<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

|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 0-9380

                            CAPITAL PROPERTIES, INC.
               (Name of small business registrant in its charter)

            RHODE ISLAND                                  05-0386287
  (State or other jurisdiction of                       (IRS Employer
   incorporation or organization)                    Identification No.)

                                 100 DEXTER ROAD
                       EAST PROVIDENCE, RHODE ISLAND 02914
               (Address of principal executive offices) (ZipCode)

                                 (401) 435-7171
              (Registrant's telephone number, including area code)

         Securities registered under Section 12(b) of the Exchange Act:
                      CLASS A COMMON STOCK, $.01 PAR VALUE
                             AMERICAN STOCK EXCHANGE

         Securities registered under Section 12(g) of the Exchange Act:
                                      NONE

Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X|  No | |

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. |X|

For the year ended December 31, 2002, the registrant's revenues totaled
$4,738,000.

<PAGE>

As of March 3, 2003, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $11,316,000, which excludes voting stock
held by directors, executive officers and holders of 5% or more of the voting
power of the registrant's common stock (without conceding that such persons are
"affiliates" of the registrant for purposes of federal securities laws.) The
registrant has no outstanding non-voting common equity.

As of March 3, 2003, the registrant had 3,000,000 shares of Class A Common Stock
and 299,956 shares of Class B Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the 2003 Annual Meeting of
Shareholders to be held on April 29, 2003, is incorporated by reference into
Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format. Yes | | No |X|


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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

The registrant was organized as a business corporation under the laws of Rhode
Island in 1983 as Providence and Worcester Company and is the successor by
merger in 1983 to a corporation also named Providence and Worcester Company
which was organized under the laws of Delaware in 1979. The registrant's
corporate name was changed to Capital Properties, Inc. in 1984.

BUSINESS OF REGISTRANT

The Company owns approximately 18 acres of land in the Capital Center Project
Area in downtown Providence, Rhode Island which it leases or is holding for
lease to third parties (see "Properties Under Long-Term Leases" and "Properties
Under Short-Term Leases," in Item 2 below). The registrant is the largest single
landowner in the Capital Center Project Area but is nevertheless subject to some
measure of competition from other landowners in the vicinity of the Company's
properties.

The registrant owns all of the outstanding capital stock and/or membership
interests in the following companies:

      -     Tri-State Displays, Inc. (through which the registrant leases land
            for billboards along interstate and primary highways for outdoor
            advertising purposes);

      -     Capital Terminal Company (through which the registrant operates its
            petroleum storage facilities). (See "Petroleum Storage Facilities"
            in Item 2 below.); and

      -     Dunellen, LLC which was formed in 2000 (through which the registrant
            owns the petroleum storage facilities in East Providence, Rhode
            Island).

References hereinafter to the "registrant" are, unless the context indicates
otherwise, collectively to the registrant and its wholly-owned subsidiaries and
its predecessors.

MISCELLANEOUS

For information relating to the registrant's dependence on one or a few major
customers, see Note 11 of Notes to Consolidated Financial Statements in Item 7
hereof.

During the last two years, no monies were expended by the registrant and its
subsidiaries on material research and development activities.

Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had a material effect
upon the capital expenditures and competitive position of the registrant;
however, certain ongoing costs are necessary due to the nature of the operations
of the petroleum storage facilities. See Note 4 of Notes to Consolidated
Financial Statements in Item 7 hereof.


                                       3
<PAGE>

EMPLOYEES

On December 31, 2002, the registrant employed a total of 10 full-time employees
and 1 part-time employee.

ITEM 2. - DESCRIPTION OF PROPERTY

PRINCIPAL FACILITIES

The registrant's principal executive offices are located at its petroleum
storage facilities at 100 Dexter Road, East Providence, Rhode Island 02914.

INVESTMENT POLICIES AND INVESTMENTS IN REAL ESTATE

The registrant has no established policy for the purchase of additional
developed or undeveloped property. However, should suitable parcels become
available in the general area of the registrant's current land holdings in
downtown Providence, Rhode Island, the registrant would consider such an
acquisition depending on current levels of cash and the availability of
financing and unused condemnation proceeds qualifying for deferred reinvestment
under the Internal Revenue Code. Any properties acquired would most likely be
leased primarily to developers under long-term leases. The registrant
periodically invests its excess cash in United States government and
governmental agency obligations maturing in not more than eighteen months.

DESCRIPTION OF REAL ESTATE AND OPERATING DATA

All of the properties described below (except the petroleum storage facilities)
are shown on a map in Exhibit 20.1 hereof, which map is incorporated herein by
reference.

All the properties described below are owned in fee by the registrant. There are
no mortgages, liens or other encumbrances on such properties, except for Parcel
22.

In the opinion of management, all of the properties described below are
adequately covered by insurance. Insurance is also required of all tenants, with
the registrant being named as an additional insured.

Petroleum Storage Facilities - The registrant holds title to approximately 10
acres of land fronting on the Seekonk River in East Providence, Rhode Island
which are shown on a map in Exhibit 20.2 hereof, which map is incorporated
herein by reference. The property is used and operated primarily as a petroleum
storage facility (Petroleum Facilities).

In January 1998, the registrant purchased the Wilkesbarre Pier in the Port of
Providence and its deep-water berth for receiving petroleum products by tanker.
In January 1998, the registrant also purchased the perpetual right to transport
petroleum products from the Pier to its terminal property through pipelines
owned by a third party.

Petroleum Facilities is the only independent petroleum storage facility with
deep-water access in the market area. All of the petroleum storage tanks and
buildings are owned by the registrant.

In 1998, the registrant entered into a short-term arrangement with Global
Companies, L.L.C. under which the registrant operates the entire Petroleum
Facilities for Global. In 1999, the registrant entered into an agreement with
Global extending the arrangement for an additional three years plus options to
extend on an annual basis. In 2000, the arrangement was extended another year to
April 30, 2004. The registrant is in negotiation with Global to further extend
the agreement.


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<PAGE>

The following schedule sets forth certain information on the federal income tax
basis of that portion of the petroleum terminal property which is depreciated:

<TABLE>
<CAPTION>
                                   Land
                               Improvements      Buildings         Tanks         Equipment
                               ------------      ---------         -----         ---------
<S>                            <C>               <C>            <C>             <C>
Federal income
  tax basis (cost)               $641,466         $126,562      $4,617,755      $2,619,133
Rate per year                        6.67%          2.56%           20%             20%
Method                            150% DB            S/L          200% DB         200% DB
Life (Years)                           15            39              5               5
</TABLE>

The 2002 real estate taxes are $65,722 for the petroleum storage facilities and
$38,258 for the Wilkesbarre Pier at a $24.70 per thousand dollars of assessed
valuation tax rate.

The Company has obtained all the necessary approvals from the City of East
Providence and State of Rhode Island to construct three additional 152,000
barrel tanks; however, the registrant has no present plans to construct any new
tanks.

Properties Under Long-Term Leases - The registrant owns approximately 18 acres
of land within the Capital Center Project area in downtown Providence, Rhode
Island. (The land underlying the Parking Garage described below is also included
in this acreage.) See map in Exhibit 20.1 hereof, which map is incorporated
herein by reference.

At December 31, 2002, the registrant had entered into land leases for three
separate land parcels within this area with remaining terms of up to 140 years.
These leases have scheduled rent increases over their terms. Tenant improvements
on the land subject to these leases and the lease terms are as follows:

      -     Parcel 3S - A 13-story office building containing approximately
            235,000 square feet, which lease terminates in 2087.

      -     Parcel 5 - An 8-story apartment building containing approximately
            454,000 square feet with 225 units, which lease terminates in 2142.

      -     Parcel 8 - A 4-story office building containing approximately
            114,000 square feet, which lease terminates in 2090.

The registrant has entered into three additional land leases, all of which
provide a period of time within which each developer may perform its due
diligence, seek the approval of the plans for its complex from the Capital
Center Commission and enter into a tax stabilization agreement with the City of
Providence. The term of each lease commences when the developer begins
construction. There can be no assurance that each developer will be able to
satisfy the conditions precedent to proceeding with the development. The
registrant is unable to determine at this time when construction will begin and
therefore the time at which the term of each lease will commence.

      -     Parcel 9 - In December 1998, the registrant entered into a lease for
            149 years. In November 2001, this lease was terminated and a new
            lease was entered into with a successor developer under which the
            developer proposes to construct a building containing 200,000 square
            feet of office space or a hotel, 67,000 square feet of retail space
            and a parking garage containing a minimum of 250 public parking
            spaces.

      -     Parcel 2 - In August 2000, the registrant entered into a lease for
            97 years under which the developer proposes to construct a 165 room
            luxury hotel, a building containing 40-50


                                       5
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            condominium units, a building containing 225 apartments and a
            parking garage containing 440 public parking spaces.

      -     Parcel 6 - In December 2002, the registrant entered into a lease for
            99 years under which the developer will construct several buildings
            containing a total of 675,000 square feet of residential, office or
            retail space. In addition, the developer will construct parking
            structures which will contain sufficient spaces to satisfy the
            requirements for the project.

Properties Under Short-Term Leases - The registrant owns a 330-car parking
garage adjacent to a rail passenger station in downtown Providence, Rhode
Island, together with the underlying land (the Parking Garage), which is leased
under a short-term cancelable lease to a firm experienced in parking operations.
The annual rent is $147,600 ($.97 per square foot). The federal tax cost basis
of the Parking Garage (exclusive of the underlying land) is $2,500,000, which is
being depreciated on the straight-line method at the rate of 2.5% per year over
a 40-year life. The 2002 real estate taxes are $111,493 on the Parking Garage
and $86,244 on the underlying land at a $35.94 per thousand dollars of assessed
valuation tax rate. (For a discussion of the litigation currently pending with
the Federal Railroad Administration concerning the parking rates in the garage,
reference is made to Note 9 of Notes to Consolidated Financial Statements in
Item 7 hereof.)

Parcels 3E, 3W, 4E, 4W and 6 in the Capital Center Project area and Parcels 21
and 22 immediately adjacent to this area are leased for surface parking purposes
to the same firm that leases the Parking Garage described above. The short-term
lease on Parcel 6 will terminate when construction on that parcel commences. The
registrant continues to seek a developer for the remaining parcels. These leases
can be terminated on short notice should suitable development opportunities
arise or when construction on a parcel commences as described above.

