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

                                    FORM 10-Q


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


               For the quarterly period ended September 30, 2006

                                       or

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

                           100 PUTNAM GREEN, 3RD FLOOR
                          GREENWICH, CONNECTICUT 06830

           (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  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.

YES     X        NO
     -------       ------

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

Large Accelerated Filer         Accelerated Filer       Non-Accelerated Filer X
                        -------                 -------                 -------

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

YES              NO     X
     -------         -------------

     At October  31,  2006,  there were  45,118,519  shares  outstanding  of the
registrant's common stock, $0.01 par value per share.



<PAGE>



AmBase Corporation

Quarterly Report on Form 10-Q
September 30, 2006
<TABLE>
<CAPTION>
<S>                                                                                                         <C>
TABLE OF CONTENTS                                                                                             Page
                                                                                                            ------

PART I - FINANCIAL INFORMATION

Item 1.      Financial Statements (unaudited).....................................................................1

Item 2.      Management's Discussion and Analysis of
                   Financial Condition and Results of Operations.................................................17

Item 3.      Quantitative and Qualitative Disclosures About Market Risk..........................................21

Item 4.      Controls and Procedures.............................................................................21

PART II - OTHER INFORMATION

Item 1.      Legal Proceedings...................................................................................22

Item 1A.     Risk Factors........................................................................................22

Item 2.      Exhibits............................................................................................23

Item 3.      Submission of Matters to a Vote of Security Holders.................................................23

Signatures   ....................................................................................................23
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                       AMBASE CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                   (Unaudited)
<S>                                                                               <C>                 <C>

(in thousands, except for share and per share amounts)
                                                                                  September 30,       December 31,
                                                                                           2006               2005
                                                                                       ========          =========
Assets:
Cash and cash equivalents.........................................................    $   1,376         $    2,852
Investment securities:
    Held to maturity (market value $36,231 and $39,034, respectively).............       36,225             39,031
    Available for sale, carried at fair value ....................................        1,736              1,729
                                                                                       --------           --------
Total investment securities.......................................................       37,961             40,760
                                                                                       --------           --------
Real estate owned:
  Land............................................................................          554                554
  Buildings and improvements......................................................        1,900              1,900
                                                                                       --------           --------
                                                                                          2,454              2,454
  Less:  accumulated depreciation.................................................         (270)              (232)
                                                                                       --------           --------
Real estate owned, net............................................................        2,184              2,222
Other assets......................................................................          739                 49
                                                                                       --------           --------
Total assets......................................................................   $   42,260         $   45,883
                                                                                       ========           ========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities..........................................   $    2,121         $    1,568
Supplemental retirement plan......................................................       16,050             14,595
Other liabilities.................................................................           31                 38
                                                                                       --------           --------
Total liabilities.................................................................       18,202             16,201
                                                                                       --------           --------
Commitments and contingencies (Note 3)............................................

Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized, 46,410,007 issued and
   outstanding)...................................................................          464                464
Paid-in capital...................................................................      548,022            547,956
Accumulated other comprehensive loss..............................................         (820)            (1,395)
Accumulated deficit...............................................................     (522,291)          (516,658)
Treasury stock, at cost - 1,291,488 and 176,488 shares, respectively..............       (1,317)              (685)
                                                                                       --------           --------
Total stockholders' equity........................................................       24,058             29,682
                                                                                       --------           --------

Total liabilities and stockholders' equity........................................   $   42,260         $   45,883
                                                                                       ========           ========
</TABLE>
     The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>
<TABLE>
<CAPTION>

                       AMBASE CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                Third Quarter and Nine Months Ended September 30
                                   (Unaudited)
                      (in thousands, except per share data)
<S>                                                  <C>             <C>              <C>            <C>

                                                            Third Quarter                   Nine Months
                                                        2006           2005              2006          2005
Revenues:                                               ====           ====              ====          ====
Rental income....................................    $     2         $   41           $    92        $   127

Operating expenses:

Compensation and benefits........................      1,058          1,098             3,742          3,373
Professional and outside services................        553            423             2,274          1,537
Property operating and maintenance...............         28             29                89             99
Depreciation  ...................................         13             13                38             38
Insurance........................................         17             17                62             61
Other operating..................................         55             41               161            127
                                                     ----------      ---------        ---------      --------
                                                       1,724          1,621             6,366          5,235
                                                     ----------      ---------        ---------      --------
Operating loss...................................     (1,722)        (1,580)           (6,274)        (5,108)
                                                     ----------      ---------        ---------      --------
Interest income..................................        491            333             1,368            604
Other expense, claims settlement.................     (1,100)             -            (1,100)             -
Other income, insurance recovery.................        400              -               400              -
Other income.....................................          -              -                72              -
Realized gains on sales of investment securities.          -              -                 -             20
                                                     ----------      ---------        ---------      --------
Loss from continuing operations before
     income taxes................................     (1,931)        (1,247)           (5,534)        (4,484)
Income tax expense...............................        (33)          (180)              (99)          (240)
                                                     ---------       ---------        ---------      --------
Loss from continuing operations..................     (1,964)        (1,427)           (5,633)        (4,724)
                                                     ---------       ---------        ---------      --------
Income from discontinued property................          -             63                 -            749
Gain on disposition..............................          -         10,298                 -         10,298
                                                     ---------       ---------        ---------      --------
Income from discontinued operations..............          -         10,361                 -         11,047
                                                     ---------       ---------        ---------      --------
Net income (loss)................................    $(1,964)        $8,934           $(5,633)       $ 6,323
Per share data:                                      =========       =========        =========      ========
Basic:
Loss from continuing operations..................    $ (0.04)        $(0.03)          $ (0.12)       $ (0.10)
Income from discontinued operations..............          -           0.22                 -           0.24
                                                     ---------       ---------        ---------      --------
Net income (loss) to common stockholders.........    $ (0.04)        $ 0.19           $ (0.12)       $  0.14
Assuming dilution:                                   =========       =========        =========      ========
Loss from continuing operations..................    $ (0.04)        $(0.03)          $ (0.12)       $ (0.10)
Income from discontinued operations..............          -           0.22                 -           0.24
                                                     ---------       ---------        ---------      --------
Net income (loss) to common stockholders.........    $ (0.04)        $ 0.19           $ (0.12)       $  0.14
                                                     =========       =========        ========       ========
Weighted average common shares outstanding:
Basic............................................     45,168         46,234            45,419         46,234
                                                     =========       =========        ========       ========
Diluted..........................................     45,168         46,234            45,419         46,234
                                                     =========       =========        ========       ========
</TABLE>

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

<PAGE>
<TABLE>
<CAPTION>

                       AMBASE CORPORATION AND SUBSIDIARIES
             Consolidated Statements of Comprehensive Income (Loss)
                Third Quarter and Nine Months Ended September 30
                                   (Unaudited)
                                 (in thousands)
<S>                                                                    <C>             <C>      <C>           <C>

                                                                                Third Quarter         Nine Months
                                                                             2006        2005       2006         2005
                                                                            ======      =====      =====         =====

Net income (loss)...................................................      $(1,964)     $8,934   $ (5,633)     $ 6,323

Amortization of minimum pension liability adjustment................          284           -        568            -

Unrealized holding gains on investment securities
     available for sale.............................................           90          81          7           12
                                                                          -------      ------   --------      -------
Comprehensive income (loss).........................................      $(1,590)     $9,015   $ (5,058)     $ 6,335
                                                                          =======      ======   ========      =======
</TABLE>

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

<PAGE>
<TABLE>
<CAPTION>

                       AMBASE CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                         Nine Months Ended September 30
                                   (Unaudited)
                                 (in thousands)
<S>                                                                                     <C>            <C>

