<PAGE>



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

                                 FORM 10-K


(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, 2002
                       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 1-7265

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

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

              100 Putnam Green, 3rd Floor, Greenwich, 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 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 an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

Yes             No       X
     --------       -------------

At February 28, 2003, there were 46,208,519 shares of registrant's  Common Stock
outstanding.  At June 28, 2002 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 $0.99 per share,  was  approximately  $35  million.  The  Common  Stock
constitutes registrant's only outstanding security.

Portions of the  registrant's  definitive  Proxy  Statement  for its 2003 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 31.


<PAGE>


AmBase Corporation

Annual Report on Form 10-K
December 31, 2002
<TABLE>
<CAPTION>

TABLE OF CONTENTS                                                                                              Page
------------------                                                                                             ------
<S>              <C>                                                                                            <C>

PART I

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

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

Item 3.       Legal Proceedings...................................................................................2

Item 4.       Submission of Matters to a Vote of Security Holders.................................................2

              Executive Officers of the Registrant................................................................2


PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters...............................3

Item 6.       Selected Financial Data.............................................................................4

Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations...............4

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk..........................................9

Item 8.       Financial Statements and Supplementary Data........................................................10

Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............30


PART III

Item 10.      Directors and Executive Officers of the Registrant.................................................30

Item 11.      Executive Compensation.............................................................................30

Item 12.      Security Ownership of Certain Beneficial Owners & Management & Related Stockholder Matters.........30

Item 13.      Certain Relationships and Related Transactions.....................................................30

Item 14.      Controls & Procedures..............................................................................30


PART IV

Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................31

</TABLE>


<PAGE>



PART I

ITEM 1.       BUSINESS

AmBase Corporation (the "Company") was incorporated as a Delaware corporation in
1975 by the City Investing  Company ("City") 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.

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.  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,  Inc.,  SDG and AMDG are  development  stage  pharmaceutical
companies.  In  September  2002  the  Company  recorded  a  write  down  of  its
investments in SDG and AMDG,  see Part II - Item 7 - Results of Operations,  for
further information.

In December 2002, the Company,  through a wholly owned  subsidiary,  purchased a
38,000 square foot office  building in  Greenwich,  Connecticut  for  investment
purposes.  The purchase  price was  approximately  $17,291,000  and was financed
using  currently  available  funds.  The Company also owns a 14,500  square foot
office building in Greenwich, Connecticut.

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 on 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  and  alleged
litigation  liabilities,  as  described  in  Part  II - Item 8 - Note  10 to the
Company's consolidated financial statements. The Company intends to aggressively
contest all pending and  threatened  litigation  and  contingencies,  as well as
pursue all sources for contributions to settlements. The Company had 5 employees
at December 31, 2002.


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
<PAGE>


In addition,  the Company's public reports,  including Quarterly Reports on Form
10-Q, Annual Reports on Form 10-K and Proxy Statements,  can be obtained through
the  Securities  and Exchange  Commission  ("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 2.       PROPERTIES

The Company  owns two office  buildings  in  Greenwich,  Connecticut.  The first
building  is  approximately  14,500  square  feet,  is  substantially  leased to
unaffiliated  third parties with a small amount  utilized by the Company for its
executive  offices.  The  second  building,   purchased  in  December  2002,  is
approximately  38,000  square  feet and is fully  leased to  unaffiliated  third
parties.

ITEM 3.       LEGAL PROCEEDINGS

The Company  has  certain  alleged  liabilities  and is a  defendant  in certain
lawsuits.  The  accompanying  consolidated  financial  statements do not include
adjustments  that might  result  from an ultimate  unfavorable  outcome of these
uncertainties. Although the basis for the calculation of the litigation reserves
are regularly  reviewed by the Company's  management  and outside legal counsel,
the  assessment  of these  reserves  includes an  exercise of judgment  and is a
matter  of  opinion.   At  December  31,  2002,  the  litigation  reserves  were
$1,290,000.  See  Part  II -  Item 8 - Note  10 to  the  Company's  consolidated
financial statements for a discussion of the Company's legal proceedings.

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

None.

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,
2002:

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

Name                                    Age                            Title
====                                    ===                            ==========
Richard A. Bianco                        55                            Chairman, President and
                                                                       Chief Executive Officer of
                                                                       AmBase Corporation

John P. Ferrara                          41                            Vice President, Chief Financial Officer
                                                                       and Controller of AmBase Corporation
</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.


<PAGE>


PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND
              RELATED STOCKHOLDER MATTERS

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>
                                                      2002                                        2001
                                                =====================                     =====================
                                                High              Low                     High              Low
                                                ====             ====                     ====             ====
First Quarter.......................       $    1.60          $  1.11                 $   0.79          $  0.56
Second Quarter......................            1.44             0.95                     0.99             0.57
Third Quarter.......................            1.10             0.91                     1.06             0.86
Fourth Quarter......................            0.97             0.88                     1.08             0.85
</TABLE>

As of January 31, 2003, there were approximately 17,000 beneficial owners of the
Company's  Common  Stock.  No dividends  were  declared or paid on the Company's
Common  Stock in 2002 or 2001.  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.

The following  table  summarizes  information  about  securities  authorized for
issuance under equity  compensation plans of the Company at December 31, 2002 as
follows:
<TABLE>
<CAPTION>

                         Shares to be issued          Weighted average
(shares in               upon exercise of             exercise price of            Shares available for
thousands)               outstanding options          outstanding options          future issuance
==========               ===================          ===================          ====================
<S>                        <C>                        <C>                            <C>

Plans approved
   by stockholders                     1,170           $            1.20                          3,905
                                                      ===================
Plan not approved
   by stockholders                         -                                                        110
                        ---------------------                                      ---------------------
Total                                  1,170           $            1.20                          4,015
                        =====================         ===================          =====================
</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
for adoption 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  awards  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.

<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.

<TABLE>
<CAPTION>
                                                                        Years ended December 31
                                                  =================================================================
<S>                                                   <C>             <C>         <C>           <C>            <C>

(in thousands, except per share data)                 2002           2001         2000         1999            1998
                                                      ====           ====         ====         ====            ====
Operating revenue ..........................      $    477       $    179     $      -      $     -        $      -
Interest income.............................           705          2,099        2,795        2,166           2,430
Net income (loss)...........................        (5,133)        62,110        5,174       (4,515)            181
                                                    ======          ======      ======       ======           =====
Net income (loss) per common share
Basic.......................................      $  (0.11)       $  1.34     $   0.11       $(0.10)       $      -
Assuming dilution...........................         (0.11)          1.34         0.11        (0.10)              -
                                                    ======         ======       ======       ======           ======
Dividends ..................................             -              -            -            -               -
                                                    ======         ======       ======       ======           ======
Total assets ...............................      $ 43,656       $ 50,445     $ 53,102      $47,678        $  51,638
Total stockholders' equity..................        32,902         38,013      (24,097)     (29,424)         (25,000)
                                                    ======         ======       ======       ======           ======
</TABLE>

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.

Financial Condition and Liquidity

The Company's assets at December 31, 2002,  aggregated  $43,656,000,  consisting
principally of cash and cash equivalents of $4,918,000, investment securities of
$18,880,000  and real estate owned of  $19,622,000.  At December  31, 2002,  the
Company's liabilities, including reserves for litigation liabilities, as further
described in Part II - Item 8 - Note 10 to the Company's  consolidated financial
statements, aggregated $10,754,000. Total stockholders equity was $32,902,000.

At December 31, 2002, the litigation reserves were $1,290,000.  For a discussion
of alleged  liabilities,  lawsuits and governmental  proceedings,  see Part II -
Item 8 - Note 10.

The liability for the supplemental  retirement plan (the"  Supplemental  Plan"),
which is accrued but not funded,  increased to  $7,608,000  at December 31, 2002
from $6,682,000 at December 31, 2001. The Supplemental  Plan liability  reflects
the  actuarially  determined  Accrued Pension Costs in accordance with GAAP. The
increased  liability is the result of an additional  year of accrued service and
interest  cost on the  liability.  The  Supplemental  Plan  liability is further
affected by changes in discount  rates and  experience  which could be different
from that assumed. See Part II - Item 8 - Note 6 for further details.

The  decrease  in the  liability  for  postretirement  welfare  benefits in 2002
compared to 2001 is due to the termination of the postretirement  welfare plans.
The Company has no further liability for  postretirement  welfare benefits.  See
Part II - Item 8 - Note 7 for further details.