ITEM 3. LEGAL PROCEEDINGS

For a discussion of the litigation with an Oil Company currently pending,
reference is made to Note 4 of Notes to Consolidated Financial Statements in
Item 7 hereof.

For a discussion of the litigation currently pending with the City of
Providence, reference is made to Notes 6 and 7 of Notes to Consolidated
Financial Statements in Item 7 hereof.

For a discussion of the litigation with the National Railroad Passenger
Corporation (Amtrak) currently pending, reference is made to Note 8 of Notes to
Consolidated Financial Statements in Item 7 hereof.

For a discussion of the litigation currently pending with the Federal Railroad
Administration, reference is made to Note 9 of Notes to Consolidated Financial
Statements in Item 7 hereof.

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

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of fiscal year 2002.


                                       6
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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Class A Common Stock(1) is traded on the American Stock Exchange,
symbol "CPI." The following table shows the high and low trading prices for the
Company's Class A Common Stock during the quarterly periods indicated as
obtained from the American Stock Exchange, together with dividends paid per
share during such periods.

<TABLE>
<CAPTION>
                                             Trading Prices(2)
                                             -----------------      Dividends(3)
                                             High         Low            Paid
                                             ----         ---       ------------
<S>                                          <C>          <C>       <C>
     2002
     1st Quarter........................      9.25        8.06           .03
     2nd Quarter........................     10.00        8.90            -0-
     3rd Quarter........................      9.40        8.87            -0-
     4th Quarter........................      8.75        8.25            -0-

     2001
     1st Quarter........................      8.00        7.125          .03
     2nd Quarter........................      9.37        7.60           .03
     3rd Quarter........................      9.78        8.85           .03
     4th Quarter........................     10.25        7.51           .03
</TABLE>

At March 3, 2003, there were 394 holders of record of the Company's Class A
Common Stock.

At its quarterly meeting in April, 2002, the Board of Directors elected to omit
the quarterly dividend pending resolution of certain tax appeals against the
City of Providence and other matters. See Note 7 of Notes to Consolidated
Financial Statements in Item 7 hereof. The Board re-examines the situation
quarterly to determine whether the dividend will be reinstated.

The Company does not have any compensation plans under which its equity
securities are authorized for issuance.

----------
(1)   The Company's common stock was reclassified as Class A Common Stock as a
      result of a recapitalization effective December 6, 2001.

(2)   Information with respect to the high and low trading prices for the Class
      B Common Stock is not available because the stock is not listed on any
      exchange, is not quoted by any quotation service, and there is no known
      market for such Class B Common Stock.

(3)   Dividends were paid on both the Class A and Class B Common Stock
      subsequent to the recapitalization date.


                                       7
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                           FORWARD LOOKING STATEMENTS

            CERTAIN PORTIONS OF THIS REPORT, AND PARTICULARLY THE MANAGEMENT'S
            DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, AND THE NOTES TO
            CONSOLIDATED FINANCIAL STATEMENTS, CONTAIN FORWARD-LOOKING
            STATEMENTS WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS
            CONCERNING FUTURE EVENTS. THE COMPANY CAUTIONS THAT THESE STATEMENTS
            ARE FURTHER QUALIFIED BY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
            RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
            STATEMENTS, INCLUDING, WITHOUT LIMITATION, THE FOLLOWING: THE
            ABILITY OF THE COMPANY TO GENERATE ADEQUATE AMOUNTS OF CASH; THE
            COLLECTIBILITY OF THE ACCRUED RENTAL INCOME WHEN DUE OVER THE TERMS
            OF THE LONG-TERM LAND LEASES; THE COMMENCEMENT OF ADDITIONAL
            LONG-TERM LAND LEASES; CHANGES IN ECONOMIC CONDITIONS THAT MAY
            AFFECT EITHER THE CURRENT OR FUTURE DEVELOPMENT ON THE COMPANY'S
            PARCELS; THE FINAL OUTCOME OF THE AMTRAK, OIL COMPANY AND CITY OF
            PROVIDENCE LAWSUITS AND CITY OF PROVIDENCE TAX APPEALS; AND EXPOSURE
            TO CONTAMINATION, CLEANUP OR SIMILAR COSTS ASSOCIATED WITH THE
            OPERATION OF THE PETROLEUM STORAGE FACILITIES.

1.    OVERVIEW:

      Critical accounting policies:

      The Securities and Exchange Commission (SEC) recently issued guidance for
      the disclosure of "critical accounting policies." The SEC defines such
      policies as those that require application of management's most difficult,
      subjective or complex judgments, often as a result of the need to make
      estimates about the effect of matters that are inherently uncertain and
      may change in subsequent periods.

      The Company's significant accounting policies are described in Note 1 of
      Notes to Consolidated Financial Statements in Item 7 hereof . Not all of
      these significant accounting policies require management to make
      difficult, subjective or complex judgments or estimates. Management
      believes that the Company's revenue recognition policy for long-term
      leases with scheduled rent increases (leasing segment) meets the SEC
      definition of "critical."

      Certain of the Company's long-term land leases have original terms of 30
      to 149 years and contain scheduled rent increases where the future dollar
      increases are known at the time of the commencement of the lease or at a
      subsequent date.

      The first such lease commenced in 1988, had an original term of 99 years
      and provides for fixed percentage increases at specified intervals (as
      well as reappraisal increases). In accordance with the provisions of
      Statement of Financial Accounting Standards (FAS) No. 13 (Accounting for
      Leases) and certain of its interpretations, rental income related to the
      fixed percentage increases that are presently known should be recognized
      on a straight-line basis. To calculate the annual straight-line amount,
      the 99 known annual rental amounts are totaled and this total is divided
      by 99.

      For this lease, the calculated annual straight-line amount for 1988 was
      eight times (multiple) the amount paid by the tenant under the terms of
      the lease (contractual amount). In subsequent years, as the tenant pays
      higher rents, the multiple gradually decreases until the 57th year of the
      lease, at which time the contractual amount paid by the tenant will exceed
      the calculated straight-line amount. If the Company were to report annual
      revenue for this lease using the straight-line


                                       8
<PAGE>

      amount, it would record a significant receivable for each of the first 56
      years, which receivable would grow to approximately $33,000,000.
      Management does not believe that the Company should record a receivable
      that would not begin to be collected for 56 years (turnaround date) since
      management could not be assured of collection.

      In 1988, management met with the SEC accounting staff to discuss its
      concerns over the provisions of FAS No. 13 as they related to a lease of
      this length which results in the recording of such a significant
      receivable that would remain on the Company's balance sheet and continue
      to grow on an annual basis with a turnaround date so far in the future.
      The Company presented the SEC accounting staff with an application of the
      accounting policy whereby management would evaluate the collectibility of
      the receivable on an annual basis and report as leasing revenue only that
      portion of the receivable that management could presently conclude would
      be collectible. The SEC accounting staff did not object to this
      application by the Company.

      Through December 31, 2002, the receivable on this lease has grown to
      approximately $13,518,000 (cumulative excess of straight-line over
      contractual rentals) and management has not been able to conclude that any
      portion is collectible as the turnaround date is still 42 years away.
      Accordingly, the Company has not reported any portion of this amount as
      leasing revenue in its consolidated financial statements and does not
      anticipate that it can reach such a conclusion until the turnaround date
      is closer.

      By contrast, the Company's long-term lease for outdoor advertising
      locations had an original term of 30 years, scheduled rent increases where
      the future dollar increases were known at the time of the commencement of
      the lease, and a turnaround date in the 9th year. In this instance,
      management was of the opinion that the receivable was collectible due to
      the closeness of the turnaround date and other factors. Accordingly, the
      Company has recognized leasing revenue using the annual straight-line
      amount in its consolidated financial statements since the inception of the
      lease.

      Although the Company's other long-term land leases provide for scheduled
      rent increases, the provisions of the leases are such that the future
      dollar amounts could not be calculated either at the time of the
      commencement of the lease or now, as such amounts are based on factors
      that are not presently known, i.e., future cost-of-living adjustments or
      future appraised values. The Company is reporting the annual rental income
      under these leases using the contractual amounts in accordance with the
      provisions of FAS No. 13.

      The Audit Committee of the Board of Directors concurs with the Company's
      application of its critical accounting policy relating to leasing revenue
      under long-term land leases.

      Segments:

      The Company operates in two segments, leasing and petroleum storage.

      Leasing:

      The leasing segment is principally devoted to the leasing of Company-owned
      land in the Capital Center Project Area (Capital Center), in downtown
      Providence, Rhode Island under long-term ground leases. The Company owns
      approximately 18 acres in the Capital Center consisting of 11 individual
      parcels, as shown on a map in Exhibit 20.1 hereof. The Capital Center
      (approximately 77 acres of land) is the result of a development project
      undertaken by the State of Rhode Island, the City of Providence, the
      National Railroad Passenger Corporation (Amtrak) and the Company during
      the 1980's in which two rivers, the Moshassuck and the Woonasquatucket,
      were moved, a new railroad station (the Railroad Station) was constructed
      and significant public improvements were made to improve pedestrian and
      vehicular traffic in the area. The Company


                                       9
<PAGE>

      has not acted, and does not intend to act, as a developer with respect to
      any improvements constructed on Company-owned parcels.

      The Company first began offering parcels for lease in the late 1980's. As
      part of the construction of the Railroad Station, the Federal Railroad
      Administration constructed a 330-car parking garage adjacent to the
      Railroad Station, and the Company paid one-half of the construction cost.
      Subsequently, the Company became the sole owner of the parking garage,
      which is currently leased to an experienced parking operator (parking
      operator). Three other parcels have been leased by the Company under
      long-term leases of 99 years or more. Located on these parcels are a
      13-story office building, a 225-unit luxury apartment complex and a
      114,000 square foot office building.

      Three of the remaining parcels (undeveloped parcels) are the subject of
      three leases, the term of each of which has not commenced pending
      completion of development plans and closing of construction financing.
      During the interim, option payments are being made by the developers under
      the leases for the undeveloped parcels. Under one of the leases, the
      developer made a series of six-month option payments, the last of which
      was paid in December 2002. The option will terminate June 27, 2003. Under
      another lease, the Company receives option payments pursuant to a
      month-to-month arrangement. On the third lease, the Company will begin
      receiving option payments April 1, 2003. There is no assurance that any
      one or more of these development projects will actually proceed.

