FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


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


               For the quarterly period ended September 30, 1998

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

                         Commission file number 1-7265


                              AMBASE CORPORATION


            (Exact name of registrant as specified in its charter)


                                   Delaware

                           (State of incorporation)
                                  95-2962743

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

            (Address of principal executive offices)     (Zip Code)

                                (203) 532-2000

             (Registrant's telephone number, including area code)




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

YES  X         NO         

At September  30, 1998,  there were  44,533,519  shares of  registrant's  common
stock,  $0.01 par value  per  share,  outstanding,  excluding  126,488  treasury
shares.

<PAGE>

AmBase Corporation

Quarterly Report on Form 10-Q
September 30, 1998

CROSS REFERENCE SHEET FOR
PARTS I and II                                                            Page

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements................................................1

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

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings..................................................13

Item 2.  Changes in Securities..............................................14

Item 3.  Defaults Upon Senior Securities....................................14

Item 4.  Submission of Matters to a Vote of Security Holders................14

Item 5.  Other Information..................................................14

Item 6.  Exhibits and Reports on Form 8-K...................................14


<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
==============================================================================
(in thousands,                       Third Quarter              Nine Months
except per share data)             1998         1997         1998         1997
==============================================================================
<S>                                 <C>          <C>          <C>          <C>
OPERATING EXPENSES:
Compensation and benefits        $  473         $ 472      $ 1,431     $ 1,464      
Professional and outside services   127            73          777         265           
Insurance                            20            22           65          93       
Occupancy                            22            22           65          65        
Other operating                      34            29           89         110          
------------------------------------------------------------------------------
                                    676           618        2,427       1,997
------------------------------------------------------------------------------
Operating loss                     (676)         (618)      (2,427)     (1,997)  
------------------------------------------------------------------------------
Interest income                     595           656        1,820       2,008
Other income                      2,500            55        2,500          55
------------------------------------------------------------------------------
Income before income taxes        2,419            93        1,893          66
Income tax (expense) benefit        (59)          (73)        (187)        262
------------------------------------------------------------------------------

NET INCOME                       $2,360         $  20      $ 1,706     $   328  
==============================================================================

EARNINGS PER COMMON SHARE:
Net income - basic               $ 0.05         $  -       $ 0.04       $ 0.01
Net income - assuming dilution     0.05            -         0.04         0.01
==============================================================================

AVERAGE SHARES OUTSTANDING       44,534         44,534     44,534       44,534
==============================================================================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                     - 1 -
<PAGE>

                      AMBASE CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
==============================================================================
                                                 September 30,    December 31,
                                                          1998            1997
(in thousands)                                      (unaudited)
==============================================================================
<S>                                                       <C>              <C>
ASSETS
Cash and cash equivalents                          $     606         $   5,548   
Investment securities - held to maturity (market
   value $49,714 and $44,276, respectively)           49,642            44,310
Receivable from Home Holdings, Inc.                        -            12,736
Investment in SDG, Inc. at cost                        1,250             1,250
Other assets                                             333               426
------------------------------------------------------------------------------

TOTAL ASSETS                                       $  51,831         $  64,270  
==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities           $     233         $   1,550   
Supplemental retirement plan                           5,025             4,865
Postretirement welfare benefits                        1,319             1,412
Other liabilities                                        162               196
Litigation and contingency reserves                    2,179             2,340
Income tax reserves                                   66,388            79,088
------------------------------------------------------------------------------
Total liabilities                                     75,306            89,451
------------------------------------------------------------------------------
Commitments and contingencies                              -                 -
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock                                             447               447
Paid-in capital                                      547,712           547,712
Accumulated deficit                                 (570,987)         (572,693)
Treasury stock                                          (647)             (647)
------------------------------------------------------------------------------
Total stockholders' equity                           (23,475)          (25,181)
------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $  51,831         $  64,270 
==============================================================================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                     - 2 -
<PAGE>

                     AMBASE CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                       NINE MONTHS ENDED SEPTEMBER 30

