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

                                  FORM 10-K


(Mark One)
|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 (fee required)

      For the fiscal year ended December 31, 1997

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 (no fee required)

      For the Transition Period From ________ To ________


                        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.)

            51 Weaver Street, Building 2, Greenwich, CT 06831-5155
                   (Address of principal executive offices)

      Registrant's telephone number, including area code (203) 532-2000

         Securities registered pursuant to Section 12(b) of the Act:

Title of each class               Name of each exchange on which registered

Common Stock ($0.01 par value)    None

Rights to Purchase Common Stock   None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days.    Yes X    No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K.  X

At January 30, 1998, there were 44,533,519  shares of registrant's  Common Stock
outstanding.  At January 30, 1998 the  aggregate  market  value of  registrant's
voting securities  (consisting of its Common Stock) held by nonaffiliates of the
registrant, based on the average bid and asking price on such date of the Common
Stock of $3.56 per share,  was  approximately  $128  million.  The Common  Stock
constitutes registrant's only outstanding security.

Portions of the  registrant's  definitive  Proxy  Statement  for its 1998 Annual
Meeting of Stockholders,  which Proxy Statement  registrant intends to file with
the Securities  and Exchange  Commission not later than 120 days after the close
of its  fiscal  year,  is  incorporated  by  reference  with  respect to certain
information contained therein, in Part III of this Annual Report.

The Exhibit Index is located in Part IV, Item 14, Page 37.

<PAGE>

AmBase Corporation

Annual Report on Form 10-K
December 31, 1997

CROSS REFERENCE SHEET FOR
PARTS I, II, III and IV                                                   Page
------------------------------------------------------------------------------

PART I

Item 1.    Business..........................................................1

Item 2.    Properties........................................................2

Item 3.    Legal Proceedings.................................................2

Item 4.    Submission of Matters to a Vote of Security Holders...............3

           Executive Officers of the Registrant..............................3

PART II

Item 5.    Market for Registrant's Common Equity and
           Related Stockholder Matters.......................................4

Item 6.    Selected Financial Data...........................................5

Item 7.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations.....................5

Item 8.    Financial Statements and Supplementary Data......................12

Item 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure..............................36

PART III

Item 10.   Directors and Executive Officers of the Registrant...............36

Item 11.   Executive Compensation...........................................36

Item 12.   Security Ownership of Certain Beneficial
           Owners and Management............................................36

Item 13.   Certain Relationships and Related Transactions...................36

PART IV

Item 14.   Exhibits, Financial Statement Schedules and
           Reports on Form 8-K..............................................37

<PAGE>

PART I

ITEM 1.  BUSINESS

Corporate Profile

AmBase  Corporation  (the  "Company")  was  incorporated  in  1975  by the  City
Investing  Company  ("City")  as the  holding  company  for The  Home  Insurance
Company, a New Hampshire insurance corporation,  and its affiliated property and
casualty  insurance  companies ("The Home").  In 1985, City, which prior to that
date  owned all the  outstanding  shares  of the  Common  Stock of the  Company,
distributed  the Company's  shares to City's common  stockholders.  The Home was
sold on February 13, 1991 to Home Holdings, Inc. ("Home Holdings").

In  December  1997,  the  Company  formed  a new  wholly-owned  subsidiary,  SDG
Financial Corp. ("SDG Financial"),  to pursue merchant banking  activities.  SDG
Financial  purchased  an  approximate  6.3%  equity  interest in SDG,  Inc.  for
$1,250,000  and  was  granted  the  exclusive  right  to act  as the  investment
banker/financial   advisor  to  SDG,  Inc.  and  all  of  its  subsidiaries  and
affiliates.

SDG, Inc. is a  development  stage  company  which  specializes  in creating new
technology-specific  companies that are dedicated to the clinical and commercial
development   of   proprietary,   targeted   liposomal   delivery   systems  for
pharmaceutical  therapies and consumer  product  ingredients.  SDG, Inc.'s lipid
vesicles are protected by numerous U.S. and related foreign patents.

Also in December 1997, the Company purchased  $100,000 of convertible  preferred
stock in AMDG, Inc. ("AMDG"), a majority owned subsidiary of SDG, Inc. AMDG is a
development stage pharmaceutical  company focused on the clinical development of
new  therapies  for the  treatment  of both Type I and Type II diabetes  and has
received from SDG, Inc. a worldwide, exclusive,  royalty-free license to certain
patented  technology.  AMDG  raised  $3.7  million  of equity  through a private
placement in December 1997.

In November 1993, the Company acquired 51% of the issued and outstanding  common
stock of  Augustine  Asset  Management,  Inc.  ("Augustine"),  a  Florida  based
investment  advisory  firm.  On  October 4, 1996,  the  Company  sold its entire
interest  in  Augustine,  to  Augustine.  See  Item 8 - Note 6 to the  Company's
consolidated financial statements for further information.

In August 1988, the Company  acquired  Carteret  Bancorp Inc.  Carteret  Bancorp
Inc.,  through its principal wholly owned subsidiary,  Carteret Savings Bank, FA
("Carteret"),  was  principally  engaged in retail  and  consumer  banking,  and
mortgage banking including mortgage  servicing.  On December 4, 1992, the Office
of  Thrift  Supervision  ("OTS")  placed  Carteret  in  receivership  under  the
management of the Resolution  Trust  Corporation  ("RTC") and a new institution,
Carteret  Federal Savings Bank, was established to assume the assets and certain
liabilities  of Carteret.  Following  the seizure of  Carteret,  the Company was
deregistered as a savings and loan holding company by the OTS,  although the OTS
retains jurisdiction for any regulatory violations prior to deregistration.

The Company's assets currently  consist  primarily of cash and cash equivalents,
investment  securities and a receivable from Home Holdings.  On or about January
15, 1998,  Home Holdings filed a voluntary  petition for relief under Chapter 11
of the  United  States  Bankruptcy  Code.  See Item 8 - Note 4 to the  Company's
consolidated  financial  statements  for  a  further  discussion  regarding  the
Company's receivable from Home Holdings.

The Company had 7 employees at December 31, 1997.

The Company's main source of non-operating  revenue is interest income earned on
investment  securities and cash equivalents.  In order to maintain the principal
value of its assets, the Company has invested  substantially all of its funds in
U.S.  Treasury Bills and short-term money market funds. 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 Item 8 - Notes 11 and 13 to the
Company's consolidated financial statements. The Company intends to aggressively
contest all pending and  threatened  litigation  and  contingencies,  as well as
pursue all sources for  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.

See Item 8 - Note 13 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.


                                     -1-

<PAGE>


At  December  31,  1997,  the  Company's  liabilities,  including  reserves  for
contingent  and  alleged   liabilities,   exceeded  total  recorded   assets  by
$25,181,000.  The  Company has  significant  alleged  tax  liabilities  and is a
defendant in a number of lawsuits and proceedings, the ultimate outcome of which
could have a material  adverse effect on its financial  condition and results of
operations.  Because of the nature of the contingent and alleged liabilities 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.  For a discussion  of the alleged tax  liabilities,  lawsuits and
proceedings,  see  Item  8 -  Notes  11 and  13 to  the  Company's  consolidated
financial  statements.  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.

Discontinued Operations

For a discussion of discontinued investment management operations, refer to Item
8 - Note 6 to the Company's consolidated financial statements.

ITEM 2.  PROPERTIES

The Company  leases  approximately  4,800  square feet for use as its  executive
office at 51 Weaver Street, Building 2, Greenwich, CT 06831-5155.

ITEM 3.  LEGAL PROCEEDINGS

The Company has  significant  alleged tax  liabilities  and is a defendant  in a
number of 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 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 December  31,
1997, the litigation and contingency reserves were $2,340,000.  For a discussion
of alleged tax  liabilities  and  lawsuits,  see Item 8 - Notes 11 and 13 to the
Company's consolidated financial statements.

In  addition  to the  litigation  and  contingency  reserves,  the Company had a
reserve for income taxes of  $79,088,000  at December  31,  1997.  For a further
discussion,  see Item 8 - Note 11, Income Taxes and Note 13, Legal  Proceedings,
Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles)
and Fresh Start, to the Company's consolidated financial statements.

See Item 8 - Note 13 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

Management of the Company  continually  reviews the  likelihood of liability and
associated costs of pending and threatened litigation.  During 1996, the Company
determined  that there was a reduced  probability  of incurring  costs to defend
and/or settle  potential  litigation  with respect to Carteret  Savings Bank, FA
("Carteret"),  see the  Company's  Annual Report on Form 10-K for the year ended
December  31,  1995,  Item 8 - Note 11. As a result,  the  Company  reduced  its
litigation  and  contingency  reserves by $8,000,000 and recorded such amount as
other  income  during the 1996 second  quarter.  In making  such  determination,
management took into  consideration  numerous factors,  including the failure of
the Resolution Trust Corporation  ("RTC") to notify the Company of any potential
legal action prior to the  expiration  of a significant  statute of  limitations
deadline and the transfer of the investigative  duties of the RTC to the Federal
Deposit Insurance  Corporation ("FDIC") upon the expiration of the RTC's charter
on December 31, 1995 pursuant to federal statute. Management also considered the
July 1, 1996 decision by the U.S. Supreme Court in the consolidated  supervisory
goodwill cases of Winstar, Glendale Federal and Statesman, which held the United
States liable for damages.  At December 31, 1996, the litigation and contingency
reserves were $2,954.000.



                                     -2-

<PAGE>


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

None.

Executive Officers of the Registrant

Each executive officer is elected to serve in the executive officer capacity set
forth   opposite  his   respective   name  until  the  next  Annual  Meeting  of
Stockholders.  The Company is not aware of any family relationships  between any
of the executive officers or directors of the Company.

Set forth below is a list of  executive  officers of the Company at December 31,
1997:
================================================================================

Name                       Age                  Present Title
================================================================================

Richard A. Bianco           50                 Chairman, President and
                                               Chief Executive Officer of
                                               AmBase Corporation

John P. Ferrara             36                 Vice President, Chief Financial
                                               Officer, Treasurer and Controller
                                               of AmBase Corporation

Mr. Bianco was elected a director of the Company in January 1991, and has served
as  President  and Chief  Executive  Officer of the Company  since May 1991.  On
January 26, 1993,  Mr. Bianco was elected  Chairman of the Board of Directors of
the Company.  He served as Chairman,  President and Chief  Executive  Officer of
Carteret, then a subsidiary of the Company, from May 1991 to December 1992.

Mr.  Ferrara was  elected to the  position of Vice  President,  Chief  Financial
Officer,  Treasurer  and  Controller  of the  Company in December  1995,  having
previously  served as Acting Chief  Financial  Officer,  Treasurer and Assistant
Vice  President and  Controller  since January 1995; as Assistant Vice President
and  Controller  from January 1992 to January 1995;  and as Manager of Financial
Reporting from December 1988 to January 1992.



                                     -3-

<PAGE>


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

The Common Stock of the Company trades through one or more  market-makers,  with
quotations  made  available  in the  "pink  sheets"  published  by the  National
Quotation Bureau, Inc. ("Pink Sheets"),  under the symbol ABCP. The sales prices
per share for the  Company's  Common Stock  represent  the range of the reported
high and low bid  quotations as indicated in the Pink Sheets or as  communicated
orally to the Company by market-makers.  Such prices reflect interdealer prices,
without  retail  mark-up,  mark-down  or  commission,  and may  not  necessarily
represent actual transactions.

================================================================================
                                      1997                          1996
                                High         Low              High         Low
================================================================================

First Quarter                  $2.92       $2.50             $1.02       $0.46
Second Quarter                  2.96        2.49              2.00        1.01
Third Quarter                   3.02        2.58              2.50        1.68
Fourth Quarter                  3.96        2.90              2.88        1.75
================================================================================

As of January 30, 1998, there were approximately 23,000 beneficial owners of the
Company's  Common  Stock.  No dividends  were  declared or paid on the Company's
Common  Stock in 1997 or 1996.  The  Company  does not  intend to declare or pay
dividends in the foreseeable future.

In connection with the proceeding  entitled Rolo and Tenerelli v. City Investing
Company  Liquidating  Trust,  et al.,  pending  in the  Third  Circuit  Court of
Appeals, as further described in Item 8 - Note 13 to the Company's  consolidated
financial  statements,  the  Company  is  unable to make any  dividend  payments
without further judicial action.

For information  concerning the Company's  stockholder rights plan, see Item 8 -
Note 7 to the Company's consolidated financial statements.



                                     -4-

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

The selected  financial  data should be read in  conjunction  with the Company's
consolidated  financial  statements  included  in Item 8 of this Form 10-K.  The
consolidated  statements  of  operations,  for the  periods  ended  prior to the
October 4, 1996 sale of Augustine  were  retroactively  reclassified  to reflect
their operations as discontinued operations.

