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

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

                                   FORM 10-K

                                 ANNUAL REPORT
                      PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
                               -------------
                        Commission File Number 1-10259

                                HOMEBASE, INC.

                            (Formerly Waban Inc.)
            (Exact name of Registrant as specified in its charter)

                    DELAWARE                                  33-0109661
(State or other jurisdiction of incorporation or           (I.R.S. Employer
                 organization)                             Identification No.)

                3345 Michelson Drive
                     Irvine, CA                                     92612
      (Address of principal executive offices)                    (Zip Code)

                               (714) 442-5000
             (Registrant's telephone number, including area code)
                          ------------------------

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

                                                       Name of each exchange
Title of each class                                     on which registered
                                                   -----------------------------
Common Stock, par value $.01                           New York Stock Exchange
Preferred Share Purchase Rights                        New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: 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 (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark 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 the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 16, 1998 was $321,143,746.

There were 37,788,135  shares of the Registrant's  Common Stock, $.01 par value,
outstanding as of March 16, 1998.

                     Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders
(Part III).
                          ------------------------

Exhibits to Form 10-K have been  included  only in copies of the Form 10-K filed
with the Securities and Exchange Commission.
--------------------------------------------------------------------------------
<PAGE>

                                     PART 1

Item 1.  Business

General

HomeBase,  Inc. (the  "Company"),  formerly Waban Inc., was formed in 1989,  
when Zayre Corp.  (now The TJX  Companies,  Inc.  ("TJX")) combined its BJ's 
Wholesale Club division  ("BJ's") and HomeBase  division to form Waban Inc.,  
and distributed  all of the Company's outstanding common stock to TJX 
shareholders on a pro-rata basis.

On July 26, 1997, the Company  transferred all of the net assets of BJ's to BJ's
Wholesale Club, Inc. ("BJI").  On July 28, 1997, the Company  distributed to its
stockholders,  on a pro-rata basis,  all of the outstanding  common stock of BJI
(the "Distribution").  In connection with the Distribution,  the Company changed
its  name  from  Waban  Inc.  to  HomeBase,  Inc.  The  Company  and BJI are now
independent public companies separately traded on the New York Stock Exchange.

The Company is the second largest operator of home improvement  warehouse stores
in the western United States with 83 stores in 10 states.  The Company's  stores
average  approximately  102,000  square feet of indoor space,  typically with an
additional  outdoor garden center area. The Company offers a broad assortment of
brand name home  improvement and building supply products at competitive  prices
to  both  Do-It-Yourself   ("DIY")  and  professional   customers.   In  certain
categories,  the Company  supplements its brand name offerings with high quality
private label products.

The  Company's  objective  is  to be  the  first  choice  destination  for  home
improvement  shoppers by combining product selection at competitive  prices with
superior  customer service.  In order to achieve this objective,  the Company is
completing  the  roll-out  of its  prototype  store  format,  which  features  a
reconfigured  layout that is designed to be more  attractive to DIY shoppers and
is designed to segregate  merchandise  of primary  interest to  contractors  and
other  professional  customers for easier access. In addition,  the reconfigured
layout facilitates  shopping for all products needed to complete a project,  and
highlights high-end product lines. Management believes this prototype has proven
successful in attracting  more DIY customers  while better  meeting the needs of
professional customers.

The Company operates within a conventional 52 or 53 week accounting  fiscal year
that ends on the last  Saturday in January.  The 53 weeks ended January 31, 1998
is referred to herein as "fiscal 1997".  The 52 weeks ended January 25, 1997 and
January 27,  1996 are  referred  to herein as "fiscal  1996" and "fiscal  1995",
respectively.

Significant Business Developments

In October 1997, the Board of Directors  approved an accelerated growth strategy
that included the remodeling of the remaining 17 stores in the Company's remodel
program  over the  following  six  months and  increasing  the rate of new store
openings. The Company expects that the remodeling of 16 stores will be completed
in the first  quarter of fiscal  1998,  with the  remodeling  of the final store
being completed in the third quarter of fiscal 1998. The Company expects to open
two new  stores in fiscal  1998 and to open  between  eight and 10 new stores in
each of the following two fiscal years.

In connection with the accelerated growth strategy,  the Board of Directors also
approved the closure of three under-performing  stores, and the Company recorded
a pre-tax  charge of $27.0  million for store  closures and other charges in the
third quarter of fiscal 1997.