                                                                                          2006           2005
Cash flows from operating activities:                                                   ========       ========
Loss from continuing operations.......................................................  $(5,633)       $(4,724)
Adjustments to reconcile loss from continuing operations to net cash used by
       continuing operations:
    Depreciation and amortization.....................................................       38             38
    Accretion of discount - investment securities.....................................      (31)          (326)
     Realized gains on investment securities available for sale.......................        -            (20)
    Stock-based compensation expense..................................................       66              -
    Amortization of minimum pension liability adjustment..............................      568              -
Changes in other assets and liabilities:
    Accrued interest receivable.......................................................     (270)             -
    Accounts receivable...............................................................        -              1
    Other assets......................................................................     (420)           402
    Accounts payable and accrued liabilities..........................................      553          (201)
    Supplemental retirement plan and other liabilities................................    1,448           (287)
    Other, net........................................................................        1              3
                                                                                        --------       --------
Net cash used by continuing operating activities......................................   (3,680)        (5,114)
                                                                                        --------       --------
Income from discontinuing operations..................................................        -         11,047
Adjustments to reconcile income from discontinued operations to net cash
provided by discontinued operations:
    Gain from sale of discontinued operations.........................................        -        (10,298)
    Depreciation and amortization related to discontinued operations..................        -            140
Changes in other assets and liabilities related to discontinued operations:
    Consolidated other assets & other liabilities.....................................        -           (305)
                                                                                        --------       --------
Net cash provided by discontinued operations..........................................        -            584
                                                                                        --------       --------
Net cash used by operating activities.................................................   (3,680)        (4,530)
                                                                                        --------       --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity................................   86,576         61,466
Purchases of investment securities - held to maturity.................................  (83,740)       (85,795)
Purchases of investment securities - available for sale...............................        -           (252)
Sales of investment securities - available for sale...................................        -            548
Proceeds from sale of real estate owned...............................................        -         27,442
                                                                                        -------        --------
Net cash provided by investing activities.............................................    2,836          3,409
                                                                                        -------        --------
Cash flows from financing activities:
Common stock repurchased..............................................................     (632)             -
                                                                                        -------        --------
Net cash used by financing activities.................................................     (632)             -
                                                                                        -------        --------
Net decrease in cash and cash equivalents.............................................   (1,476)        (1,121)
Cash and cash equivalents at beginning of period......................................    2,852         10,124
                                                                                        -------        --------
Cash and cash equivalents at end of period............................................  $ 1,376        $ 9,003
                                                                                        =======        ========
Supplemental cash flow disclosures:
Income taxes paid.....................................................................  $   537        $   107
                                                                                        =======        ========
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
                       AMBASE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Note 1 - Organization

     The accompanying  consolidated  financial  statements of AmBase Corporation
and its wholly-owned  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 only of normal recurring adjustments unless
otherwise  disclosed,  necessary for a fair statement 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 prior year  consolidated  financial  statements to conform
with the current year presentation.  The consolidated  financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions  to Form 10-Q and Article 10 of Regulation  S-X. 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.  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, 2005.

     The  Company's  assets  currently   consist  primarily  of  cash  and  cash
equivalents,  investment  securities,  and real estate owned.  The Company earns
non-operating   revenue   principally   consisting  of  investment  earnings  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
1.  From  time to  time,  the  Company  and its  subsidiaries  may be named as a
defendant  in  various   lawsuits  or   proceedings.   The  Company  intends  to
aggressively  contest all  litigation and  contingencies,  as well as pursue all
sources for contributions to settlements.

     In July 2005,  the  Company  completed  the sale of its 38,000  square foot
office  building  at  Two  Soundview  Drive  in  Greenwich,   Connecticut  ("Two
Soundview").  Accordingly,  the results of  operations  of Two Soundview for the
periods ended prior to the July 2005 sale have been  retroactively  reclassified
as  discontinued  operations  in  the  accompanying  Consolidated  Statement  of
Operations in accordance with Financial Accounting Standards Board, Statement of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  ("SFAS  144").  See Note 7 herein for further
information.

     The  Company's  management  expects  that  operating  cash  needs  for  the
remainder  of 2006  will be met  principally  by the  receipt  of  non-operating
revenue  consisting of investment  earnings on  investment  securities  and cash
equivalents, and the Company's current financial resources.

Note 2 - Recent Accounting Pronouncements

     In July 2006, the Financial  Accounting  Standards Board ("FASB")  released
FASB  Interpretation  No. 48,  "Accounting  for Uncertainty in Income Taxes - an
Interpretation of FASB Statement 109" ("FIN 48"), which clarifies the accounting
for uncertainty in income taxes recognized in companies' financial statements in
accordance  with FASB  Statement  109,  "Accounting  for Income  Taxes."  FIN 48
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken in a tax return.  The  evaluation of a tax position will be sustained upon
examination.  The second step is  measurement  whereby a tax position that meets
the  more-likely-than-not  recognition  threshold is measured to  determine  the
amount of benefit to recognize in the financial statements. FIN 48 also provides
guidance on derecognition threshold of recognized tax benefits,  classification,
interest  and  penalties,   accounting  in  interim   periods,   disclosure  and
transition.  FIN 48 is effective for fiscal years  beginning  after December 15,
2006. The Company will adopt the new  requirements  in the first quarter of 2007
and is currently  evaluating the impact that the adoption of FIN 48 will have on
its consolidated financial statements.



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

     Effective  January 1, 2006, the Company adopted the fair value  recognition
provisions  of  Statement  of Financial  Accounting  Standards  No. 123 (revised
2004),  "Share-Based  Payment,"  ("SFAS 123R"),  using the modified  prospective
approach and therefore has not restated  results for prior  periods.  Under this
method,  stock-based  compensation  expense for the three months ended March 31,
2006,  includes  compensation  expense for all stock-based  compensation  awards
granted  prior to, but not yet vested as of January 1, 2006,  based on the grant
date  fair  value  estimated  in  accordance  with the  original  provisions  of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS123").  Stock-based compensation expense for all stock-based
compensation  awards  granted after January 1, 2006,  for which vesting is based
solely  on  employment  service,  will be based on the  grant  date  fair  value
estimated in accordance with the provisions of SFAS 123R. The Company recognizes
these   compensation  costs  for  only  those  shares  expected  to  vest  on  a
straight-line  basis over the requisite  service  period of the award,  which is
generally  the option  vesting term of two years.  Prior to the adoption of SFAS
123R,  the  Company  recognized  stock-based  compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB 25"). In March 2005, the  Securities  and Exchange  Commission
(the "SEC") issued Staff  Accounting  Bulletin No. 107 ("SAB 107") regarding the
SEC's  interpretation of SFAS 123R and the valuation of share-based payments for
public  companies.  The Company has  applied  the  provisions  of SAB 107 in its
adoption  of  SFAS  123R.  See  Note  10  herein  for a  further  discussion  of
stock-based compensation.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 158, "Employer's  Accounting for Defined Benefit Pension and Other
Postretirement  Plans,  an  Amendment  of SFAS No. 87, 88, 106 and 132R"  ("SFAS
158").  SFAS 158  requires an  employer to (i)  recognize  in its  statement  of
financial position an asset for a plan's over funded status or a liability for a
plan's under funded  status;  (ii) measure a plan's  assets and its  obligations
that  determine  its funded status as of the end of the  employer's  fiscal year
(with limited exceptions); and (iii) recognize changes in the funded status of a
defined  benefit  postretirement  plan in the year in which the  changes  occur.
Those changes will be reported in comprehensive income of a business entity. The
requirement  to recognize the funded status of a benefit plan and the disclosure
requirements  are  effective  as of the  end of the  fiscal  year  ending  after
December 15, 2006, for entities with publicly traded equity  securities,  and at
the end of the fiscal year ending after June 15, 2007,  for all other  entities.
The requirement to measure plan assets and benefit obligations as of the date of
the employer's fiscal year-end  statement of financial position is effective for
fiscal years ending after December 15, 2008. We do not believe that the adoption
of SFAS 158 will have a material effect on the Company's  consolidated financial
statements as the Company intends to terminate its Supplemental  Retirement Plan
(the "Supplemental Plan") on or about May 31, 2007, as further discussed in Note
11 herein. The Company will continue to recognize an expense through to the date
on which the Supplemental Plan will terminate. The ultimate liability related to
the  final  termination  of  the  Supplemental  Plan  is  not  reflected  as all
conditions for the final  termination of the Supplemental Plan have not yet been
met.