<TABLE>
<CAPTION>
==============================================================================

(in thousands)                                               1998         1997
==============================================================================
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                               $  1,706     $    328   
Adjustments to reconcile net income to
   net cash used by operations:
Other assets                                                   56            6
Accounts payable and accrued liabilities                   (1,317)      (1,206)
Litigation and contingency reserves uses                     (161)        (412)
Income tax reserves                                       (12,700)           -
Other liabilities                                              34         (290)
Amortization of discount - investment securities           (1,749)      (1,832)
Other, net                                                     57            5
------------------------------------------------------------------------------
Net cash used by operating activities                     (14,074)      (3,401)
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investment securities - held to maturity     44,746       34,550
Purchases of investment securities - held to maturity     (48,329)     (29,711)
Proceeds from Home Holdings, Inc. receivable               12,708          368
Other, net                                                      7          (25)
------------------------------------------------------------------------------
Net cash provided by investing activities                   9,132        5,182
------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents       (4,942)       1,781
Cash and cash equivalents at beginning of period            5,548        5,591
------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD               $    606     $  7,372 
==============================================================================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                     - 3 -
<PAGE>

                      AMBASE CORPORATION AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements


Note 1 - Organization

The accompanying  consolidated  financial  statements of AmBase  Corporation and
subsidiaries (the "Company") are unaudited and subject to year-end  adjustments.
All material intercompany transactions and balances have been eliminated. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations.  Results for interim
periods are not  necessarily  indicative  of results for the full year.  Certain
reclassifications  have been made to the 1997 consolidated  financial statements
to  conform  with the 1998  presentation.  The  financial  statements  have been
prepared in accordance with generally accepted accounting  principles  ("GAAP").
The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and  assumptions,  that it deems  reasonable,  that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates and assumptions.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  Substantial  contingent and
alleged  liabilities  exist  against the Company  through  certain  lawsuits and
governmental proceedings,  see Part II - Item 1. These factors raise substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements  do not  include  adjustments  to the  carrying  value of assets  and
liabilities  which  might be  necessary  should  the  Company  not  continue  in
operation.  In order to  continue on a long-term  basis,  the Company  must both
resolve its  contingent and alleged  liabilities by prevailing  upon or settling
these claims for less than the amounts claimed and generate profits by acquiring
existing  operations and/or by developing new operations.  The Company continues
to evaluate a number of possible acquisitions,  and is engaged in the management
of its remaining  assets and  liabilities,  including the contingent and alleged
tax and  litigation  liabilities,  as described in Part II - Item 1. The Company
intends to  aggressively  contest  all  pending and  threatened  litigation  and
proceedings, as well as pursue all sources for contributions to settlements. The
unaudited  interim  financial  statements  presented  herein  should  be read in
conjunction with the Company's  consolidated  financial  statements filed in its
Annual Report on Form 10-K for the year ended December 31, 1997.

The  Company's  main  source of  non-operating  revenue  is  interest  earned on
investment  securities and cash equivalents.  The Company's  management  expects
that operating  cash needs for the remainder of 1998 will be met  principally by
the Company's  current  financial  resources,  and the receipt of  non-operating
revenue consisting of interest income received on investment securities and cash
equivalents.

Note 2 - Legal Proceedings

The  Company  has  significant  alleged tax  liabilities  and is a defendant  in
certain  lawsuits and  governmental  proceedings,  the ultimate outcome of which
could have a material  adverse effect on its financial  condition and results of
operations.  Because  of the  nature  of the  contingent  and  alleged  tax  and
litigation  liabilities  described  in  Part  II -  Item  1,  and  the  inherent
difficulty  in  predicting  the  outcome  of  the  litigation  and  governmental
proceedings,  management  is unable to predict  whether the  Company's  recorded
reserves  will be adequate or its  resources  sufficient to satisfy its ultimate
obligations.  The accompanying  consolidated financial statements do not include
any  adjustments  that might  result  from the  outcome of these  uncertainties.
Although  the  basis  for the  calculation  of the  litigation  and  contingency
reserves  and  income tax  reserves  are  regularly  reviewed  by the  Company's
management and outside legal counsel,  the assessment of these reserves includes
an exercise of judgment and is a matter of opinion.  At September 30, 1998,  the
litigation  and  contingency  reserves,  other than for income tax issues,  were
$2,179,000.   For  a  discussion  of  alleged  tax  liabilities,   lawsuits  and
governmental proceedings, see Part II - Item 1.

