10-K 1 form10k123104.txt FORM 10-K 12-31-04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-07265 AMBASE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2962743 (State of incorporation) (I.R.S. Employer Identification No.) 100 Putnam Green, 3rd Floor, Greenwich, CT 06830-6027 (Address of principal executive offices) Registrant's telephone number, including area code: (203) 532-2000 Securities registered pursuant to Section 12(g) of the Act: Title of each class Common Stock ($0.01 par value) Rights to Purchase Common Stock Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. X Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes_____ No X At February 28, 2005, there were 46,233,519 shares of registrant's Common Stock outstanding. At June 30, 2004 the aggregate market value of registrant's voting securities (consisting of its Common Stock) held by nonaffiliates of the registrant, based on the average bid and asking price on such date of the Common Stock of $0.61 per share, was approximately $22 million. The Common Stock constitutes registrant's only outstanding class of security. Portions of the registrant's definitive Proxy Statement for its 2005 Annual Meeting of Stockholders, which Proxy Statement registrant intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year, is incorporated by reference with respect to certain information contained therein, in Part III of this Annual Report. The Exhibit Index is located in Part IV, Item 15, Page 35 AmBase Corporation Annual Report on Form 10-K December 31, 2004

TABLE OF CONTENTS Page ---------------------------------------------- ------ PART I Item 1. Business............................................................................................1 Item 2. Properties..........................................................................................2 Item 3. Legal Proceedings...................................................................................2 Item 4. Submission of Matters to a Vote of Security Holders.................................................2 Executive Officers of the Registrant................................................................2 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.................................................................................3 Item 6. Selected Financial Data.............................................................................3 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............4 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........................................10 Item 8. Financial Statements and Supplementary Data........................................................11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............33 Item 9A. Controls and Procedures............................................................................33 Item 9B. Other Information..................................................................................33 PART III Item 10. Directors and Executive Officers of the Registrant.................................................33 Item 11. Executive Compensation.............................................................................33 Item 12. Security Ownership of Certain Beneficial Owners & Management.......................................34 Item 13. Certain Relationships and Related Transactions.....................................................34 Item 14. Principal Accountant Fees and Services.............................................................34 PART IV Item 15. Exhibits and Financial Statement Schedules.........................................................35

PART I ITEM 1. BUSINESS AmBase Corporation (the "Company" or "AmBase") is a Delaware corporation that was incorporated in 1975 by City Investing Company ("City"). AmBase is a holding company that, through a wholly owned subsidiary, owns two commercial office buildings in Greenwich, Connecticut that are managed and operated by the Company. One building is approximately 14,500 square feet and is substantially leased to unaffiliated third parties with approximately 3,500 square feet utilized by the Company for its executive offices. The other building is approximately 38,000 square feet and is leased to unaffiliated third parties. The Company's assets currently consist primarily of cash and cash equivalents, investment securities, and real estate owned. The Company's main source of operating revenue is rental income received from real estate owned. The Company also earns non-operating revenue principally consisting of interest income earned on investment securities and cash equivalents. The Company continues to evaluate a number of possible acquisitions, and is engaged in the management of its assets and liabilities, including the contingent assets, as described in Part II - Item 8 - Notes 9 and 10 to the Company's consolidated financial statements. The Company intends to aggressively contest all litigation and contingencies, as well as pursue all sources for contributions to settlements. The Company had 5 employees at December 31, 2004. Background City originally incorporated AmBase as the holding company for The Home Insurance Company, and its affiliated property and casualty insurance companies ("The Home"). In 1985, City, which owned all the outstanding shares of the Common Stock of the Company, distributed the Company's shares to City's common stockholders. The Home was sold in February 1991. In August 1988, the Company acquired Carteret Bancorp Inc. Carteret Bancorp Inc., through its principal wholly owned subsidiary, Carteret Savings Bank, FA ("Carteret"), was principally engaged in retail and consumer banking, and mortgage banking including mortgage servicing. On December 4, 1992, the Office of Thrift Supervision ("OTS") placed Carteret in receivership under the management of the Resolution Trust Corporation ("RTC") and a new institution, Carteret Federal Savings Bank, was established to assume the assets and certain liabilities of Carteret. Following the seizure of Carteret, the Company was deregistered as a savings and loan holding company by the OTS, although the OTS retains jurisdiction for any regulatory violations prior to deregistration. See Part II - Item 8 - Note 10 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill litigation relating to Carteret. In December 1997, the Company formed a new wholly owned subsidiary, SDG Financial Corp. ("SDG Financial"), to pursue merchant banking activities. SDG Financial purchased an equity interest in SDG, Inc. ("SDG") and was granted the exclusive right to act as the investment banking/financial advisor to SDG, Inc. and all of its subsidiaries and affiliates. The Company also purchased convertible preferred and common stock in AMDG, Inc. ("AMDG"), a majority owned subsidiary of SDG. SDG and AMDG are development stage pharmaceutical companies. In 2002 the Company recorded a write down of its investments in SDG and AMDG, see Part II - Item 7 - Results of Operations, for further information. STOCKHOLDER INQUIRIES Stockholder inquiries, including requests for the following: (i) change of address; (ii) replacement of lost stock certificates; (iii) Common Stock name registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on Form 10-K; (vi) proxy material; and (vii) information regarding stockholdings, should be directed to: American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038 Attention: Shareholder Services (800) 937-5449 or (718) 921-8200 Ext. 6820 Copies of Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy Statements can also be obtained directly from the Company free of charge by sending a request to the Company by mail as follows: AmBase Corporation 100 Putnam Green, 3rd Floor Greenwich, CT 06830 Attn: Shareholder Services In addition, the Company's public reports, including Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained through the Securities and Exchange Commission ("SEC") EDGAR Database over the World Wide Web at www.sec.gov. Materials filed with the SEC may also be read or copied by visiting the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. ITEM 2. PROPERTIES The Company owns two commercial office buildings in Greenwich, Connecticut. One building is approximately 14,500 square feet and is substantially leased to unaffiliated third parties with approximately 3,500 square feet utilized by the Company for its executive offices. The second building is approximately 38,000 square feet and is leased to unaffiliated third parties. ITEM 3. LEGAL PROCEEDINGS For a discussion of the Company's legal proceedings, including the Company's Supervisory Goodwill litigation, see Part II - Item 8 - Note 10 to the Company's consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant Each executive officer is elected to serve in the executive officer capacity set forth opposite his respective name until the next Annual Meeting of Stockholders. The Company is not aware of any family relationships between any of the executive officers or directors of the Company. Set forth below is a list of executive officers of the Company at December 31, 2004:

Name Age Title ==== === ========== Richard A. Bianco 57 Chairman, President and Chief Executive Officer John P. Ferrara 43 Vice President, Chief Financial Officer and Controller

Mr. Bianco was elected a director of the Company in January 1991, and has served as President and Chief Executive Officer of the Company since May 1991. On January 26, 1993, Mr. Bianco was elected Chairman of the Board of Directors of the Company. He served as Chairman, President and Chief Executive Officer of Carteret, then a subsidiary of the Company, from May 1991 to December 1992. Mr. Ferrara was elected to the position of Vice President, Chief Financial Officer and Controller of the Company in December 1995, having previously served as Acting Chief Financial Officer, Treasurer and Assistant Vice President and Controller since January 1995; as Assistant Vice President and Controller from January 1992 to January 1995; and as Manager of Financial Reporting from December 1988 to January 1992. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The Common Stock of the Company trades through one or more market makers, with quotations made available in the "pink sheets" published by the National Quotation Bureau, Inc. ("Pink Sheets"), under the symbol ABCP. The sales prices per share for the Company's Common Stock represent the range of the reported high and low bid quotations as indicated in the Pink Sheets or as communicated orally to the Company by market makers. Such prices reflect interdealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

2004 2003 ====================== ======================= High Low High Low ==== === ==== === First Quarter....................... $ 0.83 $ 0.62 $ 0.90 $ 0.70 Second Quarter...................... 0.80 0.60 0.90 0.71 Third Quarter....................... 0.99 0.55 1.11 0.68 Fourth Quarter...................... 1.00 0.77 0.85 0.64

As of February 28, 2005, there were approximately 15,000 beneficial owners of the Company's Common Stock. No dividends were declared or paid on the Company's Common Stock in 2004 or 2003. The Company does not intend to declare or pay dividends in the foreseeable future. For information concerning the Company's stockholder rights plan and common stock repurchase plan, see Part II - Item 8 - Note 5 to the Company's consolidated financial statements. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with the Company's consolidated financial statements included in Part II - Item 8 of this Form 10-K.

Years ended December 31 ================================== (in thousands, except per share data) 2004 2003 2002(a) 2001(b) 2000 ==== ==== ====== ======= ==== Operating revenue....................$2,229 $2,578 $ 477 $ 179 $ - Interest income....................... 505 334 705 2,099 2,795 Net income (loss).....................(3,351) (3,559) (5,133) 62,110 5,174 ====== ======= ====== ====== ===== Net income(loss)per common share Basic.................................$(0.07) $(0.08) $(0.11) $ 1.34 $0.11 Assuming dilution..................... (0.07) (0.08) (0.11) 1.34 0.11 ====== ====== ====== ====== ===== Dividends ........................... - - - - - ====== ====== ====== ====== ====== Total assets.........................$40,860 $41,668 $43,656 $50,445 $53,102 Total stockholders' equity (deficit) 25,574 29,367 32,902 38,013 (24,097) ====== ====== ====== ====== ======