      The Company continues to seek a developer for the remaining four parcels
      in the Capital Center which contain 2.9 acres. The Company is unable to
      predict when these parcels will be leased.

      Pending future development or commencement of the leases, five of the
      parcels are subject to short-term leases to the parking operator.

      Additionally, the Company, through a wholly-owned subsidiary, leases
      certain outdoor advertising locations along interstate and primary
      highways in Rhode Island and Massachusetts to an outdoor advertising
      company. Presently, there are fifty billboard faces leased. The lease
      expires in 2031. The term of the lease is extended for two years for each
      additional location added. The Company added three locations in 2002.

      Petroleum storage:

      The Company, through a wholly-owned subsidiary, owns a 524,500 barrel
      petroleum storage facility (Petroleum Facilities) located in East
      Providence, Rhode Island. The Petroleum Facilities utilize the Company's
      deep-water pier (Wilkesbarre Pier) and a pipeline connecting the
      Wilkesbarre Pier to the Petroleum Facilities. Another wholly-owned
      subsidiary operates the Petroleum Facilities under a five-year agreement
      with a petroleum distribution company at a fixed monthly rate. The
      agreement expires April 30, 2004 but will continue on a year-to-year basis
      unless terminated by either party upon three months written notice. The
      agreement includes provisions for additional payments based upon
      throughput in any twelve-month period beginning on May 1 of each year and
      ending on April 30 of the subsequent year. The Company bears all of the
      operating costs with respect to the Petroleum Facilities, including real
      estate taxes and insurance charges.

      Pursuant to an agreement (Agreement) with another company (Oil Company),
      which affords that Oil Company the right to use the Wilkesbarre Pier, the
      Company received annual payments of $185,000 in 2001 and 2002. The
      Agreement terminates March 31, 2003,. As described in Note 4 of Notes to
      Consolidated Financial Statements in Item 7 hereof, the Company is in
      litigation (Wilkesbarre Pier litigation) with Oil Company and a related
      party over the Agreement and the rights of others to utilize the
      Wilkesbarre Pier.


                                       10
<PAGE>

      In March 2002, during testing of monitoring wells at the Petroleum
      Facilities, the Company's consultant sampled a groundwater monitoring well
      located on that portion of the Petroleum Facilities purchased in 2002 and
      discovered free floating phase product. Preliminary laboratory analysis
      indicated that the product was gasoline, which is not a product the
      Company currently stores at its Petroleum Facilities. However, in the
      1950's gasoline was stored on the Company's property by a predecessor
      owner. The Company commenced an environmental investigation and analysis,
      and the results indicate that the gasoline is not coming from the
      Company's Petroleum Facilities. The Company notified the State of Rhode
      Island Department of Environmental Management (RIDEM). The Company will
      continue to monitor RIDEM's investigation of this contamination to ensure
      that the responsible party addresses this contamination.

      The Company maintains what management believes to be adequate levels of
      insurance. The Company notified its insurance company of the
      contamination. The insurance company advised the Company that coverage is
      only provided under policies in place at the time the contamination
      occurs.

      For the year ended December 31, 2002, the Company incurred costs totaling
      $102,000 principally for the initial investigation and laboratory
      analysis. Currently, the Company is not incurring significant costs in
      connection with this matter and is unable to determine the costs it might
      incur to remedy the situation as well as any costs to investigate, defend
      and seek reimbursement from the responsible party with respect to this
      contamination. This situation does not affect current operations at the
      Petroleum Facilities.

      The Company has sufficient land to expand the storage capacity, but has no
      present intention to do so. The Company has obtained all the necessary
      approvals from the City of East Providence and State of Rhode Island to
      construct three additional 152,000 barrel tanks but has no present plans
      to construct any new tanks.

      The Company manages its exposure to contamination, cleanup or similar
      costs associated with the petroleum storage facilities through adherence
      to established procedures for operations and equipment maintenance.

      Condemnation proceedings:

      As described in Note 8 of Notes to Consolidated Financial Statements in
      Item 7 hereof, certain of the Company's property adjacent to Amtrak's
      Northeast Corridor in Providence, Rhode Island was condemned by Amtrak in
      1999 and 2001. The Company believed that the amounts paid by Amtrak were
      inadequate and made a claim for additional condemnation proceeds. In
      November 2002, the U. S. District Court for the District of Rhode Island
      awarded the Company approximately $1,500,000, including interest, in
      additional damages. In February 2003, Amtrak appealed the decision to the
      U. S. Court of Appeals for the First Circuit.

      Changes in capital structure:

      During 2001, the shareholders of the Company approved a change in its
      capital structure to create three new classes of stock, Class A Common
      Stock, Class B Common Stock and Excess Stock. The former common stock has
      been reclassified to Class A, 3,000,000 shares of which are outstanding.
      In addition, in December 2001, the Company issued in the form of a stock
      dividend one Class B share for each ten Class A shares held, resulting in
      the issuance of 299,956 Class B shares. The Company further amended its
      Articles of Incorporation to prohibit shareholders from acquiring more
      than a 5% interest in the Company and to prohibit the two shareholders who
      beneficially own in excess of 5% of the Company's classes of common stock
      from increasing their percentage ownership of each class of common stock.
      The purpose of the amendment was to provide the Company with the necessary
      flexibility to qualify as a real estate investment trust (REIT). The
      Company has not decided to make an election to be taxed as a


                                       11
<PAGE>

      REIT and, depending on future circumstances, may never do so. In the event
      that the Company elects to become a REIT, the holders of Class A common
      stock would be entitled to elect one-third of the Company's Board of
      Directors, with the balance of the Directors to be elected by the owners
      of the Class B common stock. If the Company does not make an election to
      be taxed as a REIT on or before March 31, 2005, the restrictions on share
      ownership will lapse and the shares of Class B Common Stock will
      automatically be converted into shares of Class A Common Stock on a one
      for one basis.

      New accounting pronouncements:

      During 2001, Statement of Financial Accounting Standards (FAS) No. 143
      (Accounting for Asset Retirement Obligations) was issued and is effective
      for fiscal years beginning after June 15, 2002. FAS No. 143 establishes
      standards for the recognition and measurement of a liability for an asset
      retirement obligation associated with the retirement of tangible
      long-lived assets and an associated asset retirement cost in instances
      where the obligation is the result of an existing or enacted law, statute,
      ordinance, or written or oral contract. The Company is not subject to any
      such obligations and, accordingly, the provisions of FAS No. 143 are not
      applicable to the Company.

      During 2001 and 2002 various other FAS's were issued, the provisions of
      which are also not applicable to the Company.

2.    RESULTS OF OPERATIONS:

      Leasing segment:

      Revenue from leasing for 2002 increased 3% from 2001 principally due to
      revenue from renewals of short-term parking leases and higher option
      payments received from leases on undeveloped parcels which will not
      commence until construction begins. This increase was offset by the fact
      that the Company, unlike in 2001, did not record any temporary
      condemnation revenue or receive a pre-construction payment. Exclusive of
      the temporary condemnation revenue and the pre-construction payment
      reported in 2001, revenue from leasing for 2002 increased 18% from the
      2001 level. The expenses applicable to the leasing segment increased 16%
      from the 2001 level principally due to the settlement with Amtrak of the
      electricity issue in the parking garage for $92,000, higher professional
      fees related to the Amtrak litigation and an increase in property taxes.

      As described in Note 7 of Notes to Consolidated Financial Statements in
      Item 7 hereof, the Company appealed the tax increase for the years 1995
      through 1999 and 2001 to the Providence Board of Tax Assessment Review
      (the Board). In March 2002, the Board denied the Company's appeal. The
      Company appealed the decision of the Board to the Superior Court. The
      Company cannot predict when this case will be heard or the outcome of the
      case. The Company's failure to achieve relief from the City of
      Providence's taxes will continue to have a material adverse effect on the
      income derived from its leasing segment. To date, all of the Company's
      long-term leases of the Capital Center property which have commenced
      require the tenant to pay all real property taxes. The Company has no
      reason to believe that future leases will not contain a similar
      requirement.

      Petroleum storage:

      Revenue from petroleum storage facilities for 2002 increased 6% from the
      2001 level resulting principally from a scheduled annual fee increase and
      the reversal of the $50,000 payable in connection with an environmental
      incident that occurred in 1994. See Note 4 of Notes to Consolidated
      Financial Statements in Item 7 hereof. Expenses applicable to petroleum
      storage


                                       12
<PAGE>

      facilities for 2002 decreased 3% from 2001 principally due to a decrease
      in scheduled repairs and maintenance expense offset in part by higher
      professional fees and the accrual of the $100,000 verdict entered against
      the Company in connection with the Wilkesbarre Pier litigation. See Note 4
      of Notes to Consolidated Financial Statements in Item 7 hereof. For the
      years ended December 31, 2002 and 2001, the legal fees in connection with
      this litigation were $690,000 and $638,000, respectively. The Company
      believes that the amount of legal fees incurred will be substantially
      lower in 2003.

      General:

      Interest income increased 81% from 2001 resulting from interest received
      on income tax refunds offset in part by a decrease in interest income
      resulting from a lower level of temporary cash investments. General and
      administrative expenses for 2002 decreased 8% from the 2001 level due
      principally to lower professional fees. The Company incurred significant
      professional fees in 2001 in connection with its recapitalization.

      Liquidity:

      Historically, the Company has had adequate liquidity to fund its
      operations.

      In 1999, the Company was the recipient of substantial condemnation
      proceeds. In February 2002, the Company effected a qualifying purchase
      with a consolidated subsidiary which permitted it to amend its 1999
      federal and state income tax returns to claim refunds totaling $568,000
      with respect to condemnation proceeds previously taxed. For federal income
      tax reporting purposes, the Company reported a loss for the year ended
      December 31, 2001, and filed a carryback claim that resulted in a refund
      of federal income taxes previously paid for years 1996 through 1999 in the
      amount of $607,000. The Company received all of these refunds plus
      interest in 2002.

      For income tax reporting purposes, the Company is reporting a tax loss for
      the year ended December 31, 2002 and will file a carryback claim that will
      result in a refund of federal income taxes previously paid in the amount
      of $372,000. With this refund, the Company will have recovered
      substantially all federal income taxes paid during the carryback period.