In  addition  to the  litigation  and  contingency  reserves,  the Company has a
reserve for income taxes of  $66,388,000  at September  30, 1998.  For a further
discussion,  see Part II - Item 1 - Legal  Proceedings,  Disputes  with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles).

See  Note 8 and Item 2 -  Financial  Condition  for  information  regarding  the
Company's June 1998 payment to the IRS for tax and estimated  interest,  in full
satisfaction  of the Company's  Fresh Start tax liability and utilization of net
operating loss carryforwards.




                                    - 4 -

<PAGE>


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


See Note 4 for further information  regarding the Company's receivable from Home
Holdings,  Inc. ("Home Holdings") and the Company's  continuing rights to pursue
certain  disputed  claims  against Home  Holdings  pursuant to the Home Holdings
bankruptcy case proceedings.

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

Note 3 - Cash and Cash Equivalents

Highly liquid  investments,  consisting  principally of funds held in short-term
money market accounts, are classified as cash equivalents.

Note 4 - Receivable From Home Holdings, Inc.

In 1991,  the Company  sold its entire  interest in The Home  Insurance  Company
("Home Insurance") and its subsidiaries to Home Holdings, Inc. ("Home Holdings")
pursuant to an agreement  between the Company,  Home Insurance and Home Holdings
(then known as TVH Acquisition  Corporation)  dated as of September 28, 1990 (as
amended the "Stock  Purchase  Agreement").  As part of the sale  proceeds,  Home
Holdings agreed to pay $48 million to the Company over a period of years to meet
certain  specified  obligations  of the Company,  as  incurred,  relating to tax
issues,  litigation and administrative  expenses.  The Company had collected the
portion  of this  receivable  with  respect  to  litigation  and  administrative
expenses.  As of January 15,  1998,  the  Company  believed  that the  remaining
receivable, related principally to tax issues, was at least $12,728,000.

On January 15, 1998,  Home Holdings filed a voluntary  petition for relief under
Chapter 11 of the United States  Bankruptcy  Code ("Chapter  11"). Home Holdings
scheduled  the  Company's  outstanding   receivable  from  Home  Holdings  as  a
contingent  general  unsecured claim in the amount of  $11,703,136.  The Company
disagreed with Home Holdings'  characterization of its receivable as contingent,
and also with the amount of the  outstanding  receivable.  The Company filed, in
connection with the Home Holdings  bankruptcy  case, a proof of claim ("Proof of
Claim") for all damages, which was significantly in excess of $12,728,000.

On  January  15,  1998,  Home  Holdings  filed,  along  with  its  petition,   a
pre-arranged plan of reorganization under Chapter 11 (the "Plan").  According to
Home Holdings' Plan and accompanying  disclosure  statement,  general  unsecured
creditors of Home Holdings,  including the Company,  were to receive a projected
future recovery of approximately 38.3% of the amounts owed to them.

The Company filed with the United States Bankruptcy Court  ("Bankruptcy  Court")
an objection to the Plan. Thereafter,  Home Holdings filed a Second Amended Plan
(the "Amended Plan").  According to the Amended Plan, Home Holdings purported to
leave the Company's claim unimpaired,  which means that the Company would retain
its  rights to seek the full  amount  of its  outstanding  receivable  from Home
Holdings  after the Amended  Plan was  confirmed,  and would not be limited to a
recovery of approximately 38.3%. The Company disagreed with the characterization
of its claim as unimpaired, and filed an objection to the Amended Plan.

Home Holdings then filed a number of amended  plans,  culminating in the Revised
Third Amended and Restated Plan of Reorganization (the "Revised Plan"), to which
the Company  agreed.  The Revised Plan was confirmed by order of the  Bankruptcy
Court dated June 9, 1998, and was declared effective on July 29, 1998.