(a) Net loss in 2002 includes a $1,600,000 charge to reflect a write down of the Company's investments in SDG and AMDG. See Part II - Item 7 - Results of Operations, for further information. (b) Net income in 2001 includes a $66,388,000 withholding obligation reserve reversal which was reflected as other income in the Consolidated Statement of Operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes, which are contained in Part II - Item 8, herein. Financial Condition and Liquidity The Company's assets at December 31, 2004, aggregated $40,860,000, consisting principally of cash and cash equivalents of $10,124,000, investment securities of $10,702,000 and real estate owned of $19,001,000. At December 31, 2004, the Company's liabilities aggregated $15,286,000. Total stockholders equity was $25,574,000. The liability for the supplemental retirement plan (the" Supplemental Plan"), which is accrued but not funded, increased to $11,594,000 at December 31, 2004 from $9,292,000 at December 31, 2003. The Supplemental Plan liability reflects the actuarially determined Accrued Pension Costs in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The increased liability is the result of an additional year of accrued service, interest cost on the liability, and the recognition of a minimum pension liability adjustment as a result of the use of an updated mortality table. The Supplemental Plan liability is further affected by changes in discount rates and experience which could be different from that assumed. The Company expects to pay approximately $1.8 million of previously incurred legal fees and other expenses relating to the Company's defense of a withholding obligation issue with the Internal Revenue Service ("IRS") which was successfully concluded in October 2001. The Company expects to pay this outstanding balance shortly. The Company had previously accrued $1.3 million of the costs which were reflected in other liabilities in prior period financial statements; an additional $0.5 million was recorded as an expense in December 2004. The Company is currently exploring all legal options to seek recovery of this amount the Company paid, plus other related costs. For the year ended December 31, 2004, cash of $1,896,000 was used by operations, including the payment of operating expenses and prior year accruals, partially offset by the receipt of rental income, interest income and investment earnings. The cash needs of the Company for 2004 were principally satisfied by rental income and investment earnings received on investment securities and cash equivalents and to a lesser extent, the Company's financial resources. Management believes that the Company's cash resources are sufficient to continue operations for 2005. For the year ended December 31, 2003, cash of $2,158,000 was used by operations, including the payment of operating expenses and prior year accruals, partially offset by the receipt of rental income, interest income and investment earnings. The cash needs of the Company for 2003 were principally satisfied by rental income and interest income received on investment securities and cash equivalents and to a lesser extent, the Company's financial resources. For the year ended December 31, 2002, cash of $5,936,000 was used by operations, including the payment of operating expenses and prior year accruals, partially offset by the receipt of interest income. The cash needs of the Company for 2002 were principally satisfied by interest income received on investment securities and cash equivalents, the Company's financial resources and rental income. Real estate owned consists of two commercial office buildings in Greenwich, Connecticut which the Company owns and manages. One building is approximately 14,500 square feet, is substantially leased to unaffiliated third parties with approximately 3,500 square feet utilized by the Company for its executive offices. The other building is approximately 38,000 square feet and is leased to unaffiliated third parties. The Company did not repurchase any shares of common stock during 2004 pursuant to its common stock repurchase plan. There are no additional material commitments for capital expenditures as of December 31, 2004. Inflation has had no material impact on the business and operations of the Company. The Company continues to evaluate a number of possible acquisitions, and is engaged in the management of its assets and liabilities, including the contingent assets. Discussions and negotiations are ongoing with respect to certain of these matters. The Company intends to aggressively contest all litigation and contingencies, as well as pursue all sources for contributions to settlements. For a discussion of lawsuits and proceedings, including a discussion of the Supervisory Goodwill litigation, see Part II - Item 8 - Note 10 to the Company's consolidated financial statements. Results of Operations Summarized financial information for the operations of the Company for the years ended December 31 is as follows:

(in thousands) 2004 2003 2002 ===== ===== ===== Revenues: Rental income................................................. $ 2,229 $ 2,578 $ 477 -------- -------- -------- Operating expenses: Compensation and benefits..................................... 4,150 3,852 3,515 Professional and outside services............................. 1,469 1,476 1,641 Property operating & maintenance.............................. 459 491 130 Depreciation ................................................. 330 329 74 Insurance..................................................... 107 100 73 Other operating............................................... 197 188 161 -------- -------- -------- 6,712 6,436 5,594 -------- -------- -------- Operating loss................................................ (4,483) (3,858) (5,117) -------- -------- -------- Interest income............................................... 505 334 705 Realized gains on sales of investment securities available for sale ....................................... 747 64 - Other income.................................................. - 26 215 Other income - termination of postretirement welfare plans.... - - 788 Write down of investments..................................... - - (1,600) -------- -------- -------- Loss before income taxes...................................... (3,231) (3,434) (5,009) Income tax expense............................................ (120) (125) (124) -------- -------- -------- Net loss...................................................... $ (3,351) $ (3,559) $ (5,133) ======== ======== =========

The Company's main source of operating revenue is rental income earned on real estate owned. The Company also earns non-operating revenue consisting principally of interest income on investment securities and cash equivalents. The Company's management expects that operating cash needs in 2005 will be met principally by rental income, the receipt of non-operating revenue consisting of interest income earned on investment securities and cash equivalents, and the Company's current financial resources. For the year ended December 31, 2004, the Company recorded a net loss of $3,351,000 or $0.07 per share. For the year ended December 31, 2003, the Company recorded a net loss of $3,559,000 or $0.08 per share. The Company recorded a net loss of $5,133,000 or $0.11 per share, for the year ended December 31, 2002. As further described below, 2002 results include non-recurring other income of $788,000 representing the termination of postretirement benefit plans and $215,000 of additional other income. The year ended December 31, 2002 also includes a charge of $1,600,000 to reflect a write down of the Company's investments in SDG and AMDG, as further described below. Rental income was $2,229,000 in 2004 compared to $2,578,000 in 2003, and $477,000 in 2002. The decreased amount of $2,229,000 in 2004, compared to $2,578,000 in 2003, is principally the result of a decrease in deferred rental income in 2004 compared to 2003 relating to rental revenues recognized on a straight line basis over the life of a lease versus actual rental income received and office vacancies during a portion of 2004. The increased amounts of $2,578,000 in 2003, compared to $477,000 in 2002, is the result of the 2002 period only reflected one months rental income for the 38,000 square foot commercial office building purchased in December 2002. Compensation and benefits were $4,150,000 in 2004, $3,852,000 in 2003, and $3,515,000 in 2002. The increased amount in 2004 compared to 2003 is principally due to an increase in supplemental retirement plan accruals and an increase in the salary and benefits costs. The increase in 2003 compared to 2002 is primarily due to an increase in supplemental retirement plan accruals. Professional and outside services decreased slightly to $1,469,000 in 2004 from $1,476,000 in 2003. The 2004 period includes an additional accrual of approximately $0.5 million of fees relating to the costs associated with a withholding obligation issue with the IRS as further discussed in Financial Condition and Liquidity, herein. Excluding this additional expense, professional and outside services would have decreased by $503,000 for the year 2004 compared with the year 2003 primarily due to an overall decrease in legal expenses incurred during 2004 as a result of a lower level of legal fees relating to the Supervisory Goodwill litigation and the resolution of legal proceedings which were pending during 2003. In 2003, legal fees decreased by $165,000 to $1,476,000, from $1,641,000 in 2002 as a result of legal fees incurred in 2002 relating to the Zurich arbitration proceedings which were not incurred in 2003, partially offset by increased legal fees incurred for the Supervisory Goodwill litigation as a result of a court decision and subsequent court filings during 2003. Property operating and maintenance expenses were $459,000 in 2004, $491,000 in 2003, and $130,000 in 2002. The slight decrease in 2004 compared to 2003 is due to decreased utilities, security and other maintenance costs. The 2004 and 2003 period includes expenses relating to both of the Company's owned commercial office buildings for a full year. The 2002 period includes expenses relating to a 14,500 square foot building for a full year, plus expenses for a 38,000 square foot building for December 2002 only. Property operating and maintenance expenses have not been reduced by tenant reimbursements. Interest income was $505,000 in 2004, $334,000 in 2003, and $705,000 in 2002. The increase in 2004 compared to 2003 is principally due to increased investment return from higher yielding investments classified as investments available for sale. The decrease in 2003 compared to the 2002 period, was primarily attributable to a lower average level of investment securities held as a result of the building purchased in December 2002, and to a lesser extent, a lower yield on cash equivalents and investment securities. Interest rates on investments in treasury bills decreased throughout 2003 compared to 2002. These decreases were partially offset by interest income received on higher yielding investment securities available for sale. During 2003 interest rates on investments in treasury bills ranged from approximately 1.4% down to 0.9% compared to approximately 1.9% down to 1.2% in 2002. During 2004, realized gains on sales of investment securities available for sale were $747,000 compared to $64,000 during 2003. The increase is the result of a higher level of investment securities available for sale and realization of gains on sales due to market appreciation. In the year ended December 31, 2003, other income represents a federal income tax refund for the tax year 1996. Other income of $215,000 in 2002 is principally attributable to the collection on an investment previously written off. In 2002, additional other income of $788,000 is the result of the full termination of the retiree medical and life insurance plans in accordance with generally accepted accounting principles. The Company has no future liability for any of these medical or life insurance plans. The Company and its subsidiaries do not provide postretirement welfare benefits to current employees. Write down of investments in 2002 reflects the Company's write down of its investments in SDG and AMDG of $1,250,000 and $350,000, respectively. The Company recorded the write down in September 2002, in connection with the ongoing evaluation of its investments, and the determination that the value of its investments in SDG and AMDG had been other than temporarily impaired. Under GAAP, if an investment is other than temporarily impaired, the Company is required to reflect an adjustment in its Financial Statements. Factors considered in the Company's decision to write down these investments included, in part, the general inactive status of SDG's and AMDG's clinical testing, as well as SDG's and AMDG's current financial condition. The Company is not selling or disposing of its investments in SDG or AMDG and remains hopeful that it will be able to fully realize its investment value. In September 2000, the Company filed a lawsuit against SDG, and certain of its officers and directors, to pursue claims against the parties, including but not limited to SDG's failure to honor a contract which granted the Company the right to act as the exclusive investment banking/financial advisor to SDG, and all of its subsidiaries and affiliates. See Part II - Item 8, Note 10 to the Company's consolidated financial statements, for further information. The Company will continue to monitor the status of its SDG and AMDG investments and vigorously pursue recovery of its legal claims. However, there can be no assurance that the Company will be able to recover all or any part of its investment in these companies or that its legal actions will be successful. The 2004, 2003, and 2002 income tax provisions of $120,000, $125,000 and $124,000, respectively, are principally attributable to state and local taxes. A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes is included in Part II - Item 8 - Note 9 to the Company's consolidated financial statements. From time to time, the Company may publish "Forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, or make oral statements that constitute forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, anticipated market performance, anticipated litigation results, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company cautions readers that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These risks and uncertainties, many of which are beyond the Company's control, include, but are not limited to: (i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in occupancy rates or real estate values, (v) changes in regulatory requirements which could affect the cost of doing business, (vi) general economic conditions, (vii) changes in the rate of inflation and the related impact on the securities markets, (viii) changes in federal and state tax laws, and (ix) risks arising from unfavorable decisions in the Company's current material litigation matters, or unfavorable decisions in other supervisory goodwill cases. The Company does not undertake any obligation to update or revise any forward-looking statements whether as a result of future events, new information or otherwise. Tabular Disclosure of Contractual Obligations

Payment Due By Period ====================================================== (in thousand) Less Than One to Three Three to Five More than Total One Year Years Years Five Years ------- ----------- ------------- -------------- ---------- Operating leases................................$ 26 $ 9 $ 17 $ - $ - ------- -------- ------------ ------------- ---------- Total obligations.............................. $ 26 $ 9 $ 17 $ - $ - ======= ======== ============ ============= ==========