For the year ended December 31, 2002, cash of $5,936,000 was used by operations,
including the payment of operating  expenses and prior year accruals,  partially
offset by the receipt of interest income. The cash needs of the Company for 2002
were principally  satisfied by interest income received on investment securities
and cash  equivalents,  the Company's  financial  resources  and rental  income.
Management believes that the Company's cash resources are sufficient to continue
operations for 2003.

For the year ended December 31, 2001, cash of $4,640,000 was used by operations,
including the payment of prior year accruals and operating  expenses,  partially
offset by the receipt of interest income. The cash needs of the Company for 2001
were principally  satisfied by interest income received on investment securities
and cash equivalents, and the Company's financial resources.
<PAGE>

For the year ended  December  31,  2000,  cash of  $2,590,000  was  provided  by
operating activities,  mainly due to the receipt of funds in connection with the
SF Holdings litigation settlement offset by the payment of expenses,  payment of
other liabilities,  and payments charged against litigation  reserves.  The cash
needs of the Company in 2000 were principally  satisfied by proceeds received in
connection  with the SF Holdings  litigation  settlement,  and  interest  income
received on investment securities and cash equivalents.

The Company owns a 14,500 square foot office building in Greenwich, Connecticut.
The Company utilizes 2,100 square feet for its executive  offices and leases the
remaining approximately 12,400 square feet of office space to unaffiliated third
parties.

In December  2002 the Company,  through a wholly owned  subsidiary,  purchased a
38,000 square foot office  building in  Greenwich,  Connecticut  for  investment
purposes.  The purchase  price was  approximately  $17,291,000  and was financed
using currently available funds.

In connection with an escrow account  established by Zurich SF Holdings LLC ("SF
Holdings")  pursuant to a June 2000 settlement  agreement with SF Holdings,  the
Company  requested,  in December 2001, the payment of  approximately  $1,500,000
from the escrow account for reimbursement of certain expenses previously paid by
the Company (the "Escrow Request").  SF Holdings refused to release escrow funds
for the payment of these  expenses.  As a result of SF  Holdings'  refusal,  the
Escrow Request was arbitrated in accordance  with the settlement  agreement.  In
October 2002, an arbitrator denied the Company's Escrow Request and ordered that
the Company pay SF Holdings'  arbitration  expenses of  approximately  $520,000,
which  were paid by the  Company in  December  2002.  Based on the  arbitrator's
decision,  the escrow account was terminated and the remaining escrow funds were
delivered to SF Holdings in accordance with the agreement.

The Company has made no purchases  under its common stock  repurchase plan as of
December 31, 2002.  There are no  additional  material  commitments  for capital
expenditures  as of December 31, 2002.  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 and alleged litigation liabilities.  Extensive discussions and
negotiations  are ongoing with respect to certain of these matters.  The Company
intends to  aggressively  contest  all  pending and  threatened  litigation  and
contingencies,  as well as pursue all sources for  contributions to settlements.
Management  of  the  Company  in   consultation   with  outside  legal  counsel,
continually  reviews the likelihood of liability and associated costs of pending
and threatened  litigation.  At December 31, 2002, the litigation  reserves were
$1,290,000.  For a discussion of alleged liabilities,  lawsuits and proceedings,
and a discussion of the Supervisory Goodwill litigation,  see Part II - Item 8 -
Note 10 to the Company's consolidated financial statements.





<PAGE>

Results of Operations

Summarized financial information for the operations of the Company for the years
ended December 31 is as follows:

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

(in thousands)                                                              2002             2001              2000
                                                                            ====             ====              ====
Revenues:
Rental income                                                           $    477         $    179          $      -
                                                                        --------         --------          --------
Operating expenses:
Compensation and benefits.....................................             3,515            5,021             3,507
Professional and outside services.............................             1,641            1,020             2,051
Property operating & maintenance..............................               130              117                91
Depreciation .................................................                74               57                16
Insurance.....................................................                73               65                60
Other operating...............................................               106              126               127
                                                                        --------         --------          --------
                                                                           5,539            6,406             5,852
                                                                        --------         --------          --------
Operating loss................................................            (5,062)          (6,227)           (5,852)
                                                                        --------         --------          --------
Interest income...............................................               705            2,099             2,795
Other income - termination of postretirement welfare plans....               788                -                -
Other income..................................................               215               75               186
Reversal of withholding obligation reserve....................                 -           66,388
Other income - litigation settlement..........................                 -                -             8,250
Write down of investments.....................................            (1,600)               -                 -
                                                                        --------         --------          --------
Income (loss) before income taxes.............................            (4,954)          62,335             5,379
Income tax expense............................................              (179)            (225)             (205)
                                                                        --------         --------          --------
Net income (loss).............................................          $ (5,133)        $ 62,110          $  5,174
                                                                        ========         ========          ========
</TABLE>

The Company's  main source of operating  revenue is rental income earned on real
estate  owned.  The  Company  also  earns   non-operating   revenue   consisting
principally of interest  income on investment  securities and cash  equivalents.
The Company's  management  expects that operating cash needs in 2002 will be met
principally by rental income, the Company's current financial  resources and the
receipt  of  non-operating  revenue  consisting  of  interest  income  earned on
investment securities and cash equivalents.

The Company  recorded a net loss of $5,133,000 or $0.11 per share,  for the year
ended  December 31,  2002.  As further  described  above,  2002 results  include
non-recurring   other  income  of  $788,000   representing  the  termination  of
postretirement  benefit plans and $215,000 of additional other income.  The year
ended  December 31, 2002 also includes a charge of $1,600,000 to reflect a write
down of the Company's investments in AMDG and SDG, as further described below.

For the year  ended  December  31,  2001,  the  Company  recorded  net income of
$62,110,000 or $1.34 per share. As further described below, 2001 results include
non-recurring   other  income  representing  the  reversal  of  the  Withholding
Obligation reserve.

The Company  recorded net income of $5,174,000 or $0.11 per share,  for the year
ended  December 31, 2000.  The 2000 results  include  $8,250,000 of other income
principally  representing net proceeds received in connection with the Company's
litigation settlement with SF Holdings.

Compensation  and  benefits  were  $3,515,000  in 2002,  $5,021,000  in 2001 and
$3,507,000 in 2000.  The decrease in 2002 compared to 2001 is primarily due to a
decrease in incentive  compensation.  The  increased  amount in 2001 compared to
2002 and 2000 is  primarily  due to an increase in 2001  incentive  compensation
paid as a result of the  successful  resolution  of the  withholding  obligation
issue as further described below.

<PAGE>

Professional and outside services  increased to $1,641,000 in 2002,  compared to
$1,020,000  in 2001.  The increase for the year 2002 compared with the year 2001
is  primarily  due to legal  expenses  incurred  in  connection  with the Zurich
Arbitration  proceedings.  Professional and outside services were $2,051,000 for
the  year  2000 and were  principally  comprised  of  expenses  relating  to the
Supervisory  Goodwill   litigation,   and  expenses  incurred  relating  to  the
litigation  settlement with SF Holdings.  Expenses for  professional and outside
services in 2002,  2001 and 2000 do not include costs  associated with defending
pending and threatened  litigation,  which were previously  reserved for and are
charged against the litigation reserves when paid.

Property operating and maintenance  expenses were $130,000 in 2002,  $117,000 in
2001 and $91,000 in 2000. The 2002 period includes expenses relating to a 14,500
square foot  building for a full year,  plus  expenses for a 38,000  square foot
building for December 2002. The lower expense in 2001 compared to 2002 is due to
the fact that the 2001 period reflects property  ownership expenses for a 14,500
square  foot  building  for only 8  months,  offset  to some  extent  by  office
relocation  costs incurred in 2001.  Amounts in 2000 reflect  occupancy costs of
office space leased by the Company.  Property operating and maintenance expenses
have not been reduced by tenant reimbursements.

Interest income was $705,000 in 2002, $2,099,000 in 2001 and $2,795,000 in 2000.
The decrease in 2002 compared to the 2001 period, was primarily  attributable to
a lower yield on cash  equivalents  and investment  securities,  and to a lesser
extent,  a lower  average  level of  investment  securities.  Interest  rates on
investments in treasury bills dropped significantly  throughout 2002 compared to
2001.  During 2002 interest  rates on  investments in treasury bills ranged from
1.9% down to 1.2%  compared to 2001  interest  rates  ranging  from 6.0% down to
3.5%. The decrease in 2001 compared to 2000 was  principally  attributable  to a
decreased yield on investments held in 2001 compared with 2000.