Pursuant to the Revised Plan, on July 30, 1998, the Company received $15,200,000
in full  satisfaction  of all of the Company's  claims relating to Home Holdings
other than certain disputed claims relating to Section  7.4(c)(iii) of the Stock
Purchase  Agreement (the "Disputed  Claims").  The Company's rights against Home
Holdings  in respect  of the  Disputed  Claims are  preserved  and  survive  the
effective  date of the Revised Plan,  and the Company may pursue any such claims
in federal or state court.  The Revised Plan further provides credit support for
any amounts due the Company on account of the  Disputed  Claims in the form of a
Keepwell  Agreement  provided  by Zurich  Reinsurance  Centre  Holdings.  On the
effective date of the Revised Plan, the Company  withdrew its Proof of Claim and
exchanged releases with Home Holdings and various other parties.




                                    - 5 -
<PAGE>

NOTE 5 - INVESTMENT SECURITIES

Investment  securities - held to maturity  consist of U.S.  Treasury  Bills with
original  maturities of one year or less and which are carried at amortized cost
based upon the  Company's  intent  and  ability  to hold  these  investments  to
maturity.
<TABLE>
<CAPTION>
Investment  securities - held to maturity at September 30, 1998 and December 31,
1997 consist of the following:
===============================================================================
                      September 30, 1998                December 31, 1997
                  ---------------------------      ----------------------------
                                       Cost or                          Cost or
                  Carrying  Amortized     Fair     Carrying  Amortized     Fair
(in thousands)       Value       Cost    Value        Value       Cost    Value
===============================================================================
<S>                <C>        <C>      <C>          <C>        <C>      <C>
U.S. Treasury
   Bills           $49,642    $49,642  $49,714      $44,310    $44,310  $44,276
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
The gross unrealized gains (losses) on investment securities at September 30 and
December 31 consist of the following:
===============================================================================
(IN THOUSANDS)                                           1998              1997
===============================================================================
<S>                                                     <C>              <C>
Held to Maturity - Gross unrealized gains (losses)      $  72            $  (34)
===============================================================================
</TABLE>
Other investment securities at September 30, 1998 and December 31, 1997  consist
of $100,000 of convertible preferred  stock in AMDG,  Inc.,  that was  purchased
through a private  placement in December 1997, is classified as other assets and
is carried at cost which approximates market value.


                                      - 6 -

<PAGE>
NOTE 6 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
The  calculation  of basic  earnings per share and dilutive  earnings per share,
including  the effect of  dilutive  securities,  for the third  quarter and nine
months ended September 30, is as follows:
===============================================================================
               Quarter Ended Sept. 30, 1998    Nine Months Ended Sept. 30, 1998
             --------------------------------  --------------------------------
(in thousands                             Per                               Per
except per        Income       Shares   Share       Income        Shares  Share
share data)  (Numerator)(Denominator)  Amount  (Numerator) (Denominator) Amount
===============================================================================
<S>             <C>          <C>       <C>       <C>           <C>       <C>
BASIC EARNINGS
  PER SHARE:
Net income      $2,360      44,534     $ 0.05    $1,706       44,534     $ 0.04
                 =====                   ====     =====                    ====
EFFECT OF
  DILUTIVE
  SECURITIES:
Assumed stock
  option
  exercise                   1,684          -                  1,709          -
                            ------       ----                 ------       ----
DILUTED EARNINGS
  PER SHARE:
Net loss and
  assumed
  conversions   $2,360      46,218     $ 0.05    $1,706       46,243     $ 0.04
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
               Quarter Ended Sept. 30, 1997    Nine Months Ended Sept. 30, 1997
             --------------------------------  --------------------------------
(in thousands                             Per                               Per
except per        Income       Shares   Share       Income        Shares  Share
share data)  (Numerator)(Denominator)  Amount  (Numerator) (Denominator) Amount
===============================================================================
<S>             <C>         <C>        <C>       <C>           <C>       <C>
BASIC EARNINGS
  PER SHARE:
Net income
  (loss)        $   20      44,534     $    -    $  328       44,534     $ 0.01
                 =====                              ===                     
EFFECT OF
  DILUTIVE
  SECURITIES:
Assumed stock
  option
  exercise                   1,695          -                  1,678          -
                            ------       ----                  -----       ====
DILUTED EARNINGS
  PER SHARE:
Net income
  (loss) and
  assumed
  conversions   $   20      46,229     $    -    $  328       46,212     $ 0.01
===============================================================================
</TABLE>
NOTE 7 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Additional  information  regarding cash flow for the nine months ended September
30 is as follows:
===============================================================================
(in thousands)                                                1998         1997
===============================================================================
<S>                                                         <C>          <C>
Cash received (paid) during the period:
Income taxes refunded (paid), net                         $(12,893)      $  265
===============================================================================
</TABLE>
Income  taxes  paid,  net in 1998  include  $12,700,000  for  tax and  estimated
interest paid to the Internal  Revenue Service  ("IRS") in full  satisfaction of
the  Company's  Fresh  Start  tax  liability.  See  Part  II -  Item  1 -  Legal
Proceedings,  Disputes with Internal  Revenue  Service,  Fresh Start for further
information.