================================================================================
(in thousands,                                    Years ended December 31
except per share data)              1997       1996     1995     1994      1993
================================================================================

Interest income, net              $2,661     $2,641   $2,835   $2,092    $1,082
Income (loss) from continuing
  operations, before income taxes (1,275)     6,636    6,005    6,246    (8,171)
Income tax (expense) benefit         191      7,189   (1,997)    (148)   11,354
Income (loss) from continuing
  operations                      (1,084)    13,825    4,008    6,098     3,183
Income from discontinued
  investment management
  operations, net of income taxes      -        207       60       32        16
Net income (loss)                 (1,084)    14,032    4,068    6,130     3,199
Earnings per common share - basic
Income (loss) from continuing
  operations                       (0.02)      0.31     0.09     0.14      0.07
Income (loss) from discontinued
  operations                           -          -        -        -         -
--------------------------------------------------------------------------------
Net income (loss)                  (0.02)      0.31     0.09     0.14      0.07
================================================================================
Earnings per common share
  - assuming dilution
Income (loss) from
  continuing operations            (0.02)      0.30     0.09     0.14      0.07
Income (loss) from
  discontinued operations              -          -        -        -         -
--------------------------------------------------------------------------------
Net income (loss)                  (0.02)      0.30     0.09     0.14      0.07
================================================================================
Dividends                              -          -        -        -         -
================================================================================
Total assets                     $64,270    $66,229  $65,677  $70,113   $77,450
Total stockholders' equity       (25,181)   (24,097) (38,273) (42,204)  (48,352)
================================================================================

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  should  be read  in  conjunction  with  the  consolidated  financial
statements and related notes which are contained in Item 8,  herein.  On October
4, 1996,  the Company sold its entire  interest in Augustine.  Accordingly,  the
operations  of  Augustine  have been  reclassified  as  discontinued  investment
management operations in the accompanying consolidated financial statements.

CONTINUING OPERATIONS

Financial Condition

The Company's  assets at December 31, 1997  aggregated  $64,270,000,  consisting
principally of cash and cash equivalents of $5,548,000, investment securities of
$44,410,000,  and a  receivable  from Home  Holdings  acquired  pursuant  to the
agreement  by which  the  Company  sold The  Home and its  subsidiaries  to Home
Holdings in February  1991. On or about  January 15, 1998 Home Holdings  filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code. See Item 8 - Note 4 to the Company's consolidated financial statements for
a further discussion regarding the Company's  receivable from Home Holdings.  At
December 31, 1997, the Company's liabilities,  including reserves for contingent
and alleged liabilities, as further described in Item 8 - Notes 11 and 13 to the
Company's consolidated  financial statements,  exceeded total recorded assets by
$25,181,000.

The cash needs of the Company for 1997 were  principally  satisfied  by interest
income received on investment  securities and cash  equivalents,  and a $475,000
income tax refund.

The cash needs of the Company for 1996 were principally satisfied by the receipt
of a 1977 tax refund,  collections  of the  receivable  from Home  Holdings  and
interest income received on investment securities and cash equivalents.



                                     -5-

<PAGE>


The cash needs of the  Company in 1995 were  principally  satisfied  by interest
income received on investment  securities and cash equivalents,  and collections
of the  receivable  from Home Holdings.  In addition,  in June 1995, the Company
received,  with respect to 1990 and 1991, $1,690,000 from The Home in connection
with a tax sharing  agreement  between the Company and The Home. This amount did
not  reduce  the  receivable  from  Home  Holdings.  Since  the  $1,690,000  had
previously  been  considered  in the  calculation  of income tax  reserves,  the
receipt thereof was recorded as an increase to the income tax reserves account.

Management believes that the Company's cash resources are sufficient to continue
operations  for 1998.  Because  of the  nature  of the  contingent  and  alleged
liabilities described in Item 8 - Notes 11 and 13 to the Company's  consolidated
financial statements,  the Company is unable to predict whether it will have the
ability to generate sufficient resources to satisfy its ultimate obligations.

For the year ended  December 31, 1997,  cash of $4,486,000 was used by operating
activities  of  continuing  operations,   including  the  payment  of  operating
expenses,  and payments  charged  against  litigation and  contingency  reserves
partially  offset by the receipt of interest  income,  and a $475,000 income tax
refund.

For the year ended December 31, 1996,  cash of $1,622,000 was used by operating
activities of continuing operations, including the payment of other liabilities,
payments  charged  against income tax reserves and  litigation  and  contingency
reserves, and the payment of operating expenses, partially offset by the receipt
of a 1977 tax refund, and the receipt of interest income.

For the year ended December 31, 1995,  cash of $6,820,000 was used by operating
activities of continuing  operations,  including  payments  charged  against the
litigation  and  contingency  reserve  and the  payment  of  operating  expenses
partially offset by interest income,  and the receipt of amounts with respect to
1990 and 1991, from The Home in connection with a tax sharing  agreement between
the Company and The Home.

There were no material  commitments for capital  expenditures as of December 31,
1997. Inflation has had no material impact on the business and operations of the
Company.

The Company  continues  to evaluate a number of  possible  acquisitions,  and is
engaged in the management of its remaining assets and liabilities, including the
contingent  and alleged tax and  litigation  liabilities  described  in Item 8 -
Notes 11 and 13 to the Company's  consolidated  financial statements.  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 contingencies, as well as pursue all sources for 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.

See Item 8 - Note 13 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

Management of the Company  continually  reviews the  likelihood of liability and
associated costs of pending and threatened litigation. At December 31, 1997, the
litigation and contingency reserves were $2,340,000. For a discussion of alleged
tax  liabilities  and  lawsuits,  see Item 8 - Notes 11 and 13 to the  Company's
consolidated financial statements.

In  addition  to the  litigation  and  contingency  reserves,  the Company had a
reserve for income taxes of  $79,088,000  at December  31,  1997.  For a further
discussion,  see Item 8 - Note 11, Income Taxes and Note 13, Legal  Proceedings,
Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles)
and Fresh Start, to the Company's consolidated financial statements.

During 1996,  the Company  determined  that there was a reduced  probability  of
incurring  costs to defend and/or settle  potential  litigation  with respect to
Carteret,  see the  Company's  Annual  Report  on Form  10-K for the year  ended
December  31,  1995,  Item 8 - Note 11.  As a result,  the  Company  reduced its
litigation  and  contingency  reserves by $8,000,000 and recorded such amount as
other income during 1996.  In making such  determination,  management  took into
consideration  numerous factors,  including the failure of the RTC to notify the
Company of any potential  legal action prior to the  expiration of a significant
statute of limitations  deadline and the transfer of the investigative duties of
the RTC to the FDIC upon the  expiration  of the RTC's  charter on December  31,
1995 pursuant to federal  statute.  Management  also considered the July 1, 1996
decision by the U.S.  Supreme  Court in the  consolidated  supervisory  goodwill
cases of Winstar,  Glendale Federal and Statesman,  which held the United States
liable for  damages.  At December  31,  1996,  the  litigation  and  contingency
reserves were $2,954,000.

                                     -6-
<PAGE>

In  addition  to the  litigation  and  contingency  reserves,  the Company had a
reserve for income taxes of $79,088,000 at December 31, 1996.

In 1995, as part of the Company's  continuing review of the status of litigation
pending  against the Company,  with careful  attention paid to costs  associated
with defending pending and threatened litigation,  the Company recorded as other
income a $5,350,000 net reduction in the litigation  and  contingency  reserves,
primarily  resulting from the  settlement of certain  litigation at amounts less
than claimed and previously anticipated.

As noted above,  the Company has  significant  alleged tax  liabilities and is a
defendant in a number of lawsuits and proceedings, the ultimate outcome of which
could have a material  adverse effect on its financial  condition and results of
operations.  Because of the nature of the contingent and alleged liabilities and
the inherent difficulty in predicting the outcome of 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. For a
discussion  of the  alleged  tax  liabilities,  lawsuits  and  proceedings,  see
Item 8 -  Notes 11 and 13 to the Company's  consolidated  financial  statements.
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 legal  counsel,  the  assessment of these  reserves  includes an
exercise of judgment and is a matter of opinion.

The Company  contractually  assumed the tax liabilities of 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 1991,
the Internal  Revenue  Service ("IRS") and the Company do not agree with respect
to only two issues,  withholding taxes in connection with a Netherlands Antilles
finance  subsidiary of City, and "Fresh  Start",  an insurance  industry  issue.
During 1996, the Company  received a 1977 income tax refund of $7,613,000;  as a
result,  City no longer remains open for refunds.  This amount was recognized as
an income  tax  benefit  in the  accompanying  1996  Consolidated  Statement  of
Operations, based on management's continuing review of the overall tax liability
position of the Company.

During 1996, in connection  with the completion by the IRS of the Company's 1985
to 1991 federal  income tax audits  (excluding  Fresh  Start),  the Company made
payments to the IRS totaling $1,995,000.  These amounts were previously reserved
for and  charged  against  the income  tax  reserves  account.  During the first
quarter  of 1997,  $475,000  of income  taxes  were  refunded  as a result of an
overpayment to the IRS for 1988 through 1991 tax years. This amount was recorded
as an income tax benefit in the first  quarter of 1997.  The federal  income tax
adjustments from the 1985 to 1991 audits  (excluding Fresh Start) did not result
in additional payments of state or local income taxes. The IRS has completed its
review of the Company's  federal  income tax return for 1992 with no significant
adjustments.  The Company's  federal income tax returns for years  subsequent to
1992 have not been  reviewed by the IRS. New York State has  recently  completed
their  examination  of the  Company's  income tax  returns for tax years 1990 to
1992, which resulted in zero tax assessment.

With respect to the withholding taxes 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 Tax 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 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.



                                     -7-

<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  was  subject to United  States tax
withholding. The IRS appealed this decision (Northern Indiana Public Service Co.
v. Commissioner,  105 T.C. No. 22) to the United States Court of Appeals for the
7th Circuit ("Appeals Court"). The Appeals Court 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
Statement of Operations and Financial Condition.

With respect to the "Fresh  Start"  issue,  on March 13, 1996,  the IRS issued a
deficiency  notice to the  Company on the Fresh  Start  issue  which  asserts an
increase in tax for the year 1987. If the IRS is  successful,  the amount of the
deficiency would be material. On June 7, 1996, the Company filed a petition with
the United  States Tax Court (the "Tax  Court") to dispute the entire  amount of
the asserted  deficiency and to  redetermine  the tax, and on July 23, 1996, the
IRS filed its answer.  The IRS and the Company  began  engaging in the  informal
discovery process customary in the Tax Court.

On July 22, 1997, another insurance company taxpayer,  Atlantic Mutual Insurance
Company  ("Atlantic  Mutual"),  filed a petition for  certiorari in its own case
seeking  review of the Fresh Start issue by the United States Supreme Court (the
"Supreme  Court").  In response,  on September 19, 1997, the United States filed
its brief with the Supreme Court in that case in which it  recommended  that the
Supreme  Court hear the case.  The Supreme Court granted the petition on October
20, 1997, has received briefs, and heard oral argument on March 2, 1998.

A decision on the merits by the Supreme Court in Atlantic Mutual may control the
outcome of the Company's own case in the Tax Court.  Because it is expected that
the Supreme Court will address the reserve  strengthening issue, the Company and
the IRS have  advised  the Tax  Court in the  Company's  own case  that,  in the
interests  of  efficiency,  further  informal  discovery  and  negotiation  of a
stipulation  of facts have been deferred  pending the Supreme  Court's ruling in
Atlantic  Mutual.  No  assurances  can be given  concerning  the  outcome of the
Company's litigation on this issue.

See Item 8 - Note 11, Income  Taxes,  and Note 13, Legal  Proceedings,  Disputes
with Internal  Revenue Service,  Withholding  Taxes  (Netherlands  Antilles) and
Fresh Start, to the Company's consolidated financial statements,  for additional
details.



