FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


         [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934


               For the quarterly period ended September 30, 1996

        [  ]  Transition Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                         Commission file number 1-7265


                              AMBASE CORPORATION


            (Exact name of registrant as specified in its charter)


                                   DELAWARE

                           (State of incorporation)
                                  95-2962743

                     (I.R.S. Employer Identification No.)
              GREENWICH OFFICE PARK, BUILDING 2, 51 WEAVER STREET
                      GREENWICH, CONNECTICUT 06831-5155

            (Address of principal executive offices)     (Zip Code)

                                (203) 532-2000

             (Registrant's telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.

YES     X        NO

At September 30, 1996 there were 44,533,519 shares of registrant's common stock,
$0.01 par value per share, outstanding, excluding 126,488 treasury shares.


<PAGE>



AMBASE CORPORATION

QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1996

CROSS REFERENCE SHEET FOR
PARTS I AND II                                                            PAGE

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements                                                1

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           9

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                  15

Item 2.  Changes in Securities                                              16

Item 3.  Defaults Upon Senior Securities                                    16

Item 4.  Submission of Matters to a Vote of Security Holders                16

Item 5.  Other Information                                                  16

Item 6.  Exhibits and Reports on Form 8-K                                   16






*  Not Applicable.



<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      AMBASE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30
                                  (UNAUDITED)


================================================================================
(in thousands,                         Third Quarter            Nine Months
except per share data)               1996         1995        1996        1995
================================================================================

OPERATING EXPENSES:
Compensation and benefits        $    533    $     397    $  1,343   $   1,247
Professional and outside services      84          175         352         505
Insurance                              36           54         142         194
Occupancy                              27           34          68         143
Other operating                        46           40         124          82
------------------------------------------------------------------------------
                                      726          700       2,029       2,171
------------------------------------------------------------------------------
Operating loss                       (726)        (700)     (2,029)     (2,171)
------------------------------------------------------------------------------
Interest income, net                  690          779       1,948       2,167
Realized loss on sale of investment
   securities - available for sale      -            -        (182)          -
Other income                            -           90          20         144
Other income - litigation and
   contingency reserves reversal        -        1,750       8,000       1,750
------------------------------------------------------------------------------
Income (loss) from continuing
   operations before
   income taxes                       (36)       1,919       7,757       1,890
Income tax benefit (expense)         (214)      (1,849)      7,272      (1,948)
------------------------------------------------------------------------------
Income (loss) from
   continuing operations             (250)          70      15,029         (58)
Income from discontinued
   investment management
   operations, net of income
   taxes                               23           17          59          43
------------------------------------------------------------------------------

Net income (loss)                $   (227)   $      87    $ 15,088   $     (15)
==============================================================================

Per share data:
Income (loss) from
   continuing operations         $      -    $       -    $   0.34   $       -
Income from discontinued
   investment management
   operations, net of income taxes      -            -           -           -
------------------------------------------------------------------------------

Net income (loss)                $      -    $       -    $   0.34   $       -
==============================================================================

Average shares outstanding         44,534       44,534      44,534      44,534
==============================================================================

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

                                     - 1 -

<PAGE>



                      AMBASE CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


================================================================================
                                                    September 30,  December 31,
                                                             1996          1995
(in thousands)                                        (unaudited)
================================================================================

ASSETS
Cash and cash equivalents (includes $533
   and $550 of restricted cash)                         $   5,534    $   7,752
Investment securities:
   Held to maturity (market value $47,644 and $40,086)     47,676       40,055
   Available for sale, carried at fair value (cost $213)        -           69
--------------------------------------------------------------------------------
Total investment securities                                47,676       40,124
--------------------------------------------------------------------------------
Receivable from Home Holdings, Inc.                        13,234       17,183
Net assets of discontinued investment
   management operations                                      464            -
Investment management fees receivable                           -          146
Other assets                                                  257          472
------------------------------------------------------------------------------

Total assets                                            $  67,165    $  65,677
==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities                $     278    $     690
Supplemental retirement plan                                4,698        4,798
Postretirement welfare benefits                             1,546        1,633
Other liabilities                                           1,464        3,516
Litigation and contingency reserves                         3,017       12,149
Income tax reserves                                        79,091       81,082
------------------------------------------------------------------------------
Total liabilities                                          90,094      103,868
------------------------------------------------------------------------------
Minority interest                                             112           82
------------------------------------------------------------------------------
Commitments and contingencies                                   -            -
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock                                                  447          447
Paid-in capital                                           547,712      547,712
Net unrealized losses on investment securities
   - available for sale                                         -         (144)
Accumulated deficit                                      (570,553)    (585,641)
Treasury stock                                               (647)        (647)
------------------------------------------------------------------------------
Total stockholders' equity                                (23,041)     (38,273)
------------------------------------------------------------------------------

Total liabilities and stockholders' equity              $  67,165    $  65,677
==============================================================================

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

                                     - 2 -

<PAGE>



                      AMBASE CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                        Nine Months Ended September 30



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

(in thousands)                                               1996         1995
==============================================================================

CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations                $  15,029     $    (58)
Adjustments to reconcile  income (loss)
   from  continuing  operations to net cash
   used by continuing operations:
Other assets                                                 (242)         (36)
Accounts payable and accrued liabilities                     (458)        (362)
Realized loss on sale of investment securities
   - available for sale                                       182            -
Litigation and contingency reserves reversal               (8,000)      (1,750)
Litigation and contingency reserves uses                   (1,132)      (2,993)
Income tax reserves, net                                   (1,991)       3,494
Other, net                                                 (3,813)      (2,761)
------------------------------------------------------------------------------
Net cash used by operating activities
   of continuing operations                                  (425)      (4,466)
------------------------------------------------------------------------------
Cash provided by discontinued investment
   management operations                                       61           45
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investment securities - held to maturity     53,105       77,425
Purchases of investment securities - held to maturity     (58,939)     (73,859)
Proceeds from sale of investment securities
   - available for sale                                        31            -
Proceeds from Home Holdings, Inc. receivable                3,949          633
Other, net                                                      -          (49)
------------------------------------------------------------------------------
Net cash provided (used) by investing activities           (1,854)       4,150
------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                  (2,218)        (271)
Cash and cash equivalents at beginning of period            7,752        9,038
------------------------------------------------------------------------------

Cash and cash equivalents at end of period              $   5,534    $   8,767
==============================================================================

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

                                     - 3 -

<PAGE>



                      AMBASE CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION

The accompanying  consolidated  financial  statements of AmBase  Corporation and
subsidiaries (the "Company") are unaudited and subject to year-end  adjustments.
All material intercompany transactions and balances have been eliminated. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations.  Results for interim
periods are not  necessarily  indicative  of results for the full year.  Certain
reclassifications  have been made to the 1995 consolidated  financial statements
to  conform  with the 1996  presentation.  The  financial  statements  have been
prepared in accordance with generally accepted accounting  principles  ("GAAP").
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.

In addition, while the accompanying  consolidated financial statements have been
prepared on a going concern basis,  circumstances  exist which raise substantial
doubt  about the ability of the  Company to  continue  as a going  concern.  The
financial  statements do not include adjustments to the carrying value of assets
and  liabilities  which might be  necessary  should the Company not  continue in
operation.  Substantial  contingent  and alleged  liabilities  exist against the
Company through certain lawsuits and proceedings, see Part II - Item 1. In order
to continue on a long-term  basis,  the Company must both resolve its contingent
and alleged  liabilities  by prevailing  upon or settling  these claims for less
than the  amounts  claimed  and  generate  profitable  operations  by  acquiring
existing  operations and/or by developing new operations.  The Company continues
to  evaluate  a  number  of   business   opportunities   to  acquire   operating
subsidiaries,  and is  engaged in the  management  of its  remaining  assets and
liabilities,   including  the   contingent   and  alleged  tax  and   litigation
liabilities,  as  described  in  Part  II -  Item  1.  The  Company  intends  to
aggressively contest all pending and threatened  litigation and proceedings,  as
well as pursue all sources  for  contributions  to  settlements.  The  unaudited
interim financial statements presented herein should be read in conjunction with
the Company's  consolidated  financial  statements filed in its Annual Report on
Form 10-K for the year ended December 31, 1995.

The Company's main source of non-operating  revenue is interest income earned on
investment  securities and cash equivalents.  The Company's  management  expects
that operating  cash needs for the remainder of 1996 will be met  principally by
the Company's current financial resources,  the receipt of non-operating revenue
consisting  of  interest  income  received  on  investment  securities  and cash
equivalents.

NOTE 2 - LEGAL PROCEEDINGS

The  Company  has  significant  alleged tax  liabilities  and is a defendant  in
certain  lawsuits and  proceedings,  the ultimate  outcome of which could have a
material  adverse  effect on its financial  condition and results of operations.
Because of the nature of the  contingent  and alleged  liabilities  described in
Part II - Item 1, and the inherent  difficulty in predicting  the outcome of the
litigation  and  proceedings,  management  is  unable  to  predict  whether  the
Company's recorded  liabilities will be adequate or its resources  sufficient to
satisfy  its  ultimate  obligations.  The  accompanying  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
these  uncertainties.  For a  discussion  of the  alleged  tax  liabilities  and
lawsuits,  see Part II - Item 1. Although the basis for the  calculation  of the
litigation  and  contingency  reserves  and income tax  reserves  are  regularly
reviewed by the Company's  management and outside legal counsel,  the assessment
of these reserves includes an exercise of judgment and is a matter of opinion.



                                    - 4 -

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Management of the Company  continually  reviews the  likelihood of liability and
associated costs of pending and threatened litigation.  In the second quarter of
1996, the Company  determined that there was a reduced  probability of incurring
costs to defend  and/or  settle  potential  litigation  with respect to Carteret
Savings  Bank,  FA  ("Carteret"),  see  Part  II - Item 1 -  Legal  Proceedings,
Government  Action  and the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 1995, Item 8 - Note 11. As a result,  the Company reduced its
litigation  and  contingency  reserves by $8,000,000 and recorded such amount as
other  income  during the 1996 second  quarter.  In making  such  determination,
management took into  consideration  numerous factors,  including the failure of
the Resolution Trust Corporation  ("RTC") to notify the Company of any potential
legal action prior to the  expiration  of a significant  statute of  limitations
deadline and the transfer of the investigative  duties of the RTC to the Federal
Deposit Insurance  Corporation ("FDIC") upon the expiration of the RTC's charter
on December 31, 1995,  pursuant to federal  statute.  Management also considered
the July 1, 1996 decision by the U.S. Supreme Court in the consolidated cases of
Winstar,  Glendale Federal and Statesman  supervisory goodwill cases, which held
the United States liable for damages.  At September 30, 1996, the litigation and
contingency   reserves  were  $3,017,000.   For  a  discussion  of  alleged  tax
liabilities and lawsuits, see Part II - Item 1.

