HomeBase, Inc.
                               1997 Annual Report
                          Title: Building Relationships

Inside Front Cover

         HomeBase is one of the leading home  improvement  chains in the western
United  States.  Since the first  HomeBase store opened in California in October
1983,  the  company  has  grown to 83  warehouse  stores in 10  western  states.
Averaging over 100,000 square feet, each HomeBase store offers a full assortment
of quality home  improvement  and building  supply  products,  plus an expansive
nursery and garden  center.  "The Base," as it has become  known,  distinguishes
itself from other "big box" home  improvement  stores in three  important  ways:
HomeBase services  do-it-yourselfers  and professional  contractors by providing
everyday low prices; our stores maintain an extensive merchandise selection that
includes thousands of name brand and private label items; and our highly trained
staff provides exceptional and timely customer service.

Spot Photos
Team Members        Customers        Vendors        Stockholders

         Building  relationships  is what HomeBase is all about.  It starts with
our team members,  the people who staff our stores everyday.  Specially  skilled
tradespeople  and support team members  undergo  constant  training  programs to
better serve our customers,  who range from the first time  do-it-yourselfer  to
the seasoned  contractor.  HomeBase depends on strong relationships with vendors
to maximize our product selection and maintain  competitive  pricing.  Together,
these  relationships  form HomeBase - a company  focused on positive  growth and
committed to building long-term value for our stockholders.

Financial Highlights

         On July 10, 1997,  stockholders  approved Waban Inc.'s  spin-off of the
BJ's Wholesale  Club  division,  along with the corporate name change from Waban
Inc. to HomeBase,  Inc. The BJ's spin-off transaction was effected as a tax-free
distribution  in the form of a special  dividend to Waban's  stockholders,  on a
one-for-one  basis,  of all of the  outstanding  shares of common  stock of BJ's
Wholesale Club, Inc. on July 28, 1997. HomeBase, Inc. has traded on the New York
Stock Exchange since July 29, 1997 under the symbol "HBI".

<TABLE>
<CAPTION>
                                Fiscal Year Ended
Income Statement Data
($000, except per share data)                 Jan-98                  Jan-97                  Jan-96
                                            (53 weeks)
<S>                                        <C>                      <C>                    <C>
Net sales                                   $1,477,442               $1,452,696             $1,448,776
Operating income                                 4,008 (a)               37,858                 48,661
Income (loss) from continuing
   operations before extraordinary loss(b)        (683)(a)               16,347                 24,485
Net income                                      11,229 (a)               76,660                 72,977
Basic earnings per share                         $0.31                    $2.33                  $2.21
Diluted earnings per share                       $0.31                    $2.31                  $2.20


<PAGE>

Selected Pro Forma Financial Data(c)
($000, except per share data)
Net sales                                   $1,477,442               $1,452,696             $1,448,776
Operating income                                 5,318 (a)               39,324                 50,262
Income from continuing operations
   before extraordinary loss(b)                  1,495 (a)               21,392                 27,977
Diluted earnings per share-
   continuing operations                         $0.04                    $0.56                  $0.74

Warehouse Locations and Other Data

Number of stores at year end                        83                       84                     79
Number of stores leased                             65                       66                     65
Number of stores owned                              18                       18                     14
Proportion of stores in new format
   (new or remodeled)                               72%                      61%                    37%
Depreciation and amortization ($000)            25,409                   23,620                 20,118
Capital expenditures ($000)                     26,431                   48,393                 73,300
Comparable store sales (%)                        (1.7)%                   (5.2)%                 (5.0)%
</TABLE>

(a)Includes  a charge  of $27.0  million  ($16.3  million  net of tax) for store
closures and other charges.

(b)Income  (loss) from  continuing  operations for the fiscal year ended January
1998 is not  comparable  to the  prior  years'  results  due to  differences  in
corporate  overhead  following the spin-off of BJ's Wholesale Club, Inc. on July
28, 1997, the conversion of the company's prior convertible subordinated debt to
common stock and the refinancing of $112 million of other corporate debt.