Note 3 - Legal Proceedings

     The information  contained in Item 8 - Note 10 in AmBase's Annual Report on
Form 10-K for the year ended  December 31, 2005,  is  incorporated  by reference
herein and the defined  terms set forth below have the same meaning  ascribed to
them in that  report.  There have been no  material  developments  in such legal
proceedings, except as set forth below.

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

     Supervisory Goodwill Litigation.  The Company filed its Statement of Issues
relating to the size of the  receivership  deficit in June 2006. In May of 2006,
the Company  served on the Government an expert report in support of some of the
arguments the Company made regarding the size of the receivership  deficit.  The
Company's  expert was deposed in July 2006. In early August 2006, the Government
submitted its own expert report on receivership  deficit issues,  and in October
2006,  the Company  deposed the  Government's  expert.  In late August 2006, the
Government  filed a  response  to the  Company's  Statement  of  Issues,  and in
September 2006, the FDIC filed its own response to the Statement of Issues.  The
Company filed its reply in support of its Statement of Issues in October 2006. A
status conference to discuss further proceedings has been scheduled for November
2006.  No  assurance  can  be  given  regarding  the  ultimate  outcome  of  the
litigation.


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

     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,  341F.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.

     Delaware  Court of  Chancery  Section  220 Books and  Records  Action:  Two
Stockholders who owned approximately  14.4% of the Company's  outstanding common
stock (the "Stockholders") had previously made demand in January 2004 to inspect
certain  Company  books and  records  pursuant  to Section  220 of the  Delaware
General Corporation Law. The Company opposed the request on various grounds, and
the  Stockholders  brought  suit in March 2004 to compel  inspection  of certain
Company  books and  records.  In August  2005,  the Court of  Chancery  issued a
Memorandum   Opinion  finding  that  the  Stockholders  had  met  the  technical
requirements  of Section 220 and had stated a proper  purpose under Section 220,
and were legally entitled to inspect  specified books and records,  but declined
to find the Company liable for the Stockholders' attorneys' fees.

     In October 2006, in order to eliminate  continued  involvement in the above
referenced action or potential future actions,  and the resultant time,  expense
and potential adverse impact on the Company's current  operations and litigation
claims, the Company, its Chief Executive Officer and principal stockholder,  and
the Company's  Directors entered into an agreement with the Stockholders who had
initiated  the  action to obtain  Company  books and  records.  Pursuant  to the
agreement:  (i)  the  Company's  Chief  Executive  Officer  agreed  to  purchase
6,615,531 shares of Company common stock  (representing  approximately  14.4% of
the Company's outstanding common stock and all of the Company stock beneficially
owned  by the  Stockholders),  for a cash  purchase  price of  $0.55  per  share
($3,638,542  in the  aggregate  for all of the  shares);  (ii) the  Stockholders
agreed to dismiss the books and records action and release any additional claims
the Stockholders might have, including claims the stockholder said they had been
considering  litigating  against  the  Company,  its  Directors  and  its  Chief
Executive  Officer;  (iii) the Stockholders  entered into a standstill and other
agreements  which will preclude them from taking a position in the Company for a
period  of time;  and (iv)  the  Company  agreed  to pay the  Stockholders  $1.1
million.  No  portion  of the  purchase  price for the  shares  acquired  by the
Company's  Chief  Executive  Officer was provided by or financed by the Company.
Although the shares were not offered to the Company for purchase,  the Company's
Board of  Directors  declined  to  purchase  the  shares at the price  they were
offered  to  the  Company's  Chief  Executive  Officer.   As  the  parties  were
negotiating  a  settlement  of this matter  prior to  September  30,  2006,  the
settlement charge of $1,100,000 and related insurance  recovery of $400,000 were
considered  to be probable and  estimable  and have been  reflected in the third
quarter and nine month  periods ended  September  30, 2006.  The net cost to the
Company of the settlement was approximately $700,000.

Note 4 - Cash and Cash Equivalents

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

Note 5 - Investment Securities

     Investment securities - held to maturity consist of U.S. Treasury Bills and
a U.S.  Treasury  Note  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.



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

Investment securities consist of the following:
<TABLE>
<CAPTION>
<S>                           <C>            <C>           <C>               <C>             <C>           <C>

                                             September 30, 2006
December 31, 2005
                             ==========================================================
                                               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........  $  19,811        $ 19,811     $ 19,823          $  39,031       $ 39,031      $  39,034
U.S. Treasury Note.........     16,414          16,414       16,408                  -              -              -
                             -----------     -----------   ----------        -----------     ----------    ------------
                                36,225          36,225       36,231             39,031         39,031         39,034
                             -----------     -----------   ----------        -----------     ----------    ------------
Available for Sale:
Equity Securities..........      1,736           1,798        1,736              1,729          1,798          1,729
                             -----------     -----------   ----------        -----------     ----------    ------------
                             $  37,961       $  38,023      $37,967          $  40,760       $ 40,829      $  40,763
                             ===========     ===========   ==========        ===========     ==========    ============
</TABLE>

     The gross unrealized gains (losses) on investment securities,  at September
30, 2006 and December 31, 2005 consist of the following:
<TABLE>
<S>                                                                                          <C>           <C>
(in thousands)                                                                                  2006         2005
                                                                                              =======       ======
Held to Maturity:
Gross unrealized gains..................................................................     $     12      $     3
                                                                                             ========      =======
Gross unrealized losses.................................................................     $     (6)     $     -
                                                                                              =======      =======
Available for Sale:
Gross unrealized gains..................................................................     $     21      $     -
                                                                                             ========      =======
Gross unrealized losses.................................................................     $    (83)     $   (69)
                                                                                             ========      =======
</TABLE>

     The realized gain on the sales of investment  securities available for sale
for the nine months ended September 30, 2005 was as follows:
<TABLE>
<S>                                                                                          <C>
                                                                                             Nine Months
(in thousands)                                                                                   2005
                                                                                               ======

Net sale proceeds.......................................................................     $      548
Cost basis..............................................................................           (528)
                                                                                             -----------
Realized gains..........................................................................     $       20
                                                                                             ===========
</TABLE>

     No investment  securities  were sold during the third quarter or nine month
periods  ended  September  30,  2006 or during the third  quarter  period  ended
September 30, 2005.



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

Note 6 - Property Owned

     As of September 30, 2006, the Company owns one commercial  office  building
in Greenwich,  Connecticut that contains  approximately  14,500 square feet. The
Company utilizes a small portion of the office space for its executive  offices,
with the remaining  square  footage  available for lease to  unaffiliated  third
parties.

     Depreciation  expense is recorded on a  straight-line  basis over 39 years.
The  building  and   improvements  are  carried  at  cost,  net  of  accumulated
depreciation  of $270,000 and  $232,000,  at September 30, 2006 and December 31,
2005, respectively.

     The Company  earns  rental  income  under  operating  leases with  tenants.
Minimum lease rentals are recognized on a straight-line  basis over the terms of
the leases.  The cumulative  difference  between lease revenue  recognized under
this method and the  contractual  lease  payment  terms,  if any, is recorded as
deferred rent receivable,  and the balance of $5,000 as of December 31, 2005, is
included in other assets on the Consolidated  Balance Sheet. 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.

     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 applicable lease agreements.

     See Note 7 herein  for  information  regarding  the  Company's  sale of Two
Soundview in July 2005.

Note 7 - Discontinued Operations

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

     Income from  discontinued  operations,  as summarized  below, for the third
quarter and nine months periods ended  September 30, 2005,  reflects the results
of operations of Two Soundview.