In  addition  to the  litigation  and  contingency  reserves,  the Company has a
reserve for income taxes of  $79,091,000  at September  30, 1996.  For a further
discussion,  see Part II - Item 1 - Legal  Proceedings,  Disputes  with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles) and Fresh Start.

See  Part  II -  Item  1 -  Legal  Proceedings,  for a  discussion  of  Goodwill
Litigation.

During  the third  quarter  of 1995,  the  Company  recorded  as other  income a
$1,750,000 net reduction in the litigation and contingency reserves. This amount
consisted of a $3,600,000  reduction  resulting  from the  settlement of certain
litigation at amounts less than claimed and previously anticipated,  offset by a
$1,850,000  increase due to the continuing  review of the costs  associated with
litigation and proceedings  pending against the Company,  based upon progress to
date.  At September  30, 1995,  the  litigation  and  contingency  reserves were
$17,432,000.

NOTE 3 - DISCONTINUED INVESTMENT MANAGEMENT OPERATIONS

On  September  20,  1996,  the  Company  agreed to sell its entire  interest  in
Augustine Asset  Management,  Inc.  ("Augustine") to Augustine,  for $500,000 in
cash.  Augustine is  controlled  by Mr.  Ronald J. Burns.  Mr. Burns  previously
served as a director of the Company from January 1991 until his resignation from
the Company's  Board on December 28, 1995. The Company  acquired a 51% ownership
interest in  Augustine  on November  10, 1993 for  $200,000,  and the  Company's
ownership  percentage  in Augustine  later  increased to 66% due to  Augustine's
repurchase of outstanding shares from other shareholders.

Accordingly  as of September 30, 1996,  the  operations  of Augustine  have been
designated  as  discontinued  operations,  and the  consolidated  statements  of
operations for the periods presented herein have been retroactively reclassified
to report the income from discontinued operations separately from the results of
continuing  operations  by  excluding  the  operating  revenues  and expenses of
discontinued  operations from the respective  statement captions.  The amount of
income  taxes  allocated to  discontinued  operations  reflects the  incremental
effect on income taxes that resulted from such operations.

See  Note 8 to the  Company's  consolidated  financial  statements  for  further
information.



                                    - 5 -

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Summarized  information relating to income from discontinued  operations for the
third quarter and nine months ended September 30 is as follows:

==============================================================================
                                       Third Quarter             Nine Months
(in thousands)                       1996         1995        1996        1995
==============================================================================
Investment management
   fee revenue                  $     174    $     132   $     479    $    368
Operating expenses                   (116)         (86)       (339)       (250)
Interest income                         1            -           2          (3)
Minority interest                     (12)         (12)        (30)        (31)
------------------------------------------------------------------------------
Income from discontinued
   operations before taxes             47           34         112          84
Income tax expense                    (24)         (17)        (53)        (41)
------------------------------------------------------------------------------
Income from discontinued
   operations through
   September 30, 1996           $      23    $      17   $      59    $     43
==============================================================================

Investment  management fee revenue  includes  $49,000 and $142,000 for the third
quarter and nine months ended September 30, 1996, respectively,  and $44,000 and
$118,000, in the comparable 1995 periods, from related parties.

The net assets of  discontinued  operations  are  presented in the  consolidated
balance sheet at September 30, 1996, as a single amount as follows:

==============================================================================
(in thousands)
==============================================================================
Cash                                                                   $    99
Investment management fees receivable                                      177
Goodwill                                                                   217
Other assets                                                                32
Other liabilities                                                          (61)
------------------------------------------------------------------------------
Net assets of discontinued operations                                  $   464
==============================================================================

The outside investors' interest in Augustine, $112,000 at September 30, 1996, is
reflected as minority interest in the consolidated balance sheet.

Investment management fees receivable includes $48,000 from related parties.

NOTE 4 - CASH AND CASH EQUIVALENTS

Highly liquid  investments,  consisting  principally of funds held in short-term
money market accounts, are classified as cash equivalents.  Included in cash and
cash  equivalents at September 30, 1996 is $533,000 of funds held in escrow,  to
be applied to the satisfaction of certain liabilities which have been classified
as  restricted.  Included in cash and cash  equivalents  at December 31, 1995 is
$550,000 of funds held in escrow in connection  with a legal  proceeding,  which
have been classified as restricted.



                                    - 6 -

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5 - INVESTMENT SECURITIES

The Company  accounts for investment  securities in accordance with Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt  and  Equity  Securities"  ("Statement  115"),  which  requires  investment
securities to be classified as Held to Maturity  (only  permitted for securities
with a stated maturity), Available for Sale or Trading Securities.