Other income of $788,000 relating to the termination of  postretirement  welfare
plans  recorded  in 2002 is the result of the full  termination  of the  retiree
medical and life insurance plans. The Company has no future liability for any of
these medical or life insurance  plans.  The Company and its subsidiaries do not
provide postretirement welfare benefits to current employees.

Additional  other income of $215,000 in 2002 is principally  attributable to the
collection on an investment  previously written off. Other income of $75,000 and
$186,000  for the years  ended  December  31,  2001 and 2000,  respectively,  is
attributable   to  the   collection  of  a  receivable   previously   considered
uncollectable.

The 2001 results include a $66,388,000  Withholding  Obligation reserve reversal
which is reflected as other income in the  Consolidated  Statement of Operations
as a result  of a May 2001  United  States  Tax  Court  ruling  in favor of City
Investing Company ("City"),  holding that City was not liable for the payment of
withholding taxes. The IRS had contended that the withholding of tax on interest
payments were due by City in connection with City's Netherlands Antilles finance
subsidiary for the years 1979 through 1985.

Other income of $8,250,000 for the year ended December 31, 2000, is attributable
to the  net  proceeds  received  in  June  2000,  relating  to  the SF  Holdings
litigation settlement.

Write down of  investments  in 2002  reflects  the  Company's  write down of its
investments  in SDG and  AMDG of  $1,250,000  and  $350,000,  respectively.  The
Company  recorded  the write down in  September  2002,  in  connection  with the
ongoing  evaluation of its investments,  and the determination that the value of
its investments in SDG and AMDG had been other than temporarily impaired.  Under
GAAP,  if an  investment  is other than  temporarily  impaired,  the  Company is
required to reflect an adjustment in its Financial Statements.

Factors  considered  in the Company's  decision to write down these  investments
included,  in part,  the general  inactive  status of SDG's and AMDG's  clinical
testing, as well as SDG's and AMDG's current financial condition. The Company is
not selling or disposing of its  investments in SDG or AMDG and remains  hopeful
that it will be able to fully realize its investment  value.  In September 2000,
the  Company  filed a lawsuit  against  SDG,  and  certain of its  officers  and
directors,  to pursue claims  against the parties,  including but not limited to
SDG's failure to honor a contract  which granted the Company the right to act as
the  exclusive  investment  banking/financial  advisor  to  SDG,  and all of its
subsidiaries  and  affiliates.  See Part II - Item 8,  Note 10 to the  Company's
consolidated  financial  statements,  for further information.  The Company will
continue to monitor the status of its SDG and AMDG  investments  and  vigorously
pursue recovery of its legal claims. However, there can be no assurance that the
Company  will be able to  recover  all or any  part of its  investment  in these
companies.

The  2002,  2001 and 2000  income  tax  provisions  of  $179,000,  $225,000  and
$205,000, respectively, are principally attributable to state and local taxes.
<PAGE>

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.

From time to time, the Company may publish  "Forward-looking  statements" within
the  meaning of  Section  27A of the  Securities  Act of 1933,  as amended  (the
"Act"),  and  Section  21E of the  Exchange  Act or make  oral  statements  that
constitute  forward-looking  statements.  These  forward-looking  statements may
relate to such matters as anticipated financial performance,  future revenues or
earnings,   business   prospects,   projected   ventures,   anticipated   market
performance,  and similar matters. The Private Securities  Litigation Reform Act
of 1995  provides a safe  harbor  for  forward-looking  statements.  In order to
comply with the terms of the safe harbor,  the Company  cautions  readers that a
variety of factors could cause the Company's actual results to differ materially
from the anticipated  results or other  expectations  expressed in the Company's
forward-looking  statements.  These risks and  uncertainties,  many of which are
beyond the Company's control,  include,  but are not limited to: (i) transaction
volume in the securities markets, (ii) the volatility of the securities markets,
(iii)  fluctuations in interest  rates,  (iv) changes in occupancy rates or real
estate  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 our current material litigation  matters, or unfavorable  decisions
in  other  supervisory  goodwill  cases.  The  Company  does not  undertake  any
obligation  to update or revise  any  forward-looking  statements  whether  as a
result of future events, new information or otherwise.

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.

Supplemental  Retirement Plan: Our supplemental  pension plan (the "Supplemental
Plan")  accrued  liability  and  benefit  costs  are  developed  from  actuarial
valuations.  Inherent in these valuations are key assumptions including discount
rates, and projected  future  earnings,  which are updated 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 changes in assumptions  or experience  different than
that  assumed.  The  Supplemental  Plan  liability  is not  funded and is net of
unrecognized losses of $1,993,000.

The key assumptions used in developing the 2002  Supplemental Plan benefit costs
and accrued  liability  were a 6.75%  discount  rate, a 6% rate of  compensation
increase, and the amortization of unrecognized losses over the average remaining
lives of active participants.  These assumptions were consistent with prior year
assumptions  except  that the  discount  rate was  reduced by  one-quarter  of a
percent due to current market conditions.

<PAGE>

Legal  Proceedings:  The  Company  has  certain  alleged  liabilities  and  is a
defendant  in  certain  lawsuits.   The  accompanying   consolidated   financial
statements  do not  include  adjustments  that  might  result  from an  ultimate
unfavorable  outcome  of  these  uncertainties.  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 the  litigation  reserves.  The assessment of
these reserves  includes an exercise of judgment and is a matter of opinion.  At
December 31, 2002, the litigation reserves were $1,290,000.  The Company intends
to aggressively contest all pending and threatened litigation and contingencies,
as well as pursue all sources for contributions to settlements. For a discussion
of alleged  liabilities,  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  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.

<PAGE>

Deferred Tax Assets: As of December 31, 2002 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 $31
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"
("Statement  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 10.


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, 2002 and 2001 with maturity
dates of less than one year consist of the following:

<TABLE>
<CAPTION>
                                                                      2002                       2001
                                                            ======================       =====================
                                                            Carrying       Fair          Carrying        Fair
                                                            Value          Value         Value           Value
                                                            --------     ---------       --------       -------
<S>                                                         <C>             <C>          <C>             <C>
(in thousands)
U.S. Treasury Bills.......................................  $18,259       $18,260        $ 40,232       $40,245
                                                            =======       =======        ========       =======
Weighted average interest rate............................     1.24%                         1.87%
                                                            =======                      ========
</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.



<PAGE>

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors
and Stockholders of
AmBase Corporation

In our opinion,  the  accompanying  consolidated  Balance Sheets and the related
consolidated  Statements of Operations,  Comprehensive Income (Loss), Changes in
Stockholders'  Equity,  and Cash Flows present fairly, in all material respects,
the  financial   position  of  AmBase  Corporation  and  its  subsidiaries  (the
"Company")  at December 31, 2002 and 2001,  and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 2002 in conformity  with  accounting  principles  generally  accepted in the
United States of America.  These financial  statements 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 auditing  standards  generally  accepted in the
United  States of America,  which  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.






PricewaterhouseCoopers LLP
New York, New York
March 19, 2003



<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)                                       2002             2001              2000
                                                                            ====             ====              ====
Revenues:
Rental income                                                           $    477        $     179           $     -
                                                                        --------         --------          --------