Application of Critical Accounting Policies Our consolidated financial statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. The determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the financial statements. We believe that the following accounting policies, which are important to our financial position and results of operations, require a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. For a summary of all our accounting policies, including the accounting policies discussed below, see Part II - Item 8 - Note 2. Supplemental Retirement Plan: Our supplemental retirement plan (the "Supplemental Plan") accrued liability and benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, and projected future earnings, which are updated on an annual basis at the beginning of each year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. Material changes in our accrued Supplemental Plan liability and annual costs may occur in the future due to changes in assumptions or experience different than that assumed. The Supplemental Plan liability is not funded and is net of unrecognized losses of $2,200,000. The key assumptions used in developing the 2004 Supplemental Plan benefit costs and accrued liability were a 5.75% discount rate, a "GAM-94" mortality table, a 6.0% rate of compensation increase, and the amortization of unrecognized losses over the average remaining lives of active participants. These assumptions were consistent with prior year assumptions except that the discount rate was reduced by one-half of a percent due to current market conditions and an updated mortality table was utilized. Legal Proceedings: From time to time the Company and its subsidiaries may be named as a defendant in various lawsuits or proceedings. The Company presently is not aware of any pending or threatened litigation which could have a material adverse effect on the consolidated financial statements presented herein. Management of the Company in consultation with outside legal counsel continually reviews the likelihood of liability and associated costs of pending and threatened litigation including the basis for the calculation of any litigation reserves. The assessment of these reserves includes an exercise of judgment and is a matter of opinion. The Company intends to aggressively contest all threatened litigation and contingencies, as well as pursue all sources for contributions to settlements. For a discussion of lawsuits and proceedings, see Part II - Item 8 - Note 10. Income Tax Audits: The Company's federal, state and local tax returns, from time to time, may be audited by the tax authorities, which could result in proposed assessments or a change in the net operating loss ("NOL") carryforwards currently available. The Company's federal income tax returns for the years subsequent to 1992 have not been reviewed by the Internal Revenue Service. The accrued amounts for income taxes reflects management's best judgment as to the amounts payable for all open tax years. Deferred Tax Assets: As of December 31, 2004, the Company had deferred tax assets arising primarily from net operating loss carryforwards and alternative minimum tax credits available to offset taxable income in future periods. A valuation allowance has been established for the entire net deferred tax asset of $34 million, as management, at the current time, has no basis to conclude that realization is more likely than not. The valuation allowance was calculated in accordance with the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which places primary importance on a company's cumulative operating results for the current and preceding years. We intend to maintain a valuation allowance for the entire deferred tax asset until sufficient positive evidence exists to support a reversal. See Part II - Item 8 - Note 9. New Accounting Pronouncements - FASB Statement No. 123 (revised 2004), Share-Based Payment - In December 2004, the Financial Accounting Standards Board ("FASB") released its final revised standard entitled Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"), which will significantly change accounting practice with respect to employee stock options for both public and non-public companies. SFAS 123R requires that a public entity measure the cost of equity based service awards based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award of the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. A public entity will initially measure the cost of liability based service awards based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee stock options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Excess tax benefits will be recognized as an addition to paid-in capital and cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset. The notes to financial statements of public entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements. SFAS 123R is effective for public entities as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company holds short-term investments as a source of liquidity. The Company's interest rate sensitive investments at December 31, 2004 and 2003, with maturity dates of less than one year consist of the following:

2004 2003 (in thousands) ========================== ========================== Carrying Fair Carrying Fair Value Value Value Value ----------- ----------- ------------ ---------- U.S. Treasury Bills.........................................$ 8,590 $ 8,586 $ 17,329 $ 17,331 ========== =========== ============ ========= Weighted average interest rate.............................. 1.71% 0.94% ========== ============

The Company's current policy is to minimize the interest rate risk of its short-term investments by investing in U.S. Treasury Bills with maturities of less than one year. There were no significant changes in market exposures or the manner in which interest rate risk is managed during the year. The Company's portfolio of equity securities has exposure to equity price risk. Equity price risk is defined as the potential loss in fair value resulting from an adverse change in prices. The equity securities are primarily in the form of preferred stock in utility companies. The equity securities are held for an indefinite period and are carried at fair value with net unrealized gains and losses recorded directly in a separate component of stockholder's equity. The table below summarizes the Company's equity price risk and shows the effect of a hypothetical 20% increase and a 20% decrease in market price as of the dates indicated below. The selected hypothetical changes are for illustrative purposes only and are not necessarily indicative of the best or worse case scenarios.

(in thousands) 12/31/2004 12/31/2003 Equity Securities Available for Sale: ========== ========== Fair value ........................................................... $ 2,112 $ 1,774 ========== ========== Hypothetical fair value at a 20% increase in market price............. $ 2,534 $ 2,129 ========== ========== Hypothetical fair value at a 20% decrease in market price............. $ 1,690 $ 1,419 ========== ==========

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of AmBase Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of AmBase Corporation and its subsidiaries at December 31, 2004 and 2003, the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP New York, New York March 29, 2005

AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31 (in thousands, except per share data) 2004 2003 2002 ==== ==== ==== Revenues: Rental income $ 2,229 $ 2,578 $ 477 -------- -------- -------- Operating expenses: Compensation and benefits..................................... 4,150 3,852 3,515 Professional and outside services............................. 1,469 1,476 1,641 Property operating and maintenance ........................... 459 491 130 Depreciation ................................................. 330 329 74 Insurance..................................................... 107 100 73 Other operating............................................... 197 188 161 -------- -------- -------- 6,712 6,436 5,594 -------- -------- -------- Operating loss................................................ (4,483) (3,858) (5,117) -------- -------- -------- Interest income............................................... 505 334 705 Realized gains of the sales of investment securities available for sale............................. 747 64 - Other income.................................................. - 26 215 Other income - termination of postretirement welfare plans.... - - 788 Write down of investments..................................... - - (1,600) -------- -------- -------- Loss before income taxes...................................... (3,231) (3,434) (5,009) Income tax expense ........................................... (120) (125) (124) -------- -------- --------- Net loss...................................................... $ (3,351) $ (3,559) $ (5,133) ========= ========= ========== Net loss per common share: Basic......................................................... $ (0.07) $ (0.08) $ (0.11) Assuming dilution ............................................ (0.07) (0.08) (0.11) ========= ========= ========== Weighted average common shares outstanding: Basic......................................................... 46,225 46,182 46,209 ========= ========= ========= Assuming dilution............................................. 46,225 46,182 46,209 ========= ========= =========

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

AMBASE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31 (in thousands, except for share amounts) 2004 2003 ==== ==== Assets: Cash and cash equivalents....................................................... $ 10,124 $ 2,785 Investment securities: Held to maturity (market value $8,586 and $17,331, respectively)............ 8,590 17,329 Available for sale, carried at fair value................................... 2,112 1,774 --------- ---------- Total investment securities..................................................... 10,702 19,103 --------- ---------- Accounts receivable ............................................................ 1 21 Real estate owned: Land....................................................................... 6,954 6,954 Buildings.................................................................. 12,810 12,810 --------- ---------- 19,764 19,764 Less: accumulated depreciation ............................................ (763) (433) --------- ---------- Real estate owned, net.......................................................... 19,001 19,331 --------- ---------- Other assets.................................................................... 1,032 428 --------- ---------- Total assets.................................................................... $ 40,860 $ 41,668 ========= ========== Liabilities and Stockholders' Equity: Liabilities: Accounts payable and accrued liabilities........................................ $ 1,495 $ 1,376 Supplemental retirement plan.................................................... 11,594 9,292 Other liabilities............................................................... 2,197 1,633 --------- ---------- Total liabilities............................................................... 15,286 12,301 --------- ---------- Commitments and contingencies................................................... - - --------- ---------- Stockholders' equity: Common stock ($0.01 par value, 200,000,000 authorized, 46,410,007 and 46,335,007issued, respectively)............................... 464 463 Paid-in capital................................................................. 547,956 547,940 Accumulated other comprehensive income.......................................... (375) 84 Accumulated deficit............................................................. (521,786) (518,435) Treasury stock, at cost - 176,488 shares........................................ (685) (685) --------- ---------- Total stockholders' equity...................................................... 25,574 29,367 --------- ---------- Total liabilities and stockholders' equity...................................... $ 40,860 $ 41,668 ========= ==========

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

AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Accumulated other (in thousands) Common Paid-in comprehensive Accumulated Treasury stock capital income (loss) deficit stock Total ======= ======== ============= =========== ========= ===== December 31, 2001............. $ 463 $547,940 $ - $ (509,743) $ (647) $38,013 Net loss...................... - - - (5,133) - (5,133) Other comprehensive income ................. - - 22 - - 22 ------- -------- -------------- ------------- ---------- ------- December 31, 2002............. 463 547,940 22 (514,876) (647) 32,902 Net loss...................... - - (3,559) - (3,559) Common stock repurchased - - - - (38) (38) Other comprehensive income ................. - - 62 - - 62 --------- -------- -------------- ------------- ---------- -------- December 31, 2003............. 463 547,940 84 (518,435) (685) 29,367 Net loss...................... - - (3,351) - (3,351) Stock options exercised....... 1 16 - - - 17 Other comprehensive loss ................... - - (459) - - (459) --------- -------- -------------- ------------- ---------- --------- December 31, 2004............. $ 464 $547,956 $ (375) $ (521,786) $ (685) $ 25,574 ========= ======== ============== ============= ========== =========

The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31 (in thousands)

2004 2003 2002 ====== ====== ====== Net loss ................................................................... $(3,351) $ (3,559) $(5,133) Minimum pension liability adjustment, net of tax effect of $0............... (412) - - Unrealized holding gains on investment securities - available for sale, net of tax effect of $0..................................................... (47) 62 22 -------- -------- -------- Comprehensive loss.......................................................... $(3,810) $ (3,497) $(5,111) ======== ======== ========

The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31

(in thousands) 2004 2003 2002 ==== ==== ==== Cash flows from operating activities: Net loss................................................................. $ (3,351) $ (3,559) $ (5,133) Adjustments to reconcile net loss to net cash used by operating activities: Accretion of discount - investment securities........................ (115) (198) (631) Depreciation and amortization........................................ 330 329 74 Realized gains on investment securities available for sale........... (747) (64) - Termination of postretirement welfare plans ........................ - - (788) Changes in other assets and liabilities: Accounts receivable ................................................. 20 88 (103) Write down of investments ........................................... - - 1,600 Other assets......................................................... (604) (301) (85) Accounts payable and accrued liabilities............................. 119 (187) (1,704) Other liabilities.................................................... 2,454 1,734 813 Other, net............................................................... (2) - 21 -------- --------- -------- Net cash used by operating activities.................................... (1,896) (2,158) (5,936) -------- --------- -------- Cash flows from investing activities: Maturities of investment securities - held to maturity................... 25,894 50,001 128,715 Purchases of investment securities - held to maturity.................... (17,040) (48,873) (106,111) Purchases of investment securities - available for sale.................. (17,426) (1,668) (599) Sales of investment securities - available for sale...................... 17,790 641 - Building improvements.................................................... - (38) - Purchase of real estate.................................................. - - (17,291) Other, net............................................................... - - 10 -------- --------- -------- Net cash provided by investing activities................................ 9,218 63 4,724 -------- --------- -------- Cash flows from financing activities: Stock options exercised.................................................. 17 - - Common stock repurchased................................................. - (38) - -------- -------- -------- Net cash provided (used) by financing activities......................... 17 (38) - -------- -------- -------- Net increase (decrease) in cash and cash equivalents..................... 7,339 (2,133) (1,212) Cash and cash equivalents at beginning of year........................... 2,785 4,918 6,130 -------- -------- -------- Cash and cash equivalents at end of year................................. $ 10,124 $ 2,785 $ 4,918 ======== ========= ========== Supplemental cash flow disclosure: Income taxes paid........................................................ $ 162 $ 135 $ 156 ======== ========= ==========

