,  the  employee  as the owner of such  stock  shall have all of the
rights of a  stockholder  including,  but not limited to, the right to vote such
stock and to receive  dividends  thereon as and when paid.  In the event that an
employee's  employment is terminated  for any reason,  an employee's  Restricted
Stock will be forfeited;  provided,  however,  that the Committee may limit such
forfeiture in its sole  discretion.  At the end of the  Restricted  Period,  all
shares  of  Restricted  Stock  shall  be  transferred  free  and  clear  of  all
restrictions to the employee.  In the case of a Change in Control of the Company
(as defined in the 1993 Plan),  an  employee  may receive his or her  Restricted
Stock free and clear of all restrictions in the discretion of the Committee,  or
as may otherwise be provided pursuant to the employee's Restricted Stock award.

     Performance  Share  awards of  Common  Stock  under the 1993 Plan  shall be
earned on the basis of the  Company's  performance  in relation  to  established
performance  measures  for a specific  performance  period.  Such  measures  may
include, but shall not be limited to, return on investment,  earnings per share,
return on stockholder's  equity, or return to stockholders.  Performance  Shares
may not be sold, assigned,  transferred,  pledged or otherwise encumbered during
the relevant performance period.  Performance Shares may be paid in cash, shares
of Common Stock or shares of Restricted  Stock in such portions as the Committee
may determine. An employee must be employed at the end of the performance period
to receive payments of Performance Shares; provided,  however, in the event that
an  employee's  employment  is  terminated  by  reason  of  death,   disability,
retirement or other reason  approved by the  Committee,  the Committee may limit
such  forfeiture in its sole  discretion.  In the case of a Change in Control of
the Company (as  defined in the 1993 Plan),  an employee  may receive his or her
Performance  Shares in the discretion of the  Committee,  or as may otherwise be
provided in the employee's Performance Share award.

     The Company's  1985 Stock Option Plan (the "1985  Plan"),  provided for the
granting of up to  2,000,000  shares of stock  options for the purchase of up to
2,000,000 shares of Common Stock to salaried employees, through May 22, 1995. No
additional  stock options are outstanding or can be awarded under the 1985 Plan.
Under the 1985 Plan,  there were 75,000  shares  under  option  outstanding  and
exercisable as of December 31, 2002 and December 31, 2003 at a weighted  average
exercise  price of $0.21 per share.  In February  2004,  the  outstanding  stock
option, under the 1985 Plan, for 75,000 common shares was exercised.



<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (continued)

     Incentive  plan activity is  summarized  as follows:
<TABLE>
<CAPTION>
<S>                                                          <C>                     <C>

                                                                        1993 Stock
(shares in thousands)                                                  Incentive  Plan
                                                             =================================
                                                                                      Weighted
                                                               Shares                  Average
                                                                Under                 Exercise
                                                               Option                   Price
                                                              --------                ----------
Outstanding  at December 31, 2002.................               1,095                $     1.27
Expired...........................................                 (45)                     4.02
                                                              --------
Outstanding   at  December  31,   2003............               1,050                $     1.15
Expired...........................................                 (45)                     4.02
Granted...........................................                 240                      0.66
Exercised.........................................                   -                         -
                                                              --------
Outstanding at December 31, 2004..................               1,245                $     1.00
Expired...........................................                 (45)                     4.02
Granted...........................................                 240                      0.81
                                                              --------
Outstanding at December 31, 2005..................               1,440
                                                              ========
Options exercisable at:
     December 31, 2005............................                 912                $    1.00
       December 31, 2004..........................                 614                     1.14
     December 31, 2003............................                 285                     1.81
                                                              ========
</TABLE>

     The  following  table  summarizes  information  about the  Company's  stock
options outstanding and exercisable under the 1993 Plan at December 31, 2005, as
follows:
<TABLE>
<CAPTION>
<S>    <C>              <C>            <C>                   <C>                       <C>                     <C>

(shares in thousands)              Options Outstanding                                          Options Exercisable
                        ==============================================              ==============================================
                                          Weighted
                                           Average
                                         Remaining           Weighted                                          Weighted
       Range of                        Contractual            Average                                           Average
       Exercise                               Life           Exercise                                          Exercise
         Prices         Shares          (in years)              Price                  Shares                     Price
         ======          =====            ========            =======                   =====                   =======
 $0.60 to $0.90            700                   3               0.71                     340                      0.66
       $0.95                15                   4               0.95                      15                      0.95
$1.09 to $1.19             700                   3               1.14                     532                      1.13
 $2.56 to $3.65             25                   3               3.00                      25                      3.00
                      --------                                                       --------
          Total          1,440                                                            912
                      ========                                                       ========
</TABLE>

     The Company has adopted the  disclosure  only  provisions of Statement 123,
but  continues to apply APB 25 in  accounting  for employee  stock  options.  No
compensation expense, attributable to stock incentive plans, has been charged to
earnings.  The fair value of stock  options  granted by the  Company in 2005 and
2004  used to  compute  pro forma  net  income  (loss)  and  earnings  per share
disclosures is the estimated fair value at date of grant.


<PAGE>


                       AMBASE CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (continued)

     The Black-Scholes  option pricing model was used to estimate the fair value
of the options at grant date based on factors as  follows:
<TABLE>
<CAPTION>
<S>                                                             <C>         <C>
                                                                 2005       2004
                                                                =====       ====
Estimated Dividend yield..............................              0%         0%
Volatility............................................           0.44       0.46
Risk free interest rate...............................           4.24%      4.30%
Expected life in years................................              6          6
Weighted  average  fair
  value at grant date.................................          $0.39      $0.32
                                                                =====      =====
</TABLE>

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,  and
given the  substantial  changes in the price per share of the  Company's  Common
Stock, in management's opinion, the existing models do not necessarily provide a
reliable  single measure of the fair value of its employee stock options.  For a
summary of the pro forma amounts  calculated  in  accordance  with SFAS 123, see
Note 2.

     Note 9 - Income Taxes

     The  components  of income tax expense for  continuing  operations  for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
<S>                                                                    <C>                  <C>               <C>

(in thousands)                                                              2005                2004               2003
                                                                            ====                ====               ====
Income tax expense - current state and local..................         $     (95)           $   (120)          $    (125)
                                                                       ----------           ----------         ---------
Total                                                                  $     (95)           $   (120)          $   (125)
                                                                       =========            =========          =========
</TABLE>

     The  components of pretax income (loss) and the  difference  between income
taxes from continuing operations,  computed at the statutory federal rate of 35%
in 2005,  2004 and 2003,  and the  provision  for income  taxes from  continuing
operations for the years ended December 31 follows:
<TABLE>
<CAPTION>
<S>                                                                    <C>                  <C>                 <C>

(in thousands)                                                              2005                2004               2003
                                                                            ====                ====               ====
Loss from continuing operations before income taxes.............       $  (5,424)           $ (4,576)           $ (4,977)
                                                                           =====                ====               ====
Tax (expense) benefit:
Tax at statutory federal rate...................................       $   1,898            $  1,602            $  1,742
Accounting loss benefit not recognized..........................          (1,898)             (1,602)             (1,742)
State income taxes..............................................             (95)               (120)               (125)
                                                                       ---------            --------            --------
Income tax expense..............................................       $     (95)           $   (120)           $   (125)
                                                                       =========            ========            ========
</TABLE>

