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, 1996

|_|         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.)

Greenwich Office Park, Building 2, 51 Weaver Street, 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 31, 1997, there were 44,533,519  shares of registrant's  Common Stock
outstanding.  At January 31, 1997 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 $2.77 per share,  was  approximately  $101  million.  The Common  Stock
constitutes registrant's only outstanding security.

Portions of the  registrant's  definitive  Proxy  Statement  for its 1997 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 36.


<PAGE>



AMBASE CORPORATION

ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996

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...................................3

Item 6.    Selected Financial Data...........................................4

Item 7.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations.....................4

Item 8.    Financial Statements and Supplementary Data......................11

Item 9.    Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure...........................35

PART III

Item 10.   Directors and Executive Officers of the Registrant...............35

Item 11.   Executive Compensation...........................................35

Item 12.   Security Ownership of Certain Beneficial Owners and Management...35

Item 13.   Certain Relationships and Related Transactions...................35

PART IV

Item 14.   Exhibits, Financial Statement Schedules
           and Reports on Form 8-K..........................................36




<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"),  which was sold on February 13, 1991
to Home Holdings,  Inc. ("Home  Holdings").  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.

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 5 to the  Company's
consolidated  financial  statements  for  further  information.   The  Company's
remaining subsidiaries are inactive.

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.  The receivable arose
pursuant to The Home sale agreement, under which Home Holdings agreed to pay $48
million  to the  Company  over a  period  of  years  to meet  certain  specified
obligations  of the Company,  as  incurred,  relating to  litigation,  taxes and
administrative  expenses.  During  1996,  proceeds of  $3,997,000  from the Home
Holdings  receivable were  collected,  reducing the receivable to $13,186,000 at
December  31,  1996.  As the  Company  has  collected  the full  amounts  of the
receivable with respect to litigation and administrative expenses, the remaining
receivable  relates  principally to taxes.  See Item 8 - Note 4 to the Company's
consolidated   financial  statements  for  further  information   regarding  the
Company's receivable from Home Holdings.

The Company had 9 employees at December 31, 1996.

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 10 and 12 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 12 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

At  December  31,  1996,  the  Company's  liabilities,  including  reserves  for
contingent  and  alleged   liabilities,   exceeded  total  recorded   assets  by
$24,097,000.  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  10 and  12 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.


                                     -1-

<PAGE>

DISCONTINUED OPERATIONS

For a discussion of discontinued investment management operations, refer to Item
8 - Note 5 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 Greenwich  Office Park,  Building 2, 51 Weaver Street,  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  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 10 and 12 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.

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.  In addition,  $1,195,000 of payments for  judgments,
settlements  and legal fees were charged  against the litigation and contingency
reserves during 1996,  thereby reducing the litigation and contingency  reserves
by a total of $9,195,000.  At December 31, 1996, the litigation and  contingency
reserves  were  $2,954,000.  For a  discussion  of alleged tax  liabilities  and
lawsuits,  see Item 8 - Notes 10 and 12 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,  1996.  For a further
discussion,  see Item 8 - Note 10, Income Taxes and Note 12, 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 12 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

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.
This amount consisted of a $7,200,000 reduction resulting from the settlement of
certain  litigation  at amounts  less than claimed and  previously  anticipated,
offset  by a  $1,850,000  increase  due to the  continuing  review  of the costs
associated with litigation and  proceedings  pending against the Company,  based
upon  progress to date.  In  addition,  $4,676,000  of payments  for  judgments,
settlements  and legal fees were charged  against the litigation and contingency
reserves during 1995,  thereby reducing the litigation and contingency  reserves
by a total of $10,026,000.  At December 31, 1995, the litigation and contingency
reserves were $12,149,000.

In 1994, as part of the continuing  reviews of the status of litigation  pending
against the Company,  the  settlement  of certain  litigation at costs less than
previously  anticipated,  and a projected  reduction  of costs  associated  with
pending  litigation  based upon the  progress to date,  the Company  recorded as
other income an $8,081,000  reduction in the litigation and contingency reserve.
Additionally,  $4,337,000 of payments for judgments,  settlements and legal fees
were charged against the litigation and contingency reserve during 1994, thereby
reducing the litigation and contingency reserves by a total of $12,418,000.
At December 31, 1994, the litigation and contingency reserves were $22,175,000.

                                     -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 officers or directors of the Company.

Set forth below is a list of  executive  officers of the Company at December 31,
1996:
------------------------------------------------------------------------------

NAME                       AGE                  PRESENT TITLE
------------------------------------------------------------------------------


RICHARD A. BIANCO           49                  Chairman, President and
                                                Chief Executive Officer of
                                                AmBase Corporation

JOHN P. FERRARA             35                  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  currently  serves  as Vice  President,  Chief  Financial  Officer,
Treasurer and  Controller  of the Company,  having  previously  served as Acting
Chief Financial  Officer,  Treasurer and Assistant Vice President and Controller
from January 1995 to December  1995; as Assistant  Vice President and Controller
from January 1992 to January 1995;  and as Manager of Financial  Reporting  from
December 1988 to January 1992.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY 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.  The National  Association of Securities Dealers
("NASD") has declined to grant an exception to the  requirements  (specifically,
to the  requirement  that  listing  companies  have a  minimum  net  worth of $2
million) for listing the Common Stock of the Company on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") Small Capitalization
Issues list.

------------------------------------------------------------------------------

                                      1996                          1995
                                 HIGH        LOW               HIGH        LOW
------------------------------------------------------------------------------


First Quarter                  $1.02       $0.46             $0.28       $0.19
Second Quarter                  2.00        1.01              0.25        0.16
Third Quarter                   2.50        1.68              0.74        0.20
Fourth Quarter                  2.88        1.75              0.65        0.39
==============================================================================


As of January 31, 1997, there were approximately 21,000 beneficial owners of the
Company's  Common  Stock.  No dividends  were  declared or paid on the Company's
Common  Stock in 1996 or 1995.  The  Company  does not  intend to declare or pay
dividends in the foreseeable future.


                                     -3-

<PAGE>

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 12 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 6 to the Company's consolidated financial statements.

ITEM 6.  SELECTED FINANCIAL DATA

The selected  financial  data should be read in  conjunction  with the Company's
consolidated  financial  statements  included  in 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  and the December 4, 1992 seizure of Carteret,
were  retroactively  reclassified  to reflect  their  respective  operations  as
discontinued operations.