                                     -8-

<PAGE>


Results of Operations - Continuing Operations

Summarized  financial  information for the continuing  operations of the Company
for the years ended December 31 is as follows:
================================================================================

(in thousands)                                    1997        1996         1995
================================================================================

Operating expenses:
Compensation and benefits                       $3,116      $2,969       $2,119
Professional and outside services                  512         457          661
Insurance                                          120         177          247
Occupancy                                           87          89          173
Other operating                                    160         161          132
--------------------------------------------------------------------------------
                                                 3,995       3,853        3,332
--------------------------------------------------------------------------------
Operating loss                                  (3,995)     (3,853)      (3,332)
--------------------------------------------------------------------------------
Interest income                                  2,661       2,641        2,835
Other income                                        59          30          147
Other income - litigation and
  contingency reserves reversal                      -       8,000        5,350
Other income - reduction of
  previously estimated liabilities                   -           -        1,005
Realized loss on sale of investment
  securities - available for sale                    -        (182)           -
--------------------------------------------------------------------------------
Income (loss) from continuing
  operations before income taxes                (1,275)      6,636        6,005
--------------------------------------------------------------------------------
Income tax benefit (expense)                       191       7,189       (1,997)
--------------------------------------------------------------------------------
Income (loss) from continuing operations       $(1,084)    $13,825       $4,008
================================================================================

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 in 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 a loss from continuing operations of $1,084,000 in the year
ended December 31, 1997. As further described in Financial Condition, above, the
1997 period includes a $475,000 income tax benefit. In addition, the 1997 period
includes other income of $59,000  attributable  to the collection by an inactive
subsidiary of a receivable previously considered uncollectible.  Excluding these
non-recurring income items, the loss from continuing  operations would have been
$1,618,000, or $0.04 per share, for the year ended December 31, 1997.

The Company  recorded  income from  continuing  operations of $13,825,000 in the
year ended  December 31,  1996.  As further  described  in Financial  Condition,
above,  the 1996 period  includes other income of  $8,000,000,  resulting from a
reduction in the litigation and contingency  reserves,  and an additional income
tax benefit of $7,613,000.  Excluding  these  non-recurring  items,  the Company
would have reported a loss from  continuing  operations of $1,788,000,  or $0.04
per share, for the year ended December 31, 1996.

The Company recorded income from continuing  operations of $4,008,000,  or $0.09
per share, for the year ended December 31, 1995. As further described below, the
1995  results   include  a  $5,350,000  net  reduction  in  the  litigation  and
contingency  reserves  recorded as other income,  and a $1,005,000  reduction of
previously estimated liabilities recorded as other income, offset by an increase
in the income tax reserves of $1,800,000  recorded as an  additional  income tax
expense.  In addition,  the 1995 results include $147,000 of non-recurring other
income, as further discussed below.  Excluding these  non-recurring other items,
the Company would have reported a loss from  continuing  operations of $694,000,
or $0.02 per share.

For the  year  ended  December  31,  1997,  the  Company  recorded  a loss  from
continuing operations before income taxes of $1,275,000,  which includes $59,000
of other income, as further described above.

For the  year  ended  December  31,  1996,  the  Company  recorded  income  from
continuing  operations  before  income taxes of  $6,636,000,  which  includes an
$8,000,000  reduction in the litigation  and  contingency  reserves,  as further
described in Financial Condition, above.

                                     -9-
<PAGE>

The Company  recorded income from continuing  operations  before income taxes of
$6,005,000  for the year  ended  December 31,  1995.  These  results  include  a
$5,350,000  net reduction in the  litigation  and  contingency  reserves,  and a
$1,005,000 reduction in previously estimated  liabilities,  as further described
in Financial Condition, above.

Compensation  and benefits  was  $3,116,000  in 1997,  $2,969,000  in 1996,  and
$2,119,000 in 1995. The increase in 1997 is due to increased compensation costs.
The increase in 1996, compared with 1995, is due to the hiring by the Company of
an employee who previously provided services as an independent consultant.

Professional  and outside  services  increased to $512,000 in 1997,  compared to
1996, and decreased to $457,000 in 1996,  from $661,000 in 1995. The increase in
1997,  compared  to 1996,  was due to an increase in  litigation  expenses.  The
decrease in 1996,  compared to 1995, of $204,000,  or 31%, was  principally  the
result of a decrease in professional  service fees in 1996 and the hiring by the
Company of an  employee  who  previously  provided  services  as an  independent
consultant,  as noted above.  Expenses for  professional and outside services in
1997, 1996, and 1995 do not include costs associated with defending  pending and
threatened litigation which were previously reserved for and charged against the
litigation and contingency reserves when paid.

Insurance  expenses  decreased  in 1997,  1996  and  1995,  due to  management's
renegotiation of insurance programs.

Occupancy  expenses  decreased  to $87,000 in 1997,  from  $89,000 in 1996,  and
$173,000 in 1995,  as a result of the continued  reduction of occupancy  related
expenses,  and the relocation of the Company's  executive office and the closing
of an administrative office during 1996.

Interest  income was  $2,661,000 in 1997,  $2,641,000 in 1996, and $2,835,000 in
1995. The increase in 1997,  compared to 1996, was  attributable to an increased
yield on cash  equivalents  and  investment  securities.  The  decrease in 1996,
compared to the 1995  period,  was  attributable  to a  decreased  yield on cash
equivalents and investment securities.

Other income of $59,000 in 1997 is attributable to the collection by an inactive
subsidiary of a receivable previously considered uncollectible.

Other  income  of  $147,000  in  1995  represents  non-recurring  other  income,
principally  the result of final  payments  received from  management  contracts
previously held by an inactive subsidiary of the Company.

The  Company  realized  a loss of  $182,000  in 1996 on the  sale of  investment
securities - available for sale.

During 1996, the Company recorded as other income an $8,000,000 reduction in the
litigation  and  contingency  reserves,  as more fully  described  in  Financial
Condition, above.

During 1995, the Company  recorded as other income a $5,350,000 net reduction in
the  litigation  and  contingency  reserves,   and  a  $1,005,000  reduction  of
previously  estimated   liabilities,   as  more  fully  described  in  Financial
Condition, above.

During 1997, the Company received a $475,000 income tax refund.  This amount was
recognized as an income tax benefit in 1997. In addition, included in income tax
benefit is a state and local tax provision of $284,000 in 1997.

During 1996, the Company  received a 1977 income tax refund of $7,613,000.  This
amount  was  recognized  as an  income  tax  benefit  in the  accompanying  1996
Consolidated Statement of Operations, based on management's continuing review of
the overall tax  liability  position of the  Company,  as further  described  in
Financial  Condition,  above.  In addition,  included in income tax benefit is a
federal and state tax provision of $424,000 in 1996.

During 1995, the Company recorded as additional  income tax expense a $1,800,000
increase in the income tax reserves. The increase in the income tax reserves was
the  result  of the  continuing  review of the  income  tax  reserves  including
additional reserves for amounts considered unrealizable.  In addition,  included
in income tax expense is a state and local tax provision of $197,000 in 1995.

A reconciliation between income taxes computed at the statutory federal rate and
the  provision for income taxes is included in Item 8 - Note 11 to the Company's
consolidated financial statements.



                                     -10-

<PAGE>


Discontinued Investment Management Operations

See  Item 8 - Note 6 to the  Company's  consolidated  financial  statements  for
information.

RECENT DEVELOPMENTS

On or about  January 15,  1998,  Home  Holdings  filed a voluntary  petition for
relief under Chapter 11 of the United States  Bankruptcy Code. See Item 8 - Note
4 to the Company's  consolidated  financial  statements for a further discussion
regarding the Company's receivable from Home Holdings.

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standards No. 128, "Earnings Per Share" ("Statement 128"),
which is effective  for  financial  statements  issued for periods  ending after
December 15, 1997.  Statement  128  replaces  earnings per share  ("EPS") with a
presentation  of basic EPS, and requires dual  presentation of basic and diluted
EPS. Furthermore, a reconciliation of the numerator and denominator of the basic
EPS  computation to the numerator and denominator of the diluted EPS computation
is required.  Based upon the Company's  current  capitalization  structure,  the
basic and  diluted EPS amounts  calculated  in  accordance  with  Statement  128
approximate  the Company's EPS amounts  computed in accordance  with  Accounting
Principles  Board  Opinion No. 15,  "Earnings Per Share." See Item 8 - Note 5 to
the Company's consolidated financial statements for further information.

STOCKHOLDER INQUIRIES

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

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

                                     -11-

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors
and Stockholders of
AmBase Corporation

In our opinion,  the  accompanying  consolidated  Balance Sheets and the related
consolidated  Statements of Operations,  of Changes in Stockholders' Equity, and
of Cash Flows present fairly, in all material  respects,  the financial position
of AmBase  Corporation and its subsidiaries (the "Company") at December 31, 1997
and 1996,  and the results of their  operations and their cash flows for each of
the three  years in the period  ended  December 31,  1997,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Notes 11 and 13, the accompanying  financial  statements include
income tax reserves  relating to a number of issues.  Final  resolution of these
issues is dependent upon future events, which may result in amounts more or less
than those  presented.  The ultimate outcome of these issues cannot presently be
determined.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial   statements,   substantial   operations  of  the  Company  have  been
discontinued, and substantial contingencies exist against the Company in various
lawsuits  and  proceedings,  which  are  discussed  in  Notes  11  and 13 to the
financial  statements and the second paragraph of this report. The Company has a
net capital deficiency of approximately  $25,000,000 at December 31, 1997. These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  It will be necessary for the Company to resolve the  contingent
liabilities by prevailing upon or settling these claims at amounts less than the
claims and the amounts  recorded and to generate,  through  acquisition or start
up,  profitable  operations  to continue on a  long-term  basis.  See Note 1 for
further  discussion  of  management's  plans.  The  financial  statements do not
include  any   adjustments   that  might   result  from  the  outcome  of  these
uncertainties.





Price Waterhouse LLP
New York, New York
March 26, 1998



                                     -12-

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Operations
                            Years Ended December 31



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

(in thousands, except per share data)              1997        1996        1995
================================================================================

Operating expenses:
Compensation and benefits                        $3,116      $2,969      $2,119
Professional and outside services                   512         457         661
Insurance                                           120         177         247
Occupancy                                            87          89         173
Other operating                                     160         161         132
--------------------------------------------------------------------------------
                                                  3,995       3,853       3,332
--------------------------------------------------------------------------------
Operating loss                                   (3,995)     (3,853)     (3,332)
--------------------------------------------------------------------------------
Interest income                                   2,661       2,641       2,835
Other income                                         59          30         147
Other income - litigation and contingency
  reserves reversal                                   -       8,000       5,350
Other income - reduction of
  previously estimated liabilities                    -           -       1,005
Realized loss on sale of investment
  securities - available for sale                     -        (182)          -
--------------------------------------------------------------------------------
Income (loss) from continuing operations
  before income taxes                            (1,275)      6,636       6,005
Income tax benefit (expense)                        191       7,189      (1,997)
--------------------------------------------------------------------------------
Income (loss) from continuing operations         (1,084)     13,825       4,008
Income from discontinued investment
   management operations, net of income taxes         -         207          60
--------------------------------------------------------------------------------

Net income (loss)                               $(1,084)    $14,032      $4,068
================================================================================
Earnings per common share - basic
Income (loss) from continuing operations         $(0.02)     $ 0.31      $ 0.09
Income (loss) from discontinued operations            -           -           -
--------------------------------------------------------------------------------
Net income (loss)                                $(0.02)     $ 0.31      $ 0.09
================================================================================
Earnings per common share - assuming dilution
Income (loss) from continuing operations         $(0.02)     $ 0.30      $ 0.09
Income (loss) from discontinued operations            -           -           -
--------------------------------------------------------------------------------
Net income (loss)                                $(0.02)     $ 0.30      $ 0.09
================================================================================

Dividends                                        $    -      $    -      $    -
================================================================================

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

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


                                     -13-

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
                       Consolidated Balance Sheets
                               December 31



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

(in thousands)                                                1997         1996
================================================================================

Assets
Cash and cash equivalents (including $65 of
  restricted cash at December 31, 1996)                      5,548        5,591
Investment securities:
  Held to maturity (market value $44,276 and
  $47,261, respectively)                                    44,310       47,259
  Available for sale, carried at fair value
  (cost $100 at December 31, 1997)                             100            -
--------------------------------------------------------------------------------
Total investment securities                                 44,410       47,259
--------------------------------------------------------------------------------
Receivable from Home Holdings, Inc.                         12,736       13,186
Investment in SDG, Inc. at cost                              1,250            -
Other assets                                                   326          193
--------------------------------------------------------------------------------
Total assets                                             $  64,270    $  66,229
================================================================================

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities                 $   1,550    $   1,428
Supplemental retirement plan                                 4,865        4,724
Postretirement welfare benefits                              1,412        1,527
Other liabilities                                              196          605
Litigation and contingency reserves                          2,340        2,954
Income tax reserves                                         79,088       79,088
--------------------------------------------------------------------------------
Total liabilities                                           89,451       90,326
--------------------------------------------------------------------------------
Commitments and contingencies                                    -            -
--------------------------------------------------------------------------------
Stockholders' equity:
Common stock                                                   447          447
Paid-in capital                                            547,712      547,712
Accumulated deficit                                       (572,693)    (571,609)
Treasury stock                                                (647)        (647)
--------------------------------------------------------------------------------
Total stockholders' equity                                 (25,181)     (24,097)
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity               $  64,270    $  66,229
================================================================================