The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 - Organization AmBase Corporation (the "Company") is a holding company which, through a wholly owned subsidiary, owns two commercial office buildings in Greenwich, Connecticut and a 6.3% ownership interest in SDG, Inc. ("SDG"), a development stage pharmaceutical company. The Company previously owned an insurance company and a savings bank. In February 1991, the Company sold its ownership interest in The Home Insurance Company ("The Home") and its subsidiaries. On December 4, 1992, Carteret Savings Bank, FA ("Carteret") was placed in receivership by the Office of Thrift Supervision ("OTS"). The Company's main source of operating revenue is rental income earned on real estate owned. The Company also earns non-operating revenue principally consisting of interest earned on investment securities and cash equivalents. The Company continues to evaluate a number of possible acquisitions, and is engaged in the management of its assets and liabilities, including the contingent assets, as described in Notes 9 and 10. Note 2 - Summary of Significant Accounting Policies The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2004 presentation. Use of estimates in the preparation of financial statements: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, that it deems reasonable, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates and assumptions. Principles of consolidation: The consolidated financial statements are comprised of the accounts of the Company and its majority owned subsidiaries. All material intercompany transactions and balances have been eliminated. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair market value and the amount of the write down is included in the Consolidated Statement of Operations. Cash and cash equivalents: Highly liquid investments, consisting principally of funds held in short-term money market accounts, are classified as cash equivalents with original maturities of less than three months. Investment securities: Securities that the Company has both the positive intent and ability to hold to maturity are classified as investment securities - held to maturity and are carried at amortized cost. Investment securities - available for sale, which are those securities that may be sold prior to maturity, are carried at fair value, with any net unrealized gains or losses reported in a separate component of stockholders' equity, net of taxes. Interest and dividends on investment securities are recognized in the Consolidated Statement of Operations when earned. Realized gains and losses on the sale of investment securities - available for sale are calculated using an average cost basis for determining the cost basis of the securities. The fair value of publicly traded investment securities is determined by reference to current market quotations. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Income taxes: The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company recognizes both the current and deferred tax consequences of all transactions that have been recognized in the financial statements, calculated based on the provisions of enacted tax laws, including the tax rates in effect for current and future years. Net deferred tax assets are recognized immediately when a more likely than not criterion is met; that is, a greater than 50% probability exists that the tax benefits will actually be realized sometime in the future. At the present time, management has no basis to conclude that realization is more likely than not and a valuation reserve has been recorded against net deferred tax assets. Earnings per share: Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised. Stock-based compensation: The Company adopted the disclosure requirements of the Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and continues to account for stock compensation using APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25"), making pro forma disclosures of net income (loss) and earnings per share as if the fair value based method had been applied. No compensation expense, attributable to stock incentive plans, has been charged to earnings. For a further discussion and a summary of assumptions used, see Note 8. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. If the Company had elected to recognize compensation cost for stock options based on the fair value at the date of grant for stock options, consistent with the method prescribed by Statement 123, net loss and net loss per share for the year ended December 31, would have been changed to the pro forma amounts indicated below.

(in thousands, except per share data) 2004 2003 2002 ===== ===== ===== Net loss: As reported........................................................... $ (3,351) $ (3,559) $(5,133) Deduct: pro forma stock based compensation expense for stock options pursuant to Statement 123........................... (79) (104) (216) --------- --------- -------- Pro forma............................................................. $ (3,430) $ (3,663) $ (5,349) ========= ========= ======== Net loss per common share: Basic - as reported................................................... $ (0.07) $ (0.08) $ (0.11) Basic - pro forma..................................................... (0.07) (0.08) (0.11) Assuming dilution - as reported....................................... (0.07) (0.08) (0.11) Assuming dilution - pro forma ........................................ (0.07) (0.08) (0.11) ========== ========== ========

Deferred rent receivable and revenue recognition: The Company earns rental income under operating leases with tenants. Minimum lease rentals are recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized under this method and the contractual lease payment terms is recorded as deferred rent receivable and the balances of $505,000 and $363,000 as of December 31, 2004 and December 31, 2003, respectively are included in other assets on the Consolidated Balance Sheets. Revenue from tenant reimbursement of common area maintenance, utilities and other operating expenses are recognized pursuant to the tenant's lease when earned and due from tenants. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Property operating and maintenance: Included in property operating and maintenance are expenses for common area maintenance, utilities, real estate taxes and other reimbursable operating expenses, which have not been reduced by amounts reimbursable by tenants pursuant to lease agreements. Depreciation: Depreciation expense for buildings is calculated on a straight-line basis over 39 years. Tenant improvements are typically depreciated over the remaining life of the tenants lease. New Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board ("FASB") released its final revised standard entitled Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"), which will significantly change accounting practice with respect to employee stock options for both public and non-public companies. SFAS 123R requires that a public entity measure the cost of equity based service awards based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award of the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. A public entity will initially measure the cost of liability based service awards based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee stock options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Excess tax benefits will be recognized as an addition to paid-in capital and cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset. The notes to financial statements of public entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements. SFAS 123R is effective for public entities as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combination" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001, and addresses the initial recognition and measurement of goodwill and other intangible assets acquired. SFAS 142 requires that goodwill not be amortized but instead be measured for impairment. The Company adopted SFAS 141 and SFAS 142 effective July 1, 2001. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee regardless if the guarantor receives separate identifiable consideration. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 provides guidance on identifying entities for which control is achieved through means other than through voting rights and how to determine if the entity should be consolidated. In addition, FIN 46 requires all enterprises with a significant interest in the entity to make additional disclosures. The adoption of SFAS 123R, SFAS 141, SFAS 142, FIN 45 and FIN 46 have not had a significant effect, individually or in the aggregate, on the Company's consolidated financial position or consolidated results of operations. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 3 - Investment Securities Investment securities - held to maturity consist of U.S. Treasury Bills with original maturities of one year or less and are carried at amortized cost based upon the Company's intent and ability to hold these investments to maturity. Investment securities - available for sale, consist of investments in equity securities held for an indefinite period and are carried at fair value with net unrealized gains and losses recorded directly in a separate component of stockholders' equity. Investment securities at December 31 consist of the following:

2004 2003 ========================================== ========================================= Cost or Cost or Carrying Amortized Fair Carrying Amortized Fair (in thousands) Value Cost Value Value Cost Value ====== ======== ===== ====== ======== ===== Held to Maturity: U.S. Treasury Bills.......$ 8,590 $ 8,590 $ 8,586 $ 17,329 $ 17,329 $ 17,331 Available for Sale: Equity Securities........ 2,112 2,075 2,112 1,774 1,690 1,774 -------- -------- -------- -------- -------- -------- $ 10,702 $ 10,665 $ 10,698 $ 19,103 $ 19,019 $ 19,105 ========= ========= ========== ======== ======== ========

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

(in thousands) 2004 2003 ==== ==== Held to Maturity: Gross unrealized gains (losses)..................................................... $ (4) $ 2 ==== ==== Available for Sale: Gross unrealized gains.............................................................. $ 41 $ 84 ==== ==== Gross unrealized losses............................................................. $ (4) $ - ==== ====

The realized gain on the sale of investment securities available for sale for the years ended December 31, 2004 and 2003, is as follows:

(in thousands) 2004 2003 ==== ==== Net sale proceeds................................................................... $17,790 $ 641 Cost basis.......................................................................... (17,043) (577) ---------- --------- Realized gain....................................................................... $ 747 $ 64 ========== =========

During the second quarter ending June 30, 2004, the Company purchased and sold a $7 million U.S. Treasury Note resulting in a gain of $89,000 which is included in realized gains on investment securities in the 2004 Consolidated Statement of Operations. During the third quarter ended September 30, 2004, the Company purchased and sold an $8 million U.S. Treasury Note, resulting in a gain of $24,000 which is included in realized gains on investment securities in the 2004 Consolidated Statement of Operations. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) In 2002, in connection with the ongoing evaluation of its investments, the Company determined the value of its investments in SDG and AMDG, Inc. ("AMDG") had been other than temporarily impaired. Under GAAP, if an investment is other than temporarily impaired, the Company is required to reflect an adjustment in its Financial Statements. Accordingly, the Company recorded a write down, during 2002, of its investments in SDG and AMDG of $1,250,000 and $350,000, respectively. See Note 10 - Legal Proceedings - Litigation with SDG, Inc. for further information. The Company retains ownership of these investment securities consisting of convertible preferred stock and common stock in SDG and AMDG, which were purchased through private placements. These investments are carried at a written down value of $0 at December 31, 2004 and 2003. Note 4 - Earnings Per Share The calculation of basic and diluted earnings per share, including the effect of dilutive securities, for the years ended December 31, is as follows:

(in thousands, except per share data) 2004 2003 2002 ===== ====== ====== Net loss...................................................... $ (3,351) $ (3,559) $(5,133) ===== ====== ===== Weighted average common shares outstanding ................... 46,225 46,182 46,209 Effect of Dilutive Securities: Assumed stock option exercise................................. - - - -------- --------- --------- Weighted average common shares outstanding assuming dilution.. 46,225 46,182 46,209 ===== ===== ===== Net loss per common share: Basic......................................................... $ (0.07) $ (0.08) $ (0.11) Assuming dilution ............................................ (0.07) (0.08) (0.11) ===== ===== =====

Options to purchase common stock of 1,245,000 shares in 2004, 1,125,000 shares in 2003 and 1,170,000 shares in 2002 were excluded from the computation of diluted earnings per share because these options were antidilutive. Note 5 - Stockholders' Equity Authorized capital stock consists of 50,000,000 shares of cumulative preferred stock, $0.01 par value, and 200,000,000 shares of Common Stock, $0.01 par value. Changes in the outstanding shares of Common Stock of the Company are as follows:

2004 2003 2002 ============== ============== ============== Balance at beginning of year.................................. 46,158,519 46,208,519 46,208,519 Issuance of common shares..................................... 75,000 - - Common shares repurchased..................................... - (50,000) - -------------- -------------- --------------- Balance at end of year........................................ 46,233,519 46,158,519 46,208,519 ============= ============== ===============