-------------------------------------------------------------------------------

                                              YEARS ENDED DECEMBER 31
(IN THOUSANDS,
 EXCEPT PER SHARE DATA)             1996     1995     1994     1993      1992
-------------------------------------------------------------------------------

Operating revenue                 $    -    $    -   $    -   $    -    $ 1,070
Interest income, net               2,641     2,835    2,092    1,082      1,124
Income (loss) from continuing
  operations, before
  income taxes                     6,636     6,005    6,246   (8,171)    (3,776)
Income tax (expense) benefit       7,189    (1,997)    (148)  11,354     (4,783)
Income (loss) from
  continuing operations           13,825     4,008    6,098    3,183     (8,559)
Income from discontinued
  investment management 
  operations, net of
  income taxes                       207        60       32       16          -
Income from discontinued
  banking operations,
  net of income taxes                  -         -        -        -     32,017
Net income                        14,032     4,068    6,130    3,199     23,458
PER SHARE DATA:
Income (loss) from
  continuing operations             0.31      0.09     0.14     0.07      (0.21)
Income from discontinued
  investment management
  operations, net of
  income taxes                         -         -        -        -          -
Income from discontinued
  banking operations,
  net of income taxes                  -         -        -        -       0.79
Net income                          0.31      0.09     0.14     0.07       0.58
Dividends                             -          -        -        -         -
===============================================================================

Total assets                     $66,229   $65,677  $70,113  $77,450    $70,365
Total stockholders' equity       (24,097)  (38,273) (42,204) (48,352)   (51,964)
===============================================================================


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, 1996  aggregated  $66,229,000,  consisting
principally of cash and cash equivalents of $5,591,000, investment securities of
$47,259,000,  and a $13,186,000  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.  During 1996,  proceeds of $3,997,000  from the Home
Holdings receivable were collected. For a further description, see Item 8 - Note
4 to the Company's consolidated financial statements.  At December 31, 1996, the
Company's   liabilities,   including   reserves  for   contingent   and  alleged
liabilities,  as further  described in Item 8 - Notes 10 and 12 to the Company's
consolidated   financial   statements,   exceeded  total   recorded   assets  by
$24,097,000.

                                     -4-

<PAGE>

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

Management believes that the Company's cash resources are sufficient to continue
operations  for 1997.  Because  of the  nature  of the  contingent  and  alleged
liabilities described in Item 8 - Notes 10 and 12 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.

The cash needs of the  Company in 1995 were  principally  satisfied  by interest
income received on investment securities and cash equivalents, and the continued
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.

The cash needs of the Company in 1994 were principally  satisfied by collections
of the receivable from Home Holdings, and interest income received on investment
securities and cash equivalents.

For the year ended December 31, 1996,  cash of $1,622,000 was used for 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 for operating
activities,  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.

For the year ended December 31, 1994,  cash of $9,154,000 was used for operating
activities,  including  payments  charged against the litigation and contingency
reserve  and the  payment of  operating  expenses  partially  offset by interest
income and tax refunds received.  During 1994,  principally as a result of a net
increase in investment securities - held to maturity of $17,527,000, there was a
net decrease in cash and cash equivalents of $20,728,000.

There were no material  commitments for capital  expenditures as of December 31,
1996. 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 10 and 12 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 12 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.



                                     -5-

<PAGE>

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,  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.  In  addition,
$1,195,000 of payments for  judgments,  settlements  and legal fees were charged
against the litigation and contingency  reserves during 1996,  thereby  reducing
the litigation and  contingency  reserves by a total of $9,195,000.  At December
31, 1996,  the  litigation  and  contingency  reserves  were  $2,954,000.  For a
discussion of alleged tax liabilities and lawsuits, see Item 8 - Notes 10 and 12
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,  1996.  For a further
discussion,  see Item 8 - Note 10, Income Taxes and Note 12, 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 12 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

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.
This amount consisted of a $7,200,000 reduction resulting from the settlement of
certain  litigation  at amounts  less than claimed and  previously  anticipated,
offset  by a  $1,850,000  increase  due to the  continuing  review  of the costs
associated with litigation and  proceedings  pending against the Company,  based
upon  progress to date.  In  addition,  $4,676,000  of payments  for  judgments,
settlements  and legal fees were charged  against the litigation and contingency
reserves during 1995,  thereby reducing the litigation and contingency  reserves
by a total of $10,026,000.  At December 31, 1995, the litigation and contingency
reserves  were  $12,149,000.  In  addition  to the  litigation  and  contingency
reserves,  the Company had a reserve for income taxes of $81,082,000 at December
31, 1995.

In 1994, as part of the continuing  reviews of the status of litigation  pending
against the Company,  the  settlement  of certain  litigation at costs less than
previously  anticipated,  and a projected  reduction  of costs  associated  with
pending  litigation  based upon the  progress to date,  the Company  recorded as
other income an $8,081,000  reduction in the litigation and contingency reserve.
Additionally,  $4,337,000 of payments for judgments,  settlements and legal fees
were charged against the litigation and contingency reserve during 1994, thereby
reducing the litigation and contingency reserve by a total of $12,418,000.
At December 31, 1994, the litigation and contingency reserves were $22,175,000.

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 10 and 12 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.
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 has been recognized
as  an  income  tax  benefit  in  the  accompanying  consolidated  Statement  of
Operations, based on management's continuing review of the overall tax liability
position of the Company.  The Company  also  contractually  assumed  certain tax
liabilities of The Home and its  subsidiaries  from September 1985 through 1989.
For all periods  through  1991,  the 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.

                                     -6-

<PAGE>

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.  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.  New York  State has
completed their examination of the Company's income tax returns through 1989 and
is currently  reviewing the  Company's  income tax returns for tax years 1990 to
1992.  The  Company's  federal  income tax return  for 1992 is  currently  under
examination.  The Company's  federal income tax returns for years  subsequent to
1992 have not been reviewed by the IRS.

With respect to the withholding taxes 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. The Tax Court has scheduled the
trial for the week of March 24, 1997.  If the IRS were to prevail on this issue,
the Company  would be liable for taxes and  interest in excess of the  Company's
financial resources.

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.  Although the Northern  Indiana case could be beneficial to the
Company's case, it is not  necessarily  indicative of the ultimate result of the
final  settlement of the Netherlands  Antilles issue between the Company and the
IRS. The Company will continue to monitor the appeal.

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
Notice of  Deficiency  to the  Company,  with respect to taxes owed for the year
1987.  The Company has disputed the Notice of Deficiency and has claimed that it
is entitled to "Fresh Start"  transition  relief under certain insurance company
tax  provisions  of the Tax Reform Act of 1986.  If the IRS is  successful,  the
amount of the  deficiency  would be material.  The Company  believes that it has
meaningful  defenses.  On June 7, 1996,  the Company  filed a petition  with the
United States Tax Court for a redetermination  of the tax, and on July 23, 1996,
the IRS filed its answer.  The IRS and the Company are  presently  engaged in an
informal discovery process, customary in Tax Court. See Item 8 - Note 10, Income
Taxes, and Note 12, Legal  Proceedings,  Disputes with Internal Revenue Service,
Withholding  Taxes  (Netherlands  Antilles)  and Fresh Start,  to the  Company's
consolidated financial statements, for additional details.



                                     -7-

<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)                                    1996        1995        1994
------------------------------------------------------------------------------

OPERATING EXPENSES:
Compensation and benefits                       $2,969      $2,119      $2,372
Professional and outside services                  457         661         969
Insurance                                          177         247         318
Occupancy                                           89         173         214
Other operating                                    161         132         126
------------------------------------------------------------------------------
                                                 3,853       3,332       3,999
------------------------------------------------------------------------------
Operating loss                                  (3,853)     (3,332)     (3,999)
------------------------------------------------------------------------------
Interest income                                  2,641       2,835       2,092
Other income                                        30         147           -
Other income - litigation and contingency
  reserves reversal                              8,000       5,350       8,081
Other income - reduction of previously
  estimated liabilities                              -       1,005           -
Realized gain (loss) on sale of
  investment securities
  - available for sale                            (182)          -          72
------------------------------------------------------------------------------
Income from continuing operations
  before income taxes                            6,636       6,005       6,246
Income tax benefit (expense)                     7,189      (1,997)       (148)
------------------------------------------------------------------------------

INCOME FROM CONTINUING OPERATIONS              $13,825      $4,008      $6,098
==============================================================================

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 1997 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  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.