(c)The pro forma amounts reflect  management's  good faith estimate of operating
performance  had HomeBase  been a  stand-alone  company prior to the spin-off of
BJ's Wholesale Club, Inc. and reflect reductions in administrative  expenses and
interest  costs.  The  number of  shares  used in the  calculation  of pro forma
diluted earnings per share -D continuing  operations is 37.9 million for all the
years shown.

Page 1 side Bar

The HomeBase Design Center

         To fully  leverage  the  rapidly  expanding  demand for  do-it-yourself
remodel products,  particularly  among female customers,  HomeBase developed its
innovative  Design  Center.   Today,   HomeBase  stores  feature  a  centralized
full-service  Design Center complete with fashionable  products,  computer-based
design imaging, design consultants,  and delivery and installation services. The
improved store layout enhances our customers'  shopping experience and increases
add-on sales opportunities.

Page 2&3

To Our Stockholders

         HomeBase  had an  eventful  year in  1997.  We  started  the  year as a
division of Waban Inc. and ended it as an independent  publicly  traded company.
In July, Waban spun off its BJ's Wholesale Club division and changed its name to
HomeBase, Inc. The company has since been trading on the New York Stock Exchange
under the symbol "HBI".

<PAGE>

         HomeBase  also  made  a  significant  change  to its  corporate  growth
strategy.  Once we saw improving real estate prices in Southern California,  our
largest market,  we accelerated our store remodeling  program,  which gives us a
competitive edge by improving our product  presentation,  selection and shopping
convenience.  Historically,  remodeled  HomeBase  stores have  achieved  average
first-year sales trend  improvements of 10% and a 100 basis point improvement in
selling margins. Most of the 17 stores remaining to be remodeled are in Southern
California.  By the end of April 1998,  nearly  every store in our chain will be
converted to the new remodeled format.  This gives us a new opportunity to build
brand  awareness  by focusing  advertising  on the  strengths  of the  remodeled
format,  including  the improved  ambiance and  customer-friendly  layout of our
stores.

         Once the remodels are completed,  our focus will shift to the expansion
phase of our corporate  strategy.  Our current plan is to increase the number of
new store  openings  from two stores in both 1997 and 1998 to eight to 10 stores
per year beginning in 1999.

Financial Results

         For fiscal 1997,  which  includes the 53-week  period ended January 31,
1998,  sales  totaled $1.48  billion,  compared with $1.45 billion for the prior
year's  52-week  fiscal year.  Comparable  store sales were down 1.7% versus the
prior  year.  During  the year we closed  three  stores and opened new stores in
Henderson, Nevada and Brea, California.

         Our net income for fiscal 1997 of $11.2  million,  or $0.31 per diluted
share, included six months of discontinued operations of BJ's Wholesale Club and
non-recurring expenses related to the July 1997 spin-off transaction,  which are
not  related to the  ongoing  operations  of  HomeBase,  Inc.  Net income is not
directly  comparable  to the prior  year's  results  due to the  differences  in
corporate  overhead  following the spin-off of BJ's  Wholesale  Club,  Inc., the
conversion  of Waban's  convertible  subordinated  debt to common  stock and the
refinancing of $112 million of other corporate debt.

         On a pro forma basis,  giving effect to the spin-off of BJ's  Wholesale
Club,  Inc., net income for fiscal 1997 would have been $17.8 million,  or $0.47
per diluted share, before a third quarter store-closing charge of $27.0 million,
or $16.3  million net of tax.  After the charge,  HomeBase  pro forma net income
totaled $1.5 million,  or $0.04 per diluted  share,  compared with pro forma net
income of $21.4  million,  or $0.56 per diluted  share,  in the previous  fiscal
year.  The pro forma amounts are based on  management's  good faith  estimate of
operating  performance  had HomeBase  been a  stand-alone  company  prior to the
spin-off of BJ's Wholesale Club, Inc., and reflect  reductions in administrative
expenses and interest costs for periods prior to the spin-off.

         The company  ended the year with a strong  balance  sheet that included
$50.1  million in cash and  marketable  securities,  debt of $116.0  million and
stockholders' equity of $359.7 million.