Operating expenses:
Compensation and benefits.....................................             3,515            5,021             3,507
Professional and outside services.............................             1,641            1,020             2,051
Property operating and maintenance ...........................               130              117                91
Depreciation .................................................                74               57                16
Insurance.....................................................                73               65                60
Other operating...............................................               106              126               127
                                                                        --------         --------          --------
                                                                           5,539            6,406             5,852
                                                                        --------         --------          --------
Operating loss................................................            (5,062)          (6,227)           (5,852)
                                                                        --------         --------          --------
Interest income...............................................               705            2,099             2,795
Other income - termination of postretirement welfare plans....               788                -                 -
Other income..................................................               215               75               186
Reversal of withholding obligation reserve....................                 -           66,388                 -
Other income - litigation settlement..........................                 -                -             8,250
Write down of investments.....................................            (1,600)               -                 -
                                                                        --------         --------          --------
Income (loss) before income taxes.............................            (4,954)          62,335             5,379
Income tax expense ...........................................              (179)            (225)             (205)
                                                                        --------         --------          --------
Net income (loss).............................................         $  (5,133)        $ 62,110          $  5,174
                                                                        ========         ========          ========
Net income (loss) per common share:
Basic.........................................................         $   (0.11)        $   1.34          $   0.11
Assuming dilution ............................................             (0.11)            1.34              0.11
                                                                           =====            =====             =====
Dividends.....................................................         $       -         $      -          $      -
                                                                           =====            =====             =====
Weighted average common shares outstanding:
Basic.........................................................            46,209           46,209            46,209
                                                                          ======           ======            ======
Assuming dilution.............................................            46,209           46,314            46,264
                                                                          ======           ======            ======
</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 amounts)                                                     2002              2001
                                                                                             ====              ====
Assets:
Cash and cash equivalents.......................................................        $   4,918        $    6,130
Investment securities:
    Held to maturity (market value $18,260 and $40,245, respectively)...........           18,259            40,232
    Available for sale, carried at fair value...................................              621                 -
                                                                                          -------           -------
Total investment securities.....................................................           18,880            40,232
                                                                                          -------           -------
Accounts receivable ............................................................              109                 6
Real estate owned:
     Land.......................................................................            6,954             1,880
     Buildings..................................................................           12,772               555
                                                                                          -------           -------
                                                                                           19,726             2,435
     Less: accumulated depreciation ............................................             (104)              (42)
                                                                                          -------           -------
Real estate owned, net..........................................................           19,622             2,393
                                                                                          -------           -------
Investment in SDG, Inc. at cost in 2001.........................................                -             1,250
Other assets....................................................................              127               434
                                                                                          -------           -------
Total assets....................................................................        $  43,656        $   50,445
                                                                                          =======           =======
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities........................................        $   1,563        $    3,267
Supplemental retirement plan....................................................            7,608             6,682
Postretirement welfare benefits.................................................                -               913
Other liabilities...............................................................              293                99
Litigation reserves.............................................................            1,290             1,471
                                                                                         --------          --------
Total liabilities...............................................................           10,754            12,432
                                                                                         --------          --------
Commitments and contingencies...................................................                -                 -
                                                                                         --------          --------
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized,
   46,335,007 issued)...........................................................              463               463
Paid-in capital.................................................................          547,940           547,940
Accumulated other comprehensive income..........................................               22                 -
Accumulated deficit.............................................................         (514,876)         (509,743)
Treasury stock, at cost 126,488 shares..........................................             (647)             (647)
                                                                                         --------          --------
Total stockholders' equity......................................................           32,902            38,013
                                                                                         --------          --------
Total liabilities and stockholders' equity......................................        $  43,656         $  50,445
                                                                                         ========          ========
</TABLE>

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


<PAGE>


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



<TABLE>
<CAPTION>
<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, 1999.............   $    455     $547,795     $          -          $ (577,027)     $  (647)      $(29,424)
Stock options exercised                 8          145                -                   -            -            153
Net income....................          -           -                 -               5,174            -          5,174
                                ---------     --------    --------------         -----------      -------       --------

December 31, 2000.............        463      547,940                -            (571,853)        (647)       (24,097)
Net income....................          -           -                 -              62,110            -         62,110
                                ---------     --------    --------------         -----------      -------       --------

December 31, 2001.............        463      547,940                -            (509,743)        (647)        38,013
Net loss                                -           -                                (5,133)           -         (5,133)
Other comprehensive
      income (loss)                     -           -                22                   -            -             22
                                ---------     ---------    -------------          ----------       -------      --------
December 31, 2002.............  $     463     $ 547,940    $         22           $(514,876)       $ (647)       $32,902
                                =========     =========    =============          ==========       =======      ========
</TABLE>


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



                       AMBASE CORPORATION AND SUBSIDIARIES
             Consolidated Statements of Comprehensive Income (Loss)
                             Years Ended December 31
                                 (in thousands)


<TABLE>
<CAPTION>


<S>                                                                <C>             <C>              <C>
                                                                   2002            2001             2000
                                                                 ========        ========          =======
Net income (loss) ..........................................     $(5,133)        $ 62,110          $ 5,174


Unrealized holding gains on investment securities - available
for sale, net of tax effect of $0............................         22                -                -
                                                                 -------         --------           -------
Comprehensive income (loss)..................................    $(5,111)        $ 62,110           $ 5,174
                                                                 =======         ========           =======
</TABLE>

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


<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                             Years Ended December 31



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


(in thousands)                                                                       2002             2001           2000
                                                                                    ======           ======         ======
Cash flows from operating activities:
Net income (loss)........................................................         $(5,133)          $62,110         $5,174
Adjustments to reconcile net income (loss) to net cash (used) provided
    by operating activities:
    Accretion of discount - investment securities........................            (631)           (2,037)        (2,732)
    Depreciation and amortization........................................              74                57             16
    Termination of postretirement welfare plans .........................            (788)                -              -
    Reversal of withholding obligation reserve...........................               -           (66,388)             -
Changes in other assets and liabilities:
    Write down of investments ...........................................           1,600                 -              -
    Other assets.........................................................            (188)               (3)            36
    Accounts payable and accrued liabilities.............................          (1,704)            1,378            (13)
    Other liabilities....................................................             994               518            346
    Litigation reserves uses.............................................            (181)             (275)          (237)
Other, net...............................................................              21                 -              -
                                                                                  -------           -------         ------
Net cash provided (used) by operating activities.........................          (5,936)           (4,640)         2,590
                                                                                  -------           -------         ------
Cash flows from investing activities:
Maturities of investment securities - held to maturity...................         128,715           102,765        118,084
Purchases of investment securities - held to maturity....................        (106,111)          (94,413)      (118,639)
Purchases of investment securities - available for sale..................            (599)                -              -
Purchase of real estate..................................................         (17,291)           (2,435)             -
Other, net...............................................................              10                 9             10
                                                                                 --------           -------       --------
Net cash provided (used) by investing activities.........................           4,724             5,926           (545)
                                                                                 --------           -------       --------
Cash flows from financing activities:
Stock options exercised..................................................               -                 -            153
                                                                                 --------           -------       --------
Net cash provided by financing activities................................               -                 -            153
                                                                                 --------           -------       --------
Net increase (decrease) in cash and cash equivalents.....................          (1,212)            1,286          2,198
Cash and cash equivalents at beginning of year...........................           6,130             4,844          2,646
                                                                                 --------           -------       --------
Cash and cash equivalents at end of year.................................        $  4,918          $  6,130       $  4,844
                                                                                 ========           =======       ========
Supplemental cash flow disclosure:
Income taxes paid........................................................        $    209          $    240       $    170
                                                                                 ========           =======       ========
</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 two office buildings in Greenwich, Connecticut and a 6.3%
ownership interest in SDG, Inc. The Company previously held a majority ownership
interest in  Augustine  Asset  Management,  Inc.  ("Augustine"),  an  investment
advisor, and also 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
and alleged litigation liabilities, as described in Note 12.

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 with the 2002 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.  Investments  in  non-public
companies in which  ownership  interest is less than 20% are accounted for using
the cost method.  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.

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 the
first-in/first-out  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.

<PAGE>

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


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
net income (loss) 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  Financial  Accounting
Standards  Board,   Statement  of  Financial   Accounting   Standards  No.  123,
"Accounting for  Stock-Based  Compensation"  ("Statement  123") and continues to
account  for stock  compensation  using APB Opinion  25,  "Accounting  for Stock
Issued to  Employees"  ("APB 25"),  making pro forma  disclosures  of net income
(loss)  and  earnings  per  share as if the fair  value  based  method  had been
applied.  No compensation  expense,  attributable to stock incentive  plans, has
been charged to earnings.  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 date of grant for stock  options,  consistent  with the method  prescribed by
Statement  123, net income  (loss) and net income  (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)                                          2002               2001               2000
                                                                             =======             =======            =======
Net income (loss):
As reported.....................................................         $   (5,133)            $ 62,110            $ 5,174
Deduct: pro forma stock based compensation expense for
    stock options pursuant to Statement 123.....................               (216)                 (42)               (84)
                                                                             -------             -------            -------
Pro forma.......................................................         $   (5,349)            $ 62,068            $ 5,090
                                                                             =======             =======            =======
Net income (loss) per common share:
Basic - as reported.............................................         $    (0.11)            $   1.34            $  0.11
Basic - pro forma...............................................              (0.11)                1.34               0.11
Assuming dilution - as reported.................................              (0.11)                1.34               0.11
Assuming dilution - pro forma ..................................              (0.11)                1.34               0.11
                                                                             =======              =======            ======
</TABLE>

Revenue recognition:

Minimum  rental revenue  attributable  to operating  leases are recognized  when
earned and due from tenants.  Revenue from tenant  reimbursement  of common area
maintenance,  utilities and other operating expenses are recognized  pursuant to
the  tenant's   lease.   The  effects  of  scheduled  rent  increases  and  rent
concessions, if any, are presented on a straight line basis over the term of the
lease.