The Company recorded income from continuing  operations of $6,098,000,  or $0.14
per share,  for the year ended  December 31, 1994.  These results  include other
income of $8,081,000,  due to the reduction of the  litigation  and  contingency
reserves in 1994, as further described in Financial Condition,  above. Excluding
this non-recurring  item, the Company would have reported a loss from continuing
operations of  $1,983,000,  or $0.04 per share,  for the year ended December 31,
1994.

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.

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. In addition, as further discussed below, the 1995
results include $3,332,000 of operating expenses and $2,835,000 of non-operating
revenue  representing  interest income earned on investment  securities and cash
equivalents.
                                     -8-

<PAGE>

The Company  recorded income from continuing  operations  before income taxes of
$6,246,000 for the year ended December 31, 1994. As further discussed below, the
1994  results  include  $3,999,000  of  operating  expenses  and  $2,092,000  of
non-operating   revenue  representing   interest  income  earned  on  investment
securities  and cash  equivalents.  The 1994 results also include  $8,081,000 of
other income, due to the reduction in the litigation and contingency  reserve as
further discussed in Financial Condition, above.

Compensation  and benefits  was  $2,969,000  in 1996,  $2,119,000  in 1995,  and
$2,372,000 in 1994. The increase in 1996 is due to increased  compensation costs
and the hiring by the Company of an employee who previously provided services as
an  independent  consultant.  The  decrease  in 1995,  compared  with  1994,  is
generally due to reductions in staff.

Professional and outside  services  decreased to $457,000 in 1996, from $661,000
in 1995, and $969,000 in 1994. The decrease in professional and outside services
of $204,000,  or 31%, in 1996, compared to 1995, 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.  The decrease in 1995 of $308,000,  or 32%,  compared to 1994,  was
principally  the result of a decrease  in legal and other  professional  service
fees and the  inclusion  in 1994 of expenses  incurred  relating to a terminated
proposed  acquisition.  Expenses for  professional and outside services in 1996,
1995,  and 1994 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 1996,  1995  and  1994,  due to  management's
renegotiation of insurance programs.

Occupancy  expenses  decreased to $89,000 in 1996,  from  $173,000 in 1995,  and
$214,000 in 1994, as a result of the relocation of Company's  executive  office,
the closing of an  administrative  office and the  continued  reduction of other
occupancy related expenses.

Interest  income was  $2,641,000 in 1996,  $2,835,000 in 1995, and $2,092,000 in
1994. The decrease in 1996,  compared to the 1995 period,  was attributable to a
decreased yield on cash equivalents and investment  securities.  The increase in
1995,  compared with 1994, was  attributable  to an increased yield and a higher
average level of cash  equivalents and investment  securities - held to maturity
in the 1995 period.

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 and a gain of $72,000 in 1994 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.

In 1994,  the Company  recorded as other income an  $8,081,000  reduction in the
litigation  and  contingency  reserves,  as more fully  described  in  Financial
Condition, above.

During 1996, the Company  received a 1977 income tax refund of $7,613,000.  This
amount  has  been  recognized  as an  income  tax  benefit  in the  accompanying
Statement of Operations,  based on management's continuing review of the overall
tax  liability  position  of the  Company,  as further  described  in  Financial
Condition,  above. In addition,  included in income tax benefit 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.
The income tax provision  recorded in 1994 was  attributable  to state and local
taxes.

A reconciliation between income taxes computed at the statutory federal rate and
the  provision for income taxes is included in Item 8 - Note 10 to the Company's
consolidated financial statements.



                                     -9-

<PAGE>



DISCONTINUED INVESTMENT MANAGEMENT OPERATIONS

See  Item 8 - Note 5 to the  Company's  consolidated  financial  statements  for
information.

RECENT DEVELOPMENTS

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  ("Statement  123"). This statement is effective for the Company's
December 31, 1996 financial  statements.  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 Item 8 - Note 9 to
the Company's consolidated financial statements.

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

                                     -10-

<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, 1996
and 1995,  and the results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  1996,  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 10 and 12, 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 Notes 1 and 4 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  10  and 12 to the
financial  statements and the second paragraph of this report. The Company has a
net capital deficiency of approximately  $24,000,000 at December 31, 1996. 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
February 20, 1997

                                     -11-

<PAGE>


                      AMBASE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                            YEARS ENDED DECEMBER 31

------------------------------------------------------------------------------

(IN THOUSANDS, EXCEPT PER SHARE DATA)             1996        1995        1994
------------------------------------------------------------------------------


OPERATING EXPENSES:
Compensation and benefits                       $2,969      $2,119      $2,372
Professional and outside services                  457         661         969
Insurance                                          177         247         318
Occupancy                                           89         173         214
Other operating                                    161         132         126
------------------------------------------------------------------------------
                                                 3,853       3,332       3,999
------------------------------------------------------------------------------
Operating loss                                  (3,853)     (3,332)     (3,999)
------------------------------------------------------------------------------
Interest income                                  2,641       2,835       2,092
Other income                                        30         147           -
Other income - litigation and contingency
  reserves reversal                              8,000       5,350       8,081
Other income - reduction of previously
  estimated liabilities                              -       1,005           -
Realized gain (loss) on sale of
  investment securities - available for sale      (182)          -          72
------------------------------------------------------------------------------
Income from continuing operations
  before income taxes                            6,636       6,005       6,246
Income tax benefit (expense)                     7,189      (1,997)       (148)
------------------------------------------------------------------------------
Income from continuing operations               13,825       4,008       6,098
Income from discontinued investment
   management operations, net of income taxes      207          60          32
------------------------------------------------------------------------------

NET INCOME                                      $14,032     $4,068      $6,130
==============================================================================

PER SHARE DATA:
Income from continuing operations               $ 0.31      $ 0.09      $ 0.14
Income from discontinued investment
   management operations, net of income taxes        -           -           -
------------------------------------------------------------------------------

NET INCOME                                      $ 0.31      $ 0.09      $ 0.14
==============================================================================

DIVIDENDS                                       $    -      $    -      $    -
==============================================================================

AVERAGE SHARES OUTSTANDING                      44,534      44,534      44,422
==============================================================================

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


                                     -12-

<PAGE>



                      AMBASE CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS
                               DECEMBER 31



------------------------------------------------------------------------------


(IN THOUSANDS)                                                1996        1995
------------------------------------------------------------------------------


ASSETS
Cash and cash equivalents
  (including $65 and $550 of restricted  cash)           $   5,591   $   7,752
Investment securities:
  Held to maturity (market value $47,261 and $40,086)       47,259      40,055
  Available for sale, carried at fair value
  cost $213 at December 31, 1995)                                -          69
------------------------------------------------------------------------------
Total investment securities                                 47,259      40,124
------------------------------------------------------------------------------
Investment management fees receivable                            -         146
Receivable from Home Holdings, Inc.                         13,186      17,183
Other assets                                                   193         472
------------------------------------------------------------------------------