Strategic Direction

         Convenience,  superior  customer  service  and a wide  variety  of home
improvement  products  at  competitive  prices  are all  very  important  to our
customers.  Our remodel  format  delivers just that. A centrally  located design
area   makes  our   remodeled   HomeBase   stores   more   inviting   to  casual
do-it-yourselfers.  At the same time we provide our professional  customers easy
access  to  lumber  and  building  materials  through  a  separate  contractor's
entrance.  We have seen the remodel  formula work quite well by improving  sales
and store selling margins. We are on schedule to complete 16 of the 17 remaining
stores in the remodel  program by April and should begin to realize the benefits
in the second  quarter of 1998, as we enter the company's peak spring and summer
selling season.

<PAGE>

         To help finance our new  strategic  initiatives,  the company sold $100
million,  5.25%  convertible  subordinated  seven-year  notes in November  1997,
through a rule 144A/regulation S offering.  The notes are non-callable for three
years and convertible  into shares of HomeBase,  Inc. common stock at $10.22 per
share.  The notes have  subsequently  been  registered  with the  Securities and
Exchange  Commission  and are rated B- by Standard  and  Poor's,  which gave the
company a corporate rating of B+.

Looking Ahead

         In 1997, we took significant steps to lay the groundwork for the future
of HomeBase and we continue to focus our efforts on building  relationships with
customers,  team  members,  vendors  and  stockholders  in 1998.  In addition to
providing   extensive  and  ongoing  training  for  our  team  members,  we  are
implementing  a new  point-of-sale  system to improve  efficiency  and  customer
service.  With  virtually  all stores in the same format,  a new  brand-identity
advertising  campaign is being launched in tandem with innovative new techniques
in direct and database marketing.

         Beyond our internal efforts,  several  favorable  external factors bode
well for  HomeBase.  Demographic  and  lifestyle  changes such as maturing  baby
boomers,  the increase in  home-centered  activities and aging housing stock are
creating demand for home  improvement  products and services.  Industry  sources
estimate  that the overall  market for home  improvement  products in the United
States will exceed $148 billion in 1998, with particularly strong population and
industry growth expected in the western United States.

         HomeBase  is  the  most  competitively  impacted  warehouse-style  home
improvement  retailer in the industry.  Approximately  95% of our stores have at
least  one "big  box"  home  improvement  store  nearby.  At the  same  time new
competition  was  entering  our  markets,  Southern  California  was  in a  deep
recession  and,  until  1997,  endured  six  continuous  years of housing  price
declines. While these factors impeded our ability to achieve growth in sales and
operating income,  we successfully met these challenges and maintained  HomeBase
as a profitable business. Recently, we acted swiftly and strategically to pursue
a more aggressive  growth track and ensure HomeBase is competitively  positioned
to take full advantage of the opportunities  that lie ahead. With interest rates
holding at modest  levels,  a strong economy and an improving real estate market
in Southern California,  HomeBase has the opportunity to build lasting value for
its stockholders.

         We offer our personal  thanks to all of our  hardworking  team members,
and to our  vendors,  customers  and  investors  whose  confidence  and  support
continue to be the driving force behind the success of HomeBase.

Sincerely,
Allan Sherman
President and Chief Executive Officer

Herbert J. Zarkin
Chairman of the Board

April 3, 1998

The  forward-looking   statements  in  this  annual  report  involve  risks  and
uncertainties   that  could  cause  results  to  differ  materially  from  those
expressed.  Such risks and  uncertainties  include,  but are not limited to, the
company's ability to execute its accelerated store-opening plan, the competitive
marketplace  and the factors set forth under the heading  "Risk  Factors" in the
company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998,
and in the company's other filings with the Securities and Exchange Commission.

<PAGE>

Call Out under President's Picture
"... HomeBase is competitively positioned to take full advantage of the 
     opportunities that lie ahead."
 -D Allan Sherman
- Herbert J. Zarkin

Page 4&5
Building Relationships With Team Members

         HomeBase's  ability  to  satisfy  customers  stems  directly  from  our
greatest asset: our team members.  HomeBase University provides our team members
with an extensive  ongoing training  curriculum.  Many are skilled  tradespeople
combining  extensive  career  experience with our  educational  programs to help
every HomeBase store put the best staff on the sales floor each day.