Investment securities - held to maturity, at September 30, 1996 and December 31,
1995,  consist of U.S.  Treasury  Bills with original  maturities of one year or
less and which are carried at amortized cost based upon the Company's intent and
ability to hold these investments to maturity.

Investment  securities - available for sale, at December 31, 1995,  consisted of
investments in equity  securities  held for an indefinite  period and which were
carried at fair value with net unrealized gains and losses recorded  directly in
a separate component of stockholders' equity.

Investment  securities,  at  September  30  and  December  31,  consist  of  the
following:

================================================================================
                                  1996                          1995
                      ----------------------------  ----------------------------
                                  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
  maturing within
  one year             $47,676    $47,676  $47,644   $40,055    $40,055  $40,086

Available for Sale:
Equity Securities            -          -        -        69        213       69
--------------------------------------------------------------------------------

                       $47,676    $47,676  $47,644   $40,124    $40,268  $40,155
================================================================================

The gross unrealized gains and losses on investment securities,  at September 30
and December 31, consist of the following:

================================================================================
(in thousands)                                                  1996        1995
================================================================================

Held to Maturity:
Gross unrealized gains (losses)                               $  (32)    $    31
================================================================================
Available for Sale:
Gross unrealized losses                                       $    -     $   144
================================================================================

During the nine month period ended September 30, 1996,  proceeds of $31,000 were
received from the sale of investment  securities - available for sale, resulting
in a realized loss of $182,000.

No investment  securities - available for sale were sold in the third quarter of
1996 and the third quarter and nine month periods of 1995.



                                    - 7 -

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Additional  information  regarding cash flow for the nine months ended September
30 is as follows:

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

(in thousands)                                                  1996        1995
================================================================================
Cash received (paid) during the period:
Income taxes refunded (paid), net                          $   5,299   $   (134)
================================================================================

Income taxes refunded (paid) in 1996 include a 1977 tax refund of $7,613,000 and
$1,991,000 of payments to the Internal Revenue Service ("IRS"),  principally for
the 1985 through 1991 tax years.

NOTE 7 - INCOME TAXES

The Company and its 100% owned domestic subsidiaries file a consolidated federal
income tax return.  The Company  accounts  for income taxes in  accordance  with
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes" ("Statement 109"). Statement 109 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.  Statement  109  requires
that net deferred tax assets be recognized  immediately  when a more likely than
not criterion is met; that is, unless a greater than 50% probability exists that
the tax  benefits  will  actually  be realized  sometime  in the  future.  Under
Statement  109,  the  Company has  calculated  a net  deferred  tax asset of $28
million and $30  million,  as of  September  30,  1996 and  December  31,  1995,
respectively,  arising  primarily  from the excess of book over tax reserves and
alternative  minimum tax credits. 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.

During the first quarter of 1996, the Company  received a 1977 income tax refund
of $7,613,000.  This amount has been  recognized as an income tax benefit in the
accompanying  consolidated  Statement  of  Operations,   based  on  management's
continuing review of the overall tax liability position of the Company.

During the first nine  months of 1996,  $1,991,000  of  payments to the IRS were
charged  against  income tax  reserves,  principally  representing  payments for
previously agreed to issues relating to the 1985 through 1991 tax years.

NOTE 8 - SUBSEQUENT EVENT

On October 4, 1996, the Company completed the sale of Augustine,  resulting in a
pretax gain, to be recognized  in the fourth  quarter of 1996, of  approximately
$148,000.


                                    - 8 -

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND
         RESULTS OF OPERATIONS

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  which  follows,  should be read in  conjunction  with the Financial
Statements  and  related  notes,  which  are  contained  in Item 1,  herein.  On
September 20, 1996, the Company agreed to sell its entire interest in Augustine.
Accordingly,  the operations of Augustine have been reclassified as discontinued
investment  management  operations in the  accompanying  consolidated  financial
statements.

FINANCIAL CONDITION

The Company's  assets at September 30, 1996 aggregated  $67,165,000,  consisting
principally of cash and cash equivalents of $5,534,000, investment securities of
$47,676,000  and a  $13,234,000  receivable  from  Home  Holdings,  Inc.  ("Home
Holdings"),  acquired  pursuant to the  agreement  by which the Company sold The
Home  Insurance  Company ("The Home") and its  subsidiaries  to Home Holdings in
February 1991. During the first nine months of 1996, proceeds of $3,949,000 from
the Home Holdings receivable were collected,  a portion of which will be applied
to the  satisfaction  of certain  liabilities.  For further  information  on the
Company's receivable from Home Holdings, see the Company's Annual Report on Form
10-K for the year ended  December  31,  1995,  Item 8 Note 4, for the year ended
December 31, 1995. At September 30, 1996, the Company's  liabilities,  including
reserves for contingent and alleged liabilities, as further described in Part II
- Item 1, exceeded total assets by $23,041,000.