TOTAL ASSETS                                             $  66,229   $  65,677
==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities                 $   1,428   $     690
Supplemental retirement plan                                 4,724       4,798
Postretirement welfare benefits                              1,527       1,633
Other liabilities                                              605       3,516
Litigation and contingency reserves                          2,954      12,149
Income tax reserves                                         79,088      81,082
------------------------------------------------------------------------------
Total liabilities                                           90,326     103,868
------------------------------------------------------------------------------
Minority interest                                                -          82
------------------------------------------------------------------------------
Commitments and contingencies                                    -           -
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock                                                   447         447
Paid-in capital                                            547,712     547,712
Net unrealized losses on investment securities
  - available for sale                                           -        (144)
Accumulated deficit                                       (571,609)   (585,641)
Treasury stock                                                (647)       (647)
------------------------------------------------------------------------------
Total stockholders' equity                                 (24,097)    (38,273)
------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $  66,229   $  65,677
==============================================================================

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

                                     -13-

<PAGE>



                         AMBASE CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                               YEARS ENDED DECEMBER 31




--------------------------------------------------------------------------------

                                NET UNREALIZED
                                     LOSSES ON
                                    INVESTMENT
                 COMMON  PAID-IN   SECURITIES-
(IN THOUSANDS)    STOCK  CAPITAL     AVAILABLE  ACCUMULATED TREASURY
                                      FOR SALE      DEFICIT    STOCK      TOTAL
--------------------------------------------------------------------------------

DECEMBER 31, 1993  $444 $547,690          $  -    $(595,839)  $ (647)  $(48,352)
Net income            -        -             -        6,130        -      6,130
Issuance of
  common stock        3       22             -            -        -         25
Net unrealized
  losses on
  investment
  securities
  - available
  for sale            -        -            (7)           -        -         (7)
--------------------------------------------------------------------------------
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)
================================================================================

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



                                        -14-

<PAGE>



                       AMBASE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             YEARS ENDED DECEMBER 31




--------------------------------------------------------------------------------

(IN THOUSANDS)                                      1996       1995        1994
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                       $13,825     $4,008     $ 6,098
Adjustments to reconcile income from
  continuing operations to net cash
  used by continuing operations:
Other assets                                         286        (18)        (29)
Accounts payable and accrued liabilities             692        113        (213)
Litigation and contingency reserves
  - (reserve reversal)                            (8,000)    (5,350)     (8,081)
Litigation and contingency reserves uses          (1,195)    (4,676)     (4,337)
Income tax reserves, net                           5,619      3,494        (301)
Income tax refund - 1977                          (7,613)         -           -
Reduction of previously estimated liabilities          -     (1,005)          -
Realized gain (loss) on sale of
  investment securities - available for sale         182          -         (72)
Other, net                                        (5,418)    (3,386)     (2,219)
--------------------------------------------------------------------------------
Net cash used by operating activities
  of continuing operations                        (1,622)    (6,820)     (9,154)
--------------------------------------------------------------------------------
Cash provided (used) by discontinued
  investment management operations                  (291)        11          (2)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investment securities
  - held to maturity                              71,235    102,700     108,687
Purchases of investment securities
  - held to maturity                             (76,011)   (97,857)   (124,538)
Purchases of investment securities
  - available for sale                                 -          -        (469)
Proceeds from sales of investment securities
  - available for sale                                31          -         328
Proceeds from Home Holdings, Inc. receivable       3,997        691       4,394
Proceeds from sale of
  Augustine Asset Management, Inc.                   500          -           -
Other, net                                             -        (11)          1
--------------------------------------------------------------------------------
Net cash provided (used) by investing activities    (248)     5,523     (11,597)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock                               -          -          25
--------------------------------------------------------------------------------
Net cash provided by financing activities              -          -          25
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents         (2,161)    (1,286)    (20,728)
Cash and cash equivalents at beginning of year     7,752      9,038      29,766
--------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR          $5,591     $7,752     $ 9,038
================================================================================

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

                                       -15-

<PAGE>



                      AMBASE CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

AmBase  Corporation (the "Company") is a holding company which previously held a
majority ownership interest in Augustine Asset Management,  Inc.  ("Augustine"),
an investment  advisor.  The Company also previously owned a savings bank and an
insurance company, all of which have been designated as discontinued operations,
as further discussed below.  The Company's remaining subsidiaries are inactive.

On October 4, 1996,  the  Company  sold its entire  interest  in  Augustine,  to
Augustine. See Note 5 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  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 10 and 12. 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  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  10  and  12.  The  Company  intends  to
aggressively  contest all pending and threatened  litigation,  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 1997
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 proceedings, see Notes 10 and 12 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 12 to the Company's  consolidated  financial  statements for a
discussion of Supervisory Goodwill Litigation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  financial  statements  have been  prepared  in  accordance  with  generally
accepted accounting  principles ("GAAP").  Certain  reclassifications  have been
made to the 1995 and 1994 consolidated  financial statements to conform with the
1996 presentation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

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

PRINCIPLES OF CONSOLIDATION:

The  consolidated  financial  statements  are  comprised  of the accounts of the
Company  and  its  majority  owned  subsidiaries.   All  material   intercompany
transactions and balances have been eliminated.


                                     -16-

<PAGE>


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


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,  to be
applied to the satisfaction of certain liabilities which have been classified as
restricted.  Included  in cash and cash  equivalents  at  December  31,  1995 is
$550,000 of funds held in escrow in connection  with a legal  proceeding,  which
have been classified as restricted.

INVESTMENT SECURITIES:

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

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.

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.

INCOME (LOSS) PER SHARE:

Income  (loss) per share is  calculated  by  dividing  net income  (loss) by the
weighted average number of common shares outstanding during the periods.  Common
stock  equivalents  did not  have a  material  dilutive  effect  in the  periods
presented  and,  therefore,  are excluded  from the  computations  of net income
(loss) 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 13.

                                     -17-

<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"). This statement is effective for the Company's
December 31, 1996 financial  statements.  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 9.

NOTE 3 - INVESTMENT SECURITIES

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

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


                              1996                             1995
                    ----------------------------   ----------------------------

                                COST OR                        COST OR
                    CARRYING  AMORTIZED     FAIR   CARRYING  AMORTIZED     FAIR
(IN THOUSANDS)         VALUE       COST    VALUE      VALUE       COST    VALUE
-------------------------------------------------------------------------------

Held to Maturity:
U.S. Treasury Bills  $47,259    $47,259  $47,261    $40,055    $40,055  $40,086
Available for Sale:
Equity Securities          -          -        -         69        213       69
-------------------------------------------------------------------------------


                     $47,259    $47,259  $47,261    $40,124    $40,268  $40,155
===============================================================================


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


(IN THOUSANDS)                                            1996             1995
-------------------------------------------------------------------------------

Held to Maturity:
Gross unrealized gains                                    $  2             $ 31
===============================================================================

Available for Sale:
Gross unrealized losses                                   $  -             $144
===============================================================================


During 1994,  proceeds of $328,000  were  received  from the sale of  investment
securities - available for sale, resulting in a realized gain of $72,000.



                                     -18-

<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;
accordingly,  the  consolidated  operations  of The Home,  for the periods ended
prior  to the  sale of The  Home,  were  designated  as  discontinued  insurance
operations.  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 taxes,  litigation,  and
administrative   expenses.  The  Company  has  collected  the  portion  of  this
receivable with respect to litigation and administrative expenses. The remaining
receivable of  $13,186,000,  as of December 31, 1996,  relating  principally  to
taxes, is payable to the Company as  reimbursement  for Federal and state income
taxes (including interest thereon) paid by the Company,  for tax years ending on
or before  December 31, 1989, and is payable to the Company as incurred.  To the
extent that the remaining receivable exceeds such reimbursements,  the remaining
receivable,  if any, is payable to the Company no later than the  expiration  of
the statute of limitations  for the Company's tax years ending through  December
31, 1992. During 1996,  proceeds of $3,997,000 from the Home Holdings receivable
were collected.