The Company issued 75,000 previously authorized common shares during February 2004, in connection with the exercise of an employee stock option at the exercise price of $0.21 per share. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) During June 2003, the Company repurchased 50,000 shares of common stock at a purchase price of $0.75 per share pursuant to its common stock repurchase plan. At December 31, 2004 and December 31, 2003, Common Stock balances exclude 176,488 treasury shares carried at an average cost of $3.88 per share, aggregating approximately $685,000. At December 31, 2002, Common Stock balances exclude 126,488 treasury shares carried at an average of $5.12 per share aggregating approximately $647,000. At December 31, 2004, there were 5,110,000 common shares reserved for issuance under the Company's stock option and other employee benefit plans. Stockholder Rights Plan: On January 29, 1986, the Company's Board of Directors declared a dividend distribution of one right for each outstanding share of Common Stock of the Company. The rights, as amended, which entitle the holder to purchase from the Company a common share at a price of $75.00, are not exercisable until either a person or group of affiliated persons acquires 25% or more of the Company's outstanding common shares or upon the commencement or disclosure of an intention to commence a tender offer or exchange offer for 20% or more of the common shares. The rights are redeemable by the Company at $0.05 per right at any time until the earlier of the tenth day following an accumulation of 20% or more of the Company's shares by a single acquirer or group, or the occurrence of certain Triggering Events (as defined in the Stockholder Rights Plan). In the event the rights become exercisable and thereafter, the Company is acquired in a merger or other business combination, or in certain other circumstances, each right will entitle the holder to purchase from the surviving corporation, for the exercise price, Common Stock having a market value of twice the exercise price of the right. The rights are subject to adjustment to prevent dilution and expire on February 10, 2006. Common Stock Repurchase Plan: The Company's Board of Directors has approved and authorized management to establish and implement a common stock repurchase plan (the "Repurchase Plan"). The Repurchase Plan is dependent upon favorable business conditions and acceptable purchase prices for the common stock and allows for the repurchase of up to 10 million shares of the Company's common stock in the open market. During June 2003, the Company repurchased 50,000 shares of common stock at a purchase price of $0.75 per share pursuant to the Repurchase Plan. Note 6 - Comprehensive Income (Loss) Comprehensive income (loss), for the year ended December 31 is composed of net income (loss) and other comprehensive income (loss) which includes the change in unrealized gains on investment securities available for sale, and recognition of additional minimum pension liability as follows:

(in thousands) 2004 2003 =========================================== =============================== Minimum Unrealized Accumulated Unrealized Accumulated Pension Gains on Other Gains on Other Liability Investment Comprehensive Investment Comprehensive Adjustment Securities Income Securities Income ========= ========= ============= =========== =============== Balance beginning of period....$ - $ 84 $ 84 $ 22 $ 22 Reclassification adjustment for gains realized in net loss... - (432) (432) (35) (35) Change during the period....... (412) 385 (27) 97 97 ...............................--------- ----------- ------------- ----------- --------------- Balance end of period..........$ (412) $ 37 $ (375) $ 84 $ 84 ========= =========== ============= =========== ===============

AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 7 - Pension and Savings Plans The Company sponsors a non-qualified supplemental retirement plan ("Supplemental Plan") under which only one current executive officer of the Company is a participant. The cost of the Supplemental Plan is actuarially determined and is accrued but not funded. Pension expense for the Supplemental Plan for the years ended December 31 was as follows:

(in thousands) 2004 2003 2002 ==== ==== ==== Service cost of current period................................ $ 948 $ 870 $ 756 Interest cost on projected benefit obligation................. 710 646 549 Amortization of unrecognized losses........................... 232 206 82 ----------- ------------ ----------- $ 1,890 $ 1,722 $ 1,387 =========== ============ ===========

A reconciliation of the changes in the projected benefit obligation from the beginning of the year to the end of the year is as follows:

(in thousands) 2004 2003 ==== ==== Projected benefit obligation at beginning of year............................... $11,022 $ 9,601 Service cost.................................................................... 948 869 Interest cost................................................................... 710 646 Actuarial (gain) loss, including effect of change in assumptions................ 702 (56) Benefits paid................................................................... - (38) -------- ---------- Projected benefit obligation at end of year..................................... $13,382 $ 11,022 ======== =========

Accrued pension costs for the Supplemental Plan at December 31, and the major assumptions used to determine these amounts, are summarized below:

(dollars in thousands) 2004 2003 ==== ==== Actuarial present value of benefit obligations: Accumulated benefit obligations, fully vested................................... $ 11,594 $ 9,238 ======== ======== Projected benefit obligation for service rendered to date....................... $ 13,382 $ 11,022 Unrecognized net loss........................................................... (2,200) (1,730) Accumulated other comprehensive loss............................................ 412 - -------- -------- Accrued pension costs........................................................... $ 11,594 $ 9,292 ======== ======== Major assumptions: Discount rate................................................................... 5.75% 6.25% Rate of increase in future compensation......................................... 6.0% 6.0% ======== =========

The Company's unfunded accumulated benefit obligation for the Supplemental Plan exceeded the accrued pension liability as of December 31, 2004. An additional minimum liability was established to increase the accrued pension liability to the accumulated benefit obligation at December 31, 2004. This additional minimum liability was recorded as a charge to other comprehensive loss in 2004. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"), which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"). The Savings Plan permits eligible employees to make contributions of up to 15% of salary, which are matched by the Company at a percentage determined annually. The employer match is currently 100% of the employee's salary eligible for deferral. Employee contributions to the Savings Plan are invested at the employee's discretion, in various investment funds. The Company's matching contributions are invested in the same manner as the salary reduction contributions. The Company's matching contributions to the Savings Plan, charged to expense, were $45,000, $36,000 and $24,000 in 2004, 2003 and 2002, respectively. All contributions are subject to maximum limitations contained in the Code. Note 8- Incentive Plans Under the Company's 1994 Senior Management Incentive Compensation Plan (the "1994 Plan"), any executive officer of the Company whose compensation is required to be reported to stockholders under the Securities Exchange Act of 1934 (the "Participants") and who is serving as such at any time during the fiscal year as to which an award is granted, may receive an award of a cash bonus ("Bonus"), in an amount determined by the Personnel Committee of the Company's Board of Directors (the "Committee") and payable from an annual bonus fund (the "Annual Bonus Pool"). The Committee may award Bonuses under the 1994 Plan to Participants not later than 120 days after the end of each fiscal year (the "Reference Year"). If the Committee grants a Bonus under the 1994 Plan, the amount of the Annual Bonus Pool will be an amount equal to the sum of (i) plus (ii), where: (i) is ten percent (10%) of the amount by which the Company's Total Stockholders' Equity, as defined, on the last day of a Reference Year increased over the Company's Total Stockholders' Equity, as defined, on the last day of the immediately preceding Reference Year; and (ii) is five percent (5%) of the amount by which the Company's market value, as defined, on the last day of the Reference Year increased over the Company's market value on the last day of the immediately preceding Reference Year. Notwithstanding the foregoing, the 1994 Plan provides that in the event of a decrease in either or both of items (i) and/or (ii) above, the Annual Bonus Pool is determined by reference to the last Reference Year in which there was an increase in such item. If the Committee determines within the 120-day time period to award a Bonus, the share of the Annual Bonus Pool to be allocated to each Participant shall be as follows: 45% of the Annual Bonus Pool shall be allocated to the Company's Chief Executive Officer, and 55% of the Annual Bonus Pool shall be allocated pro rata to each of the Company's Participants as determined by the Committee. The Committee in its discretion may reduce the percentage of the Annual Bonus Pool to any Participant for any Reference Year, and such reduction shall not increase the share of any other Participant. The 1994 Plan is not the exclusive plan under which the Executive Officers may receive cash or other incentive compensation or bonuses. No Bonuses were paid attributable to the 1994 Plan for 2004. Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), the Company may grant to officers and employees of the Company and its subsidiaries, stock options ("Options"), stock appreciation rights ("SARs"), restricted stock awards ("Restricted Stock"), merit awards ("Merit Awards") and performance share awards ("Performance Shares"), through May 28, 2008. An aggregate of 5,000,000 shares of the Company's Common Stock are reserved for issuance under the 1993 Plan (upon the exercise of Options and Stock Appreciation Rights, upon awards of Restricted Stock and Performance Shares); however, of such shares, only 2,500,000 shares in the aggregate shall be available for issuance for Restricted Stock Awards and Merit Awards. Such shares shall be authorized but unissued shares of Common Stock. Options may be granted as incentive stock options ("ISOs") intended to qualify for favorable tax treatment under Federal tax law or as nonqualified stock options ("NQSOs"). SARs may be granted with respect to any Options granted under the 1993 Plan and may be exercised only when the underlying Option is exercisable. The 1993 Plan requires that the exercise price of all Options and SARs be equal to or greater than the fair market value of the Company's Common Stock on the date of grant of that Option. The term of any ISO or related SAR cannot exceed ten years from the date of grant, and the term of any NQSO cannot exceed ten years and one month from the date of grant. Subject to the terms of the 1993 Plan and any additional restrictions imposed at the time of grant, Options and any related SARs ordinarily will become exercisable commencing one year after the date of grant. In the case of a "Change of Control" of the AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Company (as defined in the 1993 Plan), Options granted pursuant to the 1993 Plan may become fully exercisable as to all optioned shares from and after the date of such Change in Control in the discretion of the Committee or as may otherwise be provided in the grantee's Option agreement. Death, retirement, or absence for disability will not result in the cancellation of any Options. As a condition to any award of Restricted Stock or Merit Award under the 1993 Plan, the Committee may require a participant to pay an amount equal to, or in excess of, the par value of the shares of Restricted Stock or Common Stock awarded to him or her. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered during a "Restricted Period", which in the case of grants to employees shall not be less than one year from the date of grant. The Restricted Period with respect to any outstanding shares of Restricted Stock awarded to employees may be reduced by the Committee at any time, but in no event shall the Restricted Period be less than one year. Except for such restrictions, the employee as the owner of such stock shall have all of the rights of a stockholder including, but not limited to, the right to vote such stock and to receive dividends thereon as and when paid. In the event that an employee's employment is terminated for any reason, an employee's Restricted Stock will be forfeited; provided, however, that the Committee may limit such forfeiture in its sole discretion. At the end of the Restricted Period, all shares of Restricted Stock shall be transferred free and clear of all restrictions to the employee. In the case of a Change in Control of the Company (as defined in the 1993 Plan), an employee may receive his or her Restricted Stock free and clear of all restrictions in the discretion of the Committee, or as may otherwise be provided pursuant to the employee's Restricted Stock award. Performance Share awards of Common Stock under the 1993 Plan shall be earned on the basis of the Company's performance in relation to established performance measures for a specific performance period. Such measures may include, but shall not be limited to, return on investment, earnings per share, return on stockholder's equity, or return to stockholders. Performance Shares may not be sold, assigned, transferred, pledged or otherwise encumbered during the relevant performance period. Performance Shares may be paid in cash, shares of Common Stock or shares of Restricted Stock in such portions as the Committee may determine. An employee must be employed at the end of the performance period to receive payments of Performance Shares; provided, however, in the event that an employee's employment is terminated by reason of death, disability, retirement or other reason approved by the Committee, the Committee may limit such forfeiture in its sole discretion. In the case of a Change in Control of the Company (as defined in the 1993 Plan), an employee may receive his or her Performance Shares in the discretion of the Committee, or as may otherwise be provided in the employee's Performance Share award. During January 2005, the Board of Directors of the Company approved the award of incentive and non-qualified stock options to certain employees to acquire 240,000 shares of AmBase Common Stock at an exercise price of $0.81 per share, pursuant to the 1993 Plan. The Company's 1985 Stock Option Plan (the "1985 Plan"), provided for the granting of up to 2,000,000 shares of stock options for the purchase of up to 2,000,000 shares of Common Stock to salaried employees, through May 22, 1995. No additional stock options are outstanding or can be awarded under the 1985 Plan. In February 2004, a previously issued and outstanding stock option, under the 1985 Plan, for 75,000 common shares was exercised. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued)