     The Company expects to utilize net operating loss ("NOL") carryforwards and
alternative minimum tax ("AMT") NOL carryforwards as available to offset taxable
income generated from the sale of Two Soundview as discussed in Part II - Item 8
- Note 13 to the Company's  consolidated  financial statements.  However, due to
limitations  on the amount of NOL  carryforwards  that may be  utilized  against
current  year  taxable  income,   the  income  tax  provision  of  $400,000  for
discontinued  operations is attributable to a provision for federal  alternative
minimum tax of $150,000 and a provision of $250,000 for Connecticut state income
tax amounts for 2004 and 2003, respectively,  primarily consist of a minimum tax
on capital to the state of Connecticut.
<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES
           Notes to Consolidated Financial Statements (continued)

     As a  result  of the  Office  of  Thrift  Supervision's  December  4,  1992
placement of Carteret in  receivership,  under the  management of the Resolution
Trust Corporation  ("RTC")/Federal  Deposit Insurance Corporation ("FDIC"),  and
then proposed Treasury Reg. ss.1.597-4(g),  the Company had previously filed its
1992 and subsequent federal income tax returns with Carteret  disaffiliated from
the Company's  consolidated  federal income tax return. Based upon the impact of
Treasury  Reg.  ss.1.597-4(g),  which was issued in final form on  December  20,
1995, a continuing review of the Company's tax basis in Carteret, and the impact
of prior year tax return  adjustments  on the Company's  1992 federal income tax
return as filed,  the Company decided not to make an election  pursuant to final
Treasury  Reg.   ss.1.597-4(g)  to  disaffiliate  Carteret  from  the  Company's
consolidated  federal  income tax return  effective  as of December 4, 1992 (the
"Election Decision").

     The Company has made numerous  requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"); however all of the information still has not been
received.  Based on the Company's  Election  Decision,  described above, and the
receipt of some of the requested information from the RTC/FDIC,  the Company has
amended its 1992  consolidated  federal income tax return to include the federal
income tax effects of Carteret and Carteret FSB (the "1992 Amended Return"). The
Company is still in the process of amending its consolidated  federal income tax
returns for 1993 and subsequent years.

     The Company anticipates that, as a result of filing a consolidated  federal
income tax return with  Carteret FSB, a total of  approximately  $170 million of
tax NOL  carryforwards  will be  generated  from  the  Company's  tax  basis  in
Carteret/Carteret  FSB as tax losses are  incurred by Carteret FSB of which $158
million are still available for future use. Based on the Company's filing of the
1992  Amended  Return ,  approximately  $56  million  of NOL  carryforwards  are
generated  for  tax  year  1992  which  expire  in  2007,   with  the  remaining
approximately  $102 million of NOL  carryforwards  to be generated,  expiring no
earlier than 2008. These NOL  carryforwards  would be available to offset future
taxable income,  in addition to the NOL carryforwards as further detailed below.
The Company can give no  assurances  with regard to the 1992  Amended  Return or
amended  returns for subsequent  years, or the final amount or expiration of NOL
carryforwards ultimately generated from the Company's tax basis in Carteret.

     In March 2000, the Company filed several carryback claims and amendments to
previously filed carryback claims with the IRS (the "Carryback  Claims") seeking
refunds from the IRS of  alternative  minimum tax and other federal income taxes
paid by the Company in prior years plus  applicable  IRS interest,  based on the
filing of the 1992 Amended Return.  In April 2003, IRS examiners issued a letter
to the Company  proposing to disallow the Carryback  Claims.  The Company sought
administrative review of the letter by protesting to the Appeals Division of the
IRS. In February  2005,  IRS Appeals  officials  completed  their  review of the
Carryback  Claims,  and disallowed  them.  The Company is currently  considering
whether to file suit for the tax refunds it seeks,  plus interest,  with respect
to the Carryback Claims. Even if the Company files suit, the Company can give no
assurances  as to the final  amount of  refunds,  if any,  or when they might be
[received.



<PAGE>
                      AMBASE CORPORATION AND SUBSIDIAIRES
            Notes to Consolidated Financial Statements (continued)

     Based upon the Company's  federal  income tax returns as filed from 1993 to
2004  (subject  to IRS  audit  adjustments),  excluding  the  NOL  carryforwards
expected to be utilized in 2005 and  excluding the NOL  carryforwards  generated
from the  Company's  tax basis in  Carteret/Carteret  FSB,  as noted  above,  at
December 31, 2005, the Company has NOL carryforwards  available to reduce future
federal taxable income, which expire if unused, as follows:


<TABLE>
<CAPTION>
<S>             <C>               <C>
                2009              2,600,000
                2010              5,300,000
                2012              1,100,000
                2018              5,400,000
                2019              4,000,000
                2020              2,600,000
                2021              4,000,000
                2022              3,200,000
                2023              1,800,000
                2024                700,000
                               ------------
                                $30,700,000
                                ===========
</TABLE>

     The Company's  federal income tax returns for the years  subsequent to 1992
have not been reviewed by the IRS. The utilization of certain  carryforwards  is
subject to  limitations  under U.S.  federal  income tax laws. In addition,  the
Company  has  approximately  $21  million  of  AMT  credit  carryforwards  ("AMT
Credits"),  which are not  subject  to  expiration.  Based on the  filing of the
Carryback  Claims, as further discussed above, the Company would seek to realize
approximately $8 million of the $21 million of AMT Credits.

     The Company has  calculated a net deferred tax asset of $32 million and $34
million as of December 31, 2005 and 2004,  respectively,  arising primarily from
NOL's and  alternative  minimum tax credits (not including the  anticipated  tax
effects of the NOL's  expected to be generated  from the  Company's tax basis in
Carteret,  resulting from the Election Decision, as more fully described above).
A valuation  allowance  has been  established  for the entire net  deferred  tax
asset,  as  management,  at the  current  time,  has no basis to  conclude  that
realization is more likely than not.

     Note 10 - Legal Proceedings

     The Company is or has been a party in a number of lawsuits or  proceedings,
including the following:

     (a)  Litigation  with SDG,  Inc. In  September  2000,  the Company  filed a
lawsuit in the United  States  District  Court for the  District of  Connecticut
(Case No. 3:00CV1694 (DJS)) (the "Court") against SDG Inc. ("SDG"),  and certain
of its officers and  directors to pursue  various  claims  against such parties,
including,  but not  limited  to, the claims  that SDG failed to honor a binding
contract which granted the Company the right to act as the exclusive  investment
banking/financial advisor to SDG, and its subsidiaries and affiliates. SDG filed
various counterclaims. A trial in this matter was completed during May 2003, and
all parties  submitted  post trial briefs during August 2003. On August 3, 2005,
the  Court  issued  its  decision  denying  all  the  Company's  claims  and the
defendants' counterclaims.  The Company filed a Notice of Appeal with the United
States of Appeals for the Second Circuit on September 6, 2005.  Thereafter,  the
parties entered into successful settlement negotiations.  On March 31, 2006, the
parties  will file a  stipulation  with the Court  withdrawing  the appeal.  The
Company  remains a shareholder  in SDG and AMDG and will continue to monitor the
status of SDG and its subsidiary, AMDG, Inc.