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

                                     -14-

<PAGE>


                         AMBASE CORPORATION AND SUBSIDIARIES
             Consolidated Statements of Changes in Stockholders' Equity
                               Years Ended December 31


================================================================================
                                           Net
                                    Unrealized
                                     Losses on
                                    Investment
                           Paid-   Securities-
                 Common       In     Available  Accumulated  Treasury
(in thousands)    Stock  Capital      for Sale      Deficit     Stock    Total
================================================================================
December 31, 1994  $447 $547,712         $  (7)   $(589,709)    $(647) $(42,204)
Net income            -        -             -        4,068         -     4,068
Net unrealized
  losses on
  investment
  securities
  -available for
  sale                -        -          (137)           -         -      (137)
--------------------------------------------------------------------------------

December 31, 1995   447  547,712          (144)    (585,641)     (647)  (38,273)
Net income            -        -             -       14,032         -    14,032
Sale of securities    -        -           144            -         -       144
--------------------------------------------------------------------------------

December 31, 1996   447  547,712             -     (571,609)     (647)  (24,097)
Net loss              -        -             -       (1,084)        -    (1,084)
--------------------------------------------------------------------------------
December 31, 1997  $447 $547,712         $   -    $(572,693)    $(647) $(25,181)
================================================================================

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



                                        -15-

<PAGE>


                        AMBASE CORPORATION AND SUBSIDIARIES
                       Consolidated Statements of Cash Flows
                              Years Ended December 31




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

(in thousands)                                       1997       1996       1995
================================================================================

Cash flows from operating activities:
Income (loss) from continuing operations          $(1,084)   $13,825    $ 4,008
Adjustments to reconcile income (loss)
  from continuing operations to net
  cash used by continuing operations:
Other assets                                         (128)       286        (18)
Accounts payable and accrued liabilities              122        692        113
Litigation and contingency reserves uses             (614)    (1,195)    (4,676)
Litigation and contingency reserves
  - (reserve reversal)                                  -     (8,000)    (5,350)
Income tax reserves, net                                -      5,619      3,494
Income tax refund - 1977                                -     (7,613)         -
Interest income - investment securities            (2,419)    (2,428)    (2,501)
Realized loss on sale of investment securities
  - available for sale                                  -        182          -
Other, net                                           (363)    (2,990)    (1,890)
--------------------------------------------------------------------------------
Net cash used by operating activities of
  continuing operations                            (4,486)    (1,622)    (6,820)
--------------------------------------------------------------------------------
Cash provided (used) by discontinued
  investment management operations                      -       (291)        11
--------------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities
  - held to maturity                               77,880     71,235    102,700
Purchases of investment securities
  - held to maturity                              (72,512)   (76,011)   (97,857)
Purchases of investment securities
  - available for sale                               (100)         -          -
Investment in SDG, Inc.                            (1,250)         -          -
Proceeds from sales of investment securities
  - available for sale                                  -         31          -
Proceeds from Home Holdings, Inc. receivable          450      3,997        691
Proceeds from sale of Augustine Asset
  Management, Inc.                                      -        500          -
Other, net                                            (25)         -        (11)
--------------------------------------------------------------------------------
Net cash provided (used) by investing
  activities                                        4,443       (248)     5,523
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents             (43)    (2,161)    (1,286)
Cash and cash equivalents at beginning of year      5,591      7,752      9,038
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year           $5,548     $5,591    $ 7,752
================================================================================

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

                                       -16-

<PAGE>


                       AMBASE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Note 1 - Organization

AmBase Corporation (the "Company") is a holding company which,  through a wholly
owned subsidiary,  owns a 6.3% ownership interest in SDG, Inc. See Part I - Item
1 for a further  description.  The Company  previously held a majority ownership
interest in  Augustine  Asset  Management,  Inc.  ("Augustine"),  an  investment
advisor,  and also previously owned a savings bank and an insurance company, all
of which have been designated as discontinued  operations,  as further discussed
below.

On October 4, 1996,  the  Company  sold its entire  interest  in  Augustine,  to
Augustine. See Note 6 for a further discussion.

On  December 4, 1992,  Carteret  Savings  Bank,  FA  ("Carteret")  was placed in
receivership by the Office of Thrift Supervision ("OTS").

On February  13,  1991,  the  Company  sold its  ownership  interest in The Home
Insurance  Company  ("The Home") and its  subsidiaries  to Home  Holdings,  Inc.
("Home Holdings"). See Note 4 for a further discussion.

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  various  lawsuits and
proceedings,  as described in Notes 11 and 13. These factors  raise  substantial
doubt about the Company's  ability to continue as a going  concern.  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 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. 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 Notes 11 and 13. The Company intends
to aggressively  contest all pending and threatened  litigation and governmental
proceedings, as well as pursue all sources for contributions to settlements. 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 in 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.  Because of the nature of
the contingent and alleged liabilities and the inherent difficulty in predicting
the outcome of 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.  For a discussion of the alleged
tax liabilities,  lawsuits and governmental proceedings,  see Notes 11 and 13 to
the  Company's  consolidated  financial  statements.  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.

See Item 8 - Note 13 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

Note 2 - Summary of Significant Accounting Policies

The  consolidated  financial  statements  have been prepared in accordance  with
generally accepted accounting  principles  ("GAAP").  Certain  reclassifications
have been made to the 1996 and 1995 consolidated financial statements to conform
with the 1997 presentation.

Use of estimates in the preparation of financial statements:

The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and  assumptions,  that it deems  reasonable,  that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from such estimates and assumptions.



                                      -17-

<PAGE>

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


Principles of consolidation:

The  consolidated  financial  statements  are  comprised  of the accounts of the
Company  and  its  majority  owned  subsidiaries.   All  material   intercompany
transactions  and balances  have been  eliminated.  Investments  in companies in
which  ownership  interest  is less  than 20% are  accounted  for using the cost
method.

Cash and cash equivalents:

Highly liquid  investments,  consisting  principally of funds held in short-term
money market accounts, are classified as cash equivalents.  Included in cash and
cash equivalents at December 31, 1996 is $65,000 of funds held in escrow,  which
were subsequently applied to the satisfaction of certain liabilities.

Investment securities:

The Company  accounts for investment  securities in accordance with Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities"  ("Statement  115").  Statement 115, which addresses
the  accounting  and reporting of  investments  in equity  securities  that have
readily  determinable  fair  values  and all  investments  in  debt  securities,
requires  investment  securities  to be  classified  as held to  maturity  (only
permitted for securities with a stated maturity), available for sale, or trading
securities.

Securities  that the Company has both the positive intent and ability to hold to
maturity  are  classified  as  investment  securities - held to maturity and are
carried at amortized cost. Investment securities - available for sale, which are
those securities that may be sold prior to maturity,  are carried at fair value,
with any net  unrealized  gains or losses  reported in a separate  component  of
stockholders' equity, net of deferred taxes.

Interest and dividends on investment  securities are recognized in the Statement
of Operations  when earned.  Realized gains and losses on the sale of investment
securities  - available  for sale are  calculated  using the  first-in/first-out
basis  for  determining  the cost  basis of the  securities.  The fair  value of
publicly  traded  investment  securities  is  determined by reference to current
market quotations.

Income taxes:

The Company and its domestic subsidiaries file a consolidated federal income tax
return.  The Company  accounts for income taxes in accordance  with Statement of
Financial   Accounting   Standards  No.  109,   "Accounting  for  Income  Taxes"
("Statement 109").  Statement 109  recognizes  both the current and deferred tax
consequences  of all  transactions  that have been  recognized  in the financial
statements,  calculated  based on the provisions of enacted tax laws,  including
the tax rates in effect for current and future  years.  Statement  109  requires
that net deferred tax assets be recognized  immediately  when a more likely than
not criterion is met; that is, unless a greater than 50% probability exists that
the tax  benefits  will  actually  be realized  sometime  in the future.  At the
present  time,  management  has no basis to conclude  that  realization  is more
likely than not.

Earnings per share:

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standards No. 128, "Earnings Per Share" ("Statement 128"),
which is effective  for  financial  statements  issued for periods  ending after
December 15, 1997.  Statement  128  replaces  earnings per share  ("EPS") with a
presentation  of basic EPS, and requires dual  presentation of basic and diluted
EPS. Furthermore, a reconciliation of the numerator and denominator of the basic
EPS  computation to the numerator and denominator of the diluted EPS computation
is required.  Based upon the Company's  current  capitalization  structure,  the
basic and  diluted EPS amounts  calculated  in  accordance  with  Statement  128
approximate  the Company's EPS amounts  computed in accordance  with  Accounting
Principles  Board  Opinion No. 15,  "Earnings  Per Share."

Fair value of financial instruments:

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  107,
"Disclosures About Fair Value of Financial  Instruments"  ("Statement 107"), the
Company  discloses fair value  information  about financial  instruments.  For a
further discussion, see Note 14.

                                      -18-

<PAGE>

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


Stock-based compensation:

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  ("Statement 123").  Statement 123 encourages companies to adopt a
fair value- based method of accounting for employee  stock  options,  but allows
companies to continue to account for those plans using the accounting prescribed
by APB Opinion 25,  "Accounting  for Stock Issued to Employees"  ("APB 25"). The
Company  adopted the disclosure  requirements of the statement in 1996 and plans
to continue  accounting  for stock  compensation  using APB 25, making  proforma
disclosures  of net income  and  earnings  per share as if the fair value  based
method had been applied. For a further discussion, see Note 10.

Note 3 - 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.

Investment  securities - available for sale generally  consist of investments in
equity  securities held for an indefinite  period and were carried at fair value
with net  unrealized  gains and  losses  reported  in a  separate  component  of
stockholders' equity. At December 31, 1997 investment securities - available for
sale consist of $100,000 of convertible preferred stock in AMDG, Inc., which the
Company  purchased  through a private  placement  in December  1997.  Investment
securities - available for sale were sold during 1996,  resulting in proceeds of
$31,000 and a realized loss of $182,000.

Investment securities at December 31 consist of the following:
================================================================================

                             1997                              1996
                 -----------------------------    ------------------------------
                                        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           $44,310     $44,310   $44,276    $47,259     $47,259   $47,261
Available for
  Sale: Equity
  Securities          100         100       100          -           -         -
================================================================================

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

(in thousands)                                                 1997         1996
================================================================================

Held to Maturity - Gross unrealized gains (losses)            $ (34)        $  2
Available for Sale - Gross unrealized gains (losses)              -            -
================================================================================


                                      -19-

<PAGE>

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


Note 4 - Receivable From Home Holdings

In 1991, the Company sold its entire interest in The Home and its  subsidiaries.
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 future  obligations of
the Company, as incurred,  relating to tax issues, litigation and administrative
expenses.  The Company has collected the portion of this receivable with respect
to litigation and administrative expenses. The Company's remaining receivable at
December  31,  1997 is at least  $12,736,000,  and  relates  principally  to tax
issues.

On or about  January 15,  1998,  Home  Holdings  filed a voluntary  petition for
relief under Chapter 11 of the United States  Bankruptcy  Code  ("Chapter  11").
Home Holdings has also filed a pre-arranged plan of reorganization under Chapter
11 (the  "Bankruptcy  Plan").  According to the  Bankruptcy  Plan and disclosure
statement,  general  unsecured  creditors  of  Home  Holdings  would  receive  a
projected future recovery of approximately 38.3% of the amounts owed to them.

Home  Holdings has  scheduled the  Company's  outstanding  receivable  from Home
Holdings as a contingent  general  unsecured claim in the amount of $11,703,136.
The Company  disagrees with Home Holdings'  classification of its receivable and
also with the amount of the  outstanding  receivable.  The Company has filed, in
connection with the Home Holdings  bankruptcy  case, a Proof of Claim ("Proof of
Claim") for all damages, which is significantly in excess of $12,736,000.

The Company intends to file with the United States Bankruptcy Court an objection
to the Bankruptcy  Plan,  will  vigorously  contest the Bankruptcy Plan and will
seek to collect  from all  parties the full amount of its claim as set forth in,
or related  to,  its Proof of Claim.  Accordingly,  no  allowance  for  doubtful
accounts has been provided as of December 31, 1997.