Incentive plan activity is summarized as follows: 1993 Stock 1985 Stock (shares in thousands) Incentive Plan Option Plan ========================= ============================= Weighted Weighted Shares Average Shares Average Under Exercise Under Exercise Option Price Option Price ===== ======= ===== ======== Outstanding at December 31, 2001................... 395 $ 1.49 75 $ 0.21 Granted............................................ 700 1.14 - - -------- ======= ------ ======== Outstanding at December 31, 2002................... 1,095 $ 1.27 75 $ 0.21 Expired............................................ (45) 4.02 - - -------- ======= ------ ======== Outstanding at December 31, 2003................... 1,050 $ 1.15 75 $ 0.21 Expired........................................... (45) 4.02 - - Granted........................................... 240 0.66 - - Exercised......................................... - - (75) 0.21 -------- ======= ------ ======== Outstanding at December 31, 2004................... 1,245 $ 1.00 - - ======== ======= ====== ======== Options exercisable at: December 31, 2004............................. 753 $ 1.04 - $ - December 31, 2003........................... 614 1.14 75 0.21 December 31, 2002............................. 285 1.81 75 0.21 ======== ======= ====== ========

The following table summarizes information about the Company's stock options outstanding and exercisable under the 1985 Plan and 1993 Plan at December 31, 2004, as follows:

(shares in thousands) Outstanding Options Options Exercisable =============================== ================================ Weighted Average Remaining Weighted Weighted Range of Contractual Average Average Exercise Life Exercise Exercise Prices Shares (in years) Price Shares Price ====== ===== ======== ======= ===== ======= $0.60 to $0.66 460 5 0.66 220 0.66 $0.95 to $1.05 60 1 1.03 60 1.03 $1.09 to $1.19 700 4 1.14 448 1.12 $2.56 to $3.65 25 4 3.00 25 3.00 -------- ===== ===== -------- ======= Total 1,245 753 ===== =====

The Company has adopted the disclosure only provisions of Statement 123, but continues to apply APB 25 in accounting for employee stock options. No compensation expense, attributable to stock incentive plans, has been charged to earnings. The fair value of stock options granted by the Company in 2004 and 2002 used to compute pro forma net income (loss) and earnings per share disclosures is the estimated fair value at date of grant. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The Black-Scholes option pricing model was used to estimate the fair value of the options at grant date based on factors as follows:

2004 2002 ====== ====== Dividend yield.............. 0% 0% Volatility.................. 0.46 0.56 Risk free interest rate..... 4.3% 5.04% Expected life in years...... 6 5-6 Weighted average fair value at grant date....... $0.32 $0.59 ====== ======

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, and given the substantial changes in the price per share of the Company's Common Stock, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For a summary of the pro forma amounts calculated in accordance with SFAS 123, see Note 2. Note 9 - Income Taxes The components of income tax expense for the years ended December 31 are as follows:

(in thousands) 2004 2003 2002 ==== ==== ==== Income tax expense - current state and local.................. $ (120) $ (125) $ (124) ==== ==== ====

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate of 35% in 2004, 2003 and 2002, and the provision for income taxes for the years ended December 31 follows:

(in thousands) 2004 2003 2002 ==== ==== ==== Loss before income taxes........................................ $ (3,231) $ (3,434) $(5,009) ========= ======== ======= Tax (expense) benefit: Tax at statutory federal rate................................... $ 1,131 $ 1,202 $ 1,753 Accounting loss benefit not recognized.......................... (1,131) (1,202) (1,753) State income taxes.............................................. (120) (125) (124) --------- -------- -------- Income tax expense.............................................. $ (120) $ (125) $ (124) ========= ======== ========

State income tax amounts for 2004, 2003 and 2002, respectively, primarily consist of a minimum tax on capital to the state of Connecticut. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) As a result of the Office of Thrift Supervision's December 4, 1992 placement of Carteret in receivership, under the management of the Resolution Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and then proposed Treasury Reg. ss.1.597-4(g), the Company had previously filed its 1992 and subsequent federal income tax returns with Carteret disaffiliated from the Company's consolidated federal income tax return. Based upon the impact of Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20, 1995, a continuing review of the Company's tax basis in Carteret, and the impact of prior year tax return adjustments on the Company's 1992 federal income tax return as filed, the Company decided not to make an election pursuant to final Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's consolidated federal income tax return effective as of December 4, 1992 (the "Election Decision"). The Company has made numerous requests to the RTC/FDIC for tax information pertaining to Carteret and the resulting successor institution, Carteret Federal Savings Bank ("Carteret FSB"); however all of the information still has not been received. Based on the Company's Election Decision, described above, and the receipt of some of the requested information from the RTC/FDIC, the Company has amended its 1992 consolidated federal income tax return to include the federal income tax effects of Carteret and Carteret FSB (the "1992 Amended Return"). The Company is still in the process of amending its consolidated federal income tax returns for 1993 and subsequent years. The Company anticipates that, as a result of filing a consolidated federal income tax return with Carteret FSB, a total of approximately $170 million of tax NOL carryforwards will be generated from the Company's tax basis in Carteret/Carteret FSB as tax losses are incurred by Carteret FSB of which $158 million are still available for future use. Based on the Company's filing of the 1992 Amended Return , approximately $56 million of NOL carryforwards are generated for tax year 1992 which expire in 2007, with the remaining approximately $102 million of NOL carryforwards to be generated, expiring no earlier than 2008. These NOL carryforwards would be available to offset future taxable income, in addition to the NOL carryforwards as further detailed below. The Company can give no assurances with regard to the 1992 Amended Return or amended returns for subsequent years, or the final amount or expiration of NOL carryforwards ultimately generated from the Company's tax basis in Carteret. In March 2000, the Company filed several carryback claims and amendments to previously filed carryback claims with the IRS (the "Carryback Claims") seeking refunds from the IRS of alternative minimum tax and other federal income taxes paid by the Company in prior years plus applicable IRS interest, based on the filing of the 1992 Amended Return. In April 2003, IRS examiners issued a letter to the Company proposing to disallow the Carryback Claims. The Company sought administrative review of the letter by protesting to the Appeals Division of the IRS. In February 2005, IRS Appeals officials completed their review of the Carryback Claims, and disallowed them. The Company is currently considering whether to file suit for the tax refunds it seeks, plus interest, with respect to the Carryback Claims. Even if the Company files suit, the Company can give no assurances as to the final amount of refunds, if any, or when they might be received. Based upon the Company's federal income tax returns as filed from 1993 to 2003 (subject to IRS audit adjustments), and excluding the NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB, as noted above, at December 31, 2004, the Company has NOL carryforwards available to reduce future federal taxable income, which expire if unused, as follows:

2008 $1,300,000 2009 6,900,000 2010 5,300,000 2012 1,100,000 2018 5,400,000 2019 4,000,000 2020 2,600,000 2021 4,000,000 2022 3,200,000 2023 1,800,000 ----------- $35,600,000 ===========