<PAGE>

On November  17,  1997,  the Company  completed  the private  placement  of $100
million,  5.25%  convertible  subordinated  notes due November 1, 2004 through a
Rule 144A/Regulation S offering,  and received approximately $96 million, net of
debt issue  costs.  The  Company  expects  to use the  proceeds  to finance  its
accelerated  growth  strategy and for general  corporate  purposes.  The Company
subsequently  filed a  registration  statement  on Form S-3,  which was declared
effective on February 10, 1998,  registering the notes and the common stock into
which the notes are convertible.

Industry Overview

The Company believes that demographic and lifestyle factors such as the maturing
of baby boomers, the increase in home-centered  activities and the aging housing
stock will create  growing  demand for home  improvement  products and services.
Based on industry sources,  the overall market for home improvement  products in
the United States is estimated to exceed $148 billion in calendar 1998.

Since the mid 1980's,  warehouse-format  home improvement  retailers have gained
significant market share in the United States by offering lower prices,  greater
product  selection and more in-stock  merchandise  than traditional home center,
hardware and lumber yard operators. In addition,  warehouse store operators have
been  able to take  advantage  of  economies  of scale  created  by large  sales
volumes.  Although the home  improvement  industry  remains  fragmented,  it has
experienced increasing  consolidation during recent years, with the sales of the
five largest operators  representing  approximately 31% of the estimated overall
market in calendar  1997 as compared to 12% of the estimated  overall  market in
calendar  1989.  The Company  believes that this trend will  continue,  and that
opportunities exist for service-oriented  home improvement  retailers to benefit
from this continuing consolidation.

Store Base

The Company is one of the two largest home improvement  operators in most of the
markets  which it serves.  The  Company's  new store  opening  plan is  oriented
towards   reinforcing  its  position  in  its  existing  markets  and  expanding
selectively into contiguous  markets. On October 28, 1997, the Company announced
plans to  increase  the pace of  scheduled  store  openings  over the next three
years. The Company expects that,  after the scheduled  opening of two new stores
in fiscal 1998, the pace of expansion will increase to opening between eight and
10 stores in each of fiscal 1999 and fiscal 2000.

The following  table shows the number of Company stores opened and closed during
the last five fiscal years:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                           Stores in         Stores           Stores          Stores
                                          Operation at       Opened           Closed       in Operation
                                          Beginning of     During the       During the       at End of
Fiscal Year                                  Period          Period           Period          Period
-----------------------------------------------------------------------------------------------------------
    <C>                                        <C>              <C>             <C>             <C>
    1993                                       86               5               9               82
    1994                                       82               3               8               77
    1995                                       77               4               2               79
    1996                                       79               5               -               84
    1997                                       84               2               3               83
-----------------------------------------------------------------------------------------------------------
</TABLE>

Between 1993 and January 31, 1998,  the Company has remodeled or relocated 44 of
its stores and opened 16 new stores  incorporating  the prototype  store design.
The Company expects to complete 16 of the 17 remaining  stores in its remodeling
program in the first quarter of fiscal 1998, rather than over the next two 

<PAGE>

years, as previously planned.  Thus, nearly all of the Company's  stores will be
operating in the prototype format in the spring of 1998, in time for the 
Company's peak selling  season.  The Company  expects that the final store in 
its remodel program will be completed in the third quarter of fiscal 1998.

Customer Service

The Company is  committed  to  providing  superior  service to its two  targeted
customer groups. At each store, carefully selected home improvement specialists,
many of whom have extensive experience in their respective fields, are available
throughout  the store to assist DIY and  professional  customers.  The Company's
project and kitchen design centers feature  computer  assisted design tools that
allow  customers  to work with design  coordinators  to  conceptualize  and plan
virtually any home improvement project.  Nearly all of the Company's stores also
offer the services of professional  interior  decorators who provide free design
consultations in customers' homes.

The  Company  believes  that it is  important  to  expand  its DIY  business  by
encouraging new DIY customers and upgrading the skills and confidence  levels of
existing  DIY  customers.  Accordingly,  the  Company  provides  assistance  and
training to DIY customers,  including  regularly scheduled customer clinics on a
wide range of home improvement projects.  Delivery and installation services are
also available to DIY customers.

The Company's stores also offer services that specifically  address the needs of
professional  customers.  Nearly all of the  Company's  stores  have  Contractor
Desks, with staff dedicated to handling  contractors'  special needs,  including
the ability to receive faxed orders and  pre-assemble  them for pick-up,  and to
quickly obtain  special items and sizes.  Bulk purchases can be delivered to job
sites for a nominal fee. The  Company's  stores offer  extended  hours,  opening
early in the morning to serve professional customers.