      In February 2002, the Company paid a quarterly dividend of $99,000 to
      holders of Class A and Class B common stock at the rate of $.03 per share.
      However, at subsequent quarterly meetings, the Board of Directors elected
      to omit the dividend pending resolution of the Company's tax appeals
      against the City of Providence and other matters. See Note 7 of Notes to
      Consolidated Financial Statements in Item 7 hereof. The Board re-examines
      the situation quarterly to determine whether the dividend will be
      reinstated. The declaration of future dividends and the amount thereof
      will depend on the Company's future earnings, financial factors and other
      events.

      The Company has no present commitments for the purchase of properties and
      equipment.

      In connection with the condemnation by Amtrak, in November 2002 the
      Company was awarded approximately $1,500,000 including interest in
      additional damages. In February 2003, Amtrak appealed the decision to the
      U. S. Court of Appeals for the First Circuit. The Company is unable to
      determine when the appeal will be heard and the amount of additional
      damages, if any, the Company may ultimately receive.

      In connection with one of the land leases which will not commence until
      construction begins, the developer has made a series of six-month option
      payments each in the amount of $109,000, the last of which was paid in
      December 2002. This option will terminate June 27, 2003. The Company has
      no assurance that additional option payments will be made.


                                       13
<PAGE>

      As discussed above, the Company's extended agreement with Oil Company
      terminates March 31, 2003.

      While the Company has been adversely impacted by the cost of the
      Wilkesbarre Pier litigation and the increase in the City of Providence
      real property taxes, in management's opinion, the Company should be able
      to generate sufficient amounts of cash to meet all of its anticipated
      obligations. In the event temporary additional liquidity is required, the
      Company believes that a line of credit or other arrangements could be
      obtained by pledging some or all of its unencumbered assets as collateral.


                                       14
<PAGE>

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Certified Public Accountants
10 Weybosset Street
Suite 700
Providence, Rhode Island 02903

INDEPENDENT AUDITORS' REPORT

Board of Directors
Capital Properties, Inc.
East Providence, Rhode Island

We have audited the accompanying consolidated balance sheet of Capital
Properties, Inc. and subsidiaries as of December 31, 2002, and the related
consolidated statements of loss and retained earnings, and cash flows for the
years ended December 31, 2002 and 2001. 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 in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Properties, Inc. and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for the years ended December 31, 2002 and 2001, in conformity
with accounting principles generally accepted in the United States.


                                /s/ Lefkowitz, Garfinkel, Champi & DeRienzo P.C.

March 11, 2003


                                       15
<PAGE>

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002

<TABLE>
<S>                                                                                    <C>
ASSETS

Properties and equipment (net of accumulated depreciation) ..................          $15,184,000
Cash and cash equivalents ...................................................            1,633,000
Receivables:
   Income taxes .............................................................              372,000
   Other ....................................................................               83,000
Accrued rental income .......................................................              480,000
Prepaid and other ...........................................................              268,000
                                                                                       -----------
                                                                                       $18,020,000
                                                                                       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Accounts payable and accrued expenses:
    Property taxes ..........................................................          $   936,000
    Other ...................................................................            1,028,000
   Deferred income taxes, net ...............................................            3,519,000
                                                                                       -----------
                                                                                         5,483,000
                                                                                       -----------
Shareholders' equity (Note 5):
   Class A common stock, $.01 par; authorized 6,000,000 shares;
     issued and outstanding 3,000,000 shares ................................               30,000
   Class B common stock, $.01 par; authorized 300,000 shares;
     issued and outstanding 299,956 shares ..................................                3,000
   Excess stock, $.01 par; authorized 1,000,000 shares; none issued
    and outstanding
   Capital in excess of par .................................................           11,795,000
   Retained earnings ........................................................              709,000
                                                                                       -----------
                                                                                        12,537,000
                                                                                       -----------
                                                                                       $18,020,000
                                                                                       ===========
</TABLE>

See notes to consolidated financial statements.


                                       16
<PAGE>

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                                2002               2001
                                                                                            -----------        -----------
<S>                                                                                         <C>                <C>
Income:
   Revenues:
    Leasing ................................................................                $ 2,778,000        $ 2,702,000
    Petroleum storage facilities ...........................................                  1,857,000          1,752,000
                                                                                            -----------        -----------
                                                                                              4,635,000          4,454,000

    Interest ...............................................................                    103,000             57,000
    Gain on permanent condemnation .........................................                         -0-           300,000
                                                                                            -----------        -----------
                                                                                              4,738,000          4,811,000
                                                                                            -----------        -----------
Expenses:
   Expenses applicable to:
    Leasing ................................................................                  2,416,000          2,074,000
    Petroleum storage facilities ...........................................                  2,271,000          2,331,000
   General and administrative ..............................................                    998,000          1,084,000
                                                                                            -----------        -----------
                                                                                              5,685,000          5,489,000
                                                                                            -----------        -----------

Loss before income taxes ...................................................                   (947,000)          (678,000)
                                                                                            -----------        -----------

Income tax expense (benefit):
   Current .................................................................                   (955,000)          (621,000)
   Deferred ................................................................                    681,000            499,000
                                                                                            -----------        -----------
                                                                                               (274,000)          (122,000)
                                                                                            -----------        -----------

Net loss ...................................................................                   (673,000)          (556,000)

Retained earnings, beginning ...............................................                  1,481,000          2,397,000

Dividends on common stock (2002, $.03; 2001, $.11)
   (Note 5) ................................................................                    (99,000)          (360,000)
                                                                                            -----------        -----------

Retained earnings, ending ..................................................                $   709,000        $ 1,481,000
                                                                                            ===========        ===========

Basic loss per share (Note 5) ..............................................                $      (.20)       $      (.17)
                                                                                            ===========        ===========
</TABLE>

See notes to consolidated financial statements.


                                       17
<PAGE>

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                   2002                 2001
                                                                               -----------          -----------
<S>                                                                            <C>                  <C>
Cash flows from operating activities:
   Net loss .........................................................          $  (673,000)         $  (556,000)
   Adjustments to reconcile net loss to net cash
    provided by operating activities:
     Depreciation ...................................................              418,000              412,000
     Accrued rental income ..........................................              (24,000)              15,000
     Deferred income taxes ..........................................              681,000              499,000
     Deferred condemnation proceeds, temporary ......................                   -0-             (74,000)
     Gain on permanent condemnation .................................                   -0-            (300,000)
     Changes in assets and liabilities:
      Increase in:
       Prepaid and other ............................................              (58,000)              (7,000)
       Accounts payable and accrued expenses ........................              278,000              416,000
      Decrease in receivables .......................................              179,000               99,000
                                                                               -----------          -----------
   Net cash provided by operating activities ........................              801,000              504,000
                                                                               -----------          -----------

Cash flows from investing activities:
   Purchase of properties and equipment .............................             (236,000)          (1,511,000)
   Proceeds from condemnation .......................................                   -0-             925,000
                                                                               -----------          -----------
   Net cash used in investing activities ............................             (236,000)            (586,000)
                                                                               -----------          -----------

Cash used in financing activities, payment of dividends .............              (99,000)            (360,000)
                                                                               -----------          -----------

Increase (decrease) in cash and cash equivalents ....................              466,000             (442,000)
Cash and cash equivalents, beginning ................................            1,167,000            1,609,000
                                                                               -----------          -----------
Cash and cash equivalents, ending ...................................          $ 1,633,000          $ 1,167,000
                                                                               ===========          ===========

Supplemental disclosures:
   Cash paid or received for income taxes:
    Cash paid .......................................................          $     7,000          $     9,000
                                                                               ===========          ===========
    Refunds received ................................................          $ 1,198,000          $   434,000
                                                                               ===========          ===========

   Non-cash investing activities:
    As discussed in Note 4, in 2002 the Company reclassified
    as properties and equipment $197,000 previously reported
    as a receivable.
</TABLE>

See notes to consolidated financial statements.


                                       18
<PAGE>

CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001

1.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Basis of presentation and principles of consolidation:

      The accompanying consolidated financial statements include the accounts of
      Capital Properties, Inc. (the Company) and its wholly-owned subsidiaries,
      Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC. All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.

      Description of business:

      The Company operates in two segments: (1) the leasing of certain of its
      real estate interests in downtown Providence, Rhode Island, and locations
      along interstate and primary highways in Rhode Island and Massachusetts
      for outdoor advertising purposes; and (2) the operation of its petroleum
      storage facilities (Petroleum Facilities) in East Providence, Rhode
      Island.

      Use of estimates:

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States requires management to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements. Estimates also affect the reported
      amounts of income and expenses during the reporting period. Actual results
      could differ from those estimates.

      Cash and cash equivalents:

      The Company considers all highly liquid investments with a maturity of
      three months or less when purchased to be cash equivalents. Cash
      equivalents consisted of a short-term uninsured repurchase agreement which
      the Company routinely purchases, totaling $1,507,000 at December 31, 2002.

      Properties and equipment:

      Properties and equipment are stated at cost. Acquisitions and additions
      are capitalized while routine maintenance and repairs, which do not
      improve or extend asset lives, are charged to expense when incurred.
      Depreciation is being provided by the straight-line method over the
      estimated useful lives of the respective assets.

      The Company follows the provisions of Statement of Financial Accounting
      Standards (FAS) No. 144 (Accounting for the Impairment or Disposal of
      Long-Lived Assets) which requires that properties and equipment held and
      used by the Company be reviewed for impairment whenever events or changes
      in circumstances indicate that the net book value of the asset may not be
      recoverable. An impairment loss will be recognized if the sum of the
      expected future cash flows (undiscounted and before interest) from the use
      of the asset is less than the net book value of the asset. Generally, the
      amount of the impairment loss is measured as the difference between the
      net book value and the estimated fair value of the asset.


                                       19
<PAGE>

      Leasing revenue:

      The Company's properties leased to others are under operating leases. The
      Company reports leasing revenue when earned under the operating method.

      Certain of the Company's long-term land leases, including the outdoor
      advertising locations, provide for presently known scheduled rent
      increases over the terms (30 to 149 years). In accordance with the
      provisions of FAS No. 13 (Accounting for Leases) and certain of its
      interpretations, the Company is recognizing leasing revenue on the
      straight-line basis over the terms of the leases; however, the Company
      does not report as income that portion of such straight-line rentals which
      management is unable to conclude is realizable (collectible) due to the
      length of the lease terms and other related uncertainties.