The Company  contractually assumed the tax liabilities of City Investing Company
("City"),  which,  prior to September 1985, owned all the outstanding  shares of
Common  Stock of the  Company.  During the first  quarter of 1996,  the  Company
received a 1977  income tax refund of  $7,613,000;  as a result,  City no longer
remains  open for  refunds.  This  amount has been  recognized  as an income tax
benefit in the  accompanying  consolidated  Statement  of  Operations,  based on
management's  continuing  review of the  overall tax  liability  position of the
Company.  The Company also contractually  assumed certain tax liabilities of The
Home and its  subsidiaries  from  September  1985 through 1989.  For all periods
through  1991,  the IRS and the  Company do not agree  with  respect to only two
issues, withholding taxes (Netherlands Antilles) and "fresh start" (an insurance
industry issue).

With respect to withholding taxes (Netherlands  Antilles),  on May 11, 1995, the
IRS issued a Notice of Deficiency for withholding taxes on interest payments for
the years 1979 through 1985. In the Notice of Deficiency,  the IRS contends that
City's  wholly  owned   Netherlands   Antilles  finance   subsidiary  should  be
disregarded  for tax  purposes.  The  Company  vigorously  contested  the  IRS's
position in accordance with the IRS's internal  appeals  procedures.  In January
1992,  the National  Office of the IRS issued  technical  advice  supporting the
auditing agent's position.  In October 1992, the Company appealed this technical
advice to the National  Office.  The National Office advised the Company that it
expected to issue technical  advice  supporting the auditing  agent's  position,
whereupon  the Company  advised the IRS that it was  withdrawing  its  technical
advice request.

On June 30, 1995,  the Company  filed a petition in the United  States Tax Court
contesting  the  Notice of  Deficiency.  The IRS filed its  answer on August 23,
1995.  The Company filed a motion for summary  judgment in its favor on February
13,  1996.  On April  17,  1996,  the IRS  filed a Notice  of  Objection  to the
Company's  motion for summary  judgment.  The United States Tax Court requested,
and the  Company  filed,  on July  3,  1996,  a reply  to the  IRS's  Notice  of
Objection.  On September  19, 1996,  the Court denied the  Company's  motion for
summary  judgment  without  prejudice.  Based on the Court's  examination of the
record and the status of the discovery process, the Court concluded that summary
adjudication at this time was  inappropriate.  The Court directed the parties to
engage in full and complete  discovery as expeditiously  as possible.  The Court
has set a trial  date for March 17,  1997.  If the IRS were to  prevail  on this
issue,  the  Company  would be liable  for taxes and  interest  in excess of the
Company's financial resources.



                                    - 9 -

<PAGE>



In a case dealing with a  withholding  tax issue  similar to the  Company's,  on
November 6, 1995,  the United  States Tax Court ("Tax  Court") ruled in favor of
the taxpayer,  Northern Indiana Public Service Co. ("Northern Indiana"). The Tax
Court  rejected the IRS's  contention  that interest paid to Northern  Indiana's
foreign  subsidiary  were  subject  to United  States tax  withholding.  The IRS
appealed this decision (Northern Indiana Public Service Co. v. Commissioner, 105
T.C. No. 22) to the United States Court of Appeals for the 7th Circuit. Although
the Northern  Indiana case could be beneficial to the Company's  case, it is not
necessarily  indicative  of the ultimate  result of the final  settlement of the
Netherlands Antilles issue between the Company and the IRS.

Based on an evaluation of the IRS's contention,  counsel has advised the Company
that, although the outcome in litigation can by no means be assured, the Company
has a very strong case and should prevail. Notwithstanding counsel's opinion and
the Tax Court's ruling in the Northern  Indiana case, it is not possible at this
time to determine the final  disposition of this issue,  when the issues will be
resolved,  or their final financial effect. A final disposition of this issue in
the  Company's  favor would have a material,  positive  effect on the  Company's
Consolidated Statement of Operations and Balance Sheet.

With respect to the "fresh  start"  issue,  on March 13, 1996,  the IRS issued a
Notice of  Deficiency  to the Company,  which asserts an increase in tax for the
year  1987.  If the IRS is  successful,  the amount of the  deficiency  would be
material. The Company believes that it has meaningful defenses. On June 7, 1996,
the   Company   filed  a  petition   with  the  United   States  Tax  Court  for
redetermination of the tax. See Part II - Item 1, Legal Proceedings, Withholding
Taxes (Netherlands Antilles) and Fresh Start for additional details. See Results
of Operations below, for a further discussion of taxes.

Management of the Company  continually  reviews the  likelihood of liability and
associated costs of pending and threatened litigation.  In the second quarter of
1996, the Company  determined that there was a reduced  probability of incurring
costs to defend and/or settle potential litigation with respect to Carteret, see
Part  II - Item 1 - Legal  Proceedings,  Government  Action.  As a  result,  the
Company  reduced its  litigation  and  contingency  reserves by  $8,000,000  and
recorded such amount as other income during the 1996 second  quarter.  In making
such  determination,   management  took  into  consideration  numerous  factors,
including  the failure of the RTC to notify the Company of any  potential  legal
action prior to the expiration of a significant statute of limitations  deadline
and the  transfer  of the  investigative  duties of the RTC to the FDIC upon the
expiration  of the RTC's  charter  on  December  31,  1995  pursuant  to federal
statute.  Management  also  considered  the July 1,  1996  decision  by the U.S.
Supreme  Court  in the  consolidated  cases of  Winstar,  Glendale  Federal  and
Statesman  supervisory  goodwill cases,  which held the United States liable for
damages. In addition, $1,132,000 of payments for settlements and legal fees were
charged  against the litigation and  contingency  reserves during the first nine
months of 1996,  reducing the litigation and contingency  reserves by a total of
$9,132,000.  At September 30, 1996, the litigation and contingency reserves were
$3,017,000.  For a discussion of alleged tax liabilities and lawsuits,  see Part
II Item 1.