Income taxes  refunded,  net in 1997,  include  $475,000 of taxes  refunded as a
result of an overpayment to the IRS for 1988 through 1991 tax years.

                                    - 7 -
<PAGE>

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


Note 8 - Income Taxes

The Company and its 100% owned domestic subsidiaries file a consolidated federal
income tax return.  The Company  accounts  for income taxes in  accordance  with
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes" ("Statement 109"). Statement 109 recognizes both the current and deferred
tax consequences of all transactions  that have been recognized in the financial
statements,  calculated  based on the provisions of enacted tax laws,  including
the tax rates in effect for current and future  years.  Statement  109  requires
that net deferred tax assets be recognized  immediately  when a more likely than
not criterion is met; that is, unless a greater than 50% probability exists that
the tax  benefits  will not actually be realized  sometime in the future.  Under
Statement  109,  the  Company has  calculated  a net  deferred  tax asset of $27
million,  as of  September  30, 1998 and $33 million as of  December  31,  1997,
arising primarily from net operating loss ("NOL")  carryforwards,  the excess of
book over tax reserves and  alternative  minimum tax 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  ("OTS")  December  4, 1992
placement of Carteret in  receivership,  under the  management of the Resolution
Trust Corporation  ("RTC")/Federal  Deposit Insurance Corporation ("FDIC"),  and
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"),  but this information has not yet been received.
Based on the Company not making the election  decision,  as described above, and
upon receipt of the requested  information  from the RTC/FDIC,  the Company will
amend its consolidated  federal income tax returns to include the federal income
tax effects of Carteret and Carteret  FSB.  Based on the  information  currently
available, the Company does not believe a material increase in the Company's tax
liabilities will result.

The Company anticipates that, as a result of filing consolidated  federal income
tax  returns  with  Carteret  FSB,   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 $145
million are still available.  The NOL carryforwards generated from the Company's
tax basis in Carteret/Carteret  FSB would expire no earlier than 2007, and would
be  available  to  offset  future  taxable  income,   in  addition  to  the  NOL
carryforwards as noted below.

In June 1998,  the Company  paid  $12,700,000  to the IRS for tax and  estimated
interest in full  satisfaction  of the Company's  Fresh Start tax liability.  In
connection  with the  Company's  payment to the IRS, the Company  also  utilized
approximately  $40 million of NOL's. As a result,  the Company has remaining NOL
carryforwards of approximately $15 million expiring  beginning in 2008, and $145
million of additional NOL  carryforwards  generated from the Company's tax basis
in  Carteret/Carteret  FSB expiring no earlier than 2007. See Item 2 - Financial
Condition and Part II - Item 1 Legal Proceedings, Disputes with Internal Revenue
Service for further  information  regarding the Company's  payment to the IRS in
connection with the Fresh Start tax proceeding.