      Contingent revenue:

      The Company reports contingent revenue in the period in which the factors
      occur on which the contingent payments are based.

      Condemnation proceeds:

      The Company recognizes revenue from a permanent condemnation in the period
      in which the cash is received and recognizes revenue from a temporary
      condemnation on a straight-line basis over its term.

      Income taxes:

      The Company and its subsidiaries file consolidated income tax returns.

      Income taxes are provided based on income reported for financial statement
      purposes. The provision for income taxes differs from the amounts
      currently payable because of temporary differences associated with the
      recognition of certain income and expense items for financial reporting
      and tax reporting purposes.

2.    PROPERTIES AND EQUIPMENT:

<TABLE>
<S>                                                                                 <C>
            Properties on lease or held for lease:
              Land and land improvements .................................          $ 3,740,000
              Parking garage .............................................            2,500,000
                                                                                    -----------
                                                                                      6,240,000
                                                                                    -----------
            Petroleum storage facilities:
               Land and land improvements ................................            5,106,000
               Buildings and structures ..................................              703,000
               Tanks and equipment .......................................            8,978,000
                                                                                    -----------
                                                                                     14,787,000
                                                                                    -----------

            Office equipment .............................................               84,000
                                                                                    -----------
                                                                                     21,111,000
                                                                                    -----------
            Less accumulated depreciation:
               Properties on lease or held for lease .....................              928,000
               Petroleum storage facilities ..............................            4,930,000
               Office equipment ..........................................               69,000
                                                                                    -----------
                                                                                      5,927,000
                                                                                    -----------
                                                                                    $15,184,000
                                                                                    ===========
</TABLE>


                                       20
<PAGE>

      Under a 1990 agreement with the State of Rhode Island, the Company was
      obligated to pay the State $158,000 for the construction of certain
      improvements affecting one of the Company's parcels located in the Capital
      Center Project area. Since the Company had an agreement with the developer
      of the parcel to reimburse the Company for the amount owed to the State,
      the Company did not record this liability on its balance sheet. The
      agreement between the developer and the Company terminated in 1999. In
      December 1999, the Company attempted to tender the $158,000 to the State
      in satisfaction of its obligation, which amount was reported as an
      addition to properties and equipment. Subsequently, the State claimed that
      the Company owed interest in the amount of $130,000, which the Company
      disputed. In July 2000, the Company and the State reached an agreement
      whereby the Company has agreed to pay a total of $65,000 in interest. The
      State is unable to locate the original note and to deliver a discharge of
      the mortgage held by it with respect to this property. In November 2000,
      the Company commenced proceedings against the State in the Rhode Island
      Superior Court seeking an order from the Superior Court decreeing, upon
      the deposit of the $223,000 with the Court, that the Company shall be
      discharged from all responsibility under the note and that the note is
      paid in full. The matter has not been heard. At December 31, 2002, the
      Company is reporting this amount in accounts payable and accrued expenses,
      other on the accompanying consolidated balance sheet.

3.    DESCRIPTION OF LEASING ARRANGEMENTS:

      As lessor:

      At December 31, 2002, the Company had entered into six long-term land
      leases covering six land parcels; of these leases, three will not commence
      until construction begins.

      The Company also leases various parcels of land for outdoor advertising
      purposes for remaining terms of up to 29 years and for public parking
      purposes under short-term cancellable leases.

      For those leases with presently known scheduled rent increases, the
      cumulative excess of straight-line over contractual rentals (considering
      scheduled rent increases over the 30 to 149 year terms of the leases)
      amounted to $14,835,000 through December 31, 2002. Management has
      concluded that a portion of the excess of straight-line over contractual
      rentals ($480,000 at December 31, 2002) is realizable when payable over
      the terms of the leases.

      Minimum future contractual rental payments to be received from
      noncancellable leases as of December 31, 2002 are:

<TABLE>
<S>                                                               <C>
           Year ending December 31,
                  2003...................................         $  1,563,000
                  2004...................................            1,623,000
                  2005...................................            1,666,000
                  2006...................................            1,615,000
                  2007...................................            1,609,000
                  2008 to 2142...........................          184,716,000
                                                                  ------------
                                                                  $192,792,000
                                                                  ============
</TABLE>

      In the event of tenant default, the Company has the right to reclaim its
      leased land together with any improvements thereon.

      The three long-term land leases which have commenced provide that the
      tenants pay the City of Providence for real property taxes, which amounts
      are excluded from leasing revenues and expenses applicable to leasing on
      the accompanying consolidated statements of loss and retained earnings.
      These tenant payments attributable to the Company's land totaled $330,000
      and $315,000 for the years ended December 31, 2002 and 2001, respectively.


                                       21
<PAGE>

      The lease pertaining to outdoor advertising provides that the Company
      receive contingent rentals based upon a fixed percentage of the total
      annual revenue received by the tenant provided such revenue exceeds the
      contractual base payment. Contingent rental income totaled $57,000 for the
      each of the years ended December 31, 2002 and 2001.

      In connection with one of the land leases which was terminated and
      replaced with a new lease which will not commence until construction
      begins, the Company received a payment of $278,000 in December 2001
      representing a one-time preconstruction obligation of the developer, which
      amount is included in leasing revenues on the accompanying consolidated
      statement of loss and retained earnings for the year ended December 31,
      2001.

      Under the three land leases which will not commence until construction
      begins, option payments are being made by the developers. Under one of the
      leases (which replaced the terminated lease discussed above), the
      developer made a series of six-month option payments, the last of which
      was paid in December 2002. This option will terminate June 27, 2003. Under
      another lease, the Company receives option payments pursuant to a
      month-to-month arrangement. On the third lease, the Company will begin
      receiving option payments April 1, 2003.

      As lessee:

      The Company leases certain properties for outdoor advertising purposes
      under noncancellable leases which expire at various dates to 2011. In most
      cases, management expects that in the normal course of business, leases
      that expire will be renewed or replaced by other leases. Rent expense
      amounted to $47,000 and $45,000 in 2002 and 2001, respectively. Future
      minimum lease payments under noncancellable leases at December 31, 2002
      are as follows: 2003, $47,000; 2004, $48,000; 2005, $32,000; 2006,
      $14,000; 2007, $12,000 and thereafter, $45,000.

4.    PETROLEUM STORAGE FACILITIES:

      Current operations:

      The Company and a petroleum distribution company (Petroleum Company)
      entered into an agreement which will expire April 30, 2004, but will
      continue thereafter on a year-to-year basis unless terminated by either
      party upon three months written notice, whereby the Company operates the
      entire Petroleum Facilities for the Petroleum Company. The Company is
      responsible for labor, insurance, property taxes and other operating
      expenses, as well as capital improvements. The agreement further provides
      for annual fee increases of 4.5%. After the scheduled increase on May 1,
      2002, the present monthly fee is $118,000.

      The agreement also provides that the Company will receive an additional
      $.10 per barrel for every barrel in excess of 2,000,000 barrels of
      throughput in an agreement year (contingent revenue). For the agreement
      year ended April 30, 2002, throughput exceeded 2,000,000 barrels in
      January 2002. For the agreement year ending April 30, 2003, throughput
      exceeded 2,000,000 barrels in December 2002. For the years ended December
      31, 2002 and 2001, the Company earned contingent revenues of $188,000 and
      $197,000, respectively, which amounts are reported in revenues, petroleum
      storage facilities on the accompanying consolidated statements of loss and
      retained earnings for the years ended December 31, 2002 and 2001.

      Environmental incident:

      In March 2002, during testing of monitoring wells at the Petroleum
      Facilities, the Company's consultant sampled a groundwater monitoring well
      located on that portion of the Petroleum Facilities purchased in 2002 and
      discovered free floating phase product. Preliminary laboratory


                                       22
<PAGE>

      analysis indicated that the product was gasoline, which is not a product
      the Company currently stores at its Petroleum Facilities. However, in the
      1950's gasoline was stored on the Company's property by a predecessor
      owner. The Company commenced an environmental investigation and analysis,
      and the results indicate that the gasoline is not coming from the
      Company's Petroleum Facilities. The Company notified the State of Rhode
      Island Department of Environmental Management (RIDEM). The Company will
      continue to monitor RIDEM's investigation of this contamination by to
      ensure that the responsible party addresses this contamination.

      The Company maintains what management believes to be adequate levels of
      insurance. The Company notified its insurance company of the
      contamination. The insurance company advised the Company that coverage is
      only provided under policies in place at the time the contamination
      occurs.

      For the year ended December 31, 2002, the Company incurred costs totaling
      $102,000 principally for the initial investigation and laboratory
      analysis, which amounts are included in expenses applicable to petroleum
      storage facilities on the accompanying consolidated statement of loss and
      retained earnings. Currently, the Company is not incurring significant
      costs in connection with this matter and is unable to determine the costs
      it might incur to remedy the situation as well as any costs to
      investigate, defend and seek reimbursement from the responsible party with
      respect to this contamination. This situation does not affect current
      operations at the Petroleum Facilities.

      The Company had previously recorded a payable of $50,000 in connection
      with an environmental incident that occurred in 1994. The Company has
      determined that it would no longer incur significant costs in connection
      with the implementation of a monitoring plan approved by RIDEM and during
      2002 reversed the previously recorded payable, which amount is included in
      petroleum storage facilities revenue on the accompanying consolidated
      statement of loss and retained earnings for the year ended December 31,
      2002.

      Wilkesbarre Pier:

      Wilkesbarre Pier (the Pier) is a deep-water pier in East Providence, Rhode
      Island, now owned by the Company, which is integral to the operation of
      the Petroleum Facilities. The Pier and the Petroleum Facilities are
      connected by two petroleum pipelines. In 1995, the Company and Providence
      and Worcester Railroad Company (Railroad) (the then owner of the Pier)
      entered into an agreement which, among other provisions, gave the Company
      the right to acquire the Pier for $1. The Company and Railroad have a
      common controlling shareholder.

      Effective January 1, 1998, Railroad and a company which uses the Pier to
      off-load primarily gasoline from ships to its terminal (Oil Company)
      entered into an agreement (the Agreement) whereby Oil Company agreed to
      pay annual fees for five years (1998, $185,000; 1999 and 2000, $285,000;
      and 2001 and 2002, $185,000). In January 1998, the Company exercised its
      right and acquired the Pier, and Railroad assigned its rights under the
      Agreement to the Company. Under the terms of the Agreement, the owner of
      the Pier is not required to make any repairs to the Pier. The Agreement
      terminates March 31, 2003.