<PAGE>
                    AMBASE CORPORATION AND SUBSIDIAIRES
             Notes to Consolidated Financial Statements (continued)

     (b) Supervisory Goodwill Litigation.  During the third quarter of 1993, the
Company filed a claim against the United  States,  in the United States Court of
Federal  Claims (the "Court of Federal  Claims" or the "Court"),  based upon the
impact of the Financial  Institutions  Reform,  Recovery and  Enforcement Act of
1989   ("FIRREA")  on  the  Company's   investment  in  Carteret   Savings  Bank
("Carteret").  Approximately 120 other similar so-called  "supervisory goodwill"
cases, were commenced by other financial institutions and/or their shareholders,
many are still  pending in the Court of Federal  Claims.  Three of these  cases,
Winstar Corp. v. United States, Glendale Federal Bank, FSB v. United States, and
Statesman  Savings  Holding Corp. v. United States (the  "Consolidated  Cases"),
which  involve  many of the same  issues  raised  in the  Company's  suit,  were
appealed to the United States  Supreme Court (the "Supreme  Court").  On July 1,
1996, the Supreme Court issued a decision in the Consolidated Cases. The Supreme
Court's  decision  affirmed the lower Court's grant of summary judgment in favor
of the  plaintiffs  on the  issue of  liability  and  remanded  the  cases for a
determination  of damages.  Although the decision in the  Consolidated  Cases is
beneficial  to the  Company's  case,  it is not  necessarily  indicative  of the
ultimate outcome of the Company's action.

     On September 18, 1996,  the Court of Federal Claims entered an Omnibus Case
Management  Order that will govern further  proceedings in the Company's  action
and most of the other so-called  "Winstar-related" cases. On March 14, 1997, the
Court entered an order permitting the Federal Deposit Insurance Company ("FDIC")
to intervene as an  additional  plaintiff in  forty-three  cases,  including the
Company's  case,  but not  allowing  the  FDIC  to be  substituted  as the  sole
plaintiff in those cases.

     On March 20,  1998,  the FDIC filed a motion for partial  summary  judgment
against the United States on certain liability  issues,  and the Company filed a
memorandum  in  support of that  motion.  Fact  discovery  for the  Company  was
completed  November  30,1999  pursuant to an  extension  of time  granted by the
Court.  On September  9, 1999,  the Company  filed a Motion For Partial  Summary
Judgment On Liability under a Fifth Amendment  Takings claim theory of recovery.
On November  24, 1999,  the FDIC,  as successor to the rights of Carteret and as
Plaintiff-Intervenor  in the case, filed a response brief opposing the Company's
Motion. On December 6, 1999, the Department of Justice (the "DOJ") (on behalf of
the United  States)  filed a brief  opposing  the  Company's  Motion For Partial
Summary  Judgment On  Liability  and  Cross-Moved  for  Summary  Judgment On the
Company's Takings claim. On January 25, 2000, the Company responded to the DOJ's
brief  and the  FDIC's  brief  by  filing a Brief  (i) In  Reply To  Defendant's
Opposition  To  Plaintiffs'  Motion  For  Partial  Summary  Judgment,   (ii)  In
Opposition To Defendant's  Cross-Motion For Summary Judgment, and (iii) In Reply
To FDIC's  Response To  Plaintiffs'  Motion For  Partial  Summary  Judgment.  On
February 22, 2000 the DOJ filed a brief in Reply To  Plaintiffs'  Opposition  To
Defendant's Cross-Motion For Summary Judgment.

     On October 2, 2000, Senior Judge Loren Smith of the Court of Federal Claims
heard oral  arguments in the  Company's  Supervisory  Goodwill  case against the
United States  government.  The Court heard arguments both as to the contractual
liability of the United States to Carteret Savings Bank, and as to the Company's
claim against the United States under the Takings Clause of the Fifth Amendment.

     On August 25, 2003,  the Court of Federal Claims issued a decision in which
it (i) ruled that the Government  had entered into and breached its  supervisory
goodwill contracts with the Company's wholly-owned  subsidiary,  Carteret;  (ii)
rejected the Company's  claim that it was entitled to recover  damages  directly
from the Government under the Takings Clause for the loss of Carteret; and (iii)
rejected the Company's  claim that the Government had "illegally  exacted" $62.5
million  that the Company  paid into  Carteret  subsequent  to the  Government's
breach of the Goodwill contracts.  Specifically, the Court held that the Company
could not recover  damages under the Takings Clause because it could be restored
to the  position  it was in  before  the  breach  through  Carteret's  breach of
contract action.

     On September  17, 2003,  the Company filed a Motion to Dismiss The FDIC and
to Define The Appropriate  Measure of Carteret's  Contract Damages. On September
30, 2003, the FDIC, as  plaintiff-intervenor in the case, and the United States,
as  defendant  in the case,  each filed a  separate  response  to the  Company's
motion.  The Company  argued in its motion that because  Carteret would not have
been seized but for the Government's breach of contract, no receivership deficit
would have been incurred.  Accordingly,  the Company argued that Carteret should
be entitled to recover  contract  damages that include both: (i) the full amount
of the  receivership  deficit,  as an  offset to the  deficit  and (ii) the full
amount  of  the   positive   value  it  would  have  had  but  for  the  breach.
Alternatively,  the Company  argued that, if Carteret is not entitled to recover
both  these  amounts,  or if any  award  must be  offset  by the  amount  of the
receivership  deficit,  the Company  should be entitled to  demonstrate  why the
receivership deficit has been erroneously overstated.  The Department of Justice
responded  with the theories that Carteret would have failed even if Supervisory
Goodwill  was  counted.  The FDIC,  who is both the  receiver  for the estate of
Carteret  (and hence its legal  advocate  in court) as well as a creditor of the
estate,  took the position that the Court of Federal Claims has no  jurisdiction
<PAGE>
                    AMBASE CORPORATION AND SUBSIDIAIRES
           Notes to Consolidated Financial Statements (continued)

     to review the accuracy,  validity,  or amount of the Carteret  receivership
deficit reported by the FDIC. That  receivership  deficit consists of the FDIC's
subrogated  claim  against  the  thrift,  interest,  taxes,  and  administrative
expenses  charged by the FDIC to the thrift.  Because the  receivership  deficit
continues  to  accrue  interest,  it  grows  on a  daily  basis.  The  FDIC  has
represented  to the Court of Federal  Claims  that is does not expect to present
any expert  testimony  articulating  a theory of damages for Carteret that would
exceed the current size of the  receivership.  While the failure to seek damages
in excess of the  receivership  deficit has previously been held to be cause for
dismissal  for lack of  standing,  the FDIC has stated that it believes it still
has standing in this case based upon the damage  theories it expects the Company
to present.