AMBASE CORPORATION AND SUBSIDIAIRES Notes to Consolidated Financial Statements (continued) The Company's federal income tax returns for the years subsequent to 1992 have not been reviewed by the IRS. The utilization of certain carryforwards is subject to limitations under U.S. federal income tax laws. In addition, the Company has approximately $21 million of AMT credit carryforwards ("AMT Credits"), which are not subject to expiration. Based on the filing of the Carryback Claims, as further discussed above, the Company would seek to realize approximately $8 million of the $21 million of AMT Credits. The Company has calculated a net deferred tax asset of $34 million as of December 31, 2004 and 2003, respectively, arising primarily from NOL's and alternative minimum tax credits (not including the anticipated tax effects of the NOL's expected to be generated from the Company's tax basis in Carteret, resulting from the Election Decision, as more fully described above). A valuation allowance has been established for the entire net deferred tax asset, as management, at the current time, has no basis to conclude that realization is more likely than not. Note 10 - Legal Proceedings The Company is or has been a party in a number of lawsuits or proceedings, including the following: (a) Litigation with SDG, Inc. In September 2000, the Company filed a lawsuit in the United States District Court for the District of Connecticut (Case No. 3:00CV1694 (DJS)) (the "Court") against SDG Inc. ("SDG"), and certain of its officers and directors to pursue various claims against such parties, including, but not limited to, the claims that SDG failed to honor a binding contract which granted the Company the right to act as the exclusive investment banking/financial advisor to SDG, and its subsidiaries and affiliates. SDG filed various counterclaims which the Company believes are without merit. A trial in this matter was completed during May 2003, and all parties submitted post trial briefs during August 2003. The Court has not yet made a ruling. The Company will continue to monitor the status of SDG and its subsidiary, AMDG, Inc., and vigorously pursue the matter. (b) Supervisory Goodwill Litigation. During the third quarter of 1993, the Company filed a claim against the United States, in the United States Court of Federal Claims (the "Court of Federal Claims" or the "Court"), based upon the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on the Company's investment in Carteret Savings Bank ("Carteret"). Approximately 120 other similar so-called "supervisory goodwill" cases, were commenced by other financial institutions and/or their shareholders, many are still pending in the Court of Federal Claims. Three of these cases, Winstar Corp. v. United States, Glendale Federal Bank, FSB v. United States, and Statesman Savings Holding Corp. v. United States (the "Consolidated Cases"), which involve many of the same issues raised in the Company's suit, were appealed to the United States Supreme Court (the "Supreme Court"). On July 1, 1996, the Supreme Court issued a decision in the Consolidated Cases. The Supreme Court's decision affirmed the lower Court's grant of summary judgment in favor of the plaintiffs on the issue of liability and remanded the cases for a determination of damages. Although the decision in the Consolidated Cases is beneficial to the Company's case, it is not necessarily indicative of the ultimate outcome of the Company's action. On September 18, 1996, the Court of Federal Claims entered an Omnibus Case Management Order that will govern further proceedings in the Company's action and most of the other so-called "Winstar-related" cases. On March 14, 1997, the Court entered an order permitting the Federal Deposit Insurance Company ("FDIC") to intervene as an additional plaintiff in forty-three cases, including the Company's case, but not allowing the FDIC to be substituted as the sole plaintiff in those cases. AMBASE CORPORATION AND SUBSIDIAIRES Notes to Consolidated Financial Statements (continued) On March 20, 1998, the FDIC filed a motion for partial summary judgment against the United States on certain liability issues, and the Company filed a memorandum in support of that motion. Fact discovery for the Company was completed November 30,1999 pursuant to an extension of time granted by the Court. On September 9, 1999, the Company filed a Motion For Partial Summary Judgment On Liability under a Fifth Amendment Takings claim theory of recovery. On November 24, 1999, the FDIC, as successor to the rights of Carteret and as Plaintiff-Intervenor in the case, filed a response brief opposing the Company's Motion. On December 6, 1999, the Department of Justice (the "DOJ") (on behalf of the United States) filed a brief opposing the Company's Motion For Partial Summary Judgment On Liability and Cross-Moved for Summary Judgment On the Company's Takings claim. On January 25, 2000, the Company responded to the DOJ's brief and the FDIC's brief by filing a Brief (i) In Reply To Defendant's Opposition To Plaintiffs' Motion For Partial Summary Judgment, (ii) In Opposition To Defendant's Cross-Motion For Summary Judgment, and (iii) In Reply To FDIC's Response To Plaintiffs' Motion For Partial Summary Judgment. On February 22, 2000 the DOJ filed a brief in Reply To Plaintiffs' Opposition To Defendant's Cross-Motion For Summary Judgment. On October 2, 2000, Senior Judge Loren Smith of the Court of Federal Claims heard oral arguments in the Company's Supervisory Goodwill case against the United States government. The Court heard arguments both as to the contractual liability of the United States to Carteret Savings Bank, and as to the Company's claim against the United States under the Takings Clause of the Fifth Amendment. On August 25, 2003, the Court of Federal Claims issued a decision in which it (i) ruled that the Government had entered into and breached its supervisory goodwill contracts with the Company's wholly-owned subsidiary, Carteret; (ii) rejected the Company's claim that it was entitled to recover damages directly from the Government under the Takings Clause for the loss of Carteret; and (iii) rejected the Company's claim that the Government had "illegally exacted" $62.5 million that the Company paid into Carteret subsequent to the Government's breach of the Goodwill contracts. Specifically, the Court held that the Company could not recover damages under the Takings Clause because it could be restored to the position it was in before the breach through Carteret's breach of contract action. On September 17, 2003, the Company filed a Motion to Dismiss The FDIC and to Define The Appropriate Measure of Carteret's Contract Damages. On September 30, 2003, the FDIC, as plaintiff-intervenor in the case, and the United States, as defendant in the case, each filed a separate response to the Company's motion. The Company argued in its motion that because Carteret would not have been seized but for the Government's breach of contract, no receivership deficit would have been incurred. Accordingly, the Company argued that Carteret should be entitled to recover contract damages that include both: (i) the full amount of the receivership deficit, as an offset to the deficit and (ii) the full amount of the positive value it would have had but for the breach. Alternatively, the Company argued that, if Carteret is not entitled to recover both these amounts, or if any award must be offset by the amount of the receivership deficit, the Company should be entitled to demonstrate why the receivership deficit has been erroneously overstated. The Department of Justice responded with the theories that Carteret would have failed even if Supervisory Goodwill was counted. The FDIC, who is both the receiver for the estate of Carteret (and hence its legal advocate in court) as well as a creditor of the estate, took the position that the Court of Federal Claims has no jurisdiction to review the accuracy, validity, or amount of the Carteret receivership deficit reported by the FDIC. That receivership deficit consists of the FDIC's subrogated claim against the thrift, interest, taxes, and administrative expenses charged by the FDIC to the thrift. Because the receivership deficit continues to accrue interest, it grows on a daily basis. The FDIC has represented to the Court of Federal Claims that is does not expect to present any expert testimony articulating a theory of damages for Carteret that would exceed the current size of the receivership. While the failure to seek damages in excess of the receivership deficit has previously been held to be cause for dismissal for lack of standing, the FDIC has stated that it believes it still has standing in this case based upon the damage theories it expects the Company to present. AMBASE CORPORATION AND SUBSIDIAIRES Notes to Consolidated Financial Statements (continued) On October 1, 2003, the Court held a telephonic status conference pursuant to an order set forth in the August 25, 2003 opinion. Pursuant to that status conference, the Court ordered that through their additional briefing on the Company's Motion to Dismiss the FDIC and to define the appropriate measure of Carteret's contract damages (i.e., through the Company's reply brief and the surreply brief granted to the FDIC and the United States), the parties should address the question of, "whether the Court has the power to review the amount of the receivership deficit as administered by the FDIC." In an order dated October 16, 2003, the Court modified the briefing schedule such that the Company filed its reply brief as required on October 31, 2003, and the surreply brief of the FDIC and the United States were filed as required in November, 2003. The Court held oral argument on this issue on November 20, 2003. The Department of Justice and the FDIC filed briefs arguing that (1) the Court of Federal Claims had no authority to scrutinize the validity of the receivership deficit reported by the FDIC and (2) the Court should dismiss AmBase's remaining damages claims because they were allegedly waived. On August 31, 2004, the Court denied the Company's Motion to Dismiss the FDIC, but granted the Company's Motion to Define the Measure of Carteret's Contract Damages to the extent it requested the Court to consider the size and value of the FDIC's receivership deficit when calculating damages. The Court subsequently conducted a status conference on October 4, 2004, and ordered the Company to submit a proposed litigation time-line to the Court by October 22, 2004 which was timely submitted. The Court ordered the United States and the FDIC to respond to the Company's proposed litigation time-line by November 5, 2004 which was timely submitted. A status conference was held on January 11, 2005. On January 12, 2005, the Court ordered that pursuant to the Court's order from the bench, the Defendant's Motion for Reconsideration of the August 31, 2004 Ruling, and, in the Alternative, to dismiss the Stockholder Derivative Claim and the Complaint-in-Intervention is denied. The Court further ordered that this matter be stayed for 30 days for the Defendant and/or Plaintiff-Intervenor to consider filing a Request for Certification for Interlocutory Appeal. The Court held a telephonic status conference on February 11, 2005 at which time the Court ordered that fact discovery was to resume on February 14, 2005 and would continue for at least three (3) months. The Court further scheduled a telephonic status conference to be held on Thursday, May 12, 2005 to discuss the need for further discovery. On January 12, 2005, Judge Smith denied the government's motion to dismiss the Company's remaining claims arising out of damages for breach of contract. On March 15, 2005, the United States Department of Justice and the FDIC each filed motions requesting that Judge Smith certify for immediate appeal his ruling that the Company is entitled to challenge the validity of the receivership deficit. The Company's filed its reply to these motions on March 29, 2005, and Judge Smith has scheduled oral argument on these motions for April 21, 2005. Because Judge Smith's ruling on the receivership deficit issue is not a final order, both Judge Smith and the Federal Circuit would have to agree to an appeal of that issue at this time. If an immediate appeal is not granted, expert discovery is likely to commence at the close of the current round of factual discovery. No assurance can be given regarding the ultimate outcome of the litigation. Both the Court of Federal Claims and the Court of Appeals for the Federal Circuit have issued numerous decisions in cases that involve claims against the United States based upon its breach of its contracts with savings and loan institutions through its 1989 enactment of FIRREA. In particular, the Federal Circuit has issued decisions rejecting Takings Clause claims advanced by shareholders of failed thrifts. Castle v. United States, 301F.3d 1328 (Fed. Cir. 2002); Bailey v. United States, 341 F. 3d 1342 (Fed. Cir 2003) petition for certiorari which was filed January 26, 2004. In April 2004, the Company filed an amicus brief in support of the petition for certiorari filed by Bailey. In June 2004, the United States Supreme Court denied the petition for certiorari filed by Bailey. The Court of Claims decision in the Company's case, as well as other decisions in Winstar-related cases, are publicly available and may be relevant to the Supervisory Goodwill Company's claims, but are not necessarily indicative of the ultimate outcome of the Company's actions. AMBASE CORPORATION AND SUBSIDIAIRES Notes to Consolidated Financial Statement (continued) Note 11 - Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for cash and cash equivalents, and accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The fair value of investment securities - held to maturity and investment securities available for sale are based on current market quotations. During 2002, other investment securities were written down to their net realizable value as further described in Note 3. The carrying value of applicable other liabilities approximates their fair value. Note 12 - Property Owned The Company owns two commercial office buildings in Greenwich, Connecticut that contain 14,500 and 38,000 square feet, respectively. The Company utilizes a small portion of the office space in the first building for its executive offices and leases the remaining square footage to unaffiliated third parties. The buildings are carried at cost, net of accumulated depreciation of $763,000 and $433,000 at December 31, 2004 and 2003, respectively. Depreciation expense is recorded on a straight-line basis over 39 years. Tenant security deposits of $305,000 and $308,000 at December 31, 2004 and 2003, respectively, are included in other liabilities. The property is leased to tenants under operating leases with varying terms. Future minimum rentals receivable from tenants under non-cancelable operating leases, excluding tenant reimbursements of operating expenses and real estate tax escalations, are approximately as follows:

December 31 ----------- 2005 .............................................. $ 2,069,000 2006............................................... 1,838,000 2007............................................... 1,619,000 2008............................................... 1,115,000 2009............................................... 955,000

Note 13 - Quarterly Financial Information (unaudited) Summarized quarterly financial information follows:

First Second Third Fourth Full (in thousands, except per share data) Quarter Quarter Quarter Quarter Year ===== ===== ===== ===== ===== 2004: Revenues................................ $ 535 $ 556 $ 561 $ 577 $ 2,229 Operating expenses...................... 1,457 1,492 1,490 2,273 6,712 Operating loss.......................... (922) (936) (929) (1,696) (4,483) Loss before income taxes................ (700) (584) (664) (1,283) (3,231) Net loss................................ (730) (614) (694) (1,313) (3,351) ======== ========= ======= ======== ======== Net loss per common share: Basic .................................. $ (0.02) $ (0.01) $ (0.02) $ (0.02) $ (0.07) Assuming dilution....................... (0.02) (0.01) (0.02) (0.02) (0.07) ======== ========= ======= ======== ======== 2003: Revenues................................ $ 614 $ 617 $ 615 $ 732 $ 2,578 Operating expenses...................... 1,392 1,857 1,573 1,614 6,436 Operating loss.......................... (778) (1,240) (958) (882) (3,858) Loss before income taxes................ (693) (1,102) (875) (764) (3,434) Net loss................................ (724) (1,133) (907) (795) (3,559) ======== ========= ======= ======== ======== Net loss per common share: Basic................................... $ (0.02) $ (0.02) (0.02) (0.02) (0.08) Assuming dilution....................... (0.02) (0.02) (0.02) (0.02) (0.08) ======== ========= ======= ======== ========