Income from discontinued operations is as follows:
<TABLE>
<S>                                                                                       <C>             <C>

                                                                                                 Third Quarter
                                                                                                  Nine Months
(in thousands)                                                                               2005           2006
Revenues:                                                                                 ===========     ========
Rental income...........................................................................  $        98     $  1,158
Operating expenses:
Professional and outside services.......................................................            2           25
Property operating and maintenance......................................................           30          231
Depreciation............................................................................            -          140
Insurance...............................................................................            2           11
Other operating.........................................................................            1            2
                                                                                          -----------     --------
                                                                                                   35          409
                                                                                          -----------     --------
Income from operation of discontinued operations........................................           63          749
Gain on disposition.....................................................................       10,298       10,298
                                                                                          -----------     --------
Income from discontinued operations.....................................................  $    10,361     $ 11,047
                                                                                          ===========     ========
</TABLE>


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

     The  Company  utilized  net  operating  loss  ("NOL")   carryforwards   and
alternative  minimum tax NOL carryforwards as available to offset taxable income
generated  from the sale of Two  Soundview.  However,  due to limitations on the
amount of NOL  carryforwards  that could be utilized against taxable income,  an
income tax provision of $400,000 for discontinued operations,  attributable to a
provision  for federal  alternative  minimum tax of $150,000  and a provision of
$250,000 for  Connecticut  state taxes was recorded in the fourth  quarter ended
December 31, 2005.

Note 8 - Income Taxes

     The Company and its 100% owned  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, greater than 50%  probability  exists that the tax benefits will actually be
realized  sometime in the future.  The Company has calculated a net deferred tax
asset of $31 million and $32 million as of  September  30, 2006 and December 31,
2005,   respectively,   arising   primarily  from  net  operating  loss  ("NOL")
carryforwards,  alternative  minimum  tax ("AMT")  credits  (not  including  the
anticipated tax effects of NOL's expected to be generated from the Company's tax
basis in Carteret  Savings Bank, F.A. and subsidiaries  ("Carteret"),  resulting
from  the  election  decision,  as more  fully  described  below).  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.

     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, as 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  amounts of  refunds,  if any, or when they might be
received.


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

     Based upon the Company's  federal  income tax returns as filed from 1993 to
2005  (subject  to IRS  audit  adjustments),  excluding  the  NOL  carryforwards
utilized  in  2005,  and  excluding  the NOL  carryforwards  generated  from the
Company's  tax basis in  Carteret/Carteret  FSB, as noted above at September 30,
2006, the Company has NOL carryforwards  aggregating  approximately $30 million,
available  to  reduce  future  federal  taxable  income  which  expire if unused
beginning in 2009. The Company's federal income tax returns for years subsequent
to 1992 have not been reviewed by the IRS.

     The utilization of certain  carryforwards  is subject to limitations  under
U.S.  federal income tax laws. In addition,  the Company has  approximately  $21
million of AMT credit  carryforwards  ("AMT Credits"),  which are not subject to
expiration.  Based on the filing of the Carryback  Claims,  as further discussed
above,  the  Company is seeking to realize  approximately  $8 million of the $21
million of AMT Credits.

Note 9 - Comprehensive Income (Loss)

     Comprehensive  income  (loss) is  composed  of net income  (loss) and other
comprehensive  income  (loss)  which  includes  the change in  unrealized  gains
(losses)  on  investment  securities  available  for  sale  and  recognition  of
additional minimum pension liability, as follows:
<TABLE>
<CAPTION>
<S>                            <C>             <C>           <C>            <C>            <C>          <C>
                                           Third Quarter Ended                         Nine Months Ended
(in thousands)                              September 30, 2006                         September 30, 2006
                               ==========================================   ========================================
                               Unrealized      Minimum        Accumulated   Unrealized     Minimum      Accumulated
                               Gains (Losses)  Pension           Other      Gains (Losses) Pension         Other
                               on Investment   Liability     Comprehensive  on Investment  Liability    Comprehensive
                               Securities      Adjustment    Income (Loss)  Securities     Adjustment   Income (Loss)
                               =============   ==========    =============  ============   ==========   =============
Balance beginning of period..  $      (152)    $  (1,042)    $     (1,194)  $       (69)   $  (1,326)   $     (1,395)

Change during the period.....           90           284              374             7          568             575
                               -------------   ----------    -------------  ------------   ----------   --------------
Balance end of period........  $       (62)    $    (758)    $       (820)  $       (62)   $    (758)   $       (820)
                               =============   ==========    =============  ============   ==========   ==============
</TABLE>
<TABLE>
<CAPTION>
<S>                            <C>             <C>           <C>            <C>            <C>          <C>
                                           Third Quarter Ended                         Nine Months Ended
(in thousands)                              September 30, 2005                         September 30, 2005
                               ==========================================   ========================================
                               Unrealized      Minimum        Accumulated   Unrealized     Minimum      Accumulated
                               Gains (Losses)  Pension           Other      Gains (Losses) Pension         Other
                               on Investment   Liability     Comprehensive  on Investment  Liability    Comprehensive
                               Securities      Adjustment    Income (Loss)  Securities     Adjustment   Income (Loss)
                               =============   ==========    =============  ============   ==========   ==============
Balance beginning of period..  $       (37)    $    (412)    $       (449)  $        37    $    (412)   $       (375)

Reclassification adjustment for
  gains realized in net loss.            -             -                -            (5)           -              (5)

Change during the period.....           81             -               81            12            -              12
                               -------------   ----------    -------------  ------------   ----------   -------------
Balance end of period........  $        44     $    (412)    $       (368)  $        44    $    (412)   $       (368)
                               =============   ==========    =============  ============   ==========   =============
</TABLE>


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

Note 10 - Stock-Based Compensation

     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.  As of March 31,  2006,  there  were  3,760,000  shares
available  for future stock option  grants.  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.
Options granted  generally have a ten year  contractual  life and generally have
vesting  terms of two years from the date of grant.  In the case of a "Change of
Control" of the Company (as defined in the 1993 Plan),  Options granted pursuant
to the 1993 Plan may become fully exercisable as to all optioned shares from and
after the date of such Change in Control in the  discretion  of the Committee or
as  may  otherwise  be  provided  in  the  grantee's  Option  agreement.  Death,
retirement, or absence for disability will not result in the cancellation of any
Options.

     Effective  January 1, 2006, the Company adopted the fair value  recognition
provisions of SFAS 123R, using the modified  prospective  application method and
therefore  has not  restated  results  for prior  periods.  Under  this  method,
stock-based  compensation  expense for the nine months ended September 30, 2006,
includes  compensation  expense for all stock-based  compensation awards granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value  estimated  in  accordance  with  the  original  provisions  of SFAS  123.
Stock-based compensation expense for all stock-based compensation awards granted
after January 1, 2006, for which vesting is based solely on employment  service,
will be based on the grant  date fair value  estimated  in  accordance  with the
provisions of SFAS 123R. The Company  recognizes  these  compensation  costs for
only those shares expected to vest, on a straight-line  basis over the requisite
service  period of the award,  which is generally the option vesting term of two
years.

     During the third  quarter and nine months ended  September  30,  2006,  the
Company  recorded  compensation  expense of $22,000 and  $66,000,  respectively,
relating to  unvested  stock  options.  Compensation  expense  relating to stock
options  is  recorded  as a  reduction  to  additional  paid in  capital  in the
statement of stockholders'  equity. Prior to 2006, as permitted by SFAS 123, the
Company accounted for share-based payments to employees using APB 25's intrinsic
value method and recognized no  compensation  cost for employee stock options in
prior years.  Had the Company adopted SFAS 123R in the prior period,  the impact
of  that  standard  would  have  approximated  the  impact  of  SFAS  123 in the
disclosure of pro-forma  net income  (loss) and earnings per share  described as
follows:
<TABLE>
<CAPTION>
<S>                                                             <C>                  <C>
                                                                Third Quarter Ended  Nine Months Ended
                                                                September 30, 2005   September 30,2005
(in thousands, except per share data)                           ==================   =================
Net income:
As reported...................................................   $      8,934         $         6,323
Deduct: total stock-based  employee  compensation expense
 determined under fair value based methods for all awards.....            (31)                    (94)
                                                                ------------------   -----------------
Pro forma.....................................................   $      8,903         $         6,229
                                                                ==================   ==================
Net income per common share:
Basic - as reported...........................................   $       0.19         $          0.24
Basic - pro forma.............................................           0.19                    0.24
Assuming dilution - as reported...............................           0.19                    0.24
Assuming dilution - pro forma.................................           0.19                    0.24
                                                                ==================   ==================
</TABLE>


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

     The fair  value of each  option  award was  estimated  on the date of grant
using the  Black-Scholes-Merton  option valuation model  ("Black-Scholes")  that
uses the assumptions  noted in the following  table.  Expected  volatilities are
based  on  historical  volatility  of the  Company's  stock.  The  Company  uses
historical data to estimate option  exercises and employee  terminations  within
the valuation  model. The expected term of options granted is estimated based on
the  contractual  lives of option  grants,  option vesting period and historical
data and represents  the period of time that options  granted are expected to be
outstanding. The risk-free interest rate for periods within the contractual life
of the option is based on the U.S.  Treasury bond yield in effect at the time of
grant.  No  adjustments  were  made  in 2006 to the  input  assumptions  for the
calculation  of the fair value of stock options  granted in 2005 and prior years
from the pro forma amounts  previously  presented in the Company's  prior period
financial statements.