In  addition  to the  litigation  and  contingency  reserves,  the Company has a
reserve for income taxes of  $79,091,000  at September  30, 1996.  For a further
discussion,  see Part II - Item 1 - Legal  Proceedings,  Disputes  with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles) and Fresh Start.

During  the third  quarter  of 1995,  the  Company  recorded  as other  income a
$1,750,000 net reduction in the litigation and contingency reserves. This amount
consisted of a $3,600,000  reduction  resulting  from the  settlement of certain
litigation at amounts less than claimed and previously anticipated,  offset by a
$1,850,000  increase due to the continuing  review of the costs  associated with
litigation and proceedings  pending against the Company,  based upon progress to
date. In addition,  in the third quarter and nine month periods ended  September
30, 1995,  the Company  recorded as  additional  income tax expense a $1,800,000
increase in the income tax reserves. The increase in the income tax reserves was
the  result of the  continuing  review of the  income  tax  reserves,  including
additional reserves for amounts considered unrealizable.



                                    - 10 -

<PAGE>



In June 1995, the Company  received,  with respect to 1990 and 1991,  $1,690,000
from The Home in connection with a tax sharing agreement between the Company and
The Home.  This amount did not reduce the receivable  from Home Holdings.  Since
the $1,690,000 had previously  been  considered in the calculation of income tax
reserves,  the  receipt  thereof  was  recorded as an increase to the income tax
reserves account at September 30, 1995.

Although  the  basis  for the  calculation  of the  litigation  and  contingency
reserves  and the income tax reserves are  regularly  reviewed by the  Company's
management and outside legal counsel,  the assessment of these reserves includes
an exercise of  judgment,  and is a matter of opinion.  Because of the nature of
the contingent and alleged liabilities and the inherent difficulty in predicting
the outcome of the litigation and  proceedings,  management is unable to predict
whether the  Company's  recorded  liabilities  will be adequate or its resources
sufficient to satisfy its ultimate  obligations.  The accompanying  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.  For a discussion of alleged tax liabilities and
lawsuits, see Part II - Item 1.

The cash needs of the Company for the first nine months of 1996 were principally
satisfied by the receipt of a 1977 tax refund, the continued  collections of the
receivable  from Home  Holdings  and  interest  income  received  on  investment
securities  and cash  equivalents.  Management  believes that the Company's cash
resources are sufficient to continue  operations for 1996. Because of the nature
of the contingent and alleged liabilities described in Part II - Item 1, and the
inherent difficulty in predicting the outcome of the litigation and governmental
proceedings,  management  is unable to predict  whether the  Company's  recorded
liabilities will be adequate or its resources sufficient to satisfy its ultimate
obligations.

For the nine months  ended  September  30,  1996,  cash of $425,000  was used by
operating  activities of continuing  operations,  including the payment of other
liabilities,  payments  charged  against  income tax reserves and litigation and
contingency reserves, and the payment of operating expenses, partially offset by
the receipt of a 1977 tax refund,  and the receipt of interest  income.  For the
nine months ended  September 30, 1995, cash of $4,466,000 was used by continuing
operations,  including  payments  charged against the litigation and contingency
reserves  and the payment of  operating  expenses  partially  offset by interest
income,  and the receipt of $1,690,000,  with respect to 1990 and 1991, from The
Home, in  connection  with a tax sharing  agreement  between the Company and The
Home.

The Company continues to evaluate a number of business  opportunities to acquire
operating subsidiaries, and is engaged in the management of its remaining assets
and  liabilities,  including  the  contingent  and  alleged  tax and  litigation
liabilities,  as  described  in  Part  II - Item 1.  Extensive  discussions  and
negotiations  are ongoing with respect to certain of these matters.  The Company
intends to  aggressively  contest  all  pending and  threatened  litigation  and
proceedings, as well as pursuing all sources of contributions to settlements. In
order to continue  on a  long-term  basis,  the  Company  must both  resolve its
contingent and alleged  liabilities by prevailing  upon or settling these claims
for less  than  the  amounts  claimed  and  generate  profitable  operations  by
acquiring existing operations and/or by developing new operations.

There were no material  commitments for capital expenditures as of September 30,
1996.