Based upon public  disclosures  by Home  Holdings,  Home  Holdings  consummated,
during 1995, a definitive  agreement  with respect to the  restructuring  of The
Home's insurance  business with Zurich  Insurance Group and others.  The Company
cannot  determine  whether  the  restructuring  of The Home  and  Home  Holdings
improves or diminishes the likelihood of the Company collecting all or a portion
of the  remaining  receivable  from Home  Holdings  at the time  amounts  become
collectible by the Company.  The Company will continue to monitor Home Holdings'
status.

NOTE 5 - DISCONTINUED INVESTMENT MANAGEMENT OPERATIONS

On October 4, 1996, the Company sold its entire ownership  interest in Augustine
to  Augustine,  for $500,000 in cash.  The Company had acquired a 51%  ownership
interest in Augustine for $200,000 on November 10, 1993. The Company's ownership
percentage later increased to 66%, due to Augustine's  repurchase of outstanding
shares from other shareholders.  Prior to the Company's  acquisition,  Augustine
was controlled by Mr. Ronald J. Burns. Mr. Burns previously served as a director
of the Company from January 1991 until his resignation  from the Company's Board
of Directors on December 28, 1995.

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.



                                     -19-

<PAGE>


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


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 the gain of $148,000 from the sale, on October 4,
1996, of the Company's entire interest in Augustine.

Summarized   information  relating  to  income  from  Augustine's   discontinued
operations  for 1996  (through  date of  disposition)  and the full year periods
ended December 31, 1995 and 1994 are as follows:
------------------------------------------------------------------------------


(IN THOUSANDS)                                    1996        1995        1994
------------------------------------------------------------------------------


Investment management fee revenue                $ 479       $ 508        $432
Operating expenses                                (339)       (355)       (355)
Interest income (expense)                            2          (3)          4
Minority interest                                  (30)        (40)        (30)
------------------------------------------------------------------------------
Income from discontinued operations before taxes   112         110          51
Income tax expense                                 (53)        (50)        (19)
------------------------------------------------------------------------------
Income from discontinued operations,
  before gain on disposition                        59          60          32
Gain on disposition                                148           -           -
------------------------------------------------------------------------------

Income from discontinued operations              $ 207       $  60        $ 32
==============================================================================

Investment  management fee revenue  includes  $142,000 for the nine month period
ended  September 30, 1996 and $163,000 and $179,000 for the years ended December
31, 1995 and 1994, respectively, from related parties.

NOTE 6 - STOCKHOLDERS' EQUITY

Authorized  capital stock consists of 50,000,000 shares of cumulative  preferred
stock, $0.01 par value, and 200,000,000 shares of Common Stock, $0.01 par value.

Changes in the outstanding shares of Common Stock of the Company follow:
------------------------------------------------------------------------------

                                             1996           1995          1994
------------------------------------------------------------------------------

Balance at beginning of year           44,533,519     44,533,519    44,308,519
Issuance of common shares                       -              -       225,000
------------------------------------------------------------------------------

BALANCE AT END OF YEAR                 44,533,519     44,533,519    44,533,519
==============================================================================

Common Stock balances exclude 126,488 treasury shares aggregating  approximately
$647,000 at December 31, 1996,  1995 and 1994.  Treasury  stock is carried at an
average cost of $5.12 per share as of December 31, 1996, 1995 and 1994.

In June 1994, Mr. Neil L. Cohen,  the Company's former Executive Vice President,
Chief  Financial  Officer,  Treasurer and  Secretary,  exercised  225,000 vested
option shares  pursuant to a stock option granted to him in January 1993.  These
shares were issued to Mr. Cohen from  previously  authorized  unissued shares of
the Company's  Common Stock.  The average of bid and asked trading prices of the
Company's Common Stock on the date of exercise was $0.235 per share. Mr. Cohen's
remaining  shares under option were canceled upon his  resignation on August 31,
1994, in accordance with Mr. Cohen's stock option agreement.

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 12,  the  Company is unable to make any
dividend payments without further judicial action.

At December 31, 1996,  there were 6,872,500  shares  reserved for issuance under
the Company's stock option and other employee benefit plans.


                                     -20-
<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, 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 7 - 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)                                    1996        1995        1994
------------------------------------------------------------------------------

Service cost of current period                    $225        $185        $235
Interest cost on projected benefit obligation      336         346         350
------------------------------------------------------------------------------
                                                  $561        $531        $585
==============================================================================


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)                                        1996        1995
------------------------------------------------------------------------------

Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested               $4,102      $4,339
==============================================================================

Projected benefit obligation for service rendered to date   $4,733      $4,702
Unrecognized net gain (loss)                                    (9)         96
------------------------------------------------------------------------------

ACCRUED PENSION COSTS                                       $4,724      $4,798
==============================================================================

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

In 1993,  the Board of  Directors  approved  the  adoption of 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  $16,000,  $15,000  and  $23,000  in  1996,  1995  and  1994,
respectively.  All contributions are subject to maximum limitations contained in
the Code.

                                     -21-

<PAGE>

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


NOTE 8 - 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)                                    1996        1995        1994
------------------------------------------------------------------------------

Interest cost on accumulated
  postretirement benefit obligation               $ 32        $ 48        $ 76
Amortization of prior service liability            (62)        (53)        (36)
Amortization of unrecognized gain                  (37)        (33)        (13)
--------------------------------------------------------------------------------

NET PERIODIC POSTRETIREMENT BENEFIT
  (INCOME) EXPENSE                                $(67)       $(38)       $ 27
==============================================================================

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


(IN THOUSANDS)                                                1996        1995
------------------------------------------------------------------------------

Accumulated postretirement benefit obligation:
Retirees                                                     $ 323       $ 447
------------------------------------------------------------------------------

Unrecognized net gains                                         527         493
Unrecognized prior service liability                           677         693
------------------------------------------------------------------------------

ACCRUED POSTRETIREMENT BENEFIT LIABILITY                    $1,527      $1,633
==============================================================================

The accumulated  benefit obligation for 1996, 1995 and 1994 was determined using
the projected  unit credit  method and a discount  rate of 7.5%,  7.5% and 8.5%,
respectively.  The health care cost trend  rates in 1996 were  assumed to be 9%,
gradually declining to 5.5% in 2001 and remaining at that level, thereafter, 10%
in 1995,  gradually  declining  to 5.5% in 2001  and  remaining  at that  level,
thereafter,  and 11% in 1994,  gradually declining to 5.5% in 2002 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,  1996,  by
approximately  $23,000,  and decrease the net  periodic  postretirement  benefit
income for 1996 by approximately $2,000.



                                     -22-

<PAGE>


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


NOTE 9 - 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"). 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.



                                     -23-

<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.

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. As of May 22,
1995,  no  additional  stock  options  can be awarded  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. The 1985 Plan provided  that  nonqualified
stock  options may be granted at an exercise  price  determined by the committee
that administers the 1985 Plan.