     On October 1, 2003, the Court held a telephonic status conference  pursuant
to an order set forth in the August 25,  2003  opinion.  Pursuant to that status
conference,  the Court  ordered that through  their  additional  briefing on the
Company's  Motion to Dismiss the FDIC and to define the  appropriate  measure of
Carteret's  contract  damages (i.e.,  through the Company's  reply brief and the
surreply  brief granted to the FDIC and the United  States),  the parties should
address the question  of,  "whether the Court has the power to review the amount
of the  receivership  deficit as  administered  by the FDIC." In an order  dated
October 16, 2003, the Court modified the briefing schedule such that the Company
filed its reply brief as required on October 31, 2003, and the surreply brief of
the FDIC and the United  States were filed as required in  November,  2003.  The
Court held oral argument on this issue on November 20, 2003.  The  Department of
Justice and the FDIC filed briefs  arguing that (1) the Court of Federal  Claims
had no authority to scrutinize the validity of the receivership deficit reported
by the FDIC and (2) the Court should dismiss AmBase's  remaining  damages claims
because they were  allegedly  waived.  On August 31, 2004,  the Court denied the
Company's Motion to Dismiss the FDIC, but granted the Company's Motion to Define
the Measure of Carteret's  Contract Damages to the extent it requested the Court
to  consider  the  size  and  value  of the  FDIC's  receivership  deficit  when
calculating  damages.  The Court  subsequently  conducted a status conference on
October 4,  2004,  and  ordered  the  Company  to submit a  proposed  litigation
time-line to the Court by October 22, 2004 which was timely submitted. The Court
ordered  the United  States and the FDIC to  respond to the  Company's  proposed
litigation  time-line by November 5, 2004 which was timely  submitted.  A status
conference  was held on January 11, 2005. On January 12, 2005, the Court ordered
that pursuant to the Court's order from the bench,  the  Defendant's  Motion for
Reconsideration  of the August 31,  2004  Ruling,  and, in the  Alternative,  to
dismiss the Stockholder  Derivative Claim and the  Complaint-in-Intervention  is
denied. The Court further ordered that this matter be stayed for 30 days for the
Defendant  and/or   Plaintiff-Intervenor   to  consider  filing  a  Request  for
Certification  for  Interlocutory  Appeal.  The Court held a  telephonic  status
conference  on  February  11,  2005 at which  time the Court  ordered  that fact
discovery  was to resume on February  14, 2005 and would  continue  for at least
three (3) months.  The Court further scheduled a telephonic status conference to
be held on Thursday, May 12, 2005 to discuss the need for further discovery.

     On January 12, 2005, Judge Smith denied the government's motion to dismiss
the Company's remaining claims arising out of damages for breach of contract. On
March 15, 2005, the United States  Department of Justice and the FDIC each filed
motions requesting that Judge Smith certify for immediate appeal his ruling that
the Company is entitled to challenge the validity of the  receivership  deficit.
The Company's filed its reply to these motions on March 29, 2005. In April 2005,
Judge Smith heard oral argument on the United  States  Department of Justice and
the FDIC motions  requesting  that Judge Smith certify for immediate  appeal his
ruling  that  the  Company  is  entitled  to  challenge   the  validity  of  the
receivership  deficit.  Because Judge Smith's ruling on the receivership deficit
issue is not a final  order,  both Judge  Smith and the Court of Appeals for the
Federal  Circuit  would  have to agree to an appeal of that  issue at this time.
Following the April 2005 oral argument,  Judge Smith entered an order,  on April
25, 2005, staying  resolution of the motions to certify an interlocutory  appeal
pending the holding of a "show cause" hearing. Judge Smith indicated at the oral
argument  that the purpose of the show cause hearing was to allow the Company to
outline  the  evidence  and  arguments  it was  prepared  to  offer  in order to
challenge  the  validity  and  size of the  receivership  deficit.  Judge  Smith
directed the parties to attempt to reach agreement  regarding a schedule for the
completion  of discovery on  receivership  deficit  issues,  and he directed the
parties to submit to the Court such an agreed proposed discovery  schedule,  or,
if the parties are unable to reach agreement,  separate  proposed  schedules for
discovery,  in early May 2005.  Judge Smith  further  encouraged  the parties to
discuss the procedures  and schedule for the show cause hearing,  and to provide
the Court with a proposed order on such matters.



<PAGE>
                    AMBASE CORPORATION AND SUBSIDIAIRES
           Notes to Consolidated Financial Statements (continued)

     In  accordance  with the  Court's  direction,  the  parties  agreed  upon a
schedule for the  completion of fact discovery and procedures for the show cause
proceeding.  In accordance with the parties'  agreement,  Judge Smith entered an
order on May 23, 2005,  providing that fact discovery would be completed  within
45 days of the completion of document production by the Government.  The May 23,
2005 order further  provides that (i) 45 days after the close of discovery,  the
Company is to file a statement of issues  summarizing  the respects in which the
receivership  books allegedly  overstate or misstate the  receivership  deficit;
(ii) 45 days after the filing of the Company's  statement of issues,  the United
States and the FDIC are to file responses; and (iii) 15 days after the filing of
such  responses,  the  Company  is to file a reply.  In the  event  the  Company
determines  that it will rely upon expert  testimony  regarding  the parties and
depositions of such experts.

     In May and June of 2005, the Government provided the Company with access to
Carteret's   documents  and  documents   relating  to  the   management  of  the
receivership. The Company selected approximately 3 million pages of documents to
be  imaged  at the  Government's  expense.  On  September  15,  2005,  a  status
conference was held before Judge Smith.  The Government  indicated that it would
complete  production  of all the images of the selected  materials by the end of
September 2005. Additionally,  at the status conference, all parties agreed that
the  schedule  previously  set forth by the Court's May 23, 2005 order should be
changed in one respect: the Company will be given 75 days from the completion of
the  document  production  to complete  discovery.  In all other  respects,  the
schedule  set forth by the May 23, 2005 order will  remain in effect.  The Court
issued an order on September 26, 2005 memorializing  this agreement.  On January
11, 2006, the Court held a status conference.  At that time, the Court indicated
that the  document  production  would be deemed  complete  as of that date.  The
Court's order of January 13, 2006, memorialized this ruling.  Accordingly,  fact
discovery  will be complete in April 2006,  and the  statement of issues will be
due in May of 2006.  A status  conference  has been set for April 11,  2006,  to
discuss  further  proceedings.  No assurance can be given regarding the ultimate
outcome of the litigation.

     Both the Court of Federal  Claims and the Court of Appeals  for the Federal
Circuit have issued numerous  decisions in cases that involve claims against the
United  States  based upon its breach of its  contracts  with  savings  and loan
institutions  through its 1989 enactment of FIRREA.  In particular,  the Federal
Circuit  has issued  decisions  rejecting  Takings  Clause  claims  advanced  by
shareholders of failed thrifts. Castle v. United States, 301F.3d 1328 (Fed. Cir.
2002);  Bailey v. United  States,  341 F. 3d 1342 (Fed.  Cir 2003)  petition for
certiorari which was filed January 26, 2004. In April 2004, the Company filed an
amicus brief in support of the petition for certiorari filed by Bailey.  In June
2004, the United States  Supreme Court denied the petition for certiorari  filed
by Bailey.  The Court of Claims decision in the Company's case, as well as other
decisions in  Winstar-related  cases, are publicly available and may be relevant
to the Supervisory Goodwill Company's claims, but are not necessarily indicative
of the ultimate outcome of the Company's actions.