                                    - 11 -

<PAGE>



RESULTS OF OPERATIONS - CONTINUING OPERATIONS

Summarized  financial  information for the continuing  operations of the Company
for the third quarter and nine months ended September 30 is as follows:

==============================================================================
                                         Third Quarter          Nine Months
(in thousands)                         1996        1995      1996         1995
==============================================================================
Operating expenses:
Compensation and benefits          $   533      $   397  $  1,343     $  1,247
Professional and outside services       84          175       352          505
Insurance                               36           54       142          194
Occupancy                               27           34        68          143
Other operating                         46           40       124           82
------------------------------------------------------------------------------
                                       726          700     2,029        2,171
------------------------------------------------------------------------------
Operating loss                        (726)        (700)   (2,029)      (2,171)
------------------------------------------------------------------------------
Interest income, net                   690          779     1,948        2,167
Realized loss on sale of
   investment securities
   - available for sale                  -            -      (182)           -
Other income                             -           90        20          144
Other income - litigation
   and contingency reserves reversal     -        1,750     8,000        1,750
------------------------------------------------------------------------------
Income (loss) from
   continuing operations
   before income taxes                 (36)       1,919     7,757        1,890
Income tax benefit (expense)          (214)      (1,849)    7,272       (1,948)
------------------------------------------------------------------------------

Income (loss) from
   continuing operations           $  (250)     $    70   $15,029     $    (58)
==============================================================================

The Company's main source of non-operating  revenue is interest income earned on
investment  securities and cash equivalents.  The Company's  management  expects
that operating  cash needs for the remainder of 1996 will be met  principally by
the  Company's  current  financial  resources  and the receipt of  non-operating
revenue  consisting of interest income earned on investment  securities and cash
equivalents.

The Company recorded a loss from continuing  operations of $250,000 in the third
quarter  ended  September  30, 1996,  and income from  continuing  operations of
$15,029,000 in the nine month period ended  September 30, 1996. In the same 1995
periods, the Company recorded income from continuing operations of $70,000 and a
loss from continuing operations of $58,000,  respectively.  As further described
in Financial Condition,  above, the 1996 nine month period includes other income
of $8,000,000,  resulting  from a reduction in the  litigation  and  contingency
reserves,  and an additional  income tax benefit of $7,613,000.  Excluding these
non-recurring  items,  the Company  would have  reported a loss from  continuing
operations of $584,000 for the nine month period ended September 30, 1996.

The Company  recorded a loss from continuing  operations  before income taxes of
$36,000 in the third quarter ended September 30, 1996. For the nine month period
ended September 30, 1996, the Company recorded income from continuing operations
before income taxes of $7,757,000, which includes an $8,000,000 reduction in the
litigation  and  contingency   reserves,   as  further  described  in  Financial
Condition, above.

In the third  quarter and nine month  periods  ended  September  30,  1995,  the
Company  recorded  income from  continuing  operations  before  income  taxes of
$1,919,000  and  $1,890,000,  respectively,  which  includes  a  $1,750,000  net
reduction  in  litigation  and  contingency  reserves,  as further  described in
Financial Condition, above.

Operating expenses increased by $26,000 in the 1996 third quarter,  and declined
by $142,000 in the nine month period ended September 30, 1996, compared with the
third quarter and nine month  periods of 1995.  The reduced level of expenses in
the 1996 nine month period is the result of management's  continuing  efforts to
reduce and control costs.

                                    - 12 -

<PAGE>



Compensation and benefits increased to $533,000 and $1,343,000 in the 1996 third
quarter  and nine  month  periods,  respectively,  compared  with  $397,000  and
$1,247,000 for the comparable 1995 periods.  The increase in the 1996 periods is
due to the hiring by the Company of an employee who previously provided services
as an  independent  consultant,  offset,  to some extent,  by a net reduction in
benefit expenses.

Professional and outside services decreased to $84,000 and $352,000 in the third
quarter and nine month  periods ended  September 30, 1996,  compared to $175,000
and $505,000 in the respective 1995 periods.  This decrease was the result of an
overall  decrease  in  expenses  for legal and other  professional  and  outside
services. The decrease in professional and outside services of $153,000, or 30%,
in the nine month period of 1996,  compared with the same 1995 period, more than
offset the increase of $96,000,  or 8%, in compensation and benefits in the same
1996 nine month period.

Insurance,  occupancy and other operating expenses in the third quarter and nine
month periods ended  September 30, 1996, as compared with the same 1995 periods,
decreased  due  to  management's  renegotiation  of  insurance  programs  and  a
continuing reduction of expenses.

Interest income in the third quarter and nine month periods of 1996 decreased to
$690,000 and  $1,948,000,  respectively,  from  $779,000 and  $2,167,000  in the
respective 1995 periods. The decrease in the 1996 periods,  compared to the 1995
periods,  was  attributable  to  a  decreased  yield  on  cash  equivalents  and
investment securities.

During the first quarter of 1996, the Company  received a 1977 income tax refund
of $7,613,000.  This amount has been  recognized as an income tax benefit in the
accompanying Statement of Operations, based on management's continuing review of
the overall tax  liability  position of the  Company,  as further  described  in
Financial  Condition,  above.  In  addition,  included  in  income  tax  benefit
(expense)  is a federal and state tax  provision of $214,000 and $341,000 in the
third quarter and nine month period ended September 30, 1996,  respectively.  In
the third quarter and nine month periods ended  September 30, 1995,  the Company
recorded as  additional  income tax expense a $1,800,000  increase in the income
tax  reserves.  The  increase in the income tax reserves in the 1995 periods was
the  result  of the  continuing  review of the  income  tax  reserves  including
additional reserves for amounts considered unrealizable.  In addition,  included
in income tax expense is a state tax  provision  of $49,000 and  $148,000 in the
1995 third quarter and nine month period, respectively.  Income taxes applicable
to operating  income (loss) are  generally  determined by applying the estimated
effective  annual income tax rates to pretax income (loss) for the  year-to-date
interim period.  Income taxes  applicable to unusual or  infrequently  occurring
items are provided in the period in which such items occur.