                                      -20-

<PAGE>

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


Note 5 - Earnings Per Share

The  calculation  of basic  earnings per share and dilutive  earnings per share,
including the effect of dilutive securities, for the years ended December 31, is
as follows:
================================================================================
                                                         1997
                                       -----------------------------------------
                                              Loss         Shares     Per Share
(in thousands)                         (Numerator)  (Denominator)        Amount
================================================================================

Basic earnings per share:
Loss from continuing operations            $(1,084)        44,534        $(0.02)

Effect of Dilutive Securities:
Assumed stock option exercise                    -          1,688             -

Diluted earnings per share:
Loss from continuing operations and
  assumed conversions                      $(1,084)        46,222        $(0.02)
================================================================================


================================================================================
                                                         1996
                                       -----------------------------------------
                                            Income         Shares     Per Share
(in thousands)                         (Numerator)   Denominator)        Amount
================================================================================

Basic earnings per share:
Income from continuing operations          $13,825         44,534         $0.31

Effect of Dilutive Securities:
Assumed stock option exercise                    -          1,603             -

Diluted earnings per share:
Income from continuing operations and
  assumed conversions                      $13,825         46,137         $0.30
================================================================================

================================================================================
                                                         1995
                                       -----------------------------------------
                                            Income         Shares     Per Share
(in thousands)                         (Numerator)  (Denominator)        Amount
================================================================================


Basic earnings per share:
Income from continuing operations           $4,008         44,534         $0.09

Effect of Dilutive Securities:
Assumed stock option exercise                    -            876             -

Diluted earnings per share:
Income from continuing operations and
  assumed conversions                       $4,008         45,410         $0.09
================================================================================



                                     -21-

<PAGE>

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


Note 6 - Discontinued Investment Management Operations

On October 4, 1996, the Company sold its entire ownership  interest in Augustine
to Augustine,  for $500,000 in cash. Accordingly,  as of September 30, 1996, the
operations of Augustine have been designated as discontinued operations, and the
consolidated statements of operations for the periods presented herein have been
retroactively  reclassified  to report the income from  discontinued  operations
separately from the results of continuing  operations by excluding the operating
revenues and expenses of discontinued  operations from the respective  statement
captions.  The  amount of income  taxes  allocated  to  discontinued  operations
reflects  the  incremental  effect  on  income  taxes  that  resulted  from such
operations.

Income from  discontinued  operations  was $207,000 for 1996.  This reflects the
unaudited results of Augustine's operations of $59,000 for the nine month period
ended September 30, 1996, and a gain of $148,000 from the sale.

Summarized   information  relating  to  income  from  Augustine's   discontinued
operations for 1996 (through date of disposition) and the full year period ended
December 31, 1995 is as follows:
================================================================================

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

Investment management fee revenue                              $ 479      $ 508
Operating expenses                                              (339)      (355)
Interest income (expense)                                          2         (3)
Minority interest                                                (30)       (40)
--------------------------------------------------------------------------------
Income from discontinued operations before taxes                 112        110
Income tax expense                                               (53)       (50)
--------------------------------------------------------------------------------
Income from discontinued operations, before
  gain on disposition                                             59         60
Gain on disposition                                              148          -
--------------------------------------------------------------------------------

Income from discontinued operations                            $ 207      $  60
================================================================================

Investment  management fee revenue  included  $142,000 for the nine month period
ended September 30, 1996 and $163,000 for the year ended December 31, 1995, from
related parties.

Note 7 - Stockholders' Equity

Authorized  capital stock consists of 50,000,000 shares of cumulative  preferred
stock, $0.01 par value, and 200,000,000 shares of Common Stock, $0.01 par value.
At  December  31,  1997,  1996 and 1995,  there  were  44,533,519  shares of the
Company's Common Stock outstanding, excluding 126,488 treasury shares carried at
average cost of $5.12 per share, aggregating approximately $647,000.

In connection with the proceeding  entitled Rolo and Tenerelli v. City Investing
Company  Liquidating  Trust,  et al.,  pending  in the  Third  Circuit  Court of
Appeals,  as further  described  in Note 13,  the  Company is unable to make any
dividend payments without further judicial action.

At December 31, 1997,  there were 6,860,000  shares  reserved for issuance under
the Company's stock option and other employee benefit plans.



                                      -22-

<PAGE>

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


Stockholder Rights Plan:

On January  29,  1986,  the  Company's  Board of  Directors  declared a dividend
distribution  of one right  for each  outstanding  share of Common  Stock of the
Company.  The rights, as amended,  which entitle the holder to purchase from the
Company a common share at a price of $75.00,  are not exercisable until either a
person or group of  affiliated  persons  acquires  25% or more of the  Company's
outstanding common shares or upon the commencement or disclosure of an intention
to  commence  a tender  offer or  exchange  offer for 20% or more of the  common
shares.  The rights are redeemable by the Company at $0.05 per right at any time
until the earlier of the tenth day following an  accumulation  of 20% or more of
the Company's shares by a single acquirer or group, or the occurrence of certain
Triggering Events (as defined in the Stockholder  Rights Plan). In the event the
rights become exercisable and,  thereafter,  the Company is acquired in a merger
or other business  combination,  or in certain other  circumstances,  each right
will  entitle the holder to purchase  from the  surviving  corporation,  for the
exercise  price,  Common Stock having a market value of twice the exercise price
of the right.  The rights are subject to  adjustment  to prevent  dilution,  and
expire on February 10, 2001.

Note 8 - Pension and Savings Plans

The Company sponsors a non-qualified supplemental retirement plan ("Supplemental
Plan")  under  which only one  current  executive  officer  and  certain  former
officers of the Company are  participants.  The cost of the Supplemental Plan is
actuarially determined and is accrued but not funded.

Pension expense for the Supplemental Plan for the years ended December 31 was as
follows:
================================================================================

(in thousands)                                  1997           1996        1995
================================================================================

Service cost of current period                  $306           $225        $185
Interest cost on projected benefit obligation    335            336         346
--------------------------------------------------------------------------------
                                                $641           $561        $531
================================================================================


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

(dollars in thousands)                                      1997           1996
================================================================================

Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested             $4,513         $4,102
================================================================================

Projected benefit obligation for services
  rendered to date                                        $5,045         $4,733
Unrecognized net loss                                       (180)            (9)
--------------------------------------------------------------------------------

Accrued pension costs                                     $4,865         $4,724
================================================================================

Major assumptions:
Pre-retirement and postretirement discount rate              7.0%           7.5%
Rate of increase in future compensation                      6.0%           6.0%
================================================================================

The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"),  which
is a "Section  401(k) Plan"  within the meaning of the Internal  Revenue Code of
1986, as amended (the "Code").  The Savings Plan permits  eligible  employees to
make contributions of up to 15% of salary, which are matched by the Company at a
percentage  determined  annually.  The employer  match is currently  100% of the
first 3% of the employee's salary eligible for deferral.  Employee contributions
to the  Savings  Plan are  invested  at the  employee's  discretion,  in various
investment funds. The Company's matching  contributions are invested in the same
manner  as  the  salary   reduction   contributions.   The  Company's   matching
contributions to the Savings Plan, charged to expense, were $18,000, $16,000 and
$15,000 in 1997, 1996 and 1995,  respectively.  All contributions are subject to
maximum limitations contained in the Code.


                                      -23-

<PAGE>

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


Note 9 - Postretirement Benefits Other Than Pensions

Pursuant to a 1985 agreement,  the Company has assumed the obligation to provide
a portion of retiree  medical and life  insurance  coverage to  individuals  who
retired from City Investing  Company ("City"),  which,  prior to September 1985,
owned all the outstanding shares of Common Stock of the Company. The Company and
its subsidiaries do not provide  postretirement  benefits to employees currently
retiring.

Retiree insurance coverage is provided to participants through group medical and
life  insurance  contracts.   Retiree  medical  coverage  provides  supplemental
Medicare  coverage for retirees and their  eligible  spouses.  Life insurance is
provided to retirees at 25% of the participant's  pre-retirement  amount, not to
exceed $50,000. All participants are required to contribute a portion, which may
be adjusted, of the cost of their postretirement  benefit coverage.  The Company
does not pre-fund these plans and retains the right to modify or terminate these
plans in the future.

The  Company  accounts  for  postretirement  benefits  other  than  pensions  in
accordance with Statement of Financial Accounting Standards No. 106, "Employers'
Accounting  for  Postretirement  Benefits Other Than  Pensions".  This statement
requires the costs of certain  postretirement  benefits to be recognized  during
the period  employees  render service,  with all such costs being  recognized in
full by the eligibility date.

Net  periodic  postretirement  benefit  (income)  expense  for the  years  ended
December 31 was as follows:
================================================================================

(in thousands)                                   1997         1996         1995
================================================================================

Interest cost on accumulated
  postretirement benefit obligation               $23          $32          $48
Amortization of prior service liability           (66)         (62)         (53)
Amortization of unrecognized gain                 (45)         (37)         (33)
--------------------------------------------------------------------------------

Net periodic postretirement benefit
  (income) expense                               $(88)        $(67)        $(38)
================================================================================


The accrued postretirement benefit liability at December 31 is summarized below:
================================================================================

(in thousands)                                                1997         1996
================================================================================

Accumulated postretirement benefit obligation:
Retirees                                                      $323         $323
--------------------------------------------------------------------------------

Unrecognized net gains                                         478          527
Unrecognized prior service liability                           611          677
--------------------------------------------------------------------------------

Accrued postretirement benefit liability                    $1,412       $1,527
================================================================================

The accumulated  benefit obligation for 1997, 1996 and 1995 was determined using
the projected  unit credit  method and a discount  rate of 7.0%,  7.5% and 7.5%,
respectively.  The health care cost trend  rates in 1997 were  assumed to be 8%,
gradually declining to 5.5% in 2001 and remaining at that level, thereafter,  9%
in 1996,  gradually  declining  to 5.5% in 2001  and  remaining  at that  level,
thereafter,  and 10% in 1995,  gradually declining to 5.5% in 2001 and remaining
at that level, thereafter.

The health  care cost  trend rate  assumption  has a  significant  effect on the
amounts reported.  For example, a 1% increase each year in the health care trend
rate,  while  holding  all  other  assumptions  constant,   would  increase  the
accumulated   postretirement   benefit  obligation  at  December  31,  1997,  by
approximately  $23,000,  and decrease the net  periodic  postretirement  benefit
income for 1997 by approximately $2,000.



                                      -24-

<PAGE>

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


Note 10 - Incentive Plans

Under the Company's  1994 Senior  Management  Incentive  Compensation  Plan (the
"1994 Plan"), an executive officer of the Company whose compensation is required
to be reported to  stockholders  under the Securities  Exchange Act of 1934 (the
"Participants") and who is serving as such at any time during the fiscal year as
to which an award is granted, may receive an award of a cash bonus ("Bonus"), in
an amount  determined  by the  Personnel  Committee  of the  Company's  Board of
Directors (the  "Committee")  and payable from an annual bonus fund (the "Annual
Bonus  Pool").   The  Committee  may  award  Bonuses  under  the  1994  Plan  to
Participants  not later  than 120 days  after the end of each  fiscal  year (the
"Reference Year"), beginning with the fiscal year ending on December 31, 1994.

If the  Committee  grants a Bonus under the 1994 Plan,  the amount of the Annual
Bonus Pool will be an amount equal to the sum of (i) plus (ii), where:

(i)  is  ten  percent  (10%)  of  the  amount  by  which  the  Company's   Total
Stockholders'  Equity, as defined, on the last day of a Reference Year increased
over the Company's Total  Stockholders'  Equity, as defined,  on the last day of
the immediately preceding Reference Year; and

(ii) is five percent (5%) of the amount by which the Company's  market value, as
defined,  on the last day of the  Reference  Year  increased  over the Company's
market value on the last day of the immediately preceding Reference Year.

Notwithstanding  the  foregoing,  the 1994 Plan  provides that in the event of a
decrease in either or both of items (i) and/or (ii) above, the Annual Bonus Pool
is  determined  by  reference to the last  Reference  Year in which there was an
increase in such item.

If the Committee determines within the 120-day time period to award a Bonus, the
share of the Annual Bonus Pool to be allocated to each  Participant  shall be as
follows:  45% of the Annual Bonus Pool shall be allocated to the Company's Chief
Executive Officer,  and 55% of the Annual Bonus Pool shall be allocated pro rata
to each of the  Company's  Participants  as  determined  by the  Committee.  The
Committee in its  discretion  may reduce the percentage of the Annual Bonus Pool
to any Participant for any Reference Year, and such reduction shall not increase
the share of any other  Participant.  The 1994  Plan is not the  exclusive  plan
under  which  the  Executive  Officers  may  receive  cash  or  other  incentive
compensation or bonuses.