     Note 11 - Fair Value of Financial Instruments

     The  carrying  amounts  reported  in the  balance  sheet  for cash and cash
equivalents, and accounts payable and accrued liabilities approximate fair value
due to the short-term nature of these instruments.  The fair value of investment
securities - held to maturity and investment  securities  available for sale are
based on current  market  quotations.  The carrying  value of  applicable  other
liabilities  approximates  their fair value.  See note 13 herein for information
regarding the Company's sale of Two Soundview in July 2005.



<PAGE>
                    AMBASE CORPORATION AND SUBSIDIAIRES
           Notes to Consolidated Financial Statements (continued)

     Note 12 - Property Owned

     The Company owns one commercial  office building in Greenwich,  Connecticut
that contains  14,500 square feet.  The Company  utilizes a small portion of the
office  space  for its  executive  offices  with the  remaining  square  footage
available  for lease to  unaffiliated  third  parties.  Depreciation  expense is
recorded  on a  straight-line  basis over 39 years.  The  building is carried at
cost,  net of  accumulated  depreciation  of $232,000 at December 31,  2005.  At
December 31, 2004,  building and improvements are net of $763,000 of accumulated
depreciation,  which  includes  $582,000  of  accumulated  depreciation  for Two
Soundview,  which was sold in July 2005, as further discussed in note 13 herein.
At December  31, 2004,  other  liabilities  in the  Consolidated  Balance  Sheet
include $305,000 of tenant security deposits relating to Two Soundview. See note
13 herein for information  regarding the Company's sale of Two Soundview in July
2005.

     The  property is leased to tenants  under  operating  leases  with  varying
terms.  Future  minimum  rentals  receivable  from tenants under  non-cancelable
operating leases, excluding tenant reimbursements of operating expenses and real
estate tax escalations, are approximately as follows:

<TABLE>
<CAPTION>
<S>                                                             <C>
                                                                 December 31
                                                                =============
         2006...............................................    $      83,875
</TABLE>

     Note 13 - Discontinued Operations

     In May 2005,  the Company  entered into an agreement to sell Two Soundview,
originally purchased in December 2002, to Ceruzzi Holdings, LLC, an unaffiliated
third party. In July 2005, the Company completed the sale of Two Soundview.  The
sale price was  $28,000,000  less normal real estate closing  adjustments.  As a
result of the sale of Two Soundview,  the results of operations of Two Soundview
have been designated as discontinued operations, and the Consolidated Statements
of  Operations  for  the  periods  presented  herein  have  been   retroactively
reclassified to report the income from discontinued  operations  separately from
the results of continuing  operations  by excluding  the operating  revenues and
expenses of discontinued  operations from the respective statement captions,  in
accordance with SFAS 144. A gain from the sale, of $10,298,000,  is reflected in
the Company's financial statements for the year ending December 31, 2005.

     Net gain on sale of real estate is as follows:
<TABLE>
<CAPTION>
<S>                                                                                                <C>

(in thousands)
Gross sales price.............................................................                     $28,000
Less:  Transactions costs.....................................................                        (558)
                                                                                                   -------
Net cash proceeds.............................................................                      27,442
Less:
    Real estate carrying value (net of accumulated depreciation of $722,000)..                     (16,588)
    Other assets..............................................................                        (556)
                                                                                                   -------
Net gain on sale of real estate...............................................                     $10,298
                                                                                                   =======
</TABLE>

     Transaction  costs above include broker  commissions,  transfer taxes,  and
legal and other fees.  Other assets above includes  $519,000 of deferred  rental
revenue  resulting from the  recognition  of rental  revenue on a  straight-line
basis over the terms of tenant leases versus  contractual  lease payment  terms,
and $37,000 of real estate commissions previously  capitalized.  At December 31,
2004, other  liabilities in the  Consolidated  Balance Sheet include $305,000 of
tenant security deposits relating to Two Soundview.

     Income from  discontinued  operations,  as summarized below, for the twelve
months  periods ended  December 31, 2005,  reflects the results of operations of
Two Soundview and the net gain realized upon disposition.



<PAGE>
                    AMBASE CORPORATION AND SUBSIDIAIRES
           Notes to Consolidated Financial Statements (continued)

     Income from discontinued operations is as follows:
<TABLE>
<CAPTION>
<S>                                                          <C>              <C>                 <C>
(in thousands)                                                   2005            2004                 2003
Revenues:                                                        ====            ====                 ====
Rental income.............................................   $  1,158         $ 2,053             $  2,258
Operating expenses:
Professional and outside services.........................         25              47                   44
Property operating and maintenance........................        231             357                  372
Depreciation..............................................        140             280                  279
Insurance.................................................         11              17                   14
Other operating...........................................          2               7                    6
                                                             --------         -------             --------
                                                                  409             708                  715
                                                             --------         -------             --------
Income from operation of discontinued property............        749           1,345                1,543
Gain on disposition.......................................     10,298               -                    -
Income tax expense on discontinued operations.............       (400)              -                    -
                                                             --------         -------             --------
Income from discontinued operations.......................   $ 10,647         $ 1,345             $  1,543
                                                             ========         =======             ========

</TABLE>

     The Company expects to utilize NOL  carryforwards and AMT NOL carryforwards
as available to offset  taxable  income  generated from sale of Two Soundview as
discussed in Note 9 to the Company's consolidated financial statements. However,
dut to  limitations  on the  amount of NOL  carryforwards  that may be  utilized
against  current year taxable  income,  the income tax  provision of $400,00 for
discontinued  operations is  attributable  to provision for federal  alternative
minimum tax of $150,000 and a provision of $250,000 for Connecticut state taxes.