The Company  contractually assumed the tax liabilities of City Investing Company
("City"),  which,  prior to September 1985, owned all the outstanding  shares of
Common Stock of the Company. The Company also contractually  assumed certain tax
liabilities of The Home and its  subsidiaries  from September 1985 through 1989.
For all periods through 1992, the IRS and the Company disagree only with respect
to  withholding  taxes  in  connection  with  a  Netherlands   Antilles  finance
subsidiary  of  City.  The  Company's  federal  income  tax  returns  for  years
subsequent to 1992 have not been reviewed by the IRS.


                                    - 8 -

<PAGE>



The Company has a reserve for income taxes of $66,388,000 at September 30, 1998.
For a further  discussion,  see Part II - Item 1 - Legal  Proceedings,  Disputes
with Internal Revenue Service, Withholding Taxes (Netherlands Antilles).

During the first  quarter of 1997,  the Company  received a $475,000  income tax
refund,  as a result of an  overpayment to the IRS for the 1988 through 1991 tax
years.  This amount was  recorded as an income tax benefit in the first  quarter
ended March 31, 1997.

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

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  which follows,  should be read in conjunction with the consolidated
financial statements and related notes, which are contained in Item 1, herein.

FINANCIAL CONDITION

The Company's  assets at September 30, 1998 aggregated  $51,831,000,  consisting
principally of cash and cash  equivalents of $606,000 and investment  securities
of  $49,642,000.  At September 30, 1998,  the Company's  liabilities,  including
reserves for contingent and alleged liabilities, as further described in Part II
- Item 1, exceeded total recorded assets by $23,475,000.

In June 1998,  the Company  paid  $12,700,000  to the IRS for tax and  estimated
interest in full  satisfaction of the Company's Fresh Start tax liability.  This
amount was previously  reserved for as part of the Company's income tax reserves
account.  See Note 8 for a more  complete  discussion  regarding  the  Company's
payment  to the IRS in  connection  with the  Fresh  Start  tax  proceeding  and
utilization of net operating loss carryforwards.

Pursuant  to the Home  Holdings  Revised  Third  Amended  and  Restated  Plan of
Reorganization  (the  "Revised  Plan"),  on July 30, 1998 the  Company  received
$15,200,000 in full  satisfaction  of all the Company's  claims relating to Home
Holdings  other than certain  disputed  claims.  See Item 1 - Note 4 for further
information regarding the Company's receivable from Home Holdings.

The Company  contractually assumed the tax liabilities of City Investing Company
("City"),  which,  prior to September 1985, owned all the outstanding  shares of
Common Stock of the Company. The Company also contractually  assumed certain tax
liabilities of The Home and its  subsidiaries  from September 1985 through 1989.
For all periods through 1992, the IRS and the Company disagree only with respect
to  withholding  taxes  in  connection  with  a  Netherlands   Antilles  finance
subsidiary  of  City.  The  Company's  federal  income  tax  returns  for  years
subsequent to 1992 have not been reviewed by the IRS.

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

On June 30, 1995,  the Company  filed a petition in the United  States Tax Court
("Tax Court")  contesting the Notice of Deficiency.  The IRS filed its answer on
August 23, 1995. The Company filed a motion for summary judgment in its favor on
February 13, 1996. On April 17, 1996, the IRS filed a Notice of Objection to the
Company's motion for summary judgment. The Tax Court requested,  and the Company
filed,  on July 3, 1996, a reply to the IRS's Notice of Objection.  On September
19, 1996,  the Court denied the Company's  motion for summary  judgment  without
prejudice.  Based on the Tax Court's examination of the record and the status of
the discovery process, the Tax Court concluded that summary adjudication at this
time was inappropriate. The Tax Court directed the parties to engage in full and
complete  discovery as expeditiously as possible.  A trial was held in this case
on March 24, 1997, after which the Judge asked the IRS and the Company to submit
post-trial  briefs,  which have subsequently been submitted to the Tax Court. If
the IRS were to prevail on this issue, the Company would be liable for taxes and
interest in excess of the Company's financial resources.