The Company  strives to develop the skills of its store personnel to ensure that
customers  consistently  receive  knowledgeable  and courteous  assistance.  The
Company  provides   extensive   training  for  its  store  personnel  through  a
comprehensive  in-house training program that combines  on-the-job training with
formal seminars and meetings to emphasize the importance of customer service and
help to improve store  employees'  selling skills.  In-house  training  includes
periodic sessions conducted by the Company's training staff or by manufacturers'
representatives,  as well as frequent  meetings with store  managers who provide
sales, product and other information.  The Company's satellite television system
permits  it to  simultaneously  broadcast  training  sessions from its  Irvine,
California headquarters to every individual store location.

The Company  offers its own private  label  credit card to DIY and  professional
customers   under  a  non-recourse   program   operated  by  a  major  financial
institution.  The Company also accepts  MasterCard,  Visa, Discover and American
Express.

Merchandising

The Company's  stores offer a broad selection of brand name  merchandise to both
DIY customers and professional  contractors,  offering between 32,000 and 42,000
SKUs regularly in stock, depending upon the season, plus thousands of additional
SKUs available  through special order.  The Company  believes that the operating
efficiencies  of the warehouse  store format  provide  substantial  savings over
other channels of home improvement and building supply product distribution.  In
order to achieve greater operational  efficiencies,  reduce freight and handling
costs,  and improve the manner in which it purchases  products,  the Company has
centralized its merchandise  replenishment operations and improved its logistics
of  distribution.  This program also permits the Company to redeploy  more store
personnel to customer service activities.

<PAGE>

Merchandise sold by the Company's stores includes  lumber,  building  materials,
plumbing  supplies and fixtures,  electrical  materials  and  fixtures,  kitchen
cabinets, hand and power tools, hardware, paint, garden supplies, nursery items,
home  decorative  items and related  seasonal  and  household  merchandise.  The
Company's  brand name  orientation  allows  customers  to compare the  Company's
prices to the same items offered by  competitors.  In selected  categories,  the
Company  supplements  these brand name offerings with high quality private label
products, such as its Infinity(R) line of paint.

Most of the Company's  merchandise is purchased from manufacturers for shipment
either directly to the individual  store or to  cross-docking  facilities  where
large shipments are broken down and separated for transfer to individual stores,
generally on a same-day  basis.  More than 55% of the Company's  merchandise  is
distributed to individual  stores  through its  consolidation  and  distribution
center in Rancho Cucamonga, California.

Seasonality

Sales and earnings for the Company  have  typically  been lower in the first and
fourth  quarters of the fiscal year and higher in the second and third quarters,
which include the most active seasons for home improvement sales.

Marketing and Advertising

The Company  addresses its primary target customers  through a mix of newspaper,
direct mail, radio and television advertising. The primary advertising medium is
newspaper  advertisements,  including both freestanding inserts and run-of-press
ads.  Television and radio  advertising is used to reinforce the Company's image
of providing  superior customer service and a broad assortment of merchandise at
competitive prices. Additionally, the Company participates in or hosts a variety
of home shows,  customer  hospitality  events and contractor  product shows. The
Company solicits vendor participation in many of its advertising programs.

Management Information Systems

The Company uses a fully  integrated  management  information  system to monitor
sales,  track  inventory and provide rapid  feedback on the  performance  of its
business.  Each store operates point-of-sale terminals which capture information
on each item sold via UPC  scanning.  Minicomputers  at each store  process  and
consolidate this  information  during the selling day and transmit it each night
to the Company's  information center via satellite,  where it is processed daily
to support merchandising, inventory replenishment and promotional decisions.

The Company introduced scanning to the home improvement industry and is a leader
in  implementing  electronic  data  interchange  ("EDI").  EDI permits  both the
Company  and its  vendors  to save  money and  reduce  errors by  electronically
transmitting   advance   shipment  notices  and  purchase  order  and  invoicing
information. The Company now uses EDI with more than 1,200 vendors and continues
to expand its use of this technology.

Since many of the Company's older computer software programs  recognize only the
last two digits of the year in any date  (e.g.  "98" for  1998),  some  software
programs  may  fail to  operate  properly  in the  year  2000  if  they  are not
reprogrammed or replaced (the "Year 2000 Problem").  This could result in errors
and  miscalculations  or even system  failure  causing  disruptions  in everyday
business  activities  and  transactions.  Early  in  fiscal  1996,  the  Company
commenced  a program  designed  to timely  mitigate  and/or  prevent the adverse
effects of the Year 2000  Problem and to pursue  compliance  with  vendors.  The
Company believes that more than 60% of its programs are now Year 2000 compliant,
and that it will be more than 80% Year 2000  compliant by the second  quarter of
fiscal 1998, including all financial and accounting systems. The Company

<PAGE>

expects that all  remaining  systems  will be Year 2000  compliant by the end of
fiscal 1998. This program is primarily being completed with internal  resources.
As a result,  the Company does not believe that achieving  Year 2000  compliance
will have a material impact on the Company's  financial  position,  liquidity or
results of operations.