      In May 2000, the Fire Department of the City of East Providence (Fire
      Department) notified the Company, Oil Company and another company then
      related to Oil Company (Other Company) that there was a lack of adequate
      fire protection at the Pier and required them to install certain equipment
      and facilities. The Company demanded that Other Company take steps to
      commence and complete the performance of all work and to supply all
      material required to satisfy the Fire Department. In 2000 and 2001, the
      Company incurred costs totaling $197,000, which were reported in
      receivables, other since the Company anticipated being reimbursed by Other
      Company. In 2002, the Company incurred additional costs totaling $175,000
      to complete the installation.


                                       23
<PAGE>

      In August 2000, Oil Company and Other Company (collectively Plaintiffs)
      filed a lawsuit against the Company in the United States District Court
      for the District of Rhode Island claiming fraud on the part of Railroad
      and sought rescission of the Agreement and other agreements. The Company
      filed counterclaims against Other Company, including one for damages based
      on Other Company's failure to comply with the order and direction of the
      Fire Department as well as the failure of Other Company to comply with
      certain other agreements. Plaintiffs amended their complaint in June 2001
      to include additional claims. Following the close of discovery, the Court
      dismissed all the fraud claims. The Court later bifurcated the trial of
      the jury claims for damages and the non-jury claims for declaratory and
      injunctive relief.

      The jury claims were tried in December 2002. The jury returned a verdict
      against the Company in the amount of $100,000, which amount has been
      recorded in expenses applicable to petroleum storage facilities on the
      accompanying consolidated statement of loss and retained earnings for the
      year ended December 31, 2002. The Company has filed a post-trial motion
      requesting that the Court vacate the verdict. The Court entered judgment
      as a matter of law against the Company on the Company's claim that Other
      Company was obligated to pay for the installation of certain fire
      suppression equipment on the Pier. Accordingly, the Company has
      reclassified as properties and equipment the previously reported
      receivable in the amount of $197,000 and capitalized the $175,000 of costs
      incurred in 2002. Trial of the remaining non-jury claims is anticipated in
      the spring of 2003.

      For the years ended December 31, 2002 and 2001, the Company incurred legal
      fees in connection with this litigation of $690,000 and $638,000,
      respectively, which amounts are included in expenses, petroleum storage
      facilities on the accompanying consolidated statements of loss and
      retained earnings for the years ended December 31, 2002 and 2001.

      Pursuant to a Guaranty and Indemnity Agreement, the Company filed a
      lawsuit in September 2002 against Other Company and Other Company's parent
      in the U. S. District Court for the Eastern District of New York seeking
      reimbursement for all reasonable costs incurred by the Company in
      defending the Wilkesbarre Pier litigation described above. The matter has
      been transferred to the U. S. District Court for the District of Rhode
      Island and is in the early stages of discovery.

5.    SHAREHOLDERS' EQUITY:

      In December 2001, the Company amended its Articles of Incorporation to
      create three classes of $.01 par value stock--Class A Common Stock, Class
      B Common Stock, and Excess Stock. The Company converted the then
      outstanding 3,000,000 shares of $1.00 par value common shares into
      3,000,000 shares of Class A Common Stock. In addition, the Company issued
      (in the form of a stock dividend) 299,956 shares of Class B Common Stock
      (one share for each ten shares of Class A Common Stock held). No
      fractional Class B shares were issued.

      The holders of the Class A and Class B Common Stock presently vote
      together as a single class on all matters required to be submitted to the
      shareholders for approval and share equally in dividends declared by the
      Company. The Class A Common Stock is listed on the American Stock
      Exchange. The Class B Common Stock is not listed on any national or
      regional stock exchange or on the National Association of Securities
      Dealers Automated Quotation National Market System.

      The Company accounted for the recapitalization by transferring the net
      amount of $2,967,000 from common stock to capital in excess of par.


                                       24
<PAGE>

      Dividends on common stock for periods prior to the recapitalization and
      basic loss per share on the accompanying consolidated statements of loss
      and retained earnings have been restated to give effect to the additional
      shares outstanding.

      The amended Articles of Incorporation prohibit any shareholder from
      acquiring more than a 5% interest in the Company's classes of common stock
      and prohibit the two shareholders who each beneficially own in excess of
      5% of the Company's classes of common stock from increasing their
      percentage ownership of each class of common stock. Should a shareholder
      acquire a number of shares that results in the limitation being exceeded,
      shares in excess of the limitation would be converted into an equal number
      of shares of Excess Stock. Excess Stock is non-voting and is not entitled
      to dividends. However, the shareholder may designate a qualifying
      transferee for shares of Excess Stock, at which time such shares would be
      converted and reissued as Class A or B Common shares as the case may be.

      The purpose of the amendment of the Articles of Incorporation was to
      provide the Company with the necessary flexibility to qualify to be taxed
      as a real estate investment trust (REIT). The Company has not decided to
      make an election to become a REIT and, depending on future circumstances,
      may never do so.

      In the event the Company elects to become a REIT, the holders of the Class
      A Common Stock would be entitled to elect one-third of the Company's Board
      of Directors (Directors), with the balance of the Directors to be elected
      by the holders of the Class B Common Stock.

      If the Company does not make an election to be taxed as a REIT on or
      before March 31, 2005, the restrictions on share ownership will
      automatically lapse and shares of Class B Common Stock will automatically
      be converted into shares of Class A Common Stock on a one for one basis.

6.    CLAIM AGAINST CITY OF PROVIDENCE FOR ATTORNEYS FEES:

      In 1997, the City of Providence (the City) revalued certain of the
      Company's properties within the Capital Center area in downtown
      Providence, Rhode Island, and reached back six years to assess over
      $13,000,000 in back taxes, interest and penalties on the properties based
      upon a retroactive increase in the assessed values. These increases were
      not a part of a city-wide revaluation. The Company contended that this
      action by the City was both unprecedented and illegal.

      In another action, the City claimed that the Company was not the owner of
      a certain parcel of land in the Capital Center (Disputed Parcel), which
      the Company purchased in 1989 from the State of Rhode Island subsequent to
      the State's acquiring the parcel from the City. Moreover, the City
      attempted to condemn the Disputed Parcel. The Company contested both the
      City's claim of ownership and the City's attempt to condemn the Disputed
      Parcel.

      In July 1999, the Rhode Island Superior Court (Superior Court) ruled in
      favor of the Company and found (1) that both the City's new tax
      assessments and back taxes were illegal and void, and (2) that the Company
      is the rightful owner of the Disputed Parcel and that the City had no
      right to condemn same. The City appealed the judgments to the Rhode Island
      Supreme Court (Supreme Court), which denied and dismissed the City's
      appeal in December 1999.

      After prevailing on the merits, the Company made claim against the City
      for attorneys fees.

      In July 2000, the City filed a motion to vacate the Superior Court and
      Supreme Court judgments entered in favor of the Company. In October 2000,
      the Superior Court denied the motion to vacate and awarded the Company
      attorneys fees of $258,000. The City has filed an appeal in the


                                       25
<PAGE>

      Supreme Court. The Court has not yet scheduled this matter for hearing.
      Pending the ultimate resolution of the matter, the Company is not
      reporting the award as income in the accompanying consolidated financial
      statements.

7.    CITY OF PROVIDENCE PROPERTY TAXES:

      After receiving tax bills from the City of Providence for the years 1995
      through 1999 and making the necessary tax payments, the Company filed
      appeals with the City contesting the assessed values with respect to
      certain of its properties.

      In accordance with Rhode Island law, the City of Providence completed a
      city-wide revaluation of all real property for property tax assessment
      purposes. In March 2001, the Company received revaluation notices for each
      of its properties which set forth the proposed assessed values of its
      properties as of December 31, 2000. The proposed assessed values of the
      properties (other than those properties for which the tenants are
      responsible for tax payments) totaled $64,300,000 as compared with the
      prior assessed values which totaled $24,400,000. In management's opinion,
      the proposed assessed values of its properties are significantly in excess
      of their market values as of December 31, 2000. After a meeting between
      representatives of the Company and the revaluation firm retained by the
      City, the Company received notices indicating that the proposed assessed
      values had been reduced to $53,341,000.

      In August 2001, the Company received real property tax bills from the City
      of Providence for 2001 totaling $1,845,000. Of this amount, $82,000
      represented the annual tax on the property condemned by Amtrak in May 2001
      (see Note 8), and the Company has paid to the City its share of such tax
      on this condemned property ($29,000) to the date of condemnation.

      In accordance with statutory requirements, after the first tax installment
      of $461,000 was paid in August 2001, the Company filed appeals with the
      City contesting the assessed values with respect to most of its
      properties. If successful, the appeals will reduce the Company's annual
      tax expense to approximately $1,105,000.

      The Providence Board of Tax Assessment Review (the Board) failed to hear
      any of the Company's appeals until it was directed to do so by the
      Superior Court. The hearing was held in March 2002 and the Board denied
      all of the Company's appeals for the years 1995 through 1999 and 2001. The
      Company appealed the decision of the Board to the Superior Court.

      In August 2002, the Company received real property tax bills from the City
      of Providence for 2002 totaling $1,850,000. After paying the first
      installment of $463,000 in September 2002, the Company filed appeals with
      the City contesting the assessed values with respect to most of its
      properties. If successful, the appeals will reduce the Company's annual
      tax expense to approximately $1,166,000. The Board has not scheduled a
      hearing date for the 2002 appeals.

      The Company and the City have scheduled mediation in March 2003 in an
      effort to resolve all property tax disputes.

      The Company is unable to determine to what extent, if any, the taxes may
      be reduced. The Company is recording and paying its tax expense in
      accordance with the bills received.

8.    DISPUTE WITH AMTRAK:

      The Company is in litigation with the National Railroad Passenger
      Corporation (Amtrak) concerning various trespasses by Amtrak. During the
      1980's, the Company, State, City and Amtrak each conveyed parcels of land
      in Capital Center so that each party had the land it needed


                                       26
<PAGE>

      for its designated functions within Capital Center. As part of this
      arrangement, the Company was conveyed approximately 1.9 acres of air
      rights over Amtrak's Northeast Corridor, which rights began 19.3 feet
      above the top of rail. Following that conveyance, the railroad station and
      the Company's adjacent parking garage were constructed and partially
      financed by the Federal Railroad Administration (FRA).