     Note 14 - Quarterly Financial Information (unaudited)

     Summarized quarterly financial information follows:
<TABLE>
<CAPTION>
<S>                                          <C>              <C>                <C>              <C>           <C>
                                                First            Second            Third            Fourth         Full
(in thousands, except per share data)         Quarter           Quarter          Quarter           Quarter         Year
2005:                                           =====             =====            =====             =====        =====
Revenues................................     $     43         $      43          $    41          $     43      $   170
Operating expenses......................        1,823             1,791            1,621             1,413        6,648
Operating loss..........................       (1,780)           (1,748)          (1,580)           (1,370)      (6,478)
                                             ========         =========          =======          ========      =======
Loss from continuing operations.........     $ (1,665)        $  (1,632)         $(1,427)         $   (795)     $(5,519)
Income (loss) from discontinued
     operations (a)(b)                            341               345           10,361              (400)      10,647
                                             --------         ---------          -------          --------      -------
Net income (loss) (a)...................     $ (1,324)        $  (1,287)         $ 8,934          $ (1,195)     $ 5,128
                                             ========         =========          =======          ========      =======
Per common share data:
Loss from continuing operations.........     $  (0.03)        $  (0.04)          $ (0.03)         $  (0.02)     $(0.12)
Income (loss) from discontinued
     operations (a).....................            -             0.01              0.22             (0.01)       0.23
                                             --------         ---------          -------          --------      ------
Net income (loss) (a)...................     $  (0.03)        $  (0.03)          $  0.19          $  (0.03)     $ 0.11
2004:                                        ========         ========           =======          ========      ======
Revenues................................     $     42         $     48           $    49          $     37      $  176
Operating expenses......................        1,287            1,311             1,322             2,084       6,004
Operating loss..........................       (1,245)          (1,263)           (1,273)           (2,047)     (5,828)
                                             ========         =========          =======          ========      =======
Loss from continuing operations.........     $ (1,053)        $   (941)          $(1,038)         $ (1,664)    $(4,696)
Income from discontinued operations.....          323              327               344               351       1,345
                                             --------         ---------          -------          --------      ------
Net income (loss).......................     $   (730)        $   (614)          $  (694)         $ (1,313)    $(3,351)
                                             ========         ========           =======          ========      ======
Per common share data:
Loss from continuing operations.........     $  (0.02)        $  (0.02)          $ (0.02)         $  (0.04)     $ (0.10)
Income from discontinued operations.....            -             0.01              0.01              0.01         0.03
                                             --------         ---------          -------          --------      ------
Net income (loss).......................     $  (0.02)        $  (0.01)          $ (0.01)         $  (0.03)     $ (0.07)
                                             ========         ========           =======          ========      =======
</TABLE>

     (a)  Results for the third  quarter and full year 2005,  includes a gain of
$10,298,000 from the sale of real estate.

     (b) The loss from  discontinued  operations for the fourth quarter 2005, is
attributable  to an  additional  tax  provision  of $250,000  for  discontinued
operations and  reclassification  of $150,000 of the tax provision for the nine
months ended  September  30, 2005 from  continuing  operations  to  discontinued
operations.

<PAGE>

     Note 15 - Subsequent  Events

     During  February  2006,  the Company  repurchased  970,000 shares of common
stock from an unaffiliated party at a purchase price of $0.58 per share pursuant
to the Company's Repurchase Plan.

     As more fully discussed in Note 7 herein,  during March 2006, the Personnel
Committee entered into a new employment  agreement with Mr. Bianco to extend his
employment  with the Company  for an  additional  five (5) years  beyond May 31,
2007, until May 31, 2012 (the "2007 Employment Agreement").  As part of the 2007
Employment  Agreement terms (i) Mr. Bianco's annual rate of base salary will not
increase  from his current  rate of base salary  during the first three years of
the 2007  Employment  Agreement;  (ii) Mr. Bianco's  service  accruals under the
Supplemental  Plan  will  cease as of May 31,  2007;  (iii) Mr.  Bianco's  Final
Average  Earnings (as defined in the Supplemental  Plan) for  Supplemental  Plan
benefit calculation  purposes,  are capped as of December 31, 2004; and (iv) Mr.
Bianco's bonus will no longer be linked to recovery  efforts in connection  with
the Company's Supervisory Goodwill litigation. Instead on or about May 31, 2007,
Mr. Bianco will receive a lump-sum payment of his  Supplemental  Plan benefit of
$16,676,115,  which amount was calculated on the basis of a 5.75% discount rate,
a  "RP-2000"  projected  to 2004  mortality  table;  and 16.08 years of credited
service,  and the  Company and Mr.  Bianco have agreed to a long term  incentive
bonus formula,  at varying  percentages  ranging from 5% to 10%, or more,  based
upon recoveries  received by the Company for its investment in Carteret  Savings
Bank,  through  litigation or otherwise  (including  the  Company's  Supervisory
Goodwill  litigation).  The lump-sum  Supplemental  Plan benefit  payment to Mr.
Bianco will be paid to him from the Company's available financial resources.

     The  Supplemental  Plan has  been  amended  to  provide  for its  automatic
termination  immediately following the payment to Mr. Bianco of his Supplemental
Plan  lump-sum  benefit  on or  about  May 31,  2007.  In  accordance  with  the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007,  in  accordance  with  GAAP,  the  ultimate   liability  relating  to  the
anticipated  termination  of  the  Supplemental  Plan  is not  reflected  in the
financial   statements  presented  herein,  as  all  conditions  for  the  final
termination  of the  Supplemental  Plan  have  not yet  been  met.  Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental  Plan and
the  Supplemental  Plan  liability  will increase  through the date on which the
Supplemental Plan is terminated.

<PAGE>
     ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.

     ITEM 9A. CONTROLS AND PROCEDURES

     The Company maintains  disclosure controls and procedures that are designed
to ensure that  information  required to be disclosed in the Company's  Exchange
Act reports is recorded,  processed,  summarized  and  reported  within the time
periods  specified in the SEC's rules and forms,  and that such  information  is
accumulated and  communicated to the Company's  management,  including its Chief
Executive Officer and Chief Financial Officer,  as appropriate,  to allow timely
decisions  regarding required  disclosure based on the definition of "disclosure
controls and  procedures"  in Rule  13a-15(c).  In designing and  evaluating the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable assurance of achieving the desired control objectives, and management
necessarily  was required to apply its judgment in evaluating  the  cost-benefit
relationship of possible controls and procedures.

     As of December 31, 2005, the Company  carried out an evaluation,  under the
supervision and with the  participation of the Company's  management,  including
the Company's Chief Executive Officer and the Company's Chief Financial Officer,
of the  effectiveness  of the design and operation of the  Company's  disclosure
controls and procedures.  Based on the foregoing,  the Company's Chief Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures were effective.



     ITEM 9B. OTHER INFORMATION

     None.

     PART III

     ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  concerning  executive  officers  required  by this item is set
forth  following  Item 4 of Part I of this report  under the caption  "Executive
Officers of the Registrant", pursuant to General Instruction G to Form 10-K. For
the information required to be set forth by the Company in response to this item
concerning  directors  of  the  Company,  see  the  Company's  definitive  Proxy
Statement  for its Annual  Meeting of  Shareholders  to be held on May 19, 2006,
under the  captions  "Proposal  No. 1 - Election of Director"  and  "Information
Concerning  the  Board  and its  Committees",  which is  incorporated  herein by
reference,  which the Company  intends to file with the  Securities and Exchange
Commission not later than 120 days after the close of its 2005 fiscal year.

     Code of Ethics

     We have  adopted  a Code of Ethics  that  applies  to our  Chief  Executive
Officer,  Chief Financial Officer and other senior officers.  A copy of the Code
of Ethics was filed with the SEC as Exhibit 14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.

     ITEM 11. EXECUTIVE COMPENSATION

     For the information  required to be set forth by the Company in response to
this item, see the Company's  definitive  Proxy Statement for its Annual Meeting
of  Shareholders  to be held on May 19,  2006,  under  the  captions  "Executive
Compensation"  and  "Employment  Contracts",  which are  incorporated  herein by
reference,  which the Company  intends to file with the  Securities and Exchange
Commission not later than 120 days after the close of its 2005 fiscal year.