<PAGE>

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


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.


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>

                                              2002                                                2001
                             =========================================          ========================================
<S>                             <C>              <C>              <C>             <C>              <C>               <C>

                                                Cost or                                          Cost or
                                Carrying        Amortized        Fair           Carrying         Amortized         Fair
(in thousands)                  Value           Cost             Value          Value            Cost              Value
                                ======          ========        =======         ========         ========        =======
Held to Maturity:
    U.S. Treasury Bills....... $18,259          $18,259         $18,260         $ 40,232         $ 40,232        $40,245
Available for Sale:
     Equity Securities.........    621              599             621               -                 -              -
                               -------          -------         -------         --------          --------       -------
                               $18,880          $18,858         $18,881         $ 40,232          $ 40,232       $40,245
                               =======          =======         =======         ========          ========       =======

</TABLE>

The gross unrealized gains on investment securities at December 31, consist of
the following:

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

(in thousands)                                                                                 2002                2001
                                                                                               ====                ====
Held to Maturity - Gross unrealized gains...........................................        $     1            $     13
                                                                                               ====                ====
Available for Sale - Gross unrealized gains.........................................        $    22            $      -
                                                                                               ====                ====

</TABLE>

Other  investment  securities  at December  31, 2001  consisted  of  convertible
preferred  stock and common stock in AMDG,  Inc.,  which were purchased  through
private placements, were classified as other assets, and were carried at cost of
$350,000 at December 31, 2001.  No  investment  securities - available  for sale
were sold during 2002.

In September 2002, in connection with the ongoing evaluation of its investments,
the Company  determined the value of its  investments in SDG, Inc.,  ("SDG") and
AMDG had been other than temporarily  impaired.  Under GAAP, if an investment is
other  than  temporarily  impaired,  the  Company  is  required  to  reflect  an
adjustment  in its Financial  Statements.  Accordingly,  the Company  recorded a
write  down of its  investments  in SDG and  AMDG of  $1,250,000  and  $350,000,
respectively.  See Note 10 - Legal  Proceedings - Litigation  with SDG, Inc. for
further information.

<PAGE>


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


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)                                 2002                2001                  2000
                                                                     =====              ======                ======
Net income (loss).............................................  $   (5,133)         $   62,110           $    $5,174
                                                                     =====              ======                ======
Weighted average common shares outstanding ...................      46,209              46,209                46,209
Effect of Dilutive Securities:
Assumed stock option exercise.................................           -                 105                    55
                                                                    ------              ------                ------
Weighted average common shares outstanding assuming dilution..      46,209              46,314                46,264
                                                                    ======              ======                ======
Net income (loss) per common share:
Basic.........................................................  $    (0.11)         $     1.34            $     0.11
Assuming dilution ............................................       (0.11)               1.34                  0.11
                                                                     ======             ======                 =====
</TABLE>



Options to purchase common stock of 1,170,000 shares in 2002,  175,000 shares in
2001 and 370,000  shares in 2000 were excluded from the  computation  of diluted
earnings per share because these options were antidilutive.

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>
                                                                     2002                 2001                  2000
                                                                  ==========            ==========           ==========
Balance at beginning of year...................................   46,208,519            46,208,519           45,348,519
Issuance of common shares......................................            -                     -              860,000
                                                                  ----------            ----------           ----------
Balance at end of year.........................................   46,208,519            46,208,519           46,208,519
                                                                  ==========            ==========           ==========
</TABLE>

Common Stock balances exclude 126,488 treasury shares at December 31, 2002, 2001
and  2000,   carried  at  an  average  cost  of  $5.12  per  share   aggregating
approximately $647,000.

The Company issued 860,000  previously  authorized  common shares during January
2000, in connection with the exercise of employee stock options.

At December 31, 2002,  there were 5,185,000  common shares reserved for issuance
under the Company's stock option and other employee benefit plans.

<PAGE>

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


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, 2006.

Common Stock Repurchase Plan:

The  Company's  Board of Directors  have 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.  No
purchases have been made under the Repurchase Plan as of December 31, 2002.

Note 6 - Pension and Savings Plans

The Company sponsors a non-qualified supplemental retirement plan ("Supplemental
Plan")  under  which only one  current  executive  officer  and  certain  former
officers of the Company are  participants.  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)                                                              2002                2001               2000
                                                                            ====                ====               ====
Service cost of current period................................       $       756        $        537        $       469
Interest cost on projected benefit obligation.................               549                 521                468
Amortization of unrecognized losses...........................                82                  51                 11
                                                                           -----               -----              -----
                                                                     $     1,387        $      1,109        $       948
                                                                           =====               =====              =====
</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)                                                                               2002                  2001
                                                                                             ====                  ====
Projected benefit obligation at beginning of year...............................           $8,077         $       7,170
Service cost....................................................................              756                   537
Interest cost...................................................................              549                   521
Actuarial (gain) loss, including effect of change in assumptions................              679                   309
Benefits paid...................................................................             (460)                 (460)
                                                                                            -----                 -----
Projected benefit obligation at end of year.....................................           $9,601         $       8,077
                                                                                            =====                 =====
</TABLE>


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

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)                                                                       2002                  2001
                                                                                             ====                  ====
Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested...................................          $ 7,521               $ 6,310
                                                                                            =====                 =====
Projected benefit obligation for service rendered to date.......................          $ 9,601               $ 8,077
Unrecognized net loss...........................................................           (1,993)               (1,395)
                                                                                           ------                 -----
Accrued pension costs...........................................................          $ 7,608                $6,682
                                                                                           ======                 =====
Major assumptions:
Discount rate...................................................................            6.75%                  7.0%
Rate of increase in future compensation.........................................             6.0%                  6.0%
                                                                                            =====                 =====
</TABLE>


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 salary, which are matched by the Company at a
percentage  determined  annually.  The employer  match is currently  100% of the
employee's salary 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 salary
reduction  contributions.  The Company's  matching  contributions to the Savings
Plan,  charged to expense,  were $24,000,  $14,000 and $17,000 in 2002, 2001 and
2000,  respectively.  All  contributions  are  subject  to  maximum  limitations
contained in the Code.

Note 7 - Postretirement Benefits Other Than Pensions

The  Company  had  previously  assumed  the  obligation  to provide a portion of
retiree medical and life insurance coverage to individuals who retired from City
Investing  Company,  which,  prior to September 1985,  owned all the outstanding
shares of Common Stock of the Company.

As of December 31, 2002 the Company  recorded other income of $788,000  relating
to the  termination  of  postretirement  benefit  plans as a result  of the full
termination of the retiree medical and life insurance  plans, in accordance with
generally accepted  accounting  principles.  The Company has no future liability
for  any of  these  medical  or  life  insurance  plans.  The  Company  and  its
subsidiaries do not provide postretirement benefits to current employees.

Note 8 - Incentive Plans

Under the Company's  1994 Senior  Management  Incentive  Compensation  Plan (the
"1994 Plan"), an 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.

<PAGE>

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

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 2002.

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
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,  resignation  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.

<PAGE>

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

During January 2002, the Board of Directors of the Company approved the award of
incentive stock options to certain employees to acquire 700,000 shares of AmBase
Common Stock at exercise  prices between $1.09 and $1.19 per share,  pursuant to
the 1993 Plan.

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 Common
Stock to salaried  employees,  through May 22, 1995. No additional stock options
can be awarded under the 1985 Plan.  As of December 31, 2002,  75,000 shares are
reserved for issuance under the 1985 Plan.