Competition

The Company  competes with other home  improvement  warehouse  stores and a wide
range of businesses  engaged in the wholesale or retail sale of home improvement
and building supply merchandise, including home centers, hardware stores, lumber
yards and  discount  stores.  The Company  believes  that the major  competitive
factors in the  markets  in which it  competes  are  customer  service,  product
selection,  location, price and name recognition.  The Company believes that its
level of customer service,  the value offered by its competitive  prices and the
one-stop shopping available through its full range of home improvement  products
give it an advantage over many of its traditional home center  competitors.  The
major  competitor  in the  Company's  market areas that also uses the  warehouse
store format is The Home Depot, Inc., which has significantly  greater financial
and marketing  resources  than the Company.  Approximately  90% of the Company's
stores  compete with Home Depot stores.  The Company also competes with Builders
Square (a  division  of  Hechinger  Company)  and a number of  smaller  regional
operators such as Eagle Hardware & Garden, Inc. and Orchard Supply & Hardware (a
division of Sears, Roebuck, and Co.).  Approximately 95% of the Company's stores
have at least one home  improvement  warehouse  retailer in their  trading areas
within an average distance of approximately three miles.

Employees

As of January 31, 1998, the Company had  approximately  9,100  employees  ("team
members"),  of whom approximately 2,800 were considered  part-time (working less
than 33 hours  per  week).  Approximately  500 team  members  were  employed  in
corporate  management  and office support  functions;  the balance worked in the
Company's stores.  None of the Company's team members is represented by a union.
The Company  considers its relations with its team members to be excellent.  The
number of team members employed fluctuates  depending on the selling season, and
is typically higher during the second and third quarters, which include the most
active seasons for home improvement sales.

Item 2. Properties

The Company  operated 83 stores as of January 31,  1998,  of which 65 are leased
under long-term leases and 18 are owned. The unexpired terms of the leases range
from approximately  four to 20 years,  and average  approximately 13 years. The
Company  has  options  to renew all of its leases  for  periods  that range from
approximately five to 25 years and average  approximately 18 years. These leases
require fixed monthly rental payments which are subject to various  adjustments.
In addition, certain leases require payment of a percentage of the store's gross
sales in excess of certain  amounts.  The Company also remains  obligated  under
leases for five  additional  stores that have been closed.  Most leases  require
that  the  Company  pay all  property  taxes,  insurance,  utilities  and  other
operating costs of the store.

<PAGE>

The following table sets forth the number and location of the Company's stores:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                                      Number of
     State                                                              Stores
--------------------------------------------------------------------------------
     <S>                                                                  <C>
     California                                                           47
     Washington                                                            8
     Colorado                                                              7
     Arizona                                                               5
     Oregon                                                                4
     Nevada                                                                3
     New Mexico                                                            3
     Utah                                                                  3
     Texas                                                                 2
     Idaho                                                                 1
--------------------------------------------------------------------------------
     Total                                                                83
================================================================================
</TABLE>

The average size of the Company's 83 stores in operation at January 31, 1998 was
approximately  102,000 square feet. Most of the Company's stores utilize outside
selling space for nursery and garden centers.  The Company's  stores are located
in both  free-standing  locations and shopping  centers.  In some  locations,  a
HomeBase store shares a center with a membership warehouse club or another large
retailer.

Including space for parking,  a typical new HomeBase store requires eight to ten
acres of land.  Construction and site development costs for a new HomeBase store
average  approximately $5.0 million, land acquisition costs generally range from
$2.0 million to $6.0 million,  and the initial  capital  investment for fixtures
and  equipment  averages  approximately  $1.7  million.  In  addition to capital
expenditures,  each new store  requires  an  investment  of  approximately  $2.8
million for inventory (net of accounts payable) and pre-opening expenses.

The Company's  home office in Irvine,  California  occupies  164,000 square feet
under a lease  expiring July 24, 2004,  with options to extend the lease through
July 24, 2019. The Company's  consolidation  and  distribution  center in Rancho
Cucamonga,  California occupies 410,000 square feet under a lease expiring March
31, 1999, with options to extend the lease through March 31, 2009.