                                    - 9 -

<PAGE>



In a case dealing with a similar  withholding tax issue,  the Tax Court ruled in
favor of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana"),
in November 1995. The Tax Court rejected the IRS's contention that interest paid
to Northern  Indiana's  foreign  subsidiary  were  subject to United  States tax
withholding. The IRS appealed this decision (Northern Indiana Public Service Co.
v.  Commissioner) to the United States Court of Appeals for the 7th Circuit (the
"Appeals Court").  The Appeals Court recently affirmed the Tax Court's ruling in
favor of Northern  Indiana.  Although the Appeals Court decision in the Northern
Indiana case could be beneficial to the  Company's  case, it is not  necessarily
indicative of the ultimate  result of the final  settlement  of the  Netherlands
Antilles issue between the Company and the IRS.

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

The Company has a reserve for income taxes of $66,388,000 at September 30, 1998.
For a further  discussion,  see Part II - Item 1 - Legal  Proceedings,  Disputes
with Internal Revenue Service, Withholding Taxes (Netherlands Antilles).

At September 30, 1998, the litigation and contingency  reserves,  other than for
income tax issues, were $2,179,000. For a discussion of alleged tax liabilities,
lawsuits and governmental proceedings, see Part II - Item 1.

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

The cash needs of the Company for the first nine months of 1998 were principally
satisfied  by  interest  income  received  on  investment  securities  and  cash
equivalents, and the Company's current financial resources. On July 30, 1998 the
Company  received  $15,200,000  pursuant  to the  Home  Holdings  Revised  Plan.
Management believes that the Company's cash resources are sufficient to continue
operations for 1998.

For the nine months ended  September 30, 1998,  cash of $14,074,000  was used by
operations,  including the payment of  $12,700,000  to the IRS for the Company's
Fresh Start tax liability,  the payment of prior year accruals,  and the payment
of operating  expenses  partially  offset by the receipt of interest  income and
amounts received pursuant to the Home Holdings Revised Plan. For the nine months
ended September 30, 1997,  cash of $3,401,000 was used by operations,  including
the payment of prior year accruals and operating expenses, partially offset by a
$475,000 tax refund and the receipt of interest income.

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

There were no material  commitments for capital expenditures as of September 30,
1998.




                                    - 10 -

<PAGE>



RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Summarized  financial  information of the Company for the second quarter and six
months ended June 30 is as follows:
==============================================================================
                                         Third Quarter           Nine Months
(in thousands)                         1998        1997       1998        1997
==============================================================================
<S>                                <C>          <C>       <C>         <C>
Operating expenses:
Compensation and benefits            $  473      $  472    $ 1,431     $ 1,464
Professional and outside services       127          73        777         265
Insurance                                20          22         65          93
Occupancy                                22          22         65          65
Other operating                          34          29         89         110
------------------------------------------------------------------------------
                                        676         618      2,427       1,997
------------------------------------------------------------------------------
Operating loss                         (676)       (618)    (2,427)     (1,997)
------------------------------------------------------------------------------
Interest income                         595         656      1,820       2,008
Other income                          2,500          55      2,500          55
------------------------------------------------------------------------------
Income before income taxes            2,419          93      1,893          66   
Income tax benefit (expense)            (59)        (73)      (187)        262
------------------------------------------------------------------------------

NET INCOME                           $2,360      $   20    $ 1,706     $   328
==============================================================================
</TABLE>
The Company's main source of non-operating  revenue is interest income earned on
investment  securities and cash equivalents.  The Company's  management  expects
that operating  cash needs for the remainder of 1998 will be met  principally by
the  Company's  current  financial  resources  and the receipt of  non-operating
revenue  consisting of interest income earned on investment  securities and cash
equivalents.

The  Company  recorded  net  income  of  $2,360,000,  or  $0.05  per  share  and
$1,706,000,  or $0.04  per share for the third  quarter  and nine  months  ended
September 30, 1998,  respectively.  The 1998 third quarter and nine month period
includes  $2,500,000  of  other  income  received  in  connection  with the Home
Holdings Revised Plan, as further  described in Item 1 Note 4, above.  Excluding
the  $2,500,000  other  income,  the Company  would have  reported a net loss of
$140,000 and $794,000 in the third quarter and nine month period ended September
30, 1998, respectively.