<PAGE>
     ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table summarizes  information about securities authorized for
issuance under equity  compensation plans of the Company at December 31, 2005 as
follows:

<TABLE>
<CAPTION>
<S>                      <C>                          <C>                          <C>
                         Shares to be issued          Weighted average
                         upon exercise of             exercise price of            Shares available for
                         outstanding options          outstanding options           future issuance
                         ===================          ===================          ====================
Equity Compensation
   Plans approved
   by stockholders               1,440,000                  $   0.96                        3,560,000

Equity Compensation
   Plan not approved
   By stockholders                       -                         -                          110,000
                         -----------------            -------------------          --------------------
Total                            1,440,000                  $   0.96                        3,670,000
                         =================            ===================          ====================
</TABLE>

     Plan not approved by stockholders

     The Company has 110,000  shares of common stock reserved for issuance under
the AmBase  Corporation  Stock Bonus Plan (the "Stock  Bonus  Plan"),  which was
approved by the Board of  Directors  of the Company in 1989.  The purpose of the
Stock Bonus Plan is to encourage  individual  performance and to reward eligible
employees whose performance,  special achievements,  longevity of service to the
Company or suggestions  make a significant  improvement or  contribution  to the
growth and profitability of the Company. The Stock Bonus Plan is administered by
the  Personnel  Committee of the Board of  Directors.  Members of the  Personnel
Committee  are not eligible for an award  pursuant to the Stock Bonus Plan.  The
Company's  President may also designate  eligible  employees to receive  awards,
which are not to be in excess of 100 shares of Common Stock. No fees or expenses
of any kind are to be charged to a  participant.  Any  employee of the  Company,
except for certain officers or directors of the Company, are eligible to receive
shares  under the Stock  Bonus  Plan.  Distributions  of shares may be made from
authorized but unissued shares,  treasury shares or shares purchased on the open
market.

     For other  information  required to be set forth by the Company in response
to this  item,  see the  Company's  definitive  Proxy  Statement  for its Annual
Meeting of  Shareholders  to be held on May 19, 2006,  under the caption  "Stock
Ownership", which is incorporated herein by reference, which the Company intends
to file with the  Securities  and  Exchange  Commission  not later than 120 days
after the close of its 2005 fiscal year.

     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information  concerning  Principal  Accountant Fees and Services is set
forth by the Company under the heading  "Proposal 2 - Appointment of Independent
Registered Public  Accounting Firm" in the Company's  definitive Proxy Statement
for its Annual  Meeting of  Shareholders  to be held on May 19,  2006,  which is
incorporated  herein by  reference,  which the Company  intends to file with the
Securities  and Exchange  Commission  not later than 120 days after the close of
its 2005 fiscal year.



<PAGE>
     PART IV

     ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     Documents filed as a part of this report:
<TABLE>
<CAPTION>
<S>  <C> <C>  <C>                                                                                              <C>

1.   Index to Financial Statements:                                                                            Page

         AmBase Corporation and Subsidiaries:
              Report of Independent Registered Public Accounting Firm...........................................15
              Consolidated Statements of Operations.............................................................16
              Consolidated Balance Sheets.......................................................................17
              Consolidated Statements of Changes in Stockholders' Equity........................................18
              Consolidated Statements of Comprehensive Income (Loss) ...........................................18
              Consolidated Statements of Cash Flows.............................................................19
              Notes to Consolidated Financial Statements........................................................20
</TABLE>

     2. Index to Financial Statements Schedules:

     Schedule III - Real Estate and Accumulated Depreciation

     3.  Exhibits:

     3A. Restated Certificate of Incorporation of AmBase Corporation (as amended
through  February  12,  1991)  (incorporated  by  reference to Exhibit 3A to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990).

     3B.  By-Laws of AmBase  Corporation  (as amended  through  March 15, 1996),
(incorporated  by reference to Exhibit 3B to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).

     4. Rights  Agreement  dated as of February 10, 1986 between the Company and
American Stock  Transfer and Trust Co. (as amended March 24, 1989,  November 20,
1990, February 12, 1991, October 15, 1993, February 1, 1996 and November 1, 2000
and November 9, 2005),  (incorporated by reference to Exhibit 4 to the Company's
Annual Report on Form 10-K for the year ended  December 31, 1990,  the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1993,
the Company's  Annual Report on Form 10-K for the year ended  December 31, 1995,
the  Company's  Quarterly  Report on Form 10-Q for the  quarterly  period  ended
September 30, 2000),  and the  Company's  Quarterly  Report on Form 10-Q for the
quarterly period ended September 30, 2005, respectively).

     10A.   1985  Stock  Option  Plan  for  Key  Employees  of  AmBase  and  its
Subsidiaries  (incorporated  by reference to Exhibit 10B to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989).

     10B. 1993 Stock  Incentive  Plan as amended  (incorporated  by reference to
Exhibit  A  to  the  Company's   Proxy  Statement  for  the  Annual  Meeting  of
Stockholders held on May 28, 1998).

     10C. 1994 Senior Management  Incentive  Compensation Plan  (incorporated by
reference to Exhibit A to the Company's  Proxy  Statement for the Annual Meeting
of Stockholders held on May 27, 1994).

     10D.  AmBase  Officers  and Key  Employees  Stock  Purchase  and Loan  Plan
(incorporated by reference to Exhibit 10E to the Company's Annual Report on Form
10-K for the year ended December 31, 1989).

     10E.  AmBase  Supplemental  Retirement Plan  (incorporated  by reference to
Exhibit  10C to the  Company's  Annual  Report on Form  10-K for the year  ended
December 31, 1989) and as amended March 30, 2006, included herein.

     10F.  Assignment  and  Assumption  Agreement  dated as of August 30,  1985,
between the Company and City  Investing  Company  (incorporated  by reference to
Exhibit  28 to the  Company's  Current  Report on Form 8-K dated  September  12,
1985).


<PAGE>
     10G.  Employment  Agreement  dated as of June 1, 1991  between  Richard  A.
Bianco and the Company,  as amended December 30, 1992 (incorporated by reference
to Exhibit 10G to the  Company's  Annual  Report on Form 10-K for the year ended
December 31, 1992), as amended February 24, 1997,  (incorporated by reference to
Exhibit  10G to the  Company's  Annual  Report on Form  10-K for the year  ended
December 31,  1996),  as amended  March 6, 2001,  (incorporated  by reference to
Exhibit  10G to the  Company's  Annual  Report on Form  10-K for the year  ended
December 31, 2000), and as amended December 16, 2001, (incorporated by reference
to Exhibit 10G to the  Company's  Annual Report on Form 10-K for the year ending
December 31, 2001).

     10H.  Employment  Agreement  dated as of March 30, 2006 between  Richard A.
Bianco and the Company,  for employment  from June 1, 2007 through May 31, 2012,
included herein.

     14.  AmBase  Corporation  - Code of Ethics as adopted by Board of Directors
(incorporated  by reference to Exhibit 14 to the Company's Annual Report on Form
10-K for the year ending December 31, 2003).