      Many of the facilities needed to service the railroad station were built
      within the confines of the Company's parking garage parcel. Over the
      years, the Company did not charge Amtrak for this intrusion on its
      property; and over the years Amtrak assumed the cost of electricity
      provided to the parking garage. In 1997, Amtrak unilaterally refused to
      pay for the electricity, and the Company brought suit in the United States
      District Court for the District of Rhode Island (U. S. District Court)
      seeking an order requiring Amtrak to remove its facilities from the
      parking garage parcel.

      In the fall of 1998, as part of Amtrak's electrification of the Northeast
      Corridor, Amtrak erected towers and a signal bridge within the air rights
      (the tops of which vary in height between 27 and 42 feet above the top of
      rail). The Company amended its complaint against Amtrak to include the air
      rights trespasses.

      In July 1999, Amtrak condemned a three-year temporary easement of all the
      air rights owned by the Company retroactive to August 1998. In October
      1999, the Company received from Amtrak $335,000, the sum estimated by
      Amtrak to be just compensation for the property taken. In July 1999,
      Amtrak also condemned a permanent easement within a portion of the parking
      garage parcel upon which Amtrak had placed improvements. In October 1999,
      the Company received from Amtrak $60,000, the sum estimated by Amtrak to
      be just compensation for the property taken.

      Following the receipt of the condemnation proceeds, the trespass
      litigation between Amtrak and the Company and the Amtrak condemnation
      cases were consolidated for trial.

      In May 2001, Amtrak permanently condemned the air rights and a parcel of
      land adjacent to the air rights (with a carrying value of $625,000) for
      which the Company received from Amtrak $925,000, the amount estimated by
      Amtrak to be just compensation for the air rights and property taken.

      The Company believed that the condemnation amounts paid by Amtrak were
      inadequate and sought additional compensation. In June 2001, the U. S.
      District Court included this condemnation suit in the consolidated case.

      In October 2002, the Company agreed to pay $92,000 to Amtrak in full
      settlement of all claims for electricity used in the parking garage from
      1988 to 1997, which amount is included in expenses applicable to leasing
      on the accompanying consolidated statement of loss and retained earnings
      for the year ended December 31, 2002. The Company and Amtrak have also
      agreed to enter into a reciprocal cross easement agreement relative to all
      encroachments and to exchange title reports. The Company anticipates that
      this agreement will be executed in the first quarter of 2003.

      In November 2002, the consolidated case was tried in the U.S. District
      Court and the Company was awarded approximately $1,500,000, including
      interest, in additional damages resulting from the aforementioned
      condemnations. In February 2003, Amtrak appealed the decision to the U. S.
      Court of Appeals for the First Circuit. The Company is unable to determine
      when the appeal will be heard and the amount of additional damages, if
      any, the Company may ultimately receive. Pending the final resolution of
      the matter, the Company is not reporting the award as income in the
      accompanying consolidated financial statements.


                                       27
<PAGE>

9.    DISPUTE WITH THE FEDERAL RAILROAD ADMINISTRATION:

      The Company is in litigation with FRA. In 1999, the State of Rhode Island
      sued the Company to block an increase of commuter parking rates charged in
      its parking garage by the tenant. The U. S. District Court entered a
      preliminary injunction preventing the Company's tenant from doing so
      without prior FRA approval. The United States Court of Appeals for the
      First Circuit affirmed this order. The Company thereafter entered into a
      consent judgment with the State of Rhode Island whereby the Company's
      tenant is restrained from increasing certain parking rates without FRA
      approval. In connection with this litigation, the Company requested FRA
      approval to increase the commuter parking rates. FRA denied this request.
      The Company then filed suit against FRA in the United States Court of
      Claims alleging that FRA's denial constituted a breach of its contractual
      obligations and seeking unspecified money damages. The Company moved for
      summary judgment on its claim in September 2001 and is awaiting a hearing
      date. In the meantime, FRA has partially approved several subsequent
      requests by the Company to allow its tenant to increase rates at the
      parking garage.

10.   INCOME TAXES:

      The permanent condemnation proceeds received in 1999 qualify for deferred
      reinvestment for income tax reporting purposes whereby the Company may
      elect to reduce the income tax basis of qualifying subsequent
      acquisitions, subject to certain restrictions. In February 2002, the
      Company effected a qualifying purchase with a consolidated subsidiary and
      amended its 1999 federal and state income tax returns with respect to
      condemnation proceeds previously taxed. The Company received refunds
      totaling $661,000, including interest of $94,000.

      For income tax reporting purposes, the Company reported a tax loss for the
      year ended December 31, 2001, and filed carryback claims that resulted in
      a refund of federal income taxes previously paid in the amount of
      $631,000.

      For income tax reporting purposes, the Company is reporting a tax loss for
      the year ended December 31, 2002, and will file carryback claims that will
      result in a refund of federal income taxes previously paid in the amount
      of $372,000.

      Under present Rhode Island law, income tax losses cannot be carried back,
      and state tax loss carryforwards are limited to the amount of the federal
      tax loss carryforward. As of December 31, 2002, the Company does not have
      any federal or state loss carryforwards.

      As a result of these differences in the federal and state tax laws, the
      income tax provision does not bear the customary relationship to loss
      before income taxes as the current provision does not recognize any state
      income tax benefit from carryback claims while the deferred provision
      provides for state taxes on temporary differences at the applicable state
      rate. A reconciliation of the income tax provision as computed by applying
      the United States income tax rate (34%) to loss before income taxes is as
      follows:

<TABLE>
<CAPTION>
                                                                         2002            2001
                                                                      ---------      ---------
<S>                                                                   <C>            <C>
         Computed "expected" tax benefit ........................     $(322,000)     $(231,000)
         Decrease in benefit resulting from:
           State income tax, net of Federal income tax
             (benefit)...........................................        48,000         81,000
           Nondeductible restructuring expenses..................            -0-        22,000
           Statutory and other...................................            -0-         6,000
                                                                      ---------      ---------
                                                                      $(274,000)     $(122,000)
                                                                      =========      =========
</TABLE>


                                       28
<PAGE>

      Deferred income taxes are recorded based upon differences between
      financial statement and tax carrying amounts of assets and liabilities.
      The tax effects of temporary differences which give rise to deferred tax
      assets and liabilities at December 31, 2002 were as follows:

<TABLE>
<S>                                                                  <C>
           Gross deferred tax liabilities:
            Property having a financial statement basis
                in excess of tax basis ...........................   $ 3,531,000
            Accrued rental income ................................       192,000
                                                                     -----------
                                                                       3,723,000
           Gross deferred tax assets .............................      (204,000)
                                                                     -----------
                                                                     $ 3,519,000
                                                                     ===========
</TABLE>

11.   OPERATING SEGMENT DISCLOSURES:

      The Company operates in two segments: (1) Leasing and (2) Petroleum
      Storage Facilities.

      The Leasing segment consists of the long-term leasing of certain of its
      real estate interests in downtown Providence, Rhode Island (to tenants
      that have constructed buildings thereon) and locations along interstate
      and primary highways in Rhode Island and Massachusetts (to a company which
      has constructed outdoor advertising boards thereon). The Company
      anticipates that the future development of its remaining properties will
      consist primarily of long-term ground leases. Pending this development,
      the Company leases these parcels and an adjacent parking garage for public
      parking purposes under short-term cancellable leasing arrangements.

      The Petroleum Storage Facilities segment consists of the operating of the
      Petroleum Facilities in East Providence under a five-year agreement at a
      fixed monthly rate for the Petroleum Company which stores and distributes
      petroleum products. The Agreement includes provisions to extend and
      additional payments based upon throughput. (See Note 4).

      The principal difference between the two segments relates to the nature of
      the operations. The tenants in the Leasing segment incur substantially all
      of the development and operating costs of the asset constructed on the
      Company's land, whereas the Company is responsible for the operating and
      maintenance expenditures as well as capital improvements at the Petroleum
      Facilities.

      The Company makes decisions relative to the allocation of resources and
      evaluates performance based on income (loss) before income taxes,
      excluding interest and permanent condemnations and certain corporate
      expenses.

      There are no inter-segment revenues. The Company did not incur interest
      expense during the year ended December 31, 2002 and 2001.


                                       29
<PAGE>

The following financial information is used for making operating decisions and
assessing performance of the Company's segments:

<TABLE>
<CAPTION>
                                                                                          Petroleum
                                                                                           Storage
                                                                       Leasing            Facilities              Total
                                                                     -----------         ------------         ------------
<S>                                                                  <C>                 <C>                  <C>
         Year ended December 31, 2002:

         Revenues:
             Contractual ....................................        $ 2,265,000         $  1,669,000         $  3,934,000
             Contingent .....................................             57,000              188,000              245,000
             Option .........................................            432,000                   -0-             432,000
             Non-cash, excess of straight-line over
               contractual rentals ..........................             24,000                   -0-              24,000
                                                                     -----------         ------------         ------------
                                                                     $ 2,778,000         $  1,857,000         $  4,635,000
                                                                     ===========         ============         ============

          Property tax expense ..............................        $ 1,835,000         $    108,000         $  1,943,000
                                                                     ===========         ============         ============

          Depreciation ......................................        $    63,000         $    344,000         $    407,000
                                                                     ===========         ============         ============

          Income (loss) before income taxes .................        $   362,000         $   (414,000)        $    (52,000)
                                                                     ===========         ============         ============

          Assets ............................................        $ 5,843,000         $ 10,243,000         $ 16,086,000
                                                                     ===========         ============         ============
          Properties and equipment:
             Additions ......................................        $        -0-        $    544,000         $    544,000
                                                                     ===========         ============         ============
             Deletions ......................................        $   (10,000)        $         -0-        $    (10,000)
                                                                     ===========         ============         ============

         Year ended December 31, 2001:

         Revenues:
             Contractual ....................................        $ 2,234,000         $  1,555,000         $  3,789,000
             Preconstruction payment ........................            278,000                   -0-             278,000
             Contingent .....................................             57,000              197,000              254,000
             Option .........................................             74,000                   -0-              74,000
             Non-cash:
               Condemnation, temporary ......................             74,000                   -0-              74,000
               Excess of contractual over straight-line
                 rentals ....................................            (15,000)                  -0-             (15,000)
                                                                     -----------         ------------         ------------
                                                                     $ 2,702,000         $  1,752,000         $  4,454,000
                                                                     ===========         ============         ============