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, 1998. An aggregate of 5,000,000 shares
of the  Company's  Common Stock are  reserved  for issuance  under the 1993 Plan
(upon the  exercise of Options  and Stock  Appreciation  Rights,  upon awards of
Restricted  Stock  and  Performance  Shares);  however,  of  such  shares,  only
2,500,000 shares in the aggregate shall be available for issuance for Restricted
Stock  Awards and Merit  Awards.  Such shares shall be  authorized  but unissued
shares of Common  Stock.  Options  may be granted  as  incentive  stock  options
("ISOs")  intended to qualify for favorable tax treatment  under Federal tax law
or as nonqualified stock options ("NQSOs").  SARs may be granted with respect to
any  Options  granted  under  the 1993 Plan and may be  exercised  only when the
underlying Option is exercisable. The 1993 Plan requires that the exercise price
of all Options and SARs be equal to or greater than the fair market value of the
Company's Common Stock on the date of grant of that Option.  The term of any ISO
or related SAR cannot  exceed ten years from the date of grant,  and the term of
any NQSO cannot  exceed ten years and one month from the date of grant.  Subject
to the terms of the 1993 Plan and any  additional  restrictions  imposed  at the
time of grant,  Options and any related SARs ordinarily will become  exercisable
commencing  one year  after  the date of  grant.  In the  case of a  "Change  of
Control" of the 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,  resignation  or  absence  for  disability  will not  result  in the
cancellation of any Options.



                                      -25-

<PAGE>

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


As a condition  to any award of  Restricted  Stock or Merit Award under the 1993
Plan,  the Committee may require a participant  to pay an amount equal to, or in
excess  of,  the par value of the  shares of  Restricted  Stock or Common  Stock
awarded to him or her. Restricted Stock may not be sold, assigned,  transferred,
pledged or otherwise encumbered during a "Restricted Period",  which in the case
of grants to  employees  shall not be less than one year from the date of grant.
The Restricted Period with respect to any outstanding shares of Restricted Stock
awarded to  employees  may be reduced by the  Committee  at any time,  but in no
event  shall  the  Restricted  Period be less  than one  year.  Except  for such
restrictions,  the  employee  as the owner of such  stock  shall have all of the
rights of a  stockholder  including,  but not limited to, the right to vote such
stock and to receive  dividends  thereon as and when paid.  In the event that an
employee's  employment is terminated  for any reason,  an employee's  Restricted
Stock will be forfeited;  provided,  however,  that the Committee may limit such
forfeiture in its sole  discretion.  At the end of the  Restricted  Period,  all
shares  of  Restricted  Stock  shall  be  transferred  free  and  clear  of  all
restrictions to the employee.  In the case of a Change in Control of the Company
(as defined in the 1993 Plan),  an  employee  may receive his or her  Restricted
Stock free and clear of all restrictions in the discretion of the Committee,  or
as may otherwise be provided pursuant to the employee's Restricted Stock award.

Performance  Share awards of Common Stock under the 1993 Plan shall be earned on
the basis of the Company's  performance in relation to  established  performance
measures for a specific performance period. Such measures may include, but shall
not be  limited  to,  return  on  investment,  earnings  per  share,  return  on
stockholder's  equity, or return to stockholders.  Performance Shares may not be
sold, assigned, transferred, pledged or otherwise encumbered during the relevant
performance  period.  Performance  Shares may be paid in cash,  shares of Common
Stock or  shares of  Restricted  Stock in such  portions  as the  Committee  may
determine.  An employee must be employed at the end of the performance period to
receive payments of Performance Shares; provided,  however, in the event that an
employee's employment is terminated by reason of death,  disability,  retirement
or other  reason  approved  by the  Committee,  the  Committee  may  limit  such
forfeiture  in its sole  discretion.  In the case of a Change in  Control of the
Company  (as  defined in the 1993  Plan),  an  employee  may  receive his or her
Performance  Shares in the discretion of the  Committee,  or as may otherwise be
provided in the employee's Performance Share award.

During January 1998, the Board of Directors of the Company approved the award of
incentive stock options to certain  employees to acquire 85,000 shares of AmBase
Common Stock at exercise  prices between $3.65 and $4.02 per share,  pursuant to
the 1993 Plan.

Under the  Company's  1985  Stock  Option  Plan (the  "1985  Plan"),  options to
purchase shares of Common Stock could be granted to salaried employees. The 1985
Plan  provided  for the granting of up to  2,000,000  shares as incentive  stock
options and/or  nonqualified  stock options  through May 22, 1995. No additional
stock  options  can be awarded  under the 1985 Plan.  As of December  31,  1997,
1,750,000  shares are reserved for  issuance  under the 1985 Plan.  The exercise
price of incentive  stock options could not be less than 100% of the fair market
value of the Company's Common Stock on the date of grant, with a maximum life of
ten years, and may not be exercised to purchase stock until vesting requirements
have been met.



                                      -26-

<PAGE>

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


Incentive plan activity is summarized as follows:
================================================================================

                                      1993 Stock                1985 Stock
(shares in thousands)               Incentive Plan             Option Plan
================================================================================

                                            Weighted                   Weighted
                                  Shares     Average      Shares        Average
                                   Under    Exercise       Under       Exercise
                                  Option       Price      Option          Price
================================================================================

Outstanding at December 31, 1994       -         $ -       1,375          $0.14
Granted                                -           -         625           0.23
Forfeited                              -           -        (237)          0.29
--------------------------------------------------------------------------------
Outstanding at December 31, 1995       -           -       1,763           0.15
Granted                              100        2.09           -              -
Forfeited                              -           -           -              -
--------------------------------------------------------------------------------
Outstanding at December 31, 1996     100        2.09       1,763           0.15
Granted                                5        2.84           -              -
Forfeited                              -           -         (13)          0.21
--------------------------------------------------------------------------------
Outstanding at December 31, 1997     105       $2.13       1,750          $0.15
================================================================================
Options exercisable at:
   December 31, 1995                   -       $   -       1,150         $ 0.11
   December 31, 1996                   -           -       1,456           0.13
   December 31, 1997                  50        2.09       1,750           0.15
================================================================================


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

                                             1993 Stock              1985 Stock
                                         Incentive Plan             Option Plan
================================================================================
Weighted average fair value of
  options granted during:
    1995                                          $   -                  $ 0.15
    1996                                           1.35                       -
    1997                                           1.81                       -
================================================================================


The following  table  summarizes  information  about the Company's stock options
outstanding  and  exercisable  under the 1985 Plan and 1993 Plan at December 31,
1997, as follows:
================================================================================

(shares in thousands)          Options Outstanding    Options Exercisable
================================================================================
                            Weighted
                             Average      Weighted                     Weighted
     Range of              Remaining       Average                      Average
     Exercise            Contractual      Exercise                     Exercise
       Prices    Shares         Life         Price        Shares          Price
================================================================================

        $0.11     1,150      5 years        $ 0.11         1,150         $ 0.11
$0.20 to 0.23       600      3 years          0.23           600           0.23
        $2.09       100      9 years          2.09            50           2.09
        $2.84         5      9 years          2.84             -              -
--------------------------------------------------------------------------------
        Total     1,855                                    1,800
================================================================================




                                      -27-

<PAGE>

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


The details of the Company's  incentive plans are summarized  above. The Company
adopted the disclosure  only  provisions of Statement 123 in 1996, but continues
to apply APB 25 in  accounting  for  employee  stock  options.  No  compensation
expense,  attributable to stock incentive  plans, was charged to earnings during
1997,  1996 and 1995. The fair value of stock options  granted by the Company in
1996 and 1995  used to  compute  proforma  net  income  and  earnings  per share
disclosures  is  the  estimated   fair  value  at  date  of  grant,   using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
0% for all  years,  expected  historical  volatility  of 0.84,  0.84  and  0.87,
risk-free  interest  rates of  5.84%,  6.15% and  5.57%,  and  weighted  average
expected life of the options of 4 years. If the Company had elected to recognize
compensation cost for stock options based on the fair value at date of grant for
stock options under the 1993 Plan and the 1985 Plan,  consistent with the method
prescribed by Statement 123, net income and net income per share would have been
changed to the proforma amounts indicated below.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially  affect the fair value estimate,  and given the
substantial  appreciation  in the price per share of the Company's  Common Stock
during  1997 and 1996,  in  management's  opinion,  the  existing  models do not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.

For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options'  vesting period.  The Company's  proforma
information for the years ended December 31 follows:
================================================================================

(in thousands, except per share data)             1997         1996        1995
================================================================================

Net income (loss)
As reported                                    $(1,084)     $14,032      $4,068
Proforma                                        (1,171)      13,959       4,038
================================================================================
Per share data
As reported                                     $(0.02)      $ 0.31      $ 0.09
Proforma                                         (0.02)        0.31        0.09
================================================================================




                                      -28-

<PAGE>

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


Note 11 - Income Taxes

The  components of income tax (expense)  benefit for the years ended December 31
are as follows:
================================================================================

(in thousands)                                    1997        1996         1995
================================================================================

Income tax (expense) benefit:
Continuing operations                          $   191     $ 7,189      $(1,997)
Discontinued investment management operations        -         (53)         (50)
================================================================================

The components of pretax income (loss) and the  difference  between income taxes
from  continuing  operations  computed at the  statutory  federal rate of 35% in
1997,  1996 and  1995,  and the  provision  for  income  taxes  from  continuing
operations for the years ended December 31 follows:
================================================================================

(in thousands)                                    1997        1996         1995
================================================================================

Income (loss) from continuing operations
  before income taxes                          $(1,275)      6,636      $ 6,005
================================================================================

Tax (expense) benefit:
Tax at statutory federal rate                  $   446     $(2,323)     $(2,102)
Prior year tax refund                              475       7,613            -
Benefit of operating loss carryforwards              -       2,323            -
Accounting loss benefit not recognized            (446)          -            -
Accounting loss benefit recognized                   -           -        2,102
Prior years' issues                                  -           -       (1,800)
Federal income taxes                                 -         (76)           -
State income taxes                                (284)       (348)        (197)
--------------------------------------------------------------------------------

                                               $   191     $ 7,189      $(1,997)
================================================================================


The composition of income tax (expense)  benefit from continuing  operations for
the year ended December 31 is as follows:
================================================================================

in thousands)                                    1997         1996         1995
================================================================================
Current:
Federal                                        $     -     $   (76)     $     -
State                                             (284)       (348)        (197)
--------------------------------------------------------------------------------
                                                  (284)       (424)        (197)
--------------------------------------------------------------------------------
Deferred (primarily federal):
Prior year tax refund                              475       7,613            -
Prior years' issues                                  -           -       (1,800)
--------------------------------------------------------------------------------
                                                   475       7,613       (1,800)
--------------------------------------------------------------------------------

                                               $   191     $ 7,189      $(1,997)
================================================================================

The Company  contractually  assumed the tax liabilities of City, which, prior to
September 1985, owned all the outstanding shares of Common Stock of the Company.
Included  in the  income  tax  benefit  during  1996 is a federal  and state tax
provision  of  $424,000.  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 Internal  Revenue  Service  ("IRS") and the
Company  do not agree  with  respect to only two  issues,  withholding  taxes in
connection with a Netherlands  Antilles  finance  subsidiary of City, and "Fresh
Start",  an insurance  industry issue.  During 1996, the Company received a 1977
income tax refund of  $7,613,000;  as a result,  City no longer remains open for
refunds. This amount was recognized as an income tax benefit in the accompanying
1996  Consolidated  Statement of Operations,  based on  management's  continuing
review of the overall tax liability position of the Company.  See Note 13 to the
Company's  consolidated financial statements,  Legal Proceedings,  Disputes with
Internal Revenue Service,  Withholding  Taxes  (Netherlands  Antilles) and Fresh
Start, for additional details.

                                      -29-

<PAGE>

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


During 1996, in connection  with the completion by the IRS of the Company's 1985
to 1991 federal  income tax audits  (excluding  Fresh  Start),  the Company made
payments to the IRS totaling $1,995,000.  These amounts were previously reserved
for and  charged  against  the income  tax  reserves  account.  During the first
quarter of 1997,  $475,000  of income  taxes were  refunded  as the result of an
overpayment to the IRS for 1988 through 1991 tax years. This amount was recorded
as an income tax benefit in the first  quarter of 1997.  The federal  income tax
adjustments from the 1985 to 1992 audits  (excluding Fresh Start) did not result
in additional payments of state or local income taxes. The IRS has completed its
review of the Company's  federal  income tax return for 1992 with no significant
adjustments.  The Company's  federal income tax returns for years  subsequent to
1992 have not been reviewed by the IRS. New York State recently  completed their
examination  of the  Company's  income tax  returns  for tax years 1990 to 1992,
which resulted in zero tax assessment.

As a result of the OTS's 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.  S.1.597-4(g), the
Company had  previously  filed its 1992 through 1995 federal  income tax returns
with Carteret  disaffiliated from the Company's  consolidated federal income tax
return. Based upon the impact of Treasury Reg. S.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.  S.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 1992 through 1996  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 a  consolidated  federal
income tax return  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.  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 $30 million of NOL  carryforwards as further
detailed below.