                                     -24-

<PAGE>


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


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


                                      1993 STOCK              1985 STOCK
(AWARDS IN THOUSANDS)               INCENTIVE PLAN            OPTION PLAN
------------------------------------------------------------------------------

                                             WEIGHTED                WEIGHTED
                                  SHARES      AVERAGE      SHARES     AVERAGE
                                   UNDER     EXERCISE       UNDER    EXERCISE
                                  OPTION        PRICE      OPTION       PRICE
------------------------------------------------------------------------------


Outstanding at December 31, 1993       -         $  -       1,600      $ 0.11
Granted                                -            -         225        0.29
Exercised                              -            -        (225)       0.11
Forfeited                              -            -        (225)       0.11
------------------------------------------------------------------------------
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
==============================================================================

Options exercisable at:
   December 31, 1994                   -        $   -         575      $ 0.11
   December 31, 1995                   -            -       1,150        0.11
   December 31, 1996                   -            -       1,456        0.13
==============================================================================



------------------------------------------------------------------------------

                                                 1993 STOCK         1985 STOCK
                                             INCENTIVE PLAN        OPTION PLAN
------------------------------------------------------------------------------

Weighted average fair value of options
  granted during:
      1995                                       $   -                   $0.15
      1996                                        1.35                       -
------------------------------------------------------------------------------
 
The following  table  summarizes  information  about the Company's stock options
outstanding  and  exercisable  under the 1985 Plan and 1993 Plan at December 31,
1996, as follows:
------------------------------------------------------------------------------

(AWARDS 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      6 years       $ 0.11           1,150         $ 0.11
$0.20 to 0.23     613      4 years         0.23             306           0.23
     $2.09        100     10 years         2.09               -              -
------------------------------------------------------------------------------
     TOTAL      1,863                                     1,456
==============================================================================




                                     -25-

<PAGE>


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


During  1995,  the  Board of  Directors  of the  Company  approved  the award of
incentive stock options to acquire shares of AmBase Common Stock pursuant to the
1985  Plan,  as  follows:  500,000  incentive  stock  options  to the  Company's
Chairman,  100,000 incentive stock options to Mr. Ferrara,  and 25,000 incentive
stock options to certain  employees of the Company.  The exercise price of these
options  were between  $0.20 and $0.23 per share,  based upon the average of the
high bid and low asked trading prices of the Company's  Common Stock on the date
of grant, pursuant to the 1985 Plan. The Chairman's options were granted at 110%
of such  average,  in  accordance  with  the 1985  Plan.  These  options  become
exercisable in 50% increments in 1996 and 1997 and generally can be exercised by
the optionee only if employed by the Company at the time of exercise. Other than
the  Company's  Chairman,  none of these  individuals  had any stock options for
Common Stock of the Company prior to 1995.

The details of the Company's  incentive plans are summarized  above. The Company
has 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 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 1996 and 1995,  respectively:  dividend yield 0%
for all  years,  expected  historical  volatility  of 0.84 and  0.87,  risk-free
interest  rates of 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 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)                    1996             1995
------------------------------------------------------------------------------


NET INCOME
As reported                                           $14,032           $4,068
Proforma                                               13,959            4,038
==============================================================================
PER SHARE DATA
As reported                                            $ 0.31           $ 0.09
Proforma                                                 0.31             0.09
==============================================================================

                                     -26-

<PAGE>

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

NOTE 10 - INCOME TAXES

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

(IN THOUSANDS)                                    1996        1995        1994
------------------------------------------------------------------------------

Income tax (expense) benefit:
Continuing operations                           $7,189     $(1,997)      $(148)
Discontinued investment management operations      (53)        (50)        (19)
==============================================================================

The components of pretax income (loss) and the  difference  between income taxes
from continuing operations computed at the statutory federal rate of 35% in 1996
and 1995 and 34% in 1994,  and the  provision  for income taxes from  continuing
operations for the years ended December 31 follows:
------------------------------------------------------------------------------

(IN THOUSANDS)                                    1996        1995        1994
------------------------------------------------------------------------------

Income from continuing operations
  before income taxes                           $6,636      $6,005      $6,246
==============================================================================

Tax (expense) benefit:
Tax at statutory federal rate                  $(2,323)    $(2,102)    $(2,124)
Prior year tax refund                            7,613           -           -
Benefit of operating loss carryforwards          2,323           -           -
Accounting loss benefit recognized                   -       2,102       2,124
Prior years' issues                                  -      (1,800)          -
Federal income taxes                               (76)          -           -
State income taxes                                (348)       (197)       (148)
------------------------------------------------------------------------------
                                                $7,189     $(1,997)      $(148)
==============================================================================

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

(IN THOUSANDS)                                    1996        1995        1994
------------------------------------------------------------------------------
Current:
Federal                                          $ (76)      $   -       $   -
State                                             (348)       (197)       (148)
------------------------------------------------------------------------------
                                                  (424)       (197)       (148)
------------------------------------------------------------------------------
Deferred (primarily federal):
Prior year tax refund                            7,613           -           -
Prior years' issues                                  -      (1,800)          -
------------------------------------------------------------------------------
                                                 7,613      (1,800)          -
------------------------------------------------------------------------------
                                                $7,189     $(1,997)      $(148)
==============================================================================

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.
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 has been recognized
as  an  income  tax  benefit  in  the  accompanying  consolidated  Statement  of
Operations, based on management's continuing review of the overall tax liability
position  of the  Company.  Included  in the income tax benefit is a federal and
state tax provision of $424,000 in 1996. 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. See Note 12 to the Company's  consolidated
financial statements, Legal Proceedings, Disputes with Internal Revenue Service,
Withholding  Taxes  (Netherlands  Antilles)  and  Fresh  Start,  for  additional
details.

                                     -27-

<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.  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.  New York  State has
completed their examination of the Company's income tax returns through 1989 and
is currently  reviewing the  Company's  income tax returns for tax years 1990 to
1992.  The  Company's  federal  income tax return  for 1992 is  currently  under
examination.  The Company's  federal income tax returns for years  subsequent to
1992 have not been reviewed by the IRS.

Based on a continuing review of the Company's tax basis in Carteret,  the impact
of prior year tax return  adjustments  on the 1992 tax return as filed,  and the
impact of Treasury Reg. ss.1.597-4(g) which was issued in final form during 1996
as further described below, the Company has available approximately $154 million
of tax basis in Carteret,  which  should  result in net  operating  loss ("NOL")
carryforwards,  in addition to the $29,319,000 of NOL carryforwards noted below,
expiring no earlier than 2007, available to offset future taxable income.

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"),  AmBase may make an election pursuant to final
Treasury  Reg.   ss.1.597-4(g)  to  disaffiliate  Carteret  from  the  Company's
consolidated  federal  income tax return  effective  as of December 4, 1992 (the
"election  decision").  The Company has  previously  filed its 1992 through 1995
federal  income tax  returns  with  Carteret  disaffiliated  from the  Company's
consolidated  federal  income tax return.  Due to the RTC/FDIC not providing the
Company  with  information  relating to  Carteret  and the  resulting  successor
institution, Carteret Federal Savings Bank ("Carteret FSB"), the IRS has granted
the Company an extension of time to make the election  decision.  The Company is
still evaluating whether or not to make the election decision.

If the  election  decision is not made,  the Company will amend its 1992 through
1995  consolidated  federal income tax returns to include the federal income tax
effects of Carteret and the resulting successor institution, Carteret FSB. While
the  information  from the  RTC/FDIC has not been  provided to the Company,  the
Company  believes $154 million of NOL's will be generated  from its tax basis in
Carteret.  Regardless,  if an election  decision is made, and the Company amends
its consolidated federal income tax returns to include the income tax effects of
Carteret/Carterret  FSB for federal  income tax  purposes,  the Company does not
believe  a  material   increase  in  the  Company's  tax  liabilities   will  be
encountered.