Item 3. Legal Proceedings

The Company is involved in various legal  proceedings  incident to the nature of
its  business.  Although  it is not  possible  to predict  the  outcome of these
proceedings,  or any claims  against the Company  related  thereto,  the Company
believes that such proceedings will not, individually or in the aggregate,  have
a material adverse effect on its financial condition or results of operations.

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

No matter was submitted to a vote of the Company's  security  holders during the
fourth quarter of fiscal 1997.

<PAGE>

Item 4A. Executive Officers of the Registrant

The following  persons are the executive  officers of the Company as of the date
hereof:

<TABLE>
<CAPTION>
---------------------------- ------ ------------------------------------------------------------------------
                                                             Office and Employment
Name                          Age                           During Last Five Years
---------------------------- ------ ------------------------------------------------------------------------
<S>                            <S>  <S>                  
Herbert J. Zarkin              59   Chairman  of the Board of the Company since July 1997 and Director of
                                    the Company since May 1993;  President, Chief Executive Officer of the
                                    Company  (May 1993 - July 1997); President  of BJ's (1990 - May 1993);
                                    Executive Vice President of the Company (1989 - 1993).

Allan P. Sherman               53   President,  Chief  Executive  Officer and Director of the Company since
                                    July 1997;  Executive  Vice  President  of the Company (May 1993 - July
                                    1997);  President  of  the  HomeBase  division  (September  1993 - July
                                    1997);  President  of BJ's (May 1993 -  September  1993);  Senior  Vice
                                    President  and  General  Merchandise  Manager--Non-Food  of BJ's (1991 -
                                    1993).


Thomas F. Gallagher            46   Executive Vice President,  Store Operations since July 1997;  Executive
                                    Vice  President,  Store  Operations  of the HomeBase  division  (1996 -
                                    1997);  Vice  President,  Sales  Operations  of  BJ's  (1993  -  1996);
                                    Assistant Vice President, Regional Manager of BJ's (1991 - 1993).


William B. Langsdorf           41   Executive Vice President and Chief Financial Officer since July 1997;
                                    Senior  Vice   President,   Finance  of  the HomeBase division 
                                    (1993 - 1997); Assistant Vice President, Finance of the HomeBase              
                                    division (1991 - 1993).


Scott L. Richards              40   Executive  Vice  President,  Merchandising  since July 1997;  Executive
                                    Vice President,  Merchandising of the HomeBase  division (1996 - 1997);
                                    Vice President,  Merchandising of the HomeBase  division (1993 - 1996);
                                    Buyer for the HomeBase division (1991 - 1993).


John L. Price                  47   Vice  President,   General  Counsel  and  Secretary  since  July  1997;
                                    Assistant  General  Counsel of 20th Century  Industries  (1995 - 1997);
                                    private legal practice (1991 - 1995).
---------------------------- ------ ------------------------------------------------------------------------
</TABLE>

All officers  hold office until the next annual meeting of the Board of 
Directors in May 1998 and until their successors are elected and qualified.

<PAGE>

                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

 The common stock of HomeBase,  Inc. (the  "Company"),  formerly  Waban Inc., is
listed on the New York  Stock  Exchange  (symbol  HBI).  The  following  are the
quarterly high and low stock prices for the fiscal years ending January 31, 1998
and January 25, 1997:

<TABLE>
<CAPTION>
--------------------------------------- --------------------------------- ----------------------------------
                                               Fiscal Year Ended                  Fiscal Year Ended
               Quarters                         January 31, 1998                  January 25, 1997
--------------------------------------- --------------------------------- ----------------------------------

                                              High              Low             High              Low

<S>                                          <C>              <C>               <C>              <C>
First                                        29 1/2           26 5/8            27 1/8           18 3/4
Second                                       35 5/16          26 3/8            28               17 7/8
Third (1)                                    35 15/16          7 11/16          27 5/8           18 3/8
Fourth (1)                                   10 1/16           6 3/4            28 3/8           25
--------------------------------------- ---------------- ---------------- ---------------- -----------------
</TABLE>

(1)  On July 26, 1997, the Company transferred all of the net assets of its BJ's
     Wholesale Club division ("BJ's") to BJ's Wholesale Club, Inc.  ("BJI").  On
     July 28, 1997, the Company  distributed to its stockholders,  on a pro-rata
     basis, all of the outstanding common stock of BJI (the "Distribution").  In
     connection with the  Distribution,  the Company changed its name from Waban
     Inc. to  HomeBase,  Inc.  The Company  and BJI are now  independent  public
     companies separately traded on the New York Stock Exchange. Stock prices on
     or before July 28, 1997 have not been restated to reflect the Distribution.