         In fact,  it is our policy to have team  members  spend as much time as
possible  on  the  sales  floor  to  help  our  customers.   At  HomeBase,   our
relationships  with our team  members  are  dedicated  to mutual  success.  This
goodwill creates a positive workplace with a strong team, and in turn,  enhances
the shopping experience for our customers.

Page 4
SideBars

Contractors  -  Professional  contractors  account  for nearly 30% of  HomeBase
sales. To accommodate  these important  customers we provide a separate entrance
and  full-service  contractor  desks  staffed with highly  trained team members.

Customers - From helping  customers  find exactly what they're  looking for, to
explaining  all the  available  choices  and  providing  "how  to"  installation
instructions - HomeBase team members are eager to help with any  do-it-yourself
project.

Building Relationships With Customers

         HomeBase is dedicated to satisfying our customers - our success depends
on it. Whether we are serving a do-it-yourselfer  or a contractor,  our focus is
always on customer service.  Currently, the strong economy in the western United
States presents HomeBase with an excellent opportunity for growth,  particularly
in  Southern  California,  where the new and  remodel  housing  markets are both
projected  to grow  significantly.  We are  leveraging  these  opportunities  by
building the HomeBase  brand and promoting  the benefits of our remodeled  store
format through innovative advertising and direct marketing campaigns.

         Professional  contractors and other commercial customers continue to be
a major focus of our business.  We provide these customers with ease of shopping
through  full-service  contractor desks, fax and phone ordering,  order assembly
for pick-up or job-site delivery, special entrances, and early morning hours, as
well as  competitive  pricing.  Our services  help make these  customers a major
revenue source for HomeBase, representing approximately 30% of our business.

Page 5

Side Bar

The HomeBase Paint Center

In  addition to the wall and floor  covering  areas of the Design  Center,  each
HomeBase includes a Paint Center.  This area features a wide variety of painting
products for both interior and exterior projects.  A computerized color matching
system allows customers to choose from an infinite variety of colors.  Customers
can try different  combinations in the store to find the perfect match for their
project.  Our team members provide interior design consulting,  product samples,
paint mixing, "how-to" instructions, delivery and installation services.

<PAGE>

Page 6&7

Building Relationships With Vendors

         At HomeBase,  vendors are  essential  partners in our success.  We work
closely with them to provide the best products at  competitive  prices.  Ongoing
efforts have helped create  innovative  product  merchandising in every aisle of
our remodeled stores. The Design Centers feature the latest fashionable products
- from cabinetry and counter tops to window and floor  coverings.  This attracts
customer add-on sales, benefiting HomeBase and its suppliers.

         Our  process  of  working  with  vendors  is  streamlined  to  maximize
efficiencies.  Electronic  Data  Interchange  (EDI)  permits the company and its
vendors to save money and minimize errors by electronically transmitting advance
shipment notices,  purchase orders and invoicing  information.  This enables our
team  members  to  minimize  administrative  tasks and spend  more time  helping
customers.  Vendors support  HomeBase and its team members with special training
programs,  competitive  volume  purchasing,  innovative  product  offerings  and
co-operative advertising and merchandising programs.

Page 6

Side Bar

The HomeBase Lighting Center

         Centrally  located to attract customer  interest the Lighting Center is
used as a backdrop to the Design Center. Presentation is visually appealing with
the latest products  featured,  including light fixtures,  free-standing  lamps,
ceiling fans,  and stylish  accessories.  Customers  use the Lighting  Center in
conjunction with the Design Center as a resource for their remodeling,  new home
and contractor projects.

Page 7

Building Relationships
With Stockholders

         HomeBase is effectively  competing in our markets by providing improved
customer  service,  a wide  selection of product  solutions  and a more complete
shopping  experience  through our remodeled store format. In 1998, with -Dnearly
all stores in the remodeled  format,  HomeBase will be revitalizing its brand by
promoting the new look of the stores through advertising and marketing.