     The  Black-Scholes  option  valuation  model  requires  the input of highly
subjective assumptions, including the expected life of the stock-based award and
stock price volatility. The assumptions noted herein represent management's best
estimates,   but  these  estimates   involve  inherent   uncertainties  and  the
application of management  judgment.  As a result, if other assumptions had been
used,  our recorded and pro forma  stock-based  compensation  expense could have
been  materially  different  from that  depicted  herein.  In  addition,  we are
required to estimate the expected forfeiture rate and only recognize expense for
those  shares  expected to vest.  If our actual  forfeiture  rate is  materially
different  from our  estimate,  the  share-based  compensation  expense could be
materially different

     The Company believes that the use of the Black-Scholes model meets the fair
value  measurement   objectives  of  SFAS  123R  and  reflects  all  substantive
characteristics  of the instruments  being valued. No stock options were granted
during the year to date period ending  September  30, 2006.  The per share grant
date weighted average estimated values of employee stock option grants under the
1993 Plan,  as well as the  assumptions  used to calculate  such values  granted
during the period ended September 30, 2005, are as follows:

<TABLE>
<CAPTION>
<S>                                                                               <C>
                                                                                     September 30,
                                                                                        2005
                                                                                  ----------------
         Weighted average fair value at grant date..............................        $0.39
         Expected dividend yield................................................         0%
         Risk-free interest rate................................................         4.24%
         Expected volatility....................................................         0.44
         Expected life in years.................................................         6
</TABLE>

     The following  table reports  stock option  activity  during the nine month
period ended September 30, 2006:
<TABLE>
<CAPTION>
<S>                                                <C>           <C>           <C>
                                                                                 Weighted
                                                                   Weighted      Average
                                                                   Average      Remaining
                                                    Number of      Exercise     Contractual
                                                     Shares         Price      Life (in years)
                                                   ----------    -----------   ---------------
         Outstanding at January 1, 2006......      1,440,000       $0.96
         Expired.............................       (200,000)       0.66
                                                   ---------       =====
         Outstanding at September 30, 2006...      1,240,000       $1.01           4.65
                                                   =========       =====           ====
         Exercisable at September 30, 2006...      1,036,000       $1.02           4.59
                                                   =========       =====           ====
</TABLE>

     At September 30, 2006, the exercise price of stock options  outstanding and
exercisable was greater than the market price of the Company's stock; therefore,
no intrinsic value for stock options is reflected above.



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

     The  following  table  presents  information   regarding  non-vested  share
activity during the nine month period ended September 30, 2006:
<TABLE>
<CAPTION>
<S>                                                <C>                  <C>
                                                                        Weighted
                                                                         Average
                                                    Number of           Grant-Date
                                                     Shares             Fair Value
                                                   ----------          ------------
         Non-vested at January 1, 2006.......        528,000             $0.44
         Vested during period................       (324,000)             0.41
                                                   ----------            =====
         Non-vested at September 30, 2006....        204,000             $0.47
                                                   ==========            =====
</TABLE>

     The total fair value of shares  vested  during the nine month periods ended
September  30,  2006  and   September  30,  2005,   was  $133,000  and  $88,000,
respectively.  As of September 30, 2006, there was $22,000 of total unrecognized
compensation cost related to non-vested  share-based  compensation  arrangements
related to stock options  granted under the 1993 Plan.  That cost is expected to
be recognized over a weighted-average vesting period of 0.25 years.

     Options to purchase  1,240,000  shares of common  stock for the nine months
ended  September  30, 2006,  and  1,440,000  shares of common stock for the nine
months ended  September 30, 2005,  were excluded from the computation of diluted
earnings per share because these options were antidilutive.

Note 11 - Pension and Savings Plans

     The Company  sponsors a non  tax-qualified  supplemental  retirement  plan,
initially  adopted by the  Company in 1985,  and as amended  and  restated  (the
"Supplemental  Plan"),  under  which only one current  executive  officer of the
Company is currently the sole participant.  The cost of the Supplemental Plan is
accrued but not funded.

     The liability for the  Supplemental  Plan, which is accrued but not funded,
increased to $16,050,000 at September 30, 2006 from  $14,595,000 at December 31,
2005. The  Supplemental  Plan liability  reflects the September 30, 2006 present
value of the  anticipated  May 31, 2007 lump-sum  payment amount of $16,676,115,
utilizing a 5.75% discount rate factor.  The Supplemental  Plan liability can be
further affected by changes in discount rates,  mortality,  and experience which
could be different from those assumed.

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



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

     During March 2006, the Company entered into a new employment agreement with
Mr. Bianco to extend his employment  with the Company for an additional five (5)
years beyond May 31, 2007, until May 31, 2012 (the "2007 Employment Agreement").
As part of the 2007  Employment  Agreement terms (i) Mr. Bianco's annual rate of
base salary will not increase  from his current  rate of base salary  during the
first three years of the 2007  Employment  Agreement (the amount of Mr. Bianco's
base salary for the fourth and fifth years of the 2007 Employment Agreement term
to be determined by the Personnel Committee, in its sole discretion, although in
no event less than $625,000 per annum); (ii) Mr. Bianco's service accruals under
the  Supplemental  Plan will cease as of May 31, 2007;  (iii) Mr. Bianco's Final
Average  Earnings (as defined in the Supplemental  Plan) for  Supplemental  Plan
benefit calculation  purposes,  are capped as of December 31, 2004; and (iv) Mr.
Bianco's annual bonus  opportunity  will no longer be linked to recovery efforts
in connection with the Company's Supervisory Goodwill litigation. Instead, on or
about  May  31,  2007,  Mr.  Bianco  will  receive  a  lump-sum  payment  of his
Supplemental  Plan benefit of  $16,676,115,  which amount was  calculated on the
basis of a 5.75% discount rate, a "RP-2000"  projected to 2004 mortality  table,
and 16.08 years of credited service,  and the Company and Mr. Bianco have agreed
to a long term incentive bonus formula,  at varying  percentages ranging from 5%
to  10%,  or  more,  based  upon  recoveries  received  by the  Company  for its
investment in Carteret Savings Bank, through litigation or otherwise  (including
the  Company's  Supervisory  Goodwill  litigation).   The  anticipated  lump-sum
Supplemental  Plan benefit  payment to Mr.  Bianco is expected to be paid to him
from the Company's available financial resources.

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

     Based  on  the  2007   Employment   Agreement  and  the  amendment  of  the
Supplemental  Plan, each as described above, the Company revised the calculation
of the Supplemental  Plan liability to reflect a 5.75% discount rate as of April
1, 2006, as set forth in the agreements,  as compared to the 5.50% discount rate
utilized as of December 31, 2005. The Supplemental  Plan liability was increased
by an expense of $229,000 in the third  quarter  ended  September  30, 2006,  to
reflect the  September 30, 2006 present  value of the  anticipated  May 31, 2007
lump-sum  payment  amount of  $16,676,115,  utilizing  the 5.75%  discount  rate
factor.