<PAGE>

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


Incentive plan activity is summarized as follows:

<TABLE>
<CAPTION>

                                                                1993 Stock                      1985 Stock
(shares in thousands)                                         Incentive Plan                    Option Plan
                                                        ========================        ========================
 <S>                                                     <C>            <C>               <C>             <C>
                                                                       Weighted                          Weighted
                                                        Shares         Average          Shares           Average
                                                        Under          Exercise         Under            Exercise
                                                        Option         Price            Option           Price
                                                        ======         =======          =======          =======
Outstanding at December 31, 1999...................        280         $  2.83              935         $   0.18
Granted............................................         90            1.00                -                -
Exercised..........................................          -               -             (860)            0.11
                                                        ------         =======          -------          =======
Outstanding at December 31, 2000...................        370         $  2.38               75          $  0.21
Granted............................................        280            0.64                -                -
Forfeited..........................................       (255)           1.86                -                -
                                                        ------         =======          -------          =======
Outstanding at December 31, 2001...................        395         $  1.49               75          $  0.21
Granted............................................        700            1.14                -                -
                                                        ------         =======          -------          =======
Outstanding at December 31, 2002...................      1,095         $  1.27               75          $  0.21
                                                        ======         =======          =======          =======
Options exercisable at:
     December 31, 2002.............................        285         $  1.81               75          $  0.21
     December 31, 2001.............................        145            2.85               75             0.21
     December 31, 2000.............................        235            2.86               75             0.21
                                                         =====         ========         =======          =======

</TABLE>


The following  table  summarizes  information  about the Company's stock options
outstanding  and  exercisable  under the 1985 Plan and 1993 Plan at December 31,
2002, as follows:

<TABLE>
<CAPTION>
            <S>           <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
         ======          ======         ========            =======                ======                  =======
          $0.21              75                2            $  0.21                    75                  $  0.21
 $0.60 to $0.66             220                3               0.66                   110                     0.66
 $0.95 to $1.05              60                3               1.03                    60                     1.03
 $1.09 to $1.19             700                6               1.14                     -                        -
 $2.56 to $3.65              70                3               2.88                    70                     2.88
          $4.02              45                1               4.02                    45                     4.02
                          -----          =======             ======                ------                   ======
          Total           1,170                                                       360
                          =====                                                    ======

</TABLE>

<PAGE>

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


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 2002, 2001
and 2000 used to compute  pro forma net income  (loss)  and  earnings  per share
disclosures is the estimated fair value at date of grant.

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>                <C>

                                                         2002               2001               2000
                                                         ====              =====               ====
Dividend yield.....................................         0%                 0%                 0%
Volatility.........................................      0.56               0.51               0.44
Risk free interest rate............................      5.04%              5.04%              5.80%
Expected life in years.............................       5-6                4-6                4-6
Weighted average fair value at grant date..........     $0.59              $0.25              $0.45
                                                        ====               =====              =====
</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 Statement 123, see Note 2.




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

Note 9 - Income Taxes

The  components  of income tax expense  for the years  ended  December 31 are as
follows:

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

(in thousands)                                                              2002                2001               2000
                                                                            ====                ====               ====
Income tax expense - current state and local..................         $    (179)           $   (225)         $    (205)
                                                                            ====                ====               ====
</TABLE>

The components of pretax income (loss) and the  difference  between income taxes
computed at the statutory  federal rate of 35% in 2002,  2001 and 2000,  and the
provision for income taxes for the years ended December 31 follows:

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

(in thousands)                                                              2002                2001               2000
                                                                           =====               ======             =====
Income (loss) before income taxes...............................         $(5,133)           $  62,335            $5,379
                                                                           =====               ======             =====
Tax (expense) benefit:
Tax at statutory federal rate...................................         $ 1,797             $(21,817)        $  (1,883)
Reversal of Withholding Obligation reserve......................               -               23,236                 -
Accounting loss benefit not recognized..........................          (1,797)              (1,419)                -
Accounting loss benefit recognized..............................               -                   -              1,883
State income taxes..............................................            (179)                (225)             (205)
                                                                           -----              -------             ------
                                                                         $  (179)           $    (225)         $   (205)
                                                                           =====              =======             ======
</TABLE>

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 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 its
amended  1992  consolidated  federal  income tax return to include  the  federal
income  tax  effects  of  Carteret  FSB,   approximately   $56  million  of  NOL
carryforwards  are  generated  for tax year 1992 which expire in 2007,  with the
remaining  approximately  $102  million of NOL  carryforwards  to be  generated,
expiring no earlier  than 2008.  These NOL  carryforwards  would be available to
offset future taxable income,  in addition to the NOL  carryforwards  as further
detailed below.

The IRS is currently  reviewing the Company's  1992 amended  federal  income tax
return in connection with several  carryback  claims filed by the Company during
2000, as further described below. The Company can give no assurances with regard
to the amended federal income tax return filed with the IRS, or the final amount
or expiration of NOL carryforwards  ultimately  generated from the Company's tax
basis in Carteret.

<PAGE>

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


Based upon the Company's  federal  income tax returns as filed from 1993 to 2001
(subject  to  IRS  audit  adjustments),  and  excluding  the  NOL  carryforwards
generated from the Company's tax basis in Carteret/Carteret FSB, as noted above,
at  December  31, 2002 the Company  has NOL  carryforwards  available  to reduce
future federal taxable income, which expire if unused, as follows:

<TABLE>
<CAPTION>
                  <S>               <C>
                2008             $1,300,000
                2009              6,900,000
                2010              5,300,000
                2012              1,100,000
                2018              5,400,000
                2019              4,000,000
                2020              2,600,000
                2021              4,000,000
                                -----------
                                $30,600,000
                                ===========
</TABLE>


The Company's  federal income tax returns for 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.  As further  discussed  below the Company has filed
several  carryback  claims  with the IRS  seeking  to realize  approximately  $8
million of the $21 million of AMT Credits.

The  Company has filed  several  carryback  claims with the IRS (the  "Carryback
Claims")  seeking  refunds  from the IRS of  alternative  minimum  tax and other
federal  income  taxes paid by the  Company in prior years plus  applicable  IRS
interest based on the filing of an amended 1992 federal  income tax return.  The
Carryback  Claims and amended 1992 federal income tax return are currently being
reviewed by the IRS. IRS examiners  have  indicated  that they will soon issue a
letter to the Company  proposing to disallow the Carryback  Claims.  The Company
intends to seek administrative review of the letter by protesting to the Appeals
Division  of the IRS.  The  Company can give no  assurances  that the  Carryback
Claims will be  ultimately  allowed by the IRS, the final amount of the refunds,
if any, or when they might be received.

The  Company  has  calculated  a net  deferred  tax asset of $31 million and $30
million as of December 31, 2002 and 2001,  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.




<PAGE>

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

Note 10 - Legal Proceedings

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

(a) Marshall Manley v. AmBase Corporation. On November 14, 1996, Marshall Manley
("Manley"),  a former  President,  Chief  Executive  Officer and Director of the
Company,  commenced an action against the Company,  seeking indemnification from
the Company pursuant to a May 27, 1993 employment  settlement  agreement between
Manley and the Company.  Manley seeks  reimbursement of certain alleged payments
he made to the Trustee in the bankruptcy  proceedings of the law firm of Finley,
Kumble,  Wagner,  Heine,  Underberg,  Manley & Casey (the "Manley  action"),  of
approximately $2.4 million plus interest, arguing that he served at such firm at
the request of the  Company.  The Company  filed its answer on January 21, 1997,
raising substantial affirmative defenses which the Company intends to vigorously
pursue.  On October 30, 1997,  AmBase  amended its Answer and  Counterclaims  to
include a claim of fraud  against  Manley.  In December  1997,  Manley moved for
summary judgment.  The Company raised  substantial  opposition to the motion and
moved to strike certain of Manley's  affirmative defenses which Manley raised in
connection  with the  Company's  fraud claim  against  Manley.  Oral argument on
Manley's Motion for Summary Judgment and the Company's motion to strike Manley's
affirmative  defenses was held on May 15, 1998.  The court denied both  motions.
The jury trial of the  plaintiff's  breach of contract  claims took place in May
2000 in the United States District Court for the Southern  District of New York,
and resulted in a verdict against the Company.  The Company's  counterclaims for
fraud and reformation were tried to the Court  immediately  following the jury's
verdict.  In December 2000, the Court,  in response to the Company's  motion for
judgment as a matter of law and/or for a new trial,  vacated the jury's  earlier
verdict  (thereby  nullifying  it) and  ordered a new trial.  Subsequent  to the
Court's  vacatur of the jury's  verdict in January 2001 the Court  dismissed the
Company's counterclaims for fraud and reformation.  A second jury trial was held
commencing  on  November  5, 2001  which  resulted  in a verdict in favor of the
Company.  Manley  has filed a Notice of Appeal and a Fed.  R. Civ.  P. 59 motion
seeking  to set aside this  second  verdict.  In March  2002,  the Court  denied
Manley's  Fed. R. Civ.  P. 59 motion.  In April  2002,  Manley  filed an amended
Notice of Appeal.  Oral  argument on the  amended  Notice of Appeal was heard in
January 2003. The Manley action is currently pending in the Second Circuit Court
of Appeals. The Company intends to vigorously oppose the appeal.