The Company recorded net income of $20,000 and $328,000,  or $0.01 per share, in
the third quarter and nine month periods ended September 30, 1997, respectively.
The 1997 nine month period  includes a $475,000  income tax benefit,  as further
described in  Financial  Condition,  above.  Excluding  the $475,000  income tax
benefit,  the  Company  would have  reported a net loss of  $147,000 in the nine
month period ended September 30, 1997.

Compensation  and benefits were to $473,000 and  $1,431,000 in the third quarter
and nine month periods ended  September  30, 1998,  respectively,  compared with
$472,000 and $1,464,000 for the comparable 1997 periods.

Professional  and outside  services  increased  to $127,000  and $777,000 in the
third quarter and nine months ended September 30, 1998,  respectively,  compared
to $73,000 and $265,000 in the  respective  1997  periods.  This increase in the
1998 periods was primarily the result of legal fees incurred attributable to the
Home Holdings bankruptcy case.

Insurance  expenses  decreased  to $20,000 and $65,000 in the third  quarter and
nine months ended September 30, 1998, respectively,  from $22,000 and $93,000 in
the same 1997 periods, due to management's continued  renegotiation of insurance
programs.

Interest  income in the third  quarter and nine months ended  September 30, 1998
decreased to $595,000 and $1,820,000, respectively, from $656,000 and $2,008,000
in the respective  1997 periods.  The decrease was primarily  attributable  to a
lower average level of cash  equivalents  and investment  securities  during the
1998 periods.

As noted above,  the  $2,500,000  of other income in the 1998 third  quarter and
nine month periods  represents a portion of the amounts received pursuant to the
Home Holdings Revised Plan.



                                     - 11 -

<PAGE>



The income tax  provision of $59,000 and $187,000 in the third  quarter and nine
months ended September 30, 1998,  respectively,  is primarily  attributable to a
provision  for state  taxes.  The income tax  provision  of $73,000 in the third
quarter ended  September 30, 1997 is primarily  attributable  to a provision for
state  taxes.  The income tax benefit of $262,000 in the nine month period ended
September 30, 1997 is attributable  to a $475,000 income tax refund,  as further
described  in Financial  Condition,  above,  and a provision  for state taxes of
$213,000.  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.

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

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.



                                     - 12 -

<PAGE>



Part II - OTHER INFORMATION

Item 1.  Legal Proceedings

The information  contained in Item 8 - Note 13 in AmBase's Annual Report on Form
10-K for the year ended December 31, 1997 and in AmBase's  Quarterly  Reports on
Form 10-Q for the  quarterly  periods ended March 31, 1998 and June 30, 1998 are
incorporated by reference  herein and the defined terms set forth below have the
same  meaning  ascribed  to them in those  reports.  There have been no material
developments in such legal proceedings, except as set forth below.

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

Rolo and Tenerelli v. City Investing Company Liquidating Trust, et al. On August
31, 1998, the Court of Appeals for the Third Circuit affirmed  dismissal of this
action  by the  District  Court.  Plaintiffs  may  file a  petition  for writ of
certiorari seeking review by the Supreme Court on or before November 30, 1998.

Marshall Manley v. AmBase Corporation. The trial of this case has been adjourned
by the Court until June 1999.

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




                                     - 13 -
<PAGE>

ITEM 2.  CHANGES IN SECURITIES

Does not apply.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Does not apply.

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

None

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    27.  Financial Data Schedule (only submitted to SEC in electronic format)

(b) Form 8-K

    None


                                   SIGNATURES


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


AMBASE CORPORATION




By  JOHN P. FERRARA
    Vice President, Chief Financial Officer
    and Controller
    (Principal Financial and
    Accounting Officer)

Date:  November 5, 1998

                                     - 14 -
<PAGE>

                           EXHIBIT INDEX


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

  27                   Financial Data Schedule - September 30, 1998




                                    - 15 -