                                    - 13 -

<PAGE>



DISCONTINUED INVESTMENT MANAGEMENT OPERATIONS

Income from discontinued operations for the third quarter and nine month periods
ended September 30, 1996 was $23,000 and $59,000,  respectively,  which reflects
the unaudited results of Augustine's operations.  For the third quarter and nine
month periods  ended  September 30, 1995,  income from  discontinued  investment
management  operations  was $17,000 and $43,000,  respectively.  A gain from the
sale of the Company's entire interest in Augustine, is expected to be recognized
in the  fourth  quarter  of 1996.  See  Item 1 - Notes 3 and 8 to the  Company's
consolidated financial statements for a further discussion.

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
      40 Wall Street, 46th Floor
      New York, NY  10005
      Attention:  Shareholder Services
      (800) 937-5449 OR (718) 921-8200


                                    - 14 -

<PAGE>



PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The information  contained in Item 8 - Note 11 in AmBase's Annual Report on Form
10-K for the year ended  December 31, 1995 and in AmBase's  Quarterly  Report on
Form 10-Q for the  quarterly  periods ended March 31, 1996 and June 30, 1996 are
incorporated by reference herein, and the defined terms set forth below have the
same  meaning  ascribed  to them in those  Reports.  There have been no material
developments in such legal proceedings, except as set forth below.

(a)  The  Company  is a  defendant  in a  number  of  lawsuits  or  proceedings,
including, but not limited to, the following:

Angel et al. v. AmBase Corp.,  et al. In the Angel case, the Company has entered
into negotiations to settle the case with the plaintiffs. Further proceedings in
this matter have been postponed until the completion of the negotiations.

Rolo and  Tenerelli  v. City  Investing  Company  Liquidating  Trust et al.  The
parties have completed  briefing and argument and are awaiting a decision by the
Court of Appeals on the  plaintiffs'  appeal of the dismissal of the case by the
District Court.

Sovereign  Metal.  The Company  moved for summary  judgment and the dismissal of
plaintiffs' claims. The case is currently scheduled for a pretrial conference on
November 18, 1996.

Disputes with Internal Revenue Service.

   Withholding  Taxes  (Netherlands  Antilles).  The Company  filed a motion for
   summary  judgment in its favor on February 13, 1996.  On April 17, 1996,  the
   IRS filed a Notice of Objection to the Company's motion for summary judgment.
   The United States Tax Court requested, and the Company filed on July 3, 1996,
   a reply to the IRS's Notice of Objection.  On September  19, 1996,  the Court
   denied the Company's motion for summary judgment without prejudice.  Based on
   the  Court's  examination  of the  record  and the  status  of the  discovery
   process,  the Court  concluded  that  summary  adjudication  at this time was
   inappropriate.  The Court directed the parties to engage in full and complete
   discovery as  expeditiously  as possible.  The Court has set a trial date for
   March 17, 1997.

The actions against the Company, including those identified in (a) above, are in
various  stages.  The  allegations  and claims are material and, if  successful,
could result in  substantial  judgments  against the Company.  To the extent the
aggregate of any such  judgments were to exceed the resources  available,  these
matters  could  have  a  material  adverse  effect  on the  Company's  financial
condition and results of operations. Due to the nature of these proceedings, the
Company and its  counsel are unable to express any opinion as to their  probable
outcome.

(b)Goodwill Litigation:

During the third  quarter of 1993,  the Company filed a claim against the United
States,  in the United  States  Court of Federal  Claims  (the "Court of Federal
Claims"),  based upon the impact of the Financial Institutions Reform,  Recovery
and Enforcement  Act of 1989  ("FIRREA") on its investment in Carteret.  Similar
so-called "supervisory goodwill" litigation,  commenced in recent years by other
financial  institutions and/or their shareholders regarding a breach of contract
issue,  were heard in various  trial and  appellate  courts,  including the U.S.
Supreme  Court.  On January 19, 1996,  the United  States  Supreme Court granted
review in 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. On
July 1, 1996,  the United  States  Supreme  Court  issued  its  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.  The
Company's case is currently  pending in the Court of Federal  Claims.  On August
26, 1996, the stay order expired in all  "Winstar-related"  cases.  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  approximately
120 other so-called  "Winstar-related" cases. At present, no trial date has been
set in the Company's action or any of the other "Winstar-  related" cases, other
than the Glenfed and Statesman cases.

                                    - 15 -

<PAGE>



ITEM 2.  CHANGES IN SECURITIES

Does not apply.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Does not apply.

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

Does not apply.

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    None

(b) Form 8-K

    None




                                    - 16 -

<PAGE>


                                  SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized:


AMBASE CORPORATION








BY  JOHN P. FERRARA
    Vice President, Chief Financial Officer,
    Treasurer and Controller
    (PRINCIPAL FINANCIAL AND
    ACCOUNTING OFFICER)

Date:  October 18, 1996


                                    - 17 -

<PAGE>




                                  EXHIBIT INDEX



Exhibit
   No.                      Description
-------                     -----------

   27                  Financial Data Schedule











                                      -17-