The number of stockholders of record at March 16, 1998 was 3,411.

The Company has never paid or declared a cash  dividend and the Company does not
intend to pay or declare any cash  dividends  on the Common Stock in the future.
The Senior Bank Facility does not permit the Company to pay cash dividends.  The
declaration of and payment of dividends by the Company will be at the discretion
of the Board of Directors.

<PAGE>

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following selected consolidated  financial and operating data of the Company
for each of the four  fiscal  years in the period  ended  January  31,  1998 are
extracted or derived from the audited Consolidated Financial Statements, and the
notes  thereto,  of the  Company,  which have been  audited by Coopers & Lybrand
L.L.P.,  independent  accountants.   The  selected  consolidated  financial  and
operating  data of the  Company  for the fiscal  year ended  January 29, 1994 is
extracted or derived from the unaudited Consolidated Financial Statements of the
Company,  which in the opinion of management,  reflect all material adjustments,
consisting  of  only  normal   recurring   adjustments   necessary  for  a  fair
presentation  of such data.  The selected  consolidated  financial and operating
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations--The  Company" and
the Consolidated Financial Statements and the notes thereto.

<TABLE>
<CAPTION>
                                                                                     Fiscal Year Ended
---------------------------------------------------------------------------------------------------------------------------------
                                                            January 31,  January 25,   January 27,   January 28,   January 29,
(Dollars in thousands, except per share data)                  1998          1997          1996          1995          1994
---------------------------------------------------------------------------------------------------------------------------------
                                                           (53 Weeks)
Income Statement Data:
  <S>                                                      <C>          <C>           <C>           <C>            <C>       
  Net sales                                                 $1,477,442   $1,452,696    $1,448,776    $1,357,190    $1,585,956

  Cost of sales, including buying and occupancy costs        1,159,253    1,136,997     1,124,460     1,056,620     1,279,084
---------------------------------------------------------------------------------------------------------------------------------
  Gross profit                                                 318,189      315,699       324,316       300,570       306,872

  Selling, general and administrative expenses                 287,181      277,841       275,655       248,112       272,256

  Store closures, restructuring, and other charges              27,000            -             -             -       101,133
---------------------------------------------------------------------------------------------------------------------------------
  Operating income (loss)                                        4,008       37,858        48,661        52,458       (66,517)

  Interest on debt and capital leases (net)                      5,136       10,506         8,790         9,125         7,661
---------------------------------------------------------------------------------------------------------------------------------
  Income (loss) from continuing operations before income
     taxes and extraordinary loss and accounting change         (1,128)      27,352        39,871        43,333       (74,178)
   

  Provision (benefit) for income taxes                            (445)      11,005        15,386        16,395       (30,733)
---------------------------------------------------------------------------------------------------------------------------------
  Income (loss) from continuing operations before
     extraordinary loss and accounting change                     (683)      16,347        24,485        26,938       (43,445)
   
  Income from discontinued operations, net of income taxes      20,575       60,313        48,492        38,052        26,865

  Extraordinary loss on early extinquishment of debt, net
     of income taxes                                            (8,663)           -             -             -             -

  Cumulative effect of change in accounting principle, net   
     of income taxes                                                 -            -             -             -        (1,202)
---------------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                         $   11,229   $   76,660    $   72,977    $   64,990    $  (17,782)
=================================================================================================================================

Basic net income (loss) per share (1):
  Income (loss) from continuing operations before
extraordinary                                               $    (0.02)  $     0.50    $     0.74    $     0.81    $    (1.31)
   loss and accounting change
  Income from discontinued operations                             0.57         1.83          1.47          1.15          0.81
  Extraordinary loss                                             (0.24)           -             -             -             -
  Cumulative effect of change in accounting principle                -            -             -             -         (0.04)
---------------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                         $     0.31   $     2.33    $     2.21    $     1.96    $    (0.54)
=================================================================================================================================

Diluted net income (loss) per share (1):
  Income (loss) from continuing operations before
extraordinary                                               $    (0.02)  $     0.49    $     0.74    $     0.81    $    (1.31)
   loss and accounting change
  Income from discontinued operations                             0.57         1.82          1.46          1.14          0.81
  Extraordinary loss                                             (0.24)           -             -             -             -
  Cumulative effect of change in accounting principle                -            -             -             -         (0.04)
---------------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                         $     0.31   $     2.31    $     2.20    $     1.95    $    (0.54)
=================================================================================================================================