In  connection  with the  completion  of the federal tax audit years  (excluding
Fresh Start) through 1992  (excluding the $170 million of tax NOL  carryforwards
from the Company's tax basis in  Carteret/Carteret  FSB), as noted above and the
Company's  federal income tax returns as filed from 1993 to 1996 (subject to IRS
audit  adjustments),  at  December 31,  1997 the Company  has NOL  carryforwards
available to reduce future federal  taxable income,  which expire if unused,  as
follows:

           2006     $ 3,000,000
           2007      12,000,000
           2008       3,000,000
           2009       7,000,000
           2010       5,000,000
                      ---------
                    $30,000,000

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  alternative  minimum  tax  credit  carryforwards,  which are not  subject to
expiration.

Under  Statement 109, the Company has calculated a net deferred tax asset of $33
million as of  December 31,  1997 and 1996,  arising  primarily from NOL's,  the
excess of book over tax  reserves  and  alternative  minimum  tax  credits  (not
including the anticipated tax effects of the approximately $170 million of NOL's
expected to be generated  from the  Company's  tax basis in Carteret,  resulting
from  the  election  decision,  as more  fully  described  above).  A  valuation
allowance  has been  established  for the entire  net  deferred  tax  asset,  as
management,  at the current time,  has no basis to conclude that  realization is
more likely than not.

                                      -30-

<PAGE>

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


During 1995, the Company recorded as additional  income tax expense a $1,800,000
increase in the income tax reserves. The increase in the income tax reserves was
the  result  of the  continuing  review of the  income  tax  reserves  including
additional reserves for amounts considered unrealizable.  In addition,  included
in income tax expense is a state tax provision of $197,000 in 1995.

Note 12 - Commitments and Contingencies

Future   minimum  rental   payments,   principally   for  office  space,   under
noncancellable operating leases at December 31,  1997, are: 1998, $74,000; 1999,
$79,000; 2000, $80,000; 2001, $20,000; 2002, $0 and thereafter, $0. Rent expense
charged to  earnings  was  $67,000,  $46,000  and  $142,000  for the years ended
December 31, 1997, 1996, and 1995, respectively.

Note 13 - Legal Proceedings

(a) The Company is a defendant in a number of lawsuits or proceedings, including
the following:

Rolo and Tenerelli v. City Investing Company Liquidating Trust, et al. This is a
purported  class  action  filed in the  United  States  District  Court  for the
District of New Jersey (the "District  Court").  Plaintiffs  assert a variety of
Federal  and state  causes of action in  connection  with an alleged  fraudulent
scheme  involving  the  marketing  and sale of  homesites  and houses by General
Development  Corporation  ("GDC"), a former subsidiary of City.  Plaintiffs have
named as defendants  the Company and Carteret,  as well as a number of directors
and other  financial  institutions  that had  business  dealings  with  GDC.  On
December 27, 1993,  the District  Court entered an Order and Opinion  dismissing
the action  against all parties  (amended  on January 17,  1994,  to include the
dismissal of Carteret Bancorp, Inc. and Carteret). Plaintiffs appealed the order
to the United States Court of Appeals for the Third  Circuit which  affirmed the
order and  subsequently  remanded  the case for  reconsideration  in light of an
intervening   decision.   Upon  remand,   the  District  Court  again  dismissed
plaintiffs'  complaint  on August 24, 1995 and denied  plaintiffs'  petition for
reconsideration. Plaintiffs have appealed the District Court's most recent order
to the Court of  Appeals  where  the case  remains  pending.  The  parties  have
completed  briefing  and  argument  and are  awaiting a decision by the Court of
Appeals on the  plaintiffs'  appeal of the dismissal of the case by the District
Court.

In United States v. Brown,  an action  commenced in the United  States  District
Court for the Southern  District of Florida,  certain  officers of GDC,  none of
whom were officers of the Company,  were convicted of violating the Federal Mail
Fraud Statute and certain other related  statutes.  This  development led two of
GDC's insurers,  National Union Fire Insurance Co. and Pacific Insurance Co., to
seek to  terminate  their  directors  and  officers'  insurance  coverage in two
actions pending in the United States District Court for the Southern District of
Florida, Pacific Insurance Co. v. Brown, et al. and National Union Fire Ins. Co.
v. Brown,  et al. During the fourth  quarter of 1996,  the U.S. Court of Appeals
for the 11th Circuit  reversed the  conviction of the officers of GDC.  Although
the  Company  is not a party  to these  actions,  certain  individuals  who were
directors  of GDC and  the  Company  are  defendants.  Should  the  insurers  be
successful in the  termination of their  coverage,  it is  anticipated  that the
Company  would be  exposed to claims for  indemnification.  The  parties to this
litigation are currently engaged in settlement negotiations.

Marshall  Manley v. AmBase  Corporation.  On November 14, 1996,  Marshall Manley
("Manley"),  a former  President,  Chief  Executive  Officer and Director of the
Company,  commenced an action against the Company,  seeking indemnification from
the Company pursuant to a May 27, 1993 employment  settlement  agreement between
Manley and the Company.  Manley seeks  reimbursement of certain alleged payments
he made to the Trustee in the bankruptcy  proceedings of the law firm of Finley,
Kumble, Wagner, Heine, Underberg,  Manley & Casey (the "Manley action"), arguing
that he served at such firm at the request of the Company.  The Manley action is
pending in the United  States  District  Court for the Southern  District of New
York.  The Company  filed its answer on January 21,  1997,  raising  substantial
affirmative  defenses which the Company intends to vigorously pursue. On October
30,  1997,  AmBase  amended its Answer and  Counterclaims  to include a claim of
fraud against Manley. In December 1997, Manley moved for summary judgment in his
favor.  The Company  raised  substantial  opposition  to the motion and moved to
strike  certain  of  Manley's   affirmative  defenses  which  Manley  raised  in
connection with the Company's  fraud claim against Manley.  Oral argument on the
motions is set for May 15, 1998.



                                      -31-

<PAGE>

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


Disputes with Internal Revenue Service.  The Company  contractually  assumed the
tax  liabilities  of  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 1991, the IRS and the
Company do not agree with respect to only two issues;  (1) withholding  taxes in
connection  with a Netherlands  Antilles  finance  subsidiary  of City,  and (2)
"Fresh Start", an insurance industry issue.

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

On June 30, 1995,  the Company  filed a petition in the United  States Tax Court
contesting  the  Notice of  Deficiency.  The IRS filed its  answer on August 23,
1995.  The Company filed a motion for summary  judgment in its favor on February
13,  1996.  On April  17,  1996,  the IRS  filed a Notice  of  Objection  to the
Company's motion for summary judgment. The 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 Tax 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.

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  was  subject to United  States tax
withholding. The IRS has appealed this decision (Northern Indiana Public Service
Co. v. Commissioner,  105 T.C. No. 22) to the United States Court of Appeals for
the 7th Circuit  ("Appeals  Court").  The Appeals Court 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
Statement of Operations and Financial Condition.

(2) Fresh  Start.  The one issue  remaining  for tax year 1987 is the  Company's
entitlement to Fresh Start transition relief under certain insurance company tax
provisions  of the Tax Reform Act of 1986 (other  insurance  industry  taxpayers
face similar issues under the Fresh Start provision). On March 13, 1996, the IRS
issued a deficiency notice to the Company on the Fresh Start issue which asserts
an increase in tax for the year 1987.  If the IRS is  successful,  the amount of
the deficiency would be material.  On June 7, 1996, the Company filed a petition
with the United  States Tax Court (the "Tax Court") to dispute the entire amount
of the asserted deficiency and to redetermine the tax, and on July 23, 1996, the
IRS filed its answer.  The IRS and the Company  began  engaging in the  informal
discovery process customary in the Tax Court.



                                      -32-

<PAGE>

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


On July 22, 1997, another insurance company taxpayer,  Atlantic Mutual Insurance
Company  ("Atlantic  Mutual"),  filed a petition for  certiorari in its own case
seeking  review of the Fresh Start issue by the United States Supreme Court (the
"Supreme  Court").  In response,  on September 19, 1997, the United States filed
its brief with the Supreme Court in that case in which it  recommended  that the
Supreme  Court hear the case.  The Supreme Court granted the petition on October
20, 1997, has received briefs, and heard oral argument on March 2, 1998.

A decision on the merits by the Supreme Court in Atlantic Mutual may control the
outcome of the Company's own case in the Tax Court.  Because it is expected that
the Supreme Court will address the reserve  strengthening issue, the Company and
the IRS have  advised  the Tax  Court in the  Company's  own case  that,  in the
interests  of  efficiency,  further  informal  discovery  and  negotiation  of a
stipulation  of facts have been deferred  pending the Supreme  Court's ruling in
Atlantic  Mutual.  No  assurances  can be given  concerning  the  outcome of the
Company's litigation on this issue.

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.

(b) Supervisory Goodwill Litigation:

During the third  quarter of 1993,  the Company filed a claim against the United
States,  in the United  States  Court of Federal  Claims  (the "Court of Federal
Claims"),  based upon the impact of the Financial Institutions Reform,  Recovery
and Enforcement Act of 1989 ("FIRREA") on the Company's  investment in Carteret.
Approximately  120  other  similar  so-called   "supervisory   goodwill"  cases,
commenced  in  recent  years  by  other  financial   institutions  and/or  their
shareholders,  are pending in the Court of Federal Claims. Three of these cases,
Winstar Corp. v. United States, Glendale Federal Bank, FSB v. United States, and
Statesman  Savings  Holding Corp. v. United States (the  "consolidated  cases"),
which  involve  many of the same  issues  raised  in the  Company's  suit,  were
appealed  to  the  United  States  Supreme  Court  (the  "Supreme  Court").   On
July 1, 1996, the Supreme Court issued a decision in the consolidated cases. The
Supreme Court's decision affirmed the lower Court's grant of summary judgment in
favor of the  plaintiffs  on the issue of liability and remanded the cases for a
determination  of damages.  Although the decision in the  consolidated  cases is
beneficial  to the  Company's  case,  it is not  necessarily  indicative  of the
ultimate  outcome of the Company's  action.  On September 18, 1996, the Court of
Federal Claims entered an Omnibus Case Management Order that will govern further
proceedings   in  the  Company's   action  and  most  of  the  other   so-called
"Winstar-related"  cases.  On  March  14,  1997,  the  Court  entered  an  order
permitting  the FDIC to intervene  as an  additional  plaintiff  in  forty-three
cases, including the Company's case, but not allowing the FDIC to be substituted
as the sole  plaintiff in those cases.  On December 22, 1997, the Court issued a
decision which addressed  eleven "common  issues"  applicable to a number of the
Winstar-related  cases, and rejected the government's  arguments with respect to
each such issue.  Although  this  decision is also  beneficial  to the Company's
case, it is not necessarily  indicative of the ultimate outcome of the Company's
action.  Case-specific discovery in thirty Winstar- related cases, including the
Company's  case,  is  scheduled to begin in April 1998. A trial date has not yet
been set in the Company's case. No assurance can be given regarding the ultimate
outcome of the litigation.



                                      -33-

<PAGE>

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


Note 14 - Fair Value of Financial Instruments

The  carrying   amounts  reported  in  the  balance  sheet  for  cash  and  cash
equivalents, and accounts payable and accrued liabilities approximate fair value
due to the short-term nature of these instruments.  The fair value of investment
securities - held to maturity are based on current market  quotations.  The fair
value of  investment  securities - available for sale is based upon the December
1997 cost for these  privately  placed shares.  The carrying value of applicable
other liabilities  approximates their fair value.

Note 15 - Supplemental Disclosure of Cash Flow Information

Additional information regarding cash flow for the years ended December 31 is as
follows:
================================================================================

(in thousands)                              1997            1996           1995
================================================================================

Cash received (paid) during the period:
Income tax refunded (paid), net           $  244          $5,190         $ (173)
================================================================================

In 1997, income taxes refunded include $475,000 of taxes refunded as a result of
an overpayment to the IRS for 1988 through 1991 tax years. In 1996, income taxes
refunded  (paid)  include a 1977 tax  refund of  $7,613,000  and  $1,995,000  of
payments to the IRS, principally for the 1985 through 1991 tax years.

In June 1995 the Company  received,  with  respect to 1990 and 1991,  $1,690,000
from The Home in connection with a tax sharing agreement between the Company and
The Home.