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" in Rule 13a-15. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of December 31, 2004, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning executive officers required by this item is set forth following Item 4 of Part I of this report under the caption "Executive Officers of the Registrant", pursuant to General Instruction G to Form 10-K. For the information required to be set forth by the Company in response to this item concerning directors of the Company, see the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 2005, under the captions "Proposal No. 1 - Election of Director" and "Information Concerning the Board and its Committees", which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its 2004 fiscal year. Code of Ethics We have adopted a Code of Ethics that applies to our Chief Executive Officer, Senior Financial Officer and other senior officers. A copy of the Code of Ethics was filed with the SEC as Exhibit 14 to the Company's Annual Report on Form 10-K for the year ending December 31, 2003. ITEM 11. EXECUTIVE COMPENSATION For the information required to be set forth by the Company in response to this item, see the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 2005, under the captions "Executive Compensation" and "Employment Contracts", which are incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its 2004 fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table summarizes information about securities authorized for issuance under equity compensation plans of the Company at December 31, 2004 as follows:

Shares to be issued Weighted average upon exercise of exercise price of Shares available for outstanding options outstanding options future issuance =================== =================== ==================== Equity Compensation Plans approved by stockholders 1,245,000 $ 1.00 3,755,000 Equity Compensation Plan not approved By stockholders - - 110,000 -------------- ------------------- ---------------------- Total 1,245,000 $ 1.00 3,865,000 ============== =================== ======================

Plan not approved by stockholders The Company has 110,000 shares of common stock reserved for issuance under the AmBase Corporation Stock Bonus Plan (the "Stock Bonus Plan"), which was approved by the Board of Directors of the Company in 1989. The purpose of the Stock Bonus Plan is to encourage individual performance and to reward eligible employees whose performance, special achievements, longevity of service to the Company or suggestions make a significant improvement or contribution to the growth and profitability of the Company. The Stock Bonus Plan is administered by the Personnel Committee of the Board of Directors. Members of the Personnel Committee are not eligible for an award pursuant to the Stock Bonus Plan. The Company's President may also designate eligible employees to receive awards, which are not to be in excess of 100 shares of Common Stock. No fees or expenses of any kind are to be charged to a participant. Any employee of the Company, except for certain officers or directors of the Company, are eligible to receive shares under the Stock Bonus Plan. Distributions of shares may be made from authorized but unissued shares, treasury shares or shares purchased on the open market. For other information required to be set forth by the Company in response to this item, see the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 2005, under the caption "Stock Ownership", which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its 2004 fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information concerning Principal Accountant Fees and Services is set forth by the Company under the heading "Proposal 3 - Appointment of Independent Registered Public Accounting Firm" in the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 2005, which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its 2004 fiscal year. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Documents filed as a part of this report: 1. Index to Financial Statements: Page AmBase Corporation and Subsidiaries: Report of Independent Registered Public Accounting Firm...........................................11 Consolidated Statements of Operations.............................................................12 Consolidated Balance Sheets.......................................................................13 Consolidated Statements of Changes in Stockholders' Equity........................................14 Consolidated Statements of Comprehensive Income (Loss) ...........................................14 Consolidated Statements of Cash Flows.............................................................15 Notes to Consolidated Financial Statements........................................................16 2. Index to Financial Statements Schedules: Schedule III - Real Estate and Accumulated Depreciation 3. Exhibits: 3A. Restated Certificate of Incorporation of AmBase Corporation (as amended through February 12, 1991) (incorporated by reference to Exhibit 3A to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 3B. By-Laws of AmBase Corporation (as amended through March 15, 1996), (incorporated by reference to Exhibit 3B to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4. Rights Agreement dated as of February 10, 1986 between the Company and American Stock Transfer and Trust Co. (as amended March 24, 1989, November 20, 1990, February 12, 1991, October 15, 1993, February 1, 1996 and November 1, 2000), (incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1993, the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the Quarterly period ended September 30, 2000, respectively). 10A. 1985 Stock Option Plan for Key Employees of AmBase and its Subsidiaries (incorporated by reference to Exhibit 10B to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). 10B. 1993 Stock Incentive Plan as amended (incorporated by reference to Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 28, 1998). 10C. 1994 Senior Management Incentive Compensation Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 27, 1994). 10D. AmBase Officers and Key Employees Stock Purchase and Loan Plan (incorporated by reference to Exhibit 10E to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). 10E. AmBase Supplemental Retirement Plan (incorporated by reference to Exhibit 10C to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). 10F. Assignment and Assumption Agreement dated as of August 30, 1985, between the Company and City Investing Company (incorporated by reference to Exhibit 28 to the Company's Current Report on Form 8-K dated September 12, 1985). 10G. Employment Agreement dated as of June 1, 1991 between Richard A. Bianco and the Company, as amended December 30, 1992 (incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended December 31, 1992), as amended February 24, 1997, (incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended December 31, 1996), as amended March 6, 2001, (incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended December 31, 2000), and as amended December 16, 2001, (incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ending December 31, 2001). 14. AmBase Corporation - Code of Ethics as adopted by Board of Directors (incorporated by reference to Exhibit 14 to the Company's Annual Report on Form 10-K for the year ending December 31, 2003). 21. Subsidiaries of the Registrant. 23. Consent of Independent Registered Public Accounting Firm. 31.1 Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to Rule 13a-14. 31.2 Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Rule 13a-14. 32.1 Section 1350 Certification of Chief Executive Officer pursuant to Rule 18 U.S.C. Section 1350. 32.2 Section 1350 Certification of Chief Financial Officer pursuant to Rule 18 U.S.C. Section 1350. Exhibits, except as otherwise indicated above, are filed herewith. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMBASE CORPORATION /s/ RICHARD A. BIANCO Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: March 30, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated. /s/ RICHARD A. BIANCO /s/ JOHN P. FERRARA Chairman, President, Vice President, Chief Financial Officer Chief Executive Officer & Director & Controller Date: March 30, 2005 (Principal Financial and Accounting Officer) Date: March 30, 2005 /s/ JOHN B. COSTELLO /s/ ROBERT E. LONG Director Director Date: March 30, 2005 Date: March 30, 2005 /s/ MICHAEL L. QUINN Director Date: March 30, 2005

AMBASE CORPORATION AND SUBSIDIARIES SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2004 (dollars in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ----------- ------------------ --------------------------------- ------------------- ------------------------ Cost Capitalized Subsequent to Gross Amount at which Carried at Initial Cost to Company Acquisition the Close of the Period ======================= ================ ================================ Building & Building & Description Encumbrances Land Improvements Improvements Land Improvements Total =========== =========== ====== ============ ============ ====== ============ ====== Office Building: Greenwich, CT... $ - $ 554 $ 1,880 $ 20 $ 554 $ 1,900 $2,454 Greenwich, CT... $ - 6,400 10,892 18 6,400 10,910 17,310 -------------- ------- ------------- ------------ ------ ------------ -------- Total........... $ - $6,954 $ 12,772 $ 38 $6,954 12,810 $19,764 ============== ======= ============= ============ ====== ============ ======== [Additional columns below] [Continued from above table, first column(s) repeated] COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I ----------- -------------- -------- ------------- --------------------------- Accumulated Life on Which Description Depreciation Date Constructed Date Acquired Latest Income Statement =========== ============ ================ ============= =========================== Office Building: Greenwich, CT... $ 181 1970 Apr.-01 39 years Greenwich, CT... 583 1977 Dec.-02 39 years ------------- ================ ============ =========================== Total........... $ 764 =============

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

Year Ended Year Ended Year Ended December 31, 2004 December 31, 2003 December 31, 2002 ================= ================= ================= Balance at beginning of year.............. $ 19,764 $ 19,726 $ 2,435 Improvements.............................. - 38 - Acquisitions.............................. - - 17,291 ------------------ ----------------- ----------------- Balance at end of year..................... $ 19,764 $ 19,764 $ 19,726 ================== ================= ================= Total cost for federal tax purposes at end of each year.............. $ 19,764 $ 19,764 $ 19,726 ================== ================= ================= [b] Reconciliation of accumulated depreciation as follows: Balance at beginning of year.............. $ 433 $ 104 $ 42 Depreciation expense...................... 330 329 62 ------------------ ----------------- ----------------- Balance at end of year.................... $ 763 $ 433 $ 104 ================== ================= =================

DIRECTORS AND OFFICERS Board of Directors Richars A. Bianco John B. Costello Robert E. Long Chairman, President and Private Investor Managing Director Chief Executive Officer Goodwyn, Long & Black AmBase Corporation Michael Quinn Private Investor AmBase Officers Richard A. Bianco John P. Ferrara Chairman, President and Vice President, Chief Financial Officer Chief Executive Officer and Controller INVESTOR INFORMATION

Annual Meeting of Stockholders Corporate Headquarters The 2005 Annual Meeting is currently scheduled to be held AmBase Corporation at 9:00 a.m. Eastern Time, on Friday, May 20, 2005, at: 100 Putnam Green, 3rd Floor Greenwich, CT 06830-6027 Hyatt Regency Hotel (203) 532-2000 1800 East Putnam Avenue Greenwich, CT 06870 Stockholder Inquiries Common Stock Trading Stockholder inquiries, including requests for the ==================== following: (i) change of address; (ii) replacement AmBase stock is traded through one or more market-makers of lost stock certificates;(iii) Common Stock name with quotations made available in the "pink sheets" registration changes; (iv) Quarterly Reports on published by the National Quotation Bureau, Inc. Form 10-Q; (v) Annual Reports on Form 10-K; (vi) proxy material; and (vii) information regarding Issue Abbreviation Ticker Symbol stockholdings, should be directed to: Common Stock AmBase ABCP American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038 Transfer Agent and Registrar Attention: Shareholder Services ============================ (800) 937-5449 or (718) 921-8200 Ext. 6820 American Stock Transfer and Trust Company In addition, the Company's public reports, 59 Maiden Lane including Quarterly Reports on Form 10-Q, Annual New York, NY 10038 Reports on Form 10-K and Proxy Statements, can be Attention: Shareholder Services obtained through the Securities and Exchange (800) 937-5449 or (718) 921-8200 Ext. 6820 Commission EDGAR Database over the World Wide Web at www.sec.gov. Independent Registered Public Accountants Number of Stockholders PricewaterhouseCoopers LLP As of February 28, 2005, there were PricewaterhouseCoopers Center approximately 15,000 stockholders. 300 Madison Avenue, 32nd Floor New York, NY 10017