Shares used in computation of net income (loss) per share:
  (In thousands)
    Basic                                                       35,770       32,839        33,014        33,143        33,082
    Diluted                                                     35,770       33,205        33,220        33,405        33,082

Balance Sheet Data:
Working capital                                             $  240,828   $  275,842    $  265,450    $  308,749    $  213,315
Net assets of discontinued operations (2)                            -      423,688       403,713       322,945       301,958
Total assets                                                   715,608    1,077,059     1,066,188     1,011,705       873,478
Long-term debt and obligations under capital leases            115,963      242,548       255,803       269,223       185,566
Stockholders' equity                                           359,667      631,925       555,120       488,089       420,492

Stores open at end of period                                        83           84            79            77            82
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The Company adopted Financial Accounting Standards Board Statement No. 128,
     "Earnings per Share" ("SFAS 128") in fiscal 1997. All net income (loss) per
     share  amounts for all periods  presented  have been restated to conform to
     SFAS 128 requirements
(2)  On July 26,  1997,  the  Company  transferred  all of the net  assets  of 
     BJ's to BJI and on July 28, 1997, the Company completed the Distribution.

<PAGE>

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

Results of Operations

Organization and Presentation

On July 26, 1997, HomeBase, Inc. (the "Company"),  formerly known as Waban Inc.,
transferred  all of the net assets of its BJ's Wholesale Club division  ("BJ's")
to BJ's Wholesale Club, Inc. ("BJI").  On July 28, 1997, the Company distributed
to its stockholders, on a pro-rata basis, all of the outstanding common stock of
BJI (the  "Distribution").  The financial  statements for the periods  presented
have been  restated to present  BJ's as a  discontinued  operation.  Income from
discontinued  operations  for the fiscal year ended  January  31, 1998  includes
transaction  costs of $5.0 million (net of tax) incurred in connection  with the
Distribution. The discussion which follows pertains to the continuing operations
of the Company, unless otherwise noted.

The Company operates within a conventional 52 or 53 week accounting  fiscal year
which ends on the last Saturday in January.  The 53 weeks ended January 31, 1998
is referred to herein as "fiscal 1997".  The 52 weeks ended January 25, 1997 and
January 27,  1996 are  referred  to herein as "fiscal  1996" and "fiscal  1995",
respectively.

The following table presents the results of operations for the periods indicated
as a percentage of net sales.

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
                                                           1998              1997              1996
-----------------------------------------------------------------------------------------------------------

<S>                                                       <C>               <C>                <C>   
Net sales                                                 100.0%            100.0%             100.0%

Cost of sales, including buying and occupancy
   costs                                                   78.5              78.3               77.6
-----------------------------------------------------------------------------------------------------------
Gross profit                                               21.5              21.7               22.4

Selling, general and administrative expenses               19.4              19.1               19.0

Store closures and other charges                            1.8                 -                  -
-----------------------------------------------------------------------------------------------------------
Operating income                                            0.3               2.6                3.4

Interest on debt and capital leases (net)                   0.3               0.7                0.6
-----------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
   income taxes and extraordinary loss                        -               1.9                2.8

Provision (benefit) for income taxes                          -               0.8                1.1
-----------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before 
   extraordinary loss                                         -               1.1                1.7

Income from discontinued operations, net of
   income taxes                                             1.4               4.2                3.3
-----------------------------------------------------------------------------------------------------------
Income before extraordinary loss                            1.4               5.3                5.0

Extraordinary loss on early extinguishment of
   debt, net of income taxes                               (0.6)                -                  -
-----------------------------------------------------------------------------------------------------------
Net income                                                  0.8%              5.3%               5.0%
===========================================================================================================
</TABLE>

<PAGE>

Fiscal Year Ended January 31, 1998 Compared to Fiscal Years Ended January 25, 
1997 and January 27, 1996

Net Sales

Fiscal 1997  consisted  of 53 weeks  compared to 52 weeks in each of fiscal 1996
and fiscal 1995. Net sales for fiscal 1997  increased  1.7% to $1,477.4  million
from $1,452.7  million in fiscal 1996, and increased 2.0% from $1,448.8  million
in fiscal  1995.  The  increase in net sales over these  periods  was  primarily
attributable  to new store openings plus the additional  week of sales in fiscal
1997,  partially  offset by  declines  in  comparable  store  sales and by store
closures.  During  fiscal 1997,  1996 and 1995,  two,  five and four stores were
opened, respectively, and three, zero and two stores were closed, respectively.