     An  additional  Supplemental  Plan  expense of $284,000  and  $568,000  was
recorded in the third quarter and nine month period ended September 30, 2006, to
amortize the Supplemental Plan minimum pension liability adjustment. The minimum
pension liability adjustment,  which is included as a component of stockholders'
equity within accumulated other comprehensive loss in the Company's consolidated
financial  statements,  was  $1,326,000  as of  March  31,  2006,  and is  being
amortized on a straight line basis over the 14-month  period ending May 31, 2007
as an  additional  Supplemental  Plan  expense of  $284,000  per  quarter.  This
resulted in an  aggregate  Supplemental  Plan  expense of $513,000 for the third
quarter  period ended  September 30, 2006, as compared to $464,000 for the first
quarter period ended March 31, 2006, and $1,047,000 for the second quarter ended
June 30,  2006.  For the  nine  month  period  ended  September  30,  2006,  the
Supplemental  Plan expense was  $2,023,000.  The  amortization of the additional
minimum pension liability of $284,000 and $568,000 in the third quarter and nine
month periods ended  September 30, 2006,  respectively,  although  recorded as a
component of  compensation  expense in the Company's  consolidated  statement of
operations,  does not result in a decrease in total stockholders' equity, as its
recognition results in an increase in one component and a corresponding decrease
in another  component  of  stockholders'  equity.  See Part I - Item 1 - Note 9,
herein for further information.

     The Company  sponsors the AmBase 401(k) Savings Plan (the "Savings  Plan"),
which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code"). The Savings Plan permits eligible employees to
make  contributions  of up to 15% of  compensation,  which  are  matched  by the
Company at a percentage  determined  annually.  The employer  match is currently
100% of the amount the employee elects to defer.  Employee  contributions to the
Savings Plan are invested at the employee's  discretion,  in various  investment
funds. The Company's  matching  contributions are invested in the same manner as
the compensation reduction  contributions.  The Company's matching contributions
to the  Savings  Plan,  charged to  expense,  were $0 and  $55,000 for the third
quarter and nine months ended September 30, 2006,  respectively,  and $2,000 and
$50,000  for the  third  quarter  and nine  months  ended  September  30,  2005,
respectively.  All contributions are subject to maximum limitations contained in
the Code.


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

Note 12 - Common Stock Repurchase Plan

     In January 2002, the Company  announced a common stock repurchase plan (the
"Repurchase  Plan") which allows for the  repurchase by the Company for up to 10
million shares of its common stock in the open market.

     The Repurchase Plan is conditioned upon favorable  business  conditions and
acceptable prices for the common stock.  Purchases under the Repurchase Plan may
be made,  from  time to time,  in the  open  market,  through  block  trades  or
otherwise.  Depending on market  conditions and other factors,  purchases may be
commenced or suspended any time or from time to time without prior notice.
<TABLE>
<CAPTION>
<S>                                        <C>             <C>          <C>                  <C>
                                           (a) Total          (b)         (c) Total Number
                                           Number of          Average     Shares Purchased           (d) Maximum Number
                                              Shares       Price Paid   as Part of Publicly       Shares that may yet be
                                           Purchased        per Share      Announced Plans     Purchased under the Plan
                                          ----------      ----------   -------------------   ----------------------------
January 1, 2006 - January 31, 2006........                     -                  50,000               9,950,000
February 1, 2006 - February 28, 2006......   970,000       $   0.58            1,020,000               8,980,000
March 1, 2006 - March 31, 2006............         -           -               1,020,000               8,980,000
April 1, 2006 - April 30, 2006............         -           -               1,020,000               8,980,000
May 1, 2006 - May 31, 2006................         -           -               1,020,000               8,980,000
June 1, 2006 - June 30, 2006..............    50,000           0.49            1,070,000               8,930,000
July 1, 2006 - July 31, 2006..............         -           -               1,070,000               8,930,000
August 1, 2006 - August 31, 2006..........    95,000           0.47            1,165,000               8,835,000
September 1, 2006 - September 30, 2006....         -           -               1,165,000               8,835,000
                                          ---------
                                          1,115,000
                                          =========
</TABLE>

Note 13 - Subsequent Event

     In  October  2006,  in  order to  eliminate  continued  involvement  in the
Delaware  Court of Chancery,  Section 220 Books and Records  Action,  as further
described  in Note 3, or  potential  future  actions,  and the  resultant  time,
expense and potential  adverse  impact on the Company's  current  operations and
litigation  claims,  the  Company,  its Chief  Executive  Officer and  principal
stockholder,  and the  Company's  Directors  entered into an agreement  with the
Stockholders  who had initiated the action to obtain  Company books and records.
Pursuant to the agreement:  (i) the Company's Chief Executive  Officer agreed to
purchase  6,615,531 shares of Company common stock  (representing  approximately
14.4% of the  Company's  outstanding  common stock and all of the Company  stock
beneficially owned by the Stockholders),  for a cash purchase price of $0.55 per
share ($3,638,542 in the aggregate for all of the shares); (ii) the Stockholders
agreed to dismiss the books and records action and release any additional claims
the Stockholders might have, including claims the stockholder said they had been
considering  litigating  against  the  Company,  its  Directors  and  its  Chief
Executive  Officer;  (iii) the Stockholders  entered into a standstill and other
agreements  which will preclude them from taking a position in the Company for a
period  of time;  and (iv)  the  Company  agreed  to pay the  Stockholders  $1.1
million.  No  portion  of the  purchase  price for the  shares  acquired  by the
Company's  Chief  Executive  Officer was provided by or financed by the Company.
Although the shares were not offered to the Company for purchase,  the Company's
Board of  Directors  declined  to  purchase  the  shares at the price  they were
offered  to  the  Company's  Chief  Executive  Officer.   As  the  parties  were
negotiating  a  settlement  of this matter  prior to  September  30,  2006,  the
settlement charge of $1,100,000 and related insurance  recovery of $400,000 were
considered  to be probable and  estimable  and have been  reflected in the third
quarter and nine month  periods ended  September  30, 2006.  The net cost to the
Company of the settlement was approximately $700,000.









<PAGE>
     Item 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

     This quarterly report may contain  "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,  as  amended  (the
"Exchange  Act"),  or  make  oral  statements  that  constitute  forward-looking
statements. The Company intends such forward-looking statements to be covered by
the safe harbor  provisions  for  forward-looking  statements  contained  in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
or  quantified.  The  forward-looking  statements  may relate to such matters as
anticipated  financial  performance,   future  revenues  or  earnings,  business
prospects,  projected  ventures,  anticipated  market  performance,  anticipated
litigation  results or the timing of pending  litigation,  and similar  matters.
When  used  in  this   Annual   Report,   the  words   "estimates,"   "expects,"
"anticipates,"  "believes,"  "plans," "intends" and variations of such words and
similar  expressions  are intended to identify  forward-looking  statements that
involve risks and uncertainties. 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) risks inherent in the real estate
business,  including,  but not limited to tenant defaults,  changes in occupancy
rates or real estate values; (v) changes in regulatory  requirements which could
affect the cost of doing  business;  (vi)  general  economic  conditions;  (vii)
changes  in the rate of  inflation  and the  related  impact  on the  securities
markets;  (viii)  changes in federal and state tax laws;  and (ix) risks arising
from  unfavorable  decisions  in our current  material  litigation  matters,  or
unfavorable  decisions in other  supervisory  goodwill cases.  These are not the
only risks that we face.  There may be additional risks that we do not presently
know of or that we currently  believe are immaterial which could also impair our
business and financial position.

     Undue reliance  should not be placed on these  forward-looking  statements,
which are  applicable  only as of the date  hereof.  The Company  undertakes  no
obligation  to revise or update  these  forward-looking  statements  to  reflect
events or circumstances that arise after the date of this quarterly report or to
reflect  the  occurrence  of  unanticipated  events.  Accordingly,  there  is no
assurance that the Company's expectations will be realized.

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations,  which follows,  should be read in conjunction with the consolidated
financial  statements and related notes, which are contained in Part I - Item 1,
herein and the Company's  Annual Report on Form 10-K for the year ended December
31, 2005.  As a result of the sale of the  Company's  38,000  square foot office
building at Two Soundview Drive in Greenwich, CT ("Two Soundview") in July 2005,
the results of operations of Two Soundview have been  designated as discontinued
operations,  and the  Consolidated  Statements  of  Operations  for the  periods
presented herein have been retroactively  reclassified to report the income from
discontinued  operations separately from the results of continuing operations by
excluding the operating  revenues and expenses of  discontinued  operations from
the respective  statement captions.  See Part I - Item 1 - Note 7 for additional
information concerning the sale of Two Soundview in July 2005.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  assets  at  September  30,  2006,  aggregated   $42,260,000
consisting  principally of cash and cash  equivalents of $1,376,000,  investment
securities of $37,962,000 and real estate owned of $2,184,000.  At September 30,
2006,  the Company's  liabilities  aggregated  $18,202,000.  Total  stockholders
equity was $24,058,000.