     21. Subsidiaries of the Registrant.

     23. Consent of Independent Registered Public Accounting Firm.

     31.1 Rule 13a-14(a)  Certification  of Chief Executive  Officer Pursuant to
Rule 13a-14.

     31.2 Rule 13a-14(a)  Certification  of Chief Financial  Officer Pursuant to
Rule 13a-14.

     32.1 Section 1350 Certification of Chief Executive Officer pursuant to Rule
18 U.S.C. Section 1350.

     32.2 Section 1350 Certification of Chief Financial Officer pursuant to Rule
18 U.S.C. Section 1350.

     Exhibits, except as otherwise indicated above, are filed herewith.




<PAGE>

     Signatures

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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/ RICHARD A. BIANCO
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Date: March 31, 2006

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities on the dates indicated.




/s/ RICHARD A. BIANCO                    /s/ JOHN P. FERRARA
Chairman, President,                     Vice President, Chief Financial
Chief Executive Officer and Director     Officer and Controller
Date: March 31, 2006                     (Principal  Financial and Accounting
                                         Officer)
                                         Date: March 31, 2006



/s/ ROBERT E. LONG                       /s/ SALVATORE TRANI
Director                                 Director
Date: March 31, 2006                     Date: March 31, 2006



/s/ PHILIP M. HALPERN
Director
Date:  March 31, 2006

<PAGE>

                    AMBASE CORPORATION AND SUBSIDIARIES
           SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
                            December 31, 2005
                         (dollars in thousands)

<TABLE>
<CAPTION>
<S>                     <C>                     <C>                     <C>                 <C>

COLUMN A               COLUMN B               COLUMN C               COLUMN D               COLUMN E
--------               --------               --------               --------               --------
                                                                     Cost Capitalized
                                                                     Subsequent to          Gross Amount at which Carried at
                                       Initial Cost to Company       Acquisition                  the Close of the Period
                                       =======================       ================       ================================
                                                 Building &                                             Building &
Description          Encumbrances     Land       Improvements        Improvements           Land        Improvements      Total
===========          ===========      ======     ============        ============           =====       ============      =======
Office Building:
Greenwich, CT        $         -      $  554     $     1,880         $         20           $ 554       $      1,900      $ 2,454
                     -----------      ------     -----------         ------------           -----       ------------      -------
Total...........     $         -      $  554     $     1,880         $         20           $ 554       $      1,900      $ 2,454
                     ===========      ======     ===========         ============           =====       ============      =======

                                                                                                        [Additional columns below]
[Continued from above table, first column(s) repeated]

COLUMN A               COLUMN F               COLUMN G               COLUMN H               COLUMN I
--------               --------               --------               --------               -------------------------

                       Accumulated                                                          Life on Which Depreciated
Description            Depreciation           Date Constructed       Date Acquired          Latest Income Statement
===========            ============           ================       =============          ==========================
Office Building:
Greenwich, CT          $        232                       1970       Apr.-01                      39 years
                       ------------           ================       =============          ==========================
Total...........       $        232
                       ============

[a] Reconciliation of total real estate carrying value is as follows:

                                              Year Ended            Year Ended         Year Ended
                                          December 31, 2005     December 31,2004    December 31, 2003
                                          =================     ================    =================
Balance at beginning of year............. $          19,764     $         19,764    $          19,726
Improvements.............................                 -                    -                   38
Acquisitions.............................                 -                    -                    -
Dispositions.............................           (17,310)
                                          ------------------    ----------------    -----------------
Balance at end of year................... $           2,454     $         19,764    $          19,764
                                          =================     ================    =================
Total cost for federal tax
purposes at end of each year............. $           2,454     $         19,764    $          19,764
                                          =================     ================    =================

[b] Reconciliation of accumulated depreciation as follows:

Balance at beginning of year............. $             763     $            433    $             104
Depreciation expense.....................               191                  330                  329
Dispositions.............................              (722)                   -                    -
                                          ------------------    ----------------    -----------------
Balance at end of year................... $             232     $            763    $             433
                                          =================     ================    =================
</TABLE>
<PAGE>


DIRECTORS AND OFFICERS
<TABLE>
<S>                             <C>                     <C>                     <C>
Board of Directors
Richard A. Bianco               Robert E. Long          Salvatore Trani         Philip M. Halpern
Chairman, President and         Chairman, Chief         Executive Vice          Managing Partner
Chief Executive Officer         Executive Officer       President               Collier, Halpern, Newberg,
AmBase Corporation              GLB Group, Inc.         BGC Partners, L.P.      Nolletti & Bock, LLP

AmBase Officers
Richard A. Bianco               John P. Ferrara
Chairman, President and         Vice President, Chief Financial Officer
Chief Executive Officer         and Controller

INVESTOR INFORMATION

Annual Meeting of Stockholders                                                  Corporate Headquarters

The 2006 Annual Meeting is currently  scheduled to be held                      AmBase Corporation
at 9:00 a.m. Eastern Time, on Friday, May 19, 2006, at:                         100 Putnam Green, 3rd Floor
                                                                                Greenwich, CT  06830-6027
     Hyatt Regency Hotel                                                        (203) 532-2000
     1800 East Putnam Avenue
     Greenwich, CT  06870


                                                                                Stockholder Inquiries

Common Stock Trading                                                            Stockholder  inquiries,  including requests for the
====================                                                            following:  (i) change of address; (ii) replacement
AmBase stock is traded through one or more market-makers                        of lost stock certificates;(iii) Common Stock name
with quotations made available in the "pink sheets"                             registration changes; (iv) Quarterly Reports on
published by the National Quotation Bureau, Inc.                                Form 10-Q; (v) Annual Reports on Form 10-K; (vi)
                                                                                proxy  material;  and (vii)  information  regarding
 Issue                          Abbreviation            Ticker Symbol           stockholdings, should be directed to:

 Common Stock                   AmBase                  ABCP                    American Stock Transfer and Trust Company
                                                                                        59 Maiden Lane
                                                                                         New York, NY  10038
 Transfer Agent and Registrar                                                           Attention: Shareholder Services
 ============================                                                           (800) 937-5449 or (718) 921-8200 Ext. 6820

American Stock Transfer and Trust
     Company                                                                    In  addition,   the   Company's   public   reports,
59 Maiden Lane                                                                  including  Quarterly  Reports on Form 10-Q,  Annual
New York, NY  10038                                                             Reports on Form 10-K and Proxy  Statements,  can be
Attention: Shareholder Services                                                 obtained   through  the   Securities  and  Exchange
(800) 937-5449 or (718) 921-8200 Ext. 6820                                      Commission  EDGAR  Database over the World Wide Web
                                                                                at www.sec.gov.

 Independent Registered Public Accountants                                      Number of Stockholders

 PricewaterhouseCoopers LLP                                                     As of February 28, 2006, there were
 PricewaterhouseCoopers Center                                                  approximately 15,000 stockholders.
 300 Madison Avenue, 32nd Floor
 New York, NY  10017
</TABLE>