The  allegations  and claims against the Company,  as noted above,  are material
and, if successful,  could result in substantial  judgments against the Company.
Due to the nature of these  proceedings,  the Company and its counsel are unable
to express any opinion as to their probable outcome.

(b) 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))  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 has filed  various
counterclaims  which the Company  believes are without  merit.  The Company will
continue to monitor the status of SDG and its subsidiary,  AMDG,  Inc.  ("AMDG")
and vigorously pursue the matter.

(c)  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"),  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,  commenced in recent
years by other financial institutions and/or their shareholders,  are 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.

<PAGE>

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


On April 9, 1999 and April  16,1999,  respectively,  the Court issued  decisions
addressing damage claims in two of the Winstar-related  cases,  Glendale Federal
Bank, FSB v. United States, and California Federal Bank v. United States. In the
Glendale case,  the Court awarded  Glendale  $908.9  million in restitution  and
non-overlapping  reliance  damages,  representing  the benefit  conferred on the
government  as a result of the  contract  at issue in that  case,  plus  certain
non-overlapping  damages  suffered by  Glendale as a result of the  government's
breach of contract. The Court declined to award expectation damages as requested
by Glendale.  In the  California  Federal  case,  the Court  awarded  California
Federal $23.4 million in damages,  representing  expenses incurred by California
Federal in raising  new capital to replace the  supervisory  goodwill  lost as a
result of the  government's  breach of  contract.  The Court  declined  to award
expectation  damages,  restitution,  or other  reliance  damages as requested by
California Federal. On February 16, 2001, the United States Court of Appeals for
the Federal Circuit issued a decision in the case of Glendale  Federal Bank, FSB
v. United States, which involves certain damages issues related to the Company's
case.  The decision  vacated in part the decision of the United  States Court of
Federal  Claims dated April 9, 1999,  and remanded the case back to the Court of
Federal Claims for a determination  of total reliance  damages.  The trial court
and appellate decisions in Glendale and California Federal as well as other case
decisions,  may be relevant to the  Company's  claims,  but are not  necessarily
indicative of the ultimate outcome of the Company's action.

On March 20, 1998, the FDIC filed a motion for partial summary  judgment against
the United  States on certain  liability  issues,  and the  Company  has filed a
memorandum  in support of that  motion.  The FDIC's  motion is  currently  under
submission to the court.

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 February 18, 2000, the Court issued an Order granting the Company's motion to
suspend the expert discovery  period until after the Company's  Summary Judgment
Motion has been decided.  The expert discovery period will now commence with the
Company's  identification  of its experts  within 30 days of the decision of the
Court on the Company's  pending  Summary  Judgment  Motion.  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.  The Company
continues to await a decision by Senior Judge Smith on the  Company's  case.  No
assurance can be given regarding the ultimate outcome of the litigation.

On April 3, 2001 the United  States  Court of Appeals  for the  Federal  Circuit
("Federal Court of Appeals") issued a decision in the case of California Federal
Bank, FSB v. United States, which involves certain damages issues related to the
Company's  case.  The  decision  vacated  in part the  decision  of the Court of
Federal  Claims dated April 16, 1999, and remanded the case back to the Court of
Federal Claims for a further determination of damages.



<PAGE>

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


In August 2002,  both the Court of Appeals for the Federal Circuit and the Court
of Federal Claims issued decisions  addressing Takings Clause claims advanced by
shareholders  of failed thrifts.  (Castle v. United States,  301 F.3d 1328 (Fed.
Cir. 2002);  Bailey v. United States, 53 Fed. C1.251, 2002 U.S. Claims LEXIS 203
(Fed. Cl. Aug. 14, 2002)). On September 11, 2002, the Company submitted a motion
for  leave  to file a  memorandum  of law  addressing  the  relevance  of  these
decisions to the Company's pending Takings Clause Claim, attached to which was a
copy of the  Company's  memorandum.  On September  26, 2002,  the  Department of
Justice ("DOJ") opposed the Company's  motion for leave to file this memorandum.
On September 30, 2002, the Federal Deposit Insurance  Corporation  ("FDIC"),  as
the plaintiff-intervenor in the case, filed a brief in response to the Company's
memorandum of law. On October 9, 2002, the Court partially granted the Company's
motion for leave to file a memorandum of law addressing these recent  decisions,
but  required  the  memorandum  to be no greater  than 20 pages in length and to
focus  exclusively  on issues  relating to liability  under the Takings  Clause,
rather than on issues  relating to the payment of  compensation.  In  accordance
with the  Court's  order,  on October  17,  2002,  the  Company  filed a revised
memorandum of law addressing  these recent  decisions.  In October 2002, the DOJ
filed a response to the Company's memorandum.

Both the Court of Federal Claims and the Federal Court of Appeals have continued
to issue  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. The Trial court and appellate  decisions in California
Federal as well as other case decisions are publicly available,  may be relevant
to the  Company's  claims,  but are not  necessarily  indicative of the ultimate
outcome of the Company's actions.

(d) Other

AmBase  Corporation v. City Investing  Company  Liquidating  Trust, et al. - New
York Court  Action.  On January 31, 2001,  the Company  filed a Complaint in the
United  States  District  Court for the  Southern  District of New York (the "NY
Court") seeking determination that City Investing Company Liquidating Trust (the
"Trust"),  as successor to City Investing Company ("City"),  should be primarily
liable for amounts,  if any,  owed to the IRS in  connection  with a Netherlands
Antilles  withholding  tax  issue  of  City.  The IRS  had  contended  that  the
withholding  of tax on interest  payments  were due by City in  connection  with
City's Netherlands  Antilles finance subsidiary for the years 1979 through 1985.
The Company is also  seeking  other  relief and certain  other  damages from the
Trust and its  Trustees.  On  February  23,  2001,  the Trust  filed a Motion to
Dismiss the  Company's  Complaint in this  action.  On March 9, 2001 the Company
filed its  opposition  to the Trust's  Motion to Dismiss.  On March 19, 2001 the
Trust filed its reply to the Company's opposition.  On May 30, 2001, the Company
submitted  a  letter  to  Judge  Stanton,  before  whom  the  case is  docketed,
acknowledging  that the Tax  Court  had  ruled  against  the IRS on the issue of
whether or not any withholding obligation was due, and that this decision,  once
finalized, would render the declaratory judgment portion of the Company's action
against the Trust moot.  On October 26,  2001, a pre-trial  conference  was held
before Judge  Stanton,  during which he authorized the Company to supplement its
prior opposition to the pending motion to dismiss.  Those supplemental memoranda
and  affidavits  were filed in November  2001.  Thereafter,  the Trust filed its
reply. On January 11, 2002, the NY Court dismissed the Company's Complaint.  The
Company has timely  filed a Fed.  R. Civ.  P. Rule 59 motion  ("Rule 59 Motion")
seeking to set aside the NY Court's  decision to dismiss the Complaint which was
subsequently responded to by the Trust. In February 2002 the NY Court denied the
Company's Rule 59 Motion. The Company has subsequently filed an appeal of the NY
Court  decision,  to the Second  Circuit Court of Appeals.  Oral argument on the
appeal was held in  November  2002.  No  assurance  can be given  regarding  the
ultimate outcome of this litigation.

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.  During 2002, other  investment  securities
were written down to their net realizable value as further  described in Note 3.
Other  investment  securities  at December 31, 2001 were based upon the cost for
the privately placed shares.  The carrying value of applicable other liabilities
approximates their fair value.


<PAGE>

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

Note 12 - Property Owned

The Company owns a 14,500 and a 38,000 square foot office building in Greenwich,
Connecticut.  The Company  utilizes a small  portion of the office  space in the
first building for its executive offices and leases the remaining square footage
to  unaffiliated  third  parties.  The  buildings  are  carried at cost,  net of
accumulated  depreciation of $104,000 and $42,000 at December 31, 2002 and 2001,
respectively.  Depreciation expense is recorded on a straight-line basis over 39
years. Tenant security deposits of $226,000 at December 31, 2002 are included in
other liabilities.

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
                                                                  ------------
         2003...............................................      $  1,960,000
         2004...............................................         1,790,000
         2005...............................................         1,816,000
         2006...............................................         1,633,000
         2007...............................................         1,441,000
         Thereafter.........................................         1,784,000
                                                                  ------------
                                                                   $10,424,000
                                                                  ============
</TABLE>

Rent  expense  charged to  earnings,  for office space  previously  leased,  was
$43,000  and  $67,000  for  the  years  ended   December   31,  2001  and  2000,
respectively.