          Property tax expense ..............................        $ 1,791,000         $     85,000         $  1,876,000
                                                                     ===========         ============         ============

          Depreciation ......................................        $    63,000         $    340,000         $    403,000
                                                                     ===========         ============         ============

          Income (loss) before income taxes .................        $   628,000         $   (579,000)        $     49,000
                                                                     ===========         ============         ============

          Assets ............................................        $ 5,963,000         $ 10,040,000         $ 16,003,000
                                                                     ===========         ============         ============
          Properties and equipment:
             Additions ......................................        $        -0-        $    385,000         $    385,000
                                                                     ===========         ============         ============
             Deletions ......................................        $  (625,000)        $         -0-         $   (625,000)
                                                                     ===========         ============         ============
</TABLE>


                                       30
<PAGE>

      The following is a reconciliation of the segment information to the
      amounts reported in the accompanying consolidated financial statements:

<TABLE>
<CAPTION>
                                                                                          2002                    2001
                                                                                      ------------            ------------
<S>                                                                                   <C>                     <C>
         Income:
           Revenues for operating segments ................................           $  4,635,000            $  4,454,000
           Gain from permanent condemnation ...............................                     -0-                300,000
           Interest income ................................................                103,000                  57,000
                                                                                      ------------            ------------
            Total consolidated income .....................................           $  4,738,000            $  4,811,000
                                                                                      ============            ============

         Property tax expense:
           Property tax expense for operating segments ....................           $  1,943,000            $  1,876,000
           Unallocated property tax expense ...............................                  1,000                   1,000
                                                                                      ------------            ------------
            Total consolidated property tax expense .......................           $  1,944,000            $  1,877,000
                                                                                      ============            ============

         Depreciation:
           Depreciation for operating segments ............................           $    407,000            $    403,000
           Unallocated corporate depreciation .............................                 11,000                   9,000
                                                                                      ------------            ------------
            Total consolidated depreciation ...............................           $    418,000            $    412,000
                                                                                      ============            ============

         Income (loss) before income taxes:
           Income (loss) for operating segments ...........................           $    (52,000)           $     49,000
           Gain on permanent condemnation .................................                     -0-                300,000
           Interest income ................................................                103,000                  57,000
           Unallocated corporate expenses .................................               (998,000)             (1,084,000)
                                                                                      ------------            ------------
            Total consolidated loss before
               income taxes ...............................................           $   (947,000)           $   (678,000)
                                                                                      ============            ============

         Assets:
           Assets for operating segments ..................................           $ 16,086,000            $ 16,003,000
           Corporate cash and cash equivalents ............................              1,507,000               1,048,000
           Income tax receivable ..........................................                372,000                 607,000
           Other unallocated amounts ......................................                 55,000                  63,000
                                                                                      ------------            ------------
            Total consolidated assets .....................................           $ 18,020,000            $ 17,721,000
                                                                                      ============            ============

         Additions (deletions) to properties and equipment:
           Additions:
            Operating segments ............................................           $    544,000            $    385,000
            Unallocated corporate additions ...............................                  1,000                  17,000
                                                                                      ------------            ------------
              Total consolidated additions ................................           $    545,000            $    402,000
                                                                                      ============            ============
           Deletions, operating segment and total
            consolidated deletion .........................................           $    (10,000)           $   (625,000)
                                                                                      ============            ============
</TABLE>

      The following table sets forth those customers whose revenues exceed 10%
      of the Company's total consolidated revenue:

<TABLE>
<CAPTION>
                                                                                           2002                   2001
                                                                                      ------------            ------------
<S>                                                                                   <C>                     <C>
         Leasing segment:
            A .............................................................           $    779,000            $    689,000
            B .............................................................                676,000                 592,000
            C .............................................................                367,000                 367,000
                                                                                      ------------            ------------
                                                                                      $  1,822,000            $  1,648,000
                                                                                      ============            ============
         Petroleum Storage Facilities segment
            (one customer) ................................................           $  1,622,000            $  1,567,000
                                                                                      ============            ============
</TABLE>


                                       31
<PAGE>

12.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

      The carrying amounts of the Company's financial instruments approximate
      their fair values at December 31, 2002, due to the short maturities of
      cash and cash equivalents, receivables and accounts payable and accrued
      expenses.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.


                                       32
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
ISSUER

For information with respect to the directors and control persons of the Issuer,
see Pages 2, 3 and 4 of the Issuer's definitive proxy statement for the 2003
annual meeting of its shareholders, which pages are incorporated herein by
reference.

The following are the executive officers of the Issuer:

<TABLE>
<CAPTION>
                                                                           Date of First
Name                            Age               Office Held            Election to Office
----                            ---               -----------            ------------------
<S>                             <C>               <C>                    <C>
Robert H. Eder                   70               Chairman                      1995
Ronald P. Chrzanowski            60               President                     1997
Barbara J. Dreyer                64               Treasurer                     1997
Stephen J. Carlotti              60               Secretary                     1998
</TABLE>

All officers hold their respective offices until their successors are duly
elected and qualified. Mr. Chrzanowski served as Vice President of the Issuer
from November 12, 1997 to December 31, 1997, and as President since that date.
Ms. Dreyer served as President and Treasurer of the Issuer from 1995 to 1997 and
as Treasurer since that date. Mr. Carlotti is a partner in the law firm,
Hinckley, Allen & Snyder LLP, which firm provides legal services to the Company

ITEM 10. EXECUTIVE COMPENSATION

See page 3 of the Issuer's definitive proxy statement for the 2003 annual
meeting of its shareholders, which page is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See page 4 of the Issuer's definitive proxy statement for the 2003 annual
meeting of its shareholders, which page is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable


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<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   INDEX OF EXHIBITS:

      3.1   Amended Articles of Incorporation (incorporated by reference to
            Exhibit 3.1 to the Issuer's report on Form 8-K filed December 10,
            2001).

      3.2   By-laws, as amended (incorporated by reference to Exhibit 3(b) to
            the Issuer's quarterly report on Form 10-QSB for the quarter ended
            September 30, 1999).

      10    Material contracts: leases between Metropark, Ltd. and registrant:

            (i)   Dated December 12, 2001 (incorporated by reference to Exhibit
                  10(a)(i) to the Issuer's annual report on Form 10-KSB for the
                  year ended December 31, 2001).

            (ii)  Dated December 12, 2001 (incorporated by reference to Exhibit
                  10(a)(ii) to the Issuer's annual report on Form 10-KSB for the
                  year ended December 31, 2001).

            (iii) Dated December 12, 2001 (incorporated by reference to Exhibit
                  10(a)(iii) to the Issuer's annual report on Form 10-KSB for
                  the year ended December 31, 2001).

            (iv)  Dated December 12, 2001 (incorporated by reference to Exhibit
                  10(a)(iv) to the Issuer's annual report on Form 10-KSB for the
                  Year ended December 31, 2001).

            (v)   Dated December 12, 2001 (incorporated by reference to Exhibit
                  10(a)(v) to the Issuer's annual report on Form 10-KSB for the
                  year ended December 31, 2001).

      20.1  Map of the Registrant's parcels in Downtown Providence, Rhode Island

      20.2  Map of the Registrant's petroleum storage facilities in East
            Providence, Rhode Island

      21    Subsidiaries of the Registrant

      99.1  Certification of President pursuant to 18 U.S.C. Section 1350 as
            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      99.2  Certification of Treasurer and Principal Financial Officer pursuant
            to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

(b) A report on Form 8-K was filed on November 26, 2002, announcing that the
U.S. District Court for the District of Rhode Island awarded the registrant
approximately $1.48 million in additional damages in connection with a
condemnation proceedings brought by the National Rail Passenger Corporation.


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<PAGE>

ITEM 14. CONTROLS AND PROCEDURES

Under the supervision of the Company's management, including its principal
executive officer and principal financial officer, the Company has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rule 15d-14(c) under the Securities Exchange Act of
1934) as of a date within 90 days prior to the filing date of this report. Based
upon this evaluation, the principal executive officer and principal financial
officer have concluded that, as of such date, the Company's disclosure controls
and procedures were effective in making them aware on a timely basis of the
material information relating to the Company required to be included in the
Company's periodic filings with the Securities and Exchange Commission.

There were no significant changes made in the Company's internal controls during
the period covered by this report or, to the Company's knowledge, in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.


                                       35
<PAGE>

                                    SIGNATURE

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                  CAPITAL PROPERTIES, INC.


                                  By /s/ Ronald P. Chrzanowski
                                     -----------------------------------------
                                     Ronald P. Chrzanowski
                                     President and Principal Executive Officer

DATED: March 11, 2003

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

/s/ Robert H. Eder                                   March 14, 2003
---------------------------------------
Robert H. Eder
Chairman and Director


/s/ Ronald P. Chrzanowski                            March 17, 2003
---------------------------------------
Ronald P. Chrzanowski
President and Director
Principal Executive Officer


/s/ Barbara J. Dreyer                                March 17, 2003
---------------------------------------
Barbara J. Dreyer
Treasurer, Principal Financial Officer
And Principal Accounting Officer


/s/ Harold J. Harris                                 March 17, 2003
---------------------------------------
Harold J. Harris, Director


                                       36
<PAGE>

              CAPITAL PROPERTIES, INC. AND CONSOLIDATED AFFILIATES
                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald P. Chrzanowski, President and Principal Executive Officer, certify
that:

1. I have reviewed this annual report on Form 10-KSB of Capital Properties, Inc.
and Consolidated Affiliates;

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

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

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

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


                                       37
<PAGE>

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.

Date:  March 11, 2003


/s/ Ronald P. Chrzanowski
-----------------------------------------
Ronald P. Chrzanowski
President and Principal Executive Officer

I, Barbara J. Dreyer, Treasurer and Principal Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of Capital Properties, Inc.
and Consolidated Affiliates;

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

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

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


                                       38
<PAGE>

      (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.

Date: March 11, 2003


/s/ Barbara J. Dreyer
-----------------------------------------
Barbara J. Dreyer
Treasurer and Principal Financial Officer


                                       39