In  connection  with the  completion  of the federal tax audit years  (excluding
Fresh  Start) as noted  above and the  Company's  federal  income tax returns as
filed from 1992 to 1995, at December 31, 1996 the Company has NOL  carryforwards
available to reduce future federal  taxable income,  which expire if unused,  as
follows:

           2006   $  1,983,000
           2007     12,097,000
           2008      2,981,000
           2009      6,911,000
           2010      5,347,000
                   -----------
                   $29,319,000
                    ==========

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 credits, which are not subject to expiration.

Under  Statement 109, the Company has calculated a net deferred tax asset of $33
million and $30 million, as of December 31, 1996 and 1995, respectively, arising
primarily from NOL's,  the excess of book over tax reserves and  alternative
minimum tax credits (not  including the tax effects of the $154 million of NOL's
that  may  arise  from the  Carteret  election  decision,  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.



                                     -28-

<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 11 - COMMITMENTS AND CONTINGENCIES

Future   minimum  rental   payments,   principally   for  office  space,   under
noncancellable  operating leases at December 31, 1996, are: 1997, $67,000; 1998,
$75,000; 1999, $79,000;  2000, $79,000;  2001, $20,000 and thereafter,  $0. Rent
expense  charged to earnings,  was $46,000,  $142,000 and $178,000 for the years
ended December 31, 1996, 1995, and 1994, respectively.

NOTE 12 - LEGAL PROCEEDINGS

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

Angel, et al. v. AmBase Corp. (the "Angel  litigation").  Plaintiffs,  Angel, et
al., commenced an action against the Company in the United States District Court
for the  Southern  District of New York on July 12,  1991,  asserting  causes of
action under Section 10(b) of the  Securities  Exchange Act of 1934, as amended,
and under Rule 10b-5  thereunder,  and under  Sections  11,  12(2) and 15 of the
Securities Act of 1993, as amended,  as well as causes of action based on common
law fraud and negligence under New Jersey State law. The plaintiffs in the Angel
litigation  are  approximately  50  purchasers  of the  Company's  Common Stock,
including the Lindner Fund.  This action is asserted  individually  on behalf of
each of the  plaintiffs.  The  Company  and a majority  of the  plaintiffs  have
reached an agreement in principle  providing  for the  settlement of the bulk of
the actions  comprising the Angel litigation.  Claims  representing an aggregate
purchase  price  of the  Company's  securities  of  less  than  $500,000  remain
outstanding.  The Company has entered into  negotiations to settle the case with
the plaintiffs. Further proceedings in this matter have been postponed until the
completion of the negotiations.

Rolo and Tenerelli v. City Investing Company Liquidating Trust, et al. 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.



                                     -29-

<PAGE>


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


Sovereign Metal. On February 1, 1991,  Sovereign Metal  Corporation  ("Sovereign
Metal") and American Alloy Steel Pension Plan  ("American  Alloy")  commenced an
action against Richard M. Ciraco ("Ciraco"),  Home Capital Services, Inc. ("Home
Capital"),  the Company and John Does 1-20, in the United States District Court,
Southern  District of New York,  alleging that defendants  committed  securities
fraud,  violated the New York State General  Business Law,  committed fraud, and
breached  their   fiduciary   duties  to  plaintiffs.   The  Plaintiffs   sought
compensatory and punitive damages.  Plaintiffs, two related corporate clients of
Home Capital, alleged that on December 19, 1989, Ciraco, a Senior Vice President
of Home Capital,  purchased for  plaintiffs'  account two Drexel Burnham Lambert
("Drexel")  six-month  notes,  without  plaintiffs'  authorization.   Plaintiffs
alleged that they were not aware of these investments at the time they were made
or at any time prior to Drexel's filing for bankruptcy on February 13, 1990, and
that  defendants  purchased the notes in violation of plaintiffs'  long-standing
investments  guidelines and with  knowledge of  plaintiffs'  aversion to dealing
with Drexel. As a result of Drexel's bankruptcy,  it was alleged that plaintiffs
might incur losses of up to $1.53 million on these investments.  On February 10,
1992, a jury returned a verdict in defendant's  favor,  finding that  plaintiffs
knew before February 1, 1990, of defendants' purchase, on plaintiffs' behalf, of
Drexel commercial paper. As a result,  the Court dismissed that securities fraud
claim with  prejudice.  The Court declined to exercise its pendent  jurisdiction
and dismissed plaintiffs' state law claims without prejudice. In April 1992, the
Court awarded  defendants  $20,000 in costs associated with the trial. No appeal
was taken and plaintiffs' Federal claims have been definitively resolved against
them.

On March 13, 1992,  Sovereign Metal and Americal Alloy served defendants Ciraco,
Home  Capital,  and the  Company  with a  complaint  filed in the New York State
Supreme Court (the "State Court"),  containing  allegations  similar to those in
the  Federal  action.  Plaintiffs  seek  compensatory  damages  in  addition  to
interest,  punitive  damages,  and attorneys' fees. On June 1, 1992,  defendants
moved to dismiss that  complaint on the basis of the jury verdict in the Federal
action.  Plaintiffs  cross-moved for summary judgment on one of their claims. By
an opinion dated April 10, 1993, the State Court dismissed  plaintiffs' cause of
action  alleging  fraud as to all parties  with  prejudice,  denied  defendants'
motions to dismiss  plaintiffs' causes of action relating to breach of fiduciary
duty and breach of contract,  denied plaintiffs' motion for summary judgment and
severed and dismissed all of  plaintiffs'  causes of action against the Company.
Plaintiffs  filed an  amended  complaint  naming  the  Company  in new counts of
fraudulent  conveyance  and breach of fiduciary  duty. In a Memorandum  Decision
dated January 10, 1994,  the State Court denied  plaintiffs'  motion to serve an
amended complaint  containing any causes of action against the Company,  without
prejudice to any action alleging fraudulent  conveyance against the Company in a
separate  suit. The State Court granted  plaintiffs'  motion to serve an amended
complaint  containing  breach of contract and breach of fiduciary duty causes of
action against  defendants Ciraco and Home Capital.  Plaintiffs filed an amended
complaint  alleging a fraudulent  conveyance  claim against the Company and Home
Capital  and breach of contract  and breach of  fiduciary  duty  claims  against
defendants Ciraco and Home Capital.

The Company and Home  Capital  moved for summary  judgment as to the  fraudulent
conveyance  claims and the dismissal of plaintiffs'  claims against the Company.
The State Court,  on December 11, 1996,  granted the summary  judgment motion on
behalf of the Company and Home Capital for the fraudulent  conveyance claims and
granted the motion to dismiss the Company  from the suit.  The  plaintiffs  have
appealed that  judgment.  The remaining  issues in the case against Home Capital
and Ciraco are currently scheduled for trial in April 1997.

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.



                                     -30-

<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.  The
        Tax Court has scheduled the trial for the week of March 24, 1997. If the
        IRS were to prevail on this issue, the Company would be liable for taxes
        and  interest in excess of the  Company's financial resources.

        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.
        Although the Northern  Indiana case could be beneficial to the Company's
        case, it is not  necessarily  indicative  of the ultimate  result of the
        final  settlement of the Netherlands  Antilles issue between the Company
        and the IRS. The Company will continue to monitor the appeal.