     The liability for the Company's non tax-qualified  supplemental  retirement
plan, initially adopted by the Company in 1985, and as amended and restated (the
"Supplemental Plan"), which is accrued but not funded,  increased to $16,050,000
at September 30, 2006 from  $14,595,000 at December 31, 2005.  The  Supplemental
Plan liability  reflects the September 30, 2006 present value of the anticipated
May 31, 2007 lump-sum payment amount of $16,676,115,  utilizing a 5.75% discount
rate factor.  The Supplemental Plan liability can be further affected by changes
in discount rates, mortality, and experience which could be different from those
assumed.



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

     For a further  discussion of the  Supplemental  Plan and Mr.  Bianco's 2007
Employment  Agreement,  see  Part  I -  Item  1  -  Note  11  to  the  Company's
consolidated financial statements.

     For the nine months ended  September 30, 2006,  cash of $3,680,000 was used
by  continuing  operations,  including  the payment of prior year  accruals  and
operating expenses,  partially offset by the receipt of rental income,  interest
income and investment earnings. The cash needs of the Company for the first nine
months of 2006 were satisfied by the receipt of investment  earnings received on
investment  securities  and cash  equivalents,  rental  income and the Company's
current  financial  resources.  Management  believes that the Company's  capital
resources are sufficient to continue operations for 2006.

     For the nine months ended  September 30, 2005,  cash of $5,114,000 was used
by  continuing  operations,  including  the payment of prior year  accruals  and
operating  expenses  partially offset by the receipt of rental income,  interest
income, and investment earnings.

     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  the
Supervisory Goodwill litigation see Part I - Item 1 - Note 3.

     As of September 30, 2006, the Company owns one commercial  office  building
in Greenwich,  Connecticut.  The building is  approximately  14,500 square feet;
approximately  3,500  square feet is  utilized by the Company for its  executive
offices; the remaining space is currently unoccupied and available for lease.

     See Part I - Item 1 - Note 7 for further information concerning the sale of
the Company's 38,000 square foot building in July 2005. A gain from the sale, of
approximately $10 million,  was reflected in the Company's financial  statements
for the year ending December 31, 2005.

     There are no material  commitments for capital expenditures as of September
30, 2006. See Part I - Item 1 - Note 11 to the Company's  consolidated financial
statements for information regarding the anticipated  Supplemental Plan lump-sum
benefit payment of $16,676,115 (to Mr. Bianco, the Company's Chairman, President
and Chief  Executive  Officer),  expected  to be paid on or about May 31,  2007.
Inflation  has had no material  impact on the  business  and  operations  of the
Company.

     Pursuant to the Company's  Repurchase Plan, the Company  repurchased,  from
unaffiliated  parties,  an aggregate of 1,115,000  shares of common stock during
the nine month period ended  September  30, 2006,  at various  dates,  at market
prices  at their  time of  purchase.  See Part I - Item 1 - Note 12 for  further
details with regard to the Company's  purchases of common stock  pursuant to its
common stock repurchase plan.

     In  December  2004,  the  Financial  Accounting  Standards  Board  ("FASB")
released SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which
is a revision of Statement 123. SFAS 123R supersedes Accounting Principles Board
Option No. 25,  "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123R
requires all  share-based  payments to employees,  including  grants of employee
stock  options,  to be recognized in the statement of operations  based on their
fair values.  SFAS 123R is effective for fiscal years  beginning  after December
15, 2005;  however,  early adoption is permitted.  The Company adopted SFAS 123R
effective  on January 1, 2006.  In  accordance  with SFAS 123R,  the Company has
applied  the  "modified  prospective"  method  in  which  compensation  cost  is
recognized  beginning with the effective date (a) based on the  requirements  of
SFAS 123R for all share-based  payments granted after the effective date and (b)
based on the  requirements of SFAS 123 for all awards granted to employees prior
to the effective date of SFAS 123R that remain  unvested on the effective  date.
For further  information  regarding the Company's  adoption of SFAS 123R and its
impact on the Company's financial  statements,  see Part I - Item 1 - Note 10 to
the Company's consolidated financial statements.
<PAGE>
Results of Operations for the Third Quarter and Nine Months ended September 30,
2006 vs. the Third Quarter and Nine Months Ended September 30, 2005

CONTINUING OPERATIONS

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

     As indicated  herein, as a result of the sale, the operating results of the
Company's  Two  Soundview  property for the periods ended prior to the July 2005
sale have been reclassified to discontinued  operations and accordingly,  rental
income from real estate owned  represents the Company's  remaining  property and
was $2,000 and $92,000 for the third quarter and nine months ended September 30,
2006 as compared to $41,000 and $127,000  for the third  quarter and nine months
ended  September 30, 2005.  The  decreased  amounts of $2,000 and $92,000 in the
2006  periods,  compared to $41,000 and  $127,000 in the 2005 periods are due to
unoccupied office space currently  available for lease,  versus occupancy in the
same 2005 periods.

     Compensation and benefits  increased to $3,742,000 in the nine months ended
September 30, 2006,  compared with $3,373,000 in same 2005 period.  The increase
is primarily due to an increased  Supplemental  Retirement  Plan  ("Supplemental
Plan") expense in the nine month period ended September 30, 2006 versus the same
2005  period as further  described  below,  offset  slightly by a lower level of
incentive  compensation accruals in 2006 versus 2005.  Compensation and benefits
decreased slightly to $1,058,000 in the third quarter period ended September 30,
2006,  versus  $1,098,000 in the third quarter period ended  September 30, 2005.
The decrease in the quarterly  2006 period  versus the quarterly  2005 period is
principally  due to a lower  level of  incentive  compensation  accruals in 2006
versus 2005.

     The  Supplemental  Plan expense was $513,000 and  $2,023,000  for the third
quarter and nine months  ended  September  30, 2006,  respectively,  compared to
$522,000 and  $1,043,000  for the third quarter and nine months ended  September
30, 2005, respectively.

     The increased Supplemental Plan expense is due to recognition of an expense
for the nine month period ended  September  30,  2006,  of $992,000  recorded to
increase  the  Supplemental  Plan  liability to reflect the  September  30, 2006
present  value of the  anticipated  May 31,  2007  lump-sum  payment  amount  of
$16,676,115, utilizing a 5.75% discount rate factor based on the 2007 Employment
Agreement  between  the  Company  and  Mr.  Bianco  and  the  amendment  of  the
Supplemental  Plan  as  further  described  in  Part I - Item 1 - Note 11 to the
Company's consolidated financial statements.

     An  additional  a  Supplemental  Plan  expense of $284,000 and $568,000 was
recorded  in the  third  quarter  and nine  months  ended  September  30,  2006,
respectively,  to amortize  the  Supplemental  Plan  minimum  pension  liability
adjustment.  The minimum pension  liability  adjustment,  which is included as a
component of stockholders' equity within accumulated other comprehensive loss in
the Company's consolidated  financial statements,  was $1,326,000 as of December
31, 2005,  and March 31, 2006,  and is being  amortized on a straight line basis
over the 14-month  from April 1, 2006,  through May 31, 2007,  as an  additional
Supplemental Plan expense of $284,000 per quarter. This resulted in an aggregate
Supplemental  Plan  expense  of  $513,000  for the third  quarter  period  ended
September 30, 2006,  as compared to $464,000 for the first quarter  period ended
March 31, 2006 and  $1,047,000  for the second  quarter ended June 30, 2006. For
the nine month period ended  September 30, 2006, the  Supplemental  Plan expense
was $2,023,000.  The amortization of the additional minimum pension liability of
$284,000  and  $568,000  in the  third  quarter  and nine  month  periods  ended
September  30,  2006,   respectively,   although  recorded  as  a  component  of
compensation expense in the Company's consolidated statement of operations, does
not result in a  decrease  in total  stockholders'  equity,  as its  recognition
results in an increase in one component and a corresponding  decrease in another
component of stockholders'  equity.  See Part I - Item 1 - Notes 9 and 11 to the
Company's consolidated financial statements for further information.