Note 13 - 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
                                              =======          =======           =======          =======        ======

2002:
Revenues................................     $     74         $     71          $     83        $     249      $    477
Operating expenses......................        1,133            1,274             1,398            1,734         5,539
Operating loss..........................       (1,059)          (1,203)           (1,315)          (1,485)       (5,062)
Loss before income taxes................         (661)          (1,015)           (2,726)            (552)       (4,954)
Net loss................................         (706)          (1,060)           (2,770)            (597)       (5,133)
                                               ======           ======            ======            =====         =====
Net loss per common share:
Basic ..................................     $  (0.02)        $  (0.02)         $  (0.06)        $  (0.01)     $  (0.11)
Assuming dilution.......................        (0.02)           (0.02)            (0.06)           (0.01)        (0.11)
                                               ======           ======            ======            =====         =====
2001:
Revenues................................     $      -         $     39          $     67         $     73      $    179
Operating expenses......................        1,038            1,236             1,172            2,960         6,406
Operating loss..........................       (1,038)          (1,197)           (1,105)          (2,887)       (6,227)
Income (loss) before income taxes.......         (464)          65,990              (673)          (2,518)       62,335
Net income (loss).......................         (519)          65,935              (717)          (2,589)       62,110
                                               ======           ======            ======           ======        ======
Net income (loss) per common share:
Basic...................................     $  (0.01)        $   1.43           $ (0.02)         $ (0.06)     $   1.34
Assuming dilution.......................        (0.01)            1.42             (0.02)           (0.06)         1.34
                                               ======           ======            ======            =====         =====
</TABLE>


<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.
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 16, 2003,
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 fiscal year.

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  16,  2003,  under  the  caption  "Executive
Compensation",  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 fiscal year.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

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 16, 2003,  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 fiscal year. For information  regarding  securities  authorized for
issuance under equity compensation plans, see Part II - Item 5 of this report.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14.      CONTROLS AND PROCEDURES

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that information  required to be disclosed in the Company's  Exchange Act
reports is recorded, processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  management,  including its Chief  Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure  based closely on the  definition of "disclosure
controls and  procedures"  in Rule  13a-14(c).  In designing and  evaluating the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable assurance of achieving the desired control objectives, and management
necessarily  was required to apply its judgment in evaluating  the  cost-benefit
relationship  of  possible  controls  and  procedures.  Also,  the  Company  has
investments in certain unconsolidated  entities. As the Company does not control
or manage  these  entities,  its controls  and  procedures  with respect to such
entities are necessarily substantially more limited than those it maintains with
respect to its consolidated subsidiaries.

Within 90 days prior to the filing date of this report,  the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management,  including the Company's Chief  Executive  Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's  disclosure  controls  and  procedures.  Based on the  foregoing,  the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.

There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect the internal controls subsequent
to the date the Company completed its evaluation.

<PAGE>

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as a part of this report:

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

1.   Index to Financial Statements:                                                                            Page
         AmBase Corporation and Subsidiaries:
              Report of Independent Accountants.................................................................10
              Consolidated Statements of Operations.............................................................11
              Consolidated Balance Sheets.......................................................................12
              Consolidated Statements of Changes in Stockholders' Equity........................................13
              Consolidated Statements of Comprehensive Income (Loss) ...........................................13
              Consolidated Statements of Cash Flows.............................................................14
              Notes to Consolidated Financial Statements........................................................15
</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)  (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 and the
Company's Quarterly Report on Form 10-Q for the Quarterly period ended September
30, 2000, 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).

10F.  Assignment and Assumption  Agreement dated as of August 30, 1985,  between
the Company and City  (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.

         21.      Subsidiaries of the Registrant.

         23.      Consent of Independent Accountants.

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

(b) Form 8-K

Registrant  filed two  Current  Reports  on Form 8-K prior to the filing of this
Form 10-K for the quarterly period ended December 31, 2002, as follows:

 Date                           Event Reported

 December 17, 2002              Purchase of Building

 February 10, 2003              Amendment to Form 8-K filed December 17, 2002
                                to include financial statements and pro forma
                                financial information for purchase of building.

<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



RICHARD A. BIANCO
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Date: March 27, 2003

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.



RICHARD A. BIANCO                JOHN P. FERRARA
Chairman, President and          Vice President, Chief Financial Officer
Chief Executive Officer          and Controller
Date: March 27, 2003             (Principal Financial and Accounting Officer)
                                 Date: March 27, 2003





JOHN B. COSTELLO                 ROBERT E. LONG
Director                         Director
Date: March 27, 2003             Date: March 27, 2003




MICHAEL L. QUINN
Director
Date: March 27, 2003





<PAGE>
                                  CERTIFICATION


I, Richard A. Bianco, certify that:

1. I have reviewed this annual report on Form 10-K of AmBase Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of material  fact or omit to state a material  fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared:

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.




Richard A. Bianco
Chairman, President and Chief Executive Officer
Date: March 27, 2003




<PAGE>

                                  CERTIFICATION

I, John P. Ferrara, certify that:

1. I have reviewed this annual report on Form 10-K of AmBase Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of material  fact or omit to state a material  fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared:

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.




John P. Ferrara
Vice President, Chief Financial Officer, and Controller
Date: March 27, 2003







<PAGE>

                         AMBASE CORPORATION AND SUBSIDIARIES
                SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
                                  December 31, 2002
                                (dollars in thousands)
<TABLE>
<CAPTION>
 <S>                 <C>             <C>        <C>           <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...   $         -    $   555     $      1,880   $              -     $   555     $      1,880       $   2,435
Greenwich, CT...   $         -      6,399           10,892                  -       6,399           10,892          17,291
                   ------------    ------     ------------   -----------------    -------     ------------       ----------
Total...........   $         -    $ 6,954     $     12,772   $              -     $ 6,954     $     12,772       $  19,726
                   ============   =======     ============   =================    =======     ============       ==========
</TABLE>

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

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

COLUMN A               COLUMN F                COLUMN G                   COLUMN H                COLUMN I
------------------     ------------------      ----------------------     -------------------     ---------------------------
                       Accumulated                                                                Life on Which Depreciatied
Description            Depreciation            Date Constructed           Date Acquired           Latest Income Statement
==================     =================       ======================     ===================     ===========================
Office Building:
Greenwich, CT...       $              80                         1970           Apr.-01                            39 years
Greenwich, CT...                      24                         1977           Dec.-02                            39 years
                       ------------------      ======================     ===================     ===========================
Total...........        $            104
                       ==================
</TABLE>

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

<TABLE>
<CAPTION>
<S>                                  <C>                              <C>                            <C>
                                       Year Ended                       Year Ended                      Year Ended
                                   December 31, 2002                 December 31, 2001              December 31, 2000
                                   =================                 =================              =================
Balance at beginning of year.....  $           2,435                 $               -              $               -
Acquisitions.....................             17,291                             2,435                              -
                                   -----------------                 -----------------              ------------------
Balance at end of year...........  $          19,726                 $           2,435              $               -
                                   =================                 =================              ==================
Total cost for federal tax
purposes at end of each year.....  $          19,726                 $           2,435                              -

                                   =================                 =================              ==================

[b] Reconciliation of accumulated depreciation as follows:

Balance at beginning of year....   $              42                 $              -                $              -
Depreciation expense............                  62                               42                               -
                                   -----------------                 ----------------                ------------------
Balance at end of year..........   $             104                 $             42                $              -
                                   =================                 ================                ==================
</TABLE>


<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES


DIRECTORS AND OFFICERS
======================
Board of Directors
Richard A. Bianco              John B. Costello          Robert E. Long
Chairman, President and        Private Investor          Managing Director
Chief Executive Officer                                  Goodwyn, Long & Black
AmBase Corporation

Michael Quinn
Private Investor

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

INVESTOR INFORMATION

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


Annual Meeting of Stockholders                                       Corporate Headquarters
==============================                                       ===========================
The 2003 Annual  Meeting is currently  scheduled to be held          AmBase Corporation
at 9:00 a.m.  Eastern  Daylight  Time,  on Friday,  May 16,          100 Putnam Green, 3rd Floor
2003, at:                                                            Greenwich, CT  06830-6027
                                                                     (203) 532-2000
    Hyatt Regency Hotel
    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 Accountants                                              Number of Stockholders
============================                                         =======================
PricewaterhouseCoopers LLP                                           As of January 31, 2003, there were
1177 Avenue of the Americas                                          approximately 17,000 stockholders.
New York, NY  10036


</TABLE>