        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. On March 13, 1996, the IRS issued a Notice of Deficiency to
        the Company  with  respect to taxes owed for the year 1987.  The Company
        has  disputed  the  Notice  of  Deficiency  and has  claimed  that it is
        entitled to "Fresh  Start"  transition  relief under  certain  insurance
        company  tax  provisions  of the Tax Reform  Act of 1986.  If the IRS is
        successful,  the amount of the deficiency would be material. The Company
        believes that it has meaningful  defenses.  On June 7, 1996, the Company
        filed a petition with the United States Tax Court for a  redetermination
        of the tax, and on July 23, 1996, the IRS filed its answer.  The IRS and
        the Company are  presently  engaged in an  informal  discovery  process,
        customary in Tax Court.

The numerous  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.
                                     -31-

<PAGE>

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


(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.  On July 1, 1996, the United States
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. At a
hearing held on January 30, 1997,  the Court of Federal  Claims made a tentative
ruling on a motion  filed by the FDIC  permitting  the FDIC to  intervene  as an
additional plaintiff in forty-five cases,  including the Company's case, but not
allowing the FDIC to substitute itself as the sole plaintiff. As of February 24,
1997,  the  Court had not yet  issued a final  ruling  on the  FDIC's  motion to
intervene and  substitute.  A trial date has not been set in the Company's case.
No assurance can be given regarding the ultimate outcome of the litigation.

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company discloses the fair value  information  about 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  are  based on  current  market  quotations.  The  carrying  value of
applicable other  liabilities  approximates  their fair value. The fair value of
the  Company's  receivable  from Home  Holdings is estimated  using the expected
future cash flows discounted at risk adjusted interest rates.

The estimated fair value of financial instruments of the Company at December 31,
other than those financial  instruments on which carrying  amounts  approximates
fair value, are as follows:
------------------------------------------------------------------------------
                                  1996                          1995
                        -----------------------       ------------------------
                        CARRYING           FAIR       CARRYING            FAIR
(IN THOUSANDS)            AMOUNT          VALUE         AMOUNT           VALUE
------------------------------------------------------------------------------

ASSETS
Investment securities:
   Held to maturity      $47,259        $47,261        $40,055         $40,086
Receivable from
   Home Holdings, Inc.    13,186         12,127         17,183          15,540
==============================================================================

NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

(IN THOUSANDS)                             1996           1995            1994
------------------------------------------------------------------------------

Cash received (paid) during the period:
Income tax refunded (paid), net          $5,190         $ (173)         $  (50)
==============================================================================

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.


                                     -32-

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

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.

Income  taxes  paid in 1994,  net,  includes  a  pre-1985  state  tax  refund of
$340,000.

NOTE 15 - 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
--------------------------------------------------------------------------------
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(a)       -       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)(b)           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
================================================================================
PER SHARE DATA:
Income (loss) from
  continuing operations  $0.17       $0.17        $   -      $ (0.03)  $  0.31
Income from discontinued
  investment management
  operations, net of
  income taxes               -           -            -            -         -
--------------------------------------------------------------------------------
NET INCOME (LOSS)        $0.17      $ 0.17        $   -       $(0.03)  $  0.31
================================================================================
(a) Represents a reduction in the Company's litigation and contingency reserves.
See Item 7 -  Financial  Condition  for a further  discussion.
(b) 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.
                                    -33-

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

--------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT    FIRST      SECOND        THIRD       FOURTH      FULL
 PER SHARE DATA)       QUARTER     QUARTER      QUARTER      QUARTER      YEAR
--------------------------------------------------------------------------------
1995:
Operating expenses       $ 719      $  752        $ 700       $1,161   $ 3,332
--------------------------------------------------------------------------------
Operating loss            (719)       (752)        (700)      (1,161)   (3,332)
Interest income            686         702          779          668     2,835
Other income                54           -           90            3       147
Other income
  - litigation and
  contingency reserves
  reversal (c)               -           -        1,750        3,600     5,350
Other income - reduction
  of previously estimated
  liabilities                -           -            -        1,005     1,005
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations
  before income taxes       21         (50)       1,919        4,115     6,005
Income tax expense (d)     (49)        (50)      (1,849)         (49)   (1,997)
--------------------------------------------------------------------------------
Income (loss) from
  continuing operations    (28)       (100)          70        4,066     4,008
Income from discontinued
  investment management
  operations, net of
  income taxes               9          17           17           17        60
--------------------------------------------------------------------------------
NET INCOME (LOSS)        $ (19)      $ (83)       $  87       $4,083    $4,068
================================================================================
PER SHARE DATA:
Income (loss) from
  continuing operations  $   -       $   -        $   -       $ 0.09    $ 0.09
Income from discontinued
  investment management
  operations, net of
  income taxes               -           -            -            -         -
--------------------------------------------------------------------------------
NET INCOME (LOSS)         $  -       $   -        $   -       $ 0.09    $ 0.09
================================================================================
(c) Represents a reduction in the Company's litigation and contingency reserves.
See Item 7 -  Financial  Condition  for a further  discussion.
(d)  Includes  as  additional  income tax expense a  $1,800,000  increase in the
income tax reserves. See Item 7 - Financial Condition for a further discussion.

                                      -34-

<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 1, 1997,
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  1,  1997,  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 1, 1997,  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 1, 1997, 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.



                                     -35-

<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..................................11
         Consolidated Statements of Operations..............................12
         Consolidated Balance Sheets........................................13
         Consolidated Statements of Changes in Stockholders' Equity.........14
         Consolidated Statements of Cash Flows..............................15
         Notes to Consolidated Financial Statements.........................16

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).



                                      -36-

<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 herein.

      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).

      11.   Computation of Earnings Per Share.

      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, 1996.

                                      -37-

<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 25th day of
February 1997.

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 25th day of February 1997.





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





ROBERT E. LONG                           JOHN B. COSTELLO
Director                                 Director


                                      -38-

<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     Treasurer and Controller

INVESTOR INFORMATION

ANNUAL MEETING OF STOCKHOLDERS

The 1997 Annual Meeting is currently  scheduled to be held at 9:00 a.m., Eastern
Daylight Time, on Thursday, May 1, 1997, at:
   GREENWICH LIBRARY, THE COLE AUDITORIUM
   101 West Putnam Avenue
   Greenwich, CT  06830

CORPORATE HEADQUARTERS

AMBASE CORPORATION
Greenwich Office Park, Bldg. 2
51 Weaver Street
Greenwich, CT  06831-5155
(203) 532-2000

COMMON STOCK TRADING

AmBase stock is traded through one or more  market-makers  with  quotations made
available in the "pink sheets" published by the National Quotation Bureau, Inc.

ISSUE          ABBREVIATION      TICKER SYMBOL

Common Stock   AmBase            ABCP

TRANSFER AGENT AND REGISTRAR

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

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

INDEPENDENT ACCOUNTANTS

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY  10036

NUMBER OF STOCKHOLDERS

As of January 31, 1997, there were approximately 21,000
stockholders

                                      -39-

<PAGE>


                      EXHIBITS ATTACHED WITH THIS FORM 10-K



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

   10-G                Employment Agreement Amendment dated February 24, 1997
                       between AmBase Corporation and Richard A. Bianco

   11                  Computation of Earnings Per Share

   22                  Subsidiaries of the Registrant

   23                  Consent of Independent Accountants

   27                  Financial Data Schedule











                                      -40-