     As noted above, the Company adopted  Statement 123R effective on January 1,
2006.  In  accordance  with SFAS 123R,  the Company  has  applied the  "modified
prospective"  method in which  compensation cost for stock options is recognized
beginning  with the  effective  date.  During the third  quarter and nine months
ended   September  30,  2006,   the  Company   recorded   $22,000  and  $66,000,
respectively,  of compensation  expense relating to stock options. In accordance
with the "modified  prospective"  method,  no compensation  expense  relating to
stock options was recorded for the third quarter and nine months ended September
30, 2005. For further information  regarding the Company's adoption of SFAS 123R
and its impact on the Company's financial statements, see Part I - Item 1 - Note
10 to the Company's consolidated financial statements.

<PAGE>
     Professional and outside services were $553,000 and $2,274,000 in the third
quarter and nine months ended September 30, 2006, and $423,000 and $1,537,000 in
the  respective  2005  periods.  The  increase in the 2006 nine month  period as
compared to the  respective  2005 period is  principally  the result of a higher
level of legal  and  professional  fees  relating  to the  Supervisory  Goodwill
litigation as a result of discovery in 2006,  relating to the Show Cause hearing
and, to a lesser extent, other corporate professional fees.

     Property  operating and  maintenance  expenses were $28,000 and $89,000 for
the third  quarter and nine  months  ended  September  30,  2006,  respectively,
compared to $29,000 and $99,000 in the  respective  2005 periods.  The decreased
expenses in 2006 compared to the 2005 periods are due to a decrease in the level
of repairs and maintenance expenses. Property operating and maintenance expenses
have not been reduced by tenant reimbursements.

     Interest  income in the third  quarter and nine months ended  September 30,
2006,  increased to $491,000 and  $1,368,000,  respectively,  from  $333,000 and
$604,000,  in the respective 2005 periods. The increase is principally due to an
increase in the aggregate amount of cash  equivalents and investment  securities
invested as a result of the cash proceeds  received in connection  with the sale
of real estate owned in July 2005, and to a lesser extent, an increased yield on
investments due to rising interest rates, as further  discussed in Part I - Item
1 - Note 7.

     Other  expense of  $1,100,000  in the third  quarter and nine months ended
September 30, 2006,  reflects an accrual for the  settlement of claims which was
paid in October 2006 as more fully  described in Note 3 herein.  Other income of
$400,000 in the third  quarter and nine months  ended  September  30,  2006,  is
attributable to a receivable recorded for the November 2006 receipt of insurance
proceeds  received.

     Other income of $72,000 in the nine month period ended  September 30, 2006,
is  attributable to settlement  proceeds  received from the litigation with SDG,
Inc., received in April 2006. The Company remains a shareholder in SDG and AMDG,
but has no current carrying value for this investment, as the Company's original
cost basis was previously written off.

     No  investment  securities  available for sale were sold in the nine months
ended September 30, 2006. For the nine months ended September 30, 2005, realized
gains on sales of investment securities available for sale were $20,000.

     The income tax  provisions of $33,000 and $99,000 for the third quarter and
nine months ended September 30, 2006,  respectively,  are primarily attributable
to a  provision  for a minimum tax on capital to the state of  Connecticut.  The
income tax  provisions  of $180,000 and $240,000 for the third  quarter and nine
months ended September 30, 2005,  respectively,  are attributable to a provision
for federal  alternative  minimum tax of $150,000 for the third quarter and nine
month periods and $30,000 and $90,000, respectively attributable to state taxes.
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.

DISCONTINUED OPERATIONS

     As  discussed  in  Part I - Item 1 - Note  7, in  July  2005,  the  Company
completed the sale of Two Soundview.  The sale price was $28,000,000 less normal
real  estate  closing  adjustments.  A gain  from  the  sale of  $10,298,000  is
reflected in the Company's financial statements for the year ending December 31,
2005.

     Income from discontinued  operations was $63,000 and $749,000 for the third
quarter and nine months ended September 30, 2005, respectively.


<PAGE>
Item 3.  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 with maturity dates of less than
one year consist of the following:
<TABLE>
<CAPTION>
<S>                                                  <C>          <C>                 <C>         <C>
                                                      September 30, 2006               December 31, 2005
                                                     ====================             ===================
                                                     Carrying        Fair              Carrying      Fair
                                                        Value       Value                 Value     Value
(in thousands)                                       --------       -----             ---------     -----

U.S. Treasury Bills and Notes...............         $ 36,225     $ 36,231            $ 39,031    $ 39,034
                                                     ========     ========            =========   ========
Weighted average interest rate..............             4.65%                            3.81%
                                                    =========                         =========
</TABLE>
     The Company's  current  policy is to minimize the interest rate risk of its
short-term  investments by investing in U.S.  Treasury Bills with  maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the period.

     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 20% decrease in market price as of the
dates indicated  below. The selected  hypothetical  changes are for illustrative
purposes  only and are not  necessarily  indicative  of the  best or worse  case
scenarios.
<TABLE>
<CAPTION>
<S>                                                                    <C>              <C>
(In thousands)                                                         September 30,    December 31,
                                                                            2006             2005
Equity Securities Available for Sale:                                  ============     ============

Fair value........................................................          $1,736           $1,729
                                                                            ======           ======
Hypothetical fair value at a 20% increase in market price.........          $2,083           $2,075
                                                                            ======           ======
Hypothetical fair value at a 20% decrease in market price.........          $1,389           $1,383
                                                                            ======           ======
</TABLE>
Item 4.  CONTROLS AND PROCEDURES

     Our  disclosure  controls  and  procedures  include our  controls and other
procedures to ensure that information required to be disclosed in this and other
reports under the  Securities  Exchange Act of 1934,  as amended the  ("Exchange
Act"),  is accumulated and  communicated to our management,  including our Chief
Executive  Officer  and  Chief  Financial  Officer  to  allow  timely  decisions
regarding  required  disclosure and to ensure that such information is recorded,
processed, summarized and reported within the time periods.

     Our Chief Executive  Officer and Chief Financial  Officer have conducted an
evaluation of our  disclosure  controls and procedures as of September 30, 2006.
Based upon this  evaluation,  our Chief  Executive  Officer and Chief  Financial
Officer have concluded  that our disclosure  controls and procedures (as defined
in Rule 13a-15(e) promulgated under the Exchange Act) are sufficiently effective
to ensure that the information  required to be disclosed by us in the reports we
file (under the  Exchange  Act) are  sufficiently  effective  to ensure that the
information  required  to be  disclosed  by us in the  reports we file under the
Exchange Act is recorded,  processed,  summarized  and  reported  with  adequate
timeliness.

     There have been no changes  during the most  recent  fiscal  quarter in our
internal  control over  financial  reporting as defined in Rule 13a-15(f) of the
Exchange  Act  that  have  materially  affected,  or are  reasonably  likely  to
materially affect our internal control over financial reporting.



<PAGE>
STOCKHOLDER INQUIRIES

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

PART II - OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

     For a discussion of the Company's legal proceedings, including a discussion
of the Company's Supervisory Goodwill litigation, see Part I - Item 1 - Note 3 -
Legal Proceedings.

Item 1A.  RISK FACTORS

     There have been no material changes from risk factors previously  disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31, 2005
in response to Item 1A to Part I of Form 10-K.

Item 2.  EXHIBITS

      Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer
      Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Officer
      Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
      Exhibit 32.2 Section 1350 Certification of Chief Financial Officer

Item 3.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


<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


/s/  John P. Ferrara
------------------------------------------------------
By    JOHN P. FERRARA
      Vice President, Chief Financial Officer and Controller
      (Duly Authorized Officer and Principal Financial and
      Accounting Officer)


Date:  November 14, 2006