         In addition, the company plans to increase the pace of new store growth
in order to strengthen our market  position in the western United States.  Store
growth in  existing  and  contiguous  markets  will  leverage  distribution  and
overhead  expenses and  position  HomeBase  for  improved  profitability.  Solid
relationships  with our team members,  vendors and customers  enable us to build
upon our successful  business model and help create long-term value for HomeBase
stockholders.

Page 7

Side Bar

At  HomeBase,  we have  improved  special  order and add-on  sales by  providing
excellent customer service and a pleasant shopping experience. Our customers can
utilize in-store computer aided design and interior design consulting  services.
Our design team members are even available for in-home consultations.

<PAGE>

Page 8

Officers and Directors

Company Officers

Herbert J. Zarkin
Chairman of the Board

Allan P. Sherman
President and Chief Executive Officer

Thomas F. Gallagher
Executive Vice President, Store Operations

William B. Langsdorf
Executive Vice President and Chief Financial Officer

Scott L. Richards
Executive Vice President, Merchandising

David R. Kenshol
Senior Vice President, Marketing/Advertising

Edward J. Weisberger
Senior Vice President, Finance

Michael K. Ace
Vice President, Merchandising

Richard C. Campagna
Vice President, Operations - Region 1

Stephen E. Capasso
Vice President, Merchandising

Richard J. Dickenson
Vice President, Operations

William R. Hagen
Vice President, Finance

William H. Huser
Vice President, Operations - Region 3

Peter A. Hutt
Vice President, Treasurer

James A. Orr
Vice President, Management Information Systems

John L. Price
Vice President, General Counsel and Secretary

<PAGE>

Henry G. Ragin
Vice President, Merchandising

Randy L. Sargent
Vice President, Operations -D Region 2

David A. Swanberg
Vice President, Finance

Constance J. Tolleson
Vice President, Human Resources

Dave L. Weigel
Vice President, Real Estate Development

Patrick T. Young
Vice President, Merchandising

Board of Directors

Herbert J. Zarkin
Chairman of the Board, HomeBase, Inc.

John D. Barr
President and Chief Operating Officer, Quaker State Corporation

Arthur F. Loewy
Former Chief Financial Officer and Executive Vice President of Zayre Corp.

Allan P. Sherman
President and Chief Executive Officer, HomeBase, Inc.

Lorne R. Waxlax
Former Chairman of the Board of Waban Inc. and Former
Executive Vice President of The Gillette Company

Edward J. Weisberger
Senior Vice President, Finance, HomeBase, Inc.

Inside Back Cover
Annual Meeting

         The Annual Meeting of  Stockholders  will be held on Thursday,  May 21,
1998 at 10 a.m.  in the  offices of Gibson  Dunn & Crutcher  LLP, 4 Park  Plaza,
Irvine,  California.  The Board of Directors extends a cordial invitation to all
stockholders to attend.

Registrar and Stock Transfer Agent
First Chicago Trust Company of New York
PO Box 2500
Jersey City, New Jersey 07303-2532
Phone: (201) 324-1644

<PAGE>

Auditors
Coopers & Lybrand L.L.P.
Los Angeles, California

Outside Counsel
Gibson Dunn & Crutcher LLP
Los Angeles, California

Form 10-K
This annual report is designed to be read in conjunction  with the enclosed copy
of the  company's  Annual  Report on Form  10-K,  which has been  filed with the
Securities and Exchange Commission.  If the company's Form 10-K is not enclosed,
a copy is available at no charge  through the investor  relations  department at
HomeBase's corporate headquarters.

Common Stock Listing
The common  stock is traded on the New York Stock  Exchange  under the symbol of
"HBI".

Investor Inquiries
For additional information on the company please contact:

Suki Shattuck
Director of Investor Relations
3345 Michelson Drive
Irvine, California 92612
Phone:   (949) 442-5448
Fax:     (949) 442-5779
Email:   sshattuc@homebase.com