                                      -34-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES


Note 16 - Quarterly Financial Information (unaudited)

Summarized quarterly financial information follows:
================================================================================
(in thousands, except     First       Second       Third       Fourth      Full
per share data)         Quarter      Quarter     Quarter      Quarter      Year
================================================================================

1997:
Operating expenses       $  672       $  707     $  618       $ 1,998   $ 3,995
--------------------------------------------------------------------------------
Operating loss             (672)        (707)      (618)       (1,998)   (3,995)
Interest income             689          663        656           653     2,661
Other income                  -            -         55             4        59
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations
  before income taxes        17          (44)        93        (1,341)   (1,275)
Income tax benefit
  (expense)(a)              405          (70)       (73)          (71)      191
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations     422         (114)        20        (1,412)   (1,084)
Income from discontinued
  investment management
  operations, net of
  income taxes                -            -          -             -         -
--------------------------------------------------------------------------------
Net income (loss)        $  422       $ (114)    $   20       $(1,412)  $(1,084)
================================================================================
Earnings per common
  share - basic:
Income (loss) from
  continuing operations  $ 0.01       $    -     $    -       $ (0.03)  $ (0.02)
Income from discontinued
  operations                  -            -          -             -         -
--------------------------------------------------------------------------------
Net income (loss)        $ 0.01       $          $            $ (0.03)  $ (0.02)
================================================================================
Earnings per common share
  - assuming dilution:
Income (loss) from
  continuing operations  $ 0.01       $    -     $    -       $ (0.03)  $ (0.02)
Income from discontinued
  operations                  -            -          -             -         -
--------------------------------------------------------------------------------
Net income (loss)        $ 0.01       $    -     $    -       $ (0.03)  $ (0.02)
================================================================================
(a)Includes $475,000 of taxes refunded. See Item 7 - Results of Operations for a
   further discussion.

1996:
Operating expenses       $  639       $  664     $  726       $ 1,824   $ 3,853
--------------------------------------------------------------------------------
Operating loss             (639)        (664)      (726)       (1,824)   (3,853)
Interest income             603          655        690           693     2,641
Other income                  -           20          -            10        30
Other income - litigation
  and contingency
  reserves reversal(b)        -        8,000          -             -     8,000
Realized loss on investment
  securities - available
  for sale                    -         (182)         -             -      (182)
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations
  before income taxes       (36)       7,829        (36)       (1,121)    6,636
Income tax benefit
  (expense) c)            7,560          (74)      (214)          (83)    7,189
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations   7,524        7,755       (250)       (1,204)   13,825
Income from discontinued
  investment management
  operations, net of
  income taxes               18           18         23           148       207
--------------------------------------------------------------------------------
Net income (loss)        $7,542       $7,773      $(227)      $(1,056)  $14,032
================================================================================
Earnings per common
  share - basic:
Income (loss) from
  continuing operations   $0.17        $0.17      $   -       $ (0.03)  $  0.31
Income from discontinued
  operations                  -            -          -             -         -
--------------------------------------------------------------------------------
Net income (loss)         $0.17        $0.17      $   -       $ (0.03)   $ 0.31
================================================================================
Earnings per common
  share - assuming
  dilution:
Income (loss) from
  continuing operations   $0.16        $0.17      $   -       $ (0.03)   $ 0.30
Income from discontinued
  operations                  -            -          -             -         -
--------------------------------------------------------------------------------
Net income (loss)         $0.16        $0.17      $   -       $ (0.03)   $ 0.30
================================================================================
(b) Represents a reduction in the Company's litigation and contingency reserves.
    See  Item 7 - Financial Condition for a  further  discussion.  (c)Includes a
    non-recurring income tax benefit of $7,613,000 as a result of the receipt of
    a 1977 income tax refund.  See Item 7 - Financial  Condition  for a  further
    discussion.



                                      -35-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information  concerning  executive  officers  required by this item is set forth
following Item 4 of Part I of this report under the caption "Executive  Officers
of the  Registrant",  pursuant to General  Instruction  G to Form 10-K.  For the
information  required  to be set forth by the  Company in  response to this item
concerning  directors  of  the  Company,  see  the  Company's  definitive  Proxy
Statement  for its Annual  Meeting of  Shareholders  to be held on May 28, 1998,
under the caption "Information  Concerning the Board and its Committees",  which
is incorporated herein by reference,  which the Company intends to file with the
Securities  and Exchange  Commission  not later than 120 days after the close of
its fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

For the information  required to be set forth by the Company in response to this
item,  see the Company's  definitive  Proxy  Statement for its Annual Meeting of
Shareholders  to  be  held  on  May  28,  1998,  under  the  caption  "Executive
Compensation",  which is  incorporated  herein by  reference,  which the Company
intends to file with the Securities  and Exchange  Commission not later than 120
days after the close of its fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

For the information  required to be set forth by the Company in response to this
item,  see the Company's  definitive  Proxy  Statement for its Annual Meeting of
Shareholders  to be held on May 28, 1998,  under the caption "Stock  Ownership",
which is  incorporated  herein by reference,  which the Company  intends to file
with the  Securities  and Exchange  Commission not later than 120 days after the
close of its fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For the information  required to be set forth by the Company in response to this
item,  see the Company's  definitive  Proxy  Statement for its Annual Meeting of
Shareholders  to  be  held  on  May  28,  1998,   under  the  caption   "Certain
Relationships  and  Related  Transactions",  which  is  incorporated  herein  by
reference,  which the Company  intends to file with the  Securities and Exchange
Commission not later than 120 days after the close of its fiscal year.



                                      -36-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES


PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   Documents filed as a part of this report:

1. Index to Financial Statements:                                         Page

      AmBase Corporation and Subsidiaries:
         Report of Independent Accountants..................................12
         Consolidated Statements of Operations..............................13
         Consolidated Balance Sheets........................................14
         Consolidated Statements of Changes in Stockholders' Equity.........15
         Consolidated Statements of Cash Flows..............................16
         Notes to Consolidated Financial Statements.........................17

2. Index to Financial Statements Schedules:

      All schedules have been omitted because they are not applicable.

3. Exhibits

     3A.   Restated  Certificate  of  Incorporation  of  AmBase  Corporation (as
           amended through  February  12, 1991)  (incorporated  by  reference to
           Exhibit 3A  to the  Company's Annual Report on Form 10-K for the year
           ended December 31, 1990).

     3B.   By-Laws of AmBase Corporation (as amended through  March  15,  1996),
           (incorporated  by  reference  to  Exhibit 3B  to the Company's Annual
           Report on Form 10-K for the year ended December 31, 1995).

     4.    Rights Agreement dated as of February  10,  1986  between the Company
           and American Stock Transfer and Trust Co. (as amended March 24, 1989,
           November 20, 1990, February  12, 1991, October 15, 1993  and February
           1,  1996) (incorporated  by reference  to Exhibit 4 to  the Company's
           Annual Report on Form 10-K for the year ended  December 31, 1990, the
           Company's  Quarterly  Report on  Form 10-Q for  the quarterly  period
           ended September 30, 1993 and the Company's Annual Report on Form 10-K
           for the year ended December 31, 1995).

     10A.  1985  Stock  Option  Plan  for   Key  Employees  of  AmBase  and  its
           Subsidiaries  (incorporated  by  reference  to  Exhibit  10B  to  the
           Company's  Annual Report on Form 10-K for the year ended December 31,
           1989).

     10B.  1993 Stock  Incentive Plan  (incorporated  by reference to  Exhibit A
           to  the   Company's  Proxy  Statement  for   the  Annual  Meeting  of
           Stockholders held on May 28, 1993).

     10C.  1994 Senior  Management  Incentive  Compensation  Plan  (incorporated
           by  reference to Exhibit A to the Company's  Proxy  Statement for the
           Annual Meeting of Stockholders held on May 27, 1994).

     10D.  AmBase   Officers   and  Key  Employees   Stock   Purchase  and  Loan
           Plan (incorporated  by  reference  to  Exhibit  10E  to the Company's
           Annual Report on Form 10-K for the year ended December 31, 1989).

     10E.  AmBase  Supplemental  Retirement Plan (incorporated  by  reference to
           Exhibit 10C to the Company's  Annual Report on Form 10-K for the year
           ended December 31, 1989).

     10F.  Assignment  and  Assumption  Agreement  dated  as of August 30, 1985,
           between the Company and City  (incorporated  by  reference to Exhibit
           28  to  the  Company's Current Report on Form 8-K dated September 12,
           1985).



                                       -37-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES


     10G.  Employment  Agreement  dated  as  of  June 1, 1991 between Richard A.
           Bianco and  the  Company, as  amended  dated  as of December 30, 1992
           (incorporated  by  reference to Exhibit 10G to the  Company's  Annual
           Report  on  Form  10-K  for the year ended December 31, 1992), and as
           amended  February 24, 1997  (incorporated by reference to Exhibit 10G
           to  the  Company's  Annual  Report  on  Form 10-K for  the year ended
           December 31, 1996).

     10H.  Stock  Purchase  Agreement  among   AmBase   Corporation,  The   Home
           Insurance  Company  and  TVH  Acquisition   Corporation,  dated as of
           September  28,  1990  and  amended  as  of December 12,  1990,  as of
           December  21,  1990  and  as  of  February 4, 1991  (incorporated  by
           reference to Exhibit 10HH to the Company's Annual Report on Form 10-K
           for the year ended December 31, 1990).

     10I.  Indemnity  Agreement dated as of February 13, 1991 among the Company,
           The   Home  Insurance  Company  and   TVH   Acquisition   Corporation
           (incorporated  by reference to Exhibit 10JJ to the  Company's  Annual
           Report on Form 10-K for the year ended December 31, 1990).

     10J.  Consulting  Agreement  dated  as  of  February  13,  1991 between the
           Company and TVH Acquisition Corporation (incorporated by reference to
           Exhibit 10KK to the Company's Annual Report on Form 10-K for the year
           ended December 31, 1990).

     22.   Subsidiaries of the Registrant.

     23.   Consent of Independent Accountants.

     27.   Financial Data Schedule

Exhibits, except as otherwise indicated above, are filed herewith.

(b) Form 8-K

The  Company was not  required  to file a Current  Report on Form 8-K during the
quarter ended December 31, 1997.

                                       -38-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned,  thereunto duly authorized,  on the 31st day of March
1998.

AMBASE CORPORATION



RICHARD A. BIANCO
Chairman, President and Chief Executive
Officer (Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on the 31st day of March 1998.





RICHARD A. BIANCO                   JOHN P. FERRARA
Chairman, President and             Vice President, Chief Financial Officer
Chief Executive Officer             and Controller
                                    (Principal Financial and Accounting Officer)




ROBERT E. LONG                      JOHN B. COSTELLO
Director                            Director




                                       -39-

<PAGE>

                       AMBASE CORPORATION AND SUBSIDIARIES

DIRECTORS AND OFFICERS

BOARD OF DIRECTORS:

Richard A. Bianco           John B. Costello         Robert E. Long
Chairman, President and     Private Investor         President and
Chief Executive Officer                              Chief Executive Officer
AmBase Corporation                                   Business News Network, Inc.

AMBASE OFFICERS:

Richard A. Bianco           John P. Ferrara
Chairman, President and     Vice President, Chief Financial Officer
Chief Executive Officer     and Controller


INVESTOR INFORMATION

ANNUAL MEETING OF STOCKHOLDERS           CORPORATE HEADQUARTERS

The 1998 Annual Meeting is               AmBase Corporation
currently scheduled to be held at        51 Weaver Street, Bldg. 2
9:00 a.m. Eastern Daylight Time,         Greenwich, CT  06831-5155
on Thursday, May 28, 1998, at:           (203) 532-2000

   Hyatt Regency Hotel
   1800 East Putnam Avenue
   Greenwich, CT  06870
                                         STOCKHOLDER INQUIRIES
COMMON STOCK TRADING
                                         Stockholder inquiries, including
AmBase stock is traded through one       requests for the following:(i) change
or more market-makers with quotations    of address; (ii) replacement of lost
made available in the "pink sheets"      stock certificates; (iii) Common Stock
published by the National Quotation      name registration changes; (iv)
Bureau, Inc.                             Quarterly Reports on Form 10-Q; (v)
                                         Annual Reports on Form 10-K; (vi)
ISSUE    ABBREVIATION  TICKER SYMBOL     proxy material; and (vii) information
                                         regarding stockholdings, should be
Common   AmBase        ABCP              directed to:
Stock
                                         AMERICAN STOCK TRANSFER AND TRUST
TRANSFER AGENT AND REGISTRAR             COMPANY
                                         40 Wall Street - 46th Floor
AMERICAN STOCK TRANSFER AND TRUST        New York, NY  10005
COMPANY                                  Attention: Shareholder Services
40 Wall Street - 46th Floor              (800) 937-5449 or (718) 921-8200
New York, NY  10005
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200

INDEPENDENT ACCOUNTANTS                  NUMBER OF STOCKHOLDERS

PRICE WATERHOUSE LLP                     As of January 30, 1998, there were
1177 Avenue of the Americas              approximately 23,000 stockholders.
New York, NY  10036


                                      -40-


<PAGE>

                EXHIBITS ATTACHED WITH THIS FORM 10-K



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


  22              Subsidiaries of the Registrant

  23              Consent of Independent Accountants

  27              Financial Data Schedule






                                      -41-