Comparable  store  sales  declined  1.7%  and  5.2% in  fiscal  1997  and  1996,
respectively.  The declines were primarily attributable to increased competition
in many of the markets in which the Company operates. The comparable store sales
decline in fiscal 1997 was also attributable to extensive remodel  construction,
especially in the fourth quarter.  The comparable  store sales decline in fiscal
1996 was also attributable to the relative  weakness in the Southern  California
housing market.

Cost of Sales

Cost of sales, which includes buying and occupancy costs, was 78.5% of net sales
in fiscal 1997,  compared to 78.3% in fiscal 1996 and 77.6% in fiscal 1995.  The
increase as a percent of net sales is primarily due to a combination of slightly
lower average selling  margins,  which were impacted by competitive  conditions,
and somewhat higher buying and occupancy costs as a percentage of sales,  due to
comparable store sales declines.

Selling, General and Administrative Expenses

Selling,  general and administrative expenses ("SG&A") was 19.4% of net sales in
fiscal  1997,  compared to 19.1.% in fiscal 1996 and 19.0% in fiscal  1995.  The
increase as a percent of net sales is primarily  attributable  to higher remodel
related  costs  in  fiscal  1997,  primarily  incurred  in the  fourth  quarter,
partially  offset by lower  preopening costs due to fewer stores being opened in
fiscal 1997.

In October 1997, the Board of Directors  approved an accelerated growth strategy
that included the remodeling of the remaining 17 stores in the Company's remodel
program  over the  following  six  months and  increasing  the rate of new store
openings.  The Company  expects that the  remodeling  of 16 of the  remaining 17
stores  will be  completed  in the  first  quarter  of  fiscal  1998,  with  the
remodeling  of the final store being  completed  in the third  quarter of fiscal
1998. As a result of the acceleration of remodels,  the Company incurred remodel
related costs of  approximately $4 million in the fourth quarter of fiscal 1997,
and expects to incur a similar amount in the first quarter of fiscal 1998.

Store Closures and Other Charges

In connection with the accelerated growth strategy,  the Board of Directors also
approved the closure of three  under-performing  stores. In the third quarter of
fiscal 1997,  the Company  recorded  store  closures and other  charges of $27.0
million,  consisting  of $22.3  million  for store  closures  and other  related
settlement  costs,  a $3.0  million  increase in the fiscal  1993  restructuring
reserve and $1.7 million in asset impairment charges.

<PAGE>

Costs  included  in the  reserve  for store  closures  primarily  include  lease
obligations on closed facilities,  write-downs of fixed assets and other related
settlement  costs. The Company closed two stores in the fourth quarter of fiscal
1997 and expects to close a third store by the end of fiscal  1999.  The Company
increased the fiscal 1993  restructuring  reserve by $3.0 million for additional
lease  obligations due to delays in obtaining  subleases at terms  acceptable to
the Company.

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), long-lived assets held and used by the Company are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  For purposes of
evaluating the recoverability of long-lived  assets, the recoverability  test is
performed  using  undiscounted  net cash  flows of the  individual  stores.  The
Company's  quarterly SFAS 121 analysis  performed in the third quarter of fiscal
1997  indicated  that  the  long-lived  assets  at  two  stores  were  impaired.
Accordingly, the Company estimated the fair value of these assets based on their
estimated salvage value and recorded an impairment charge of $1.7 million, which
is included in store closures and other charges.

Interest on Debt and Capital Leases, Net

Interest  on debt and  capital  leases,  net,  was $5.1  million in fiscal  1997
compared  to $10.5  million  in fiscal  1996 and $8.8  million  in fiscal  1995.
Interest on debt and capital  leases is presented net of interest and investment
income of $2.6 million,  $1.8 million and $5.9 million in fiscal 1997,  1996 and
1995,  respectively.  Net interest expense excludes  capitalized interest of $0,
$0.9  million  and $1.6  million in fiscal  1997,  1996 and 1995,  respectively.
Interest expense was allocated to discontinued  operations based on the ratio of
BJ's net assets to the sum of consolidated net assets plus consolidated debt.

The decline in net interest expense in fiscal 1997 from fiscal 1996 is primarily
attributed  to lower average  outstanding  debt balances in fiscal 1997. In July
1997, $106.7 million of the Company's 6.5% convertible  subordinated  debentures
was converted  into common stock and the remaining $0.2 million was redeemed for
cash.  Also in July 1997,  the Company  repaid all of its 9.58% senior notes due
May 31, 1998,  totaling  $12.0 million,  and pursuant to a tender offer,  repaid
$93.4 million of its 11% senior  subordinated notes due May 15, 2004,  replacing
this debt with short-term bank  borrowings.  BJI assumed $72 million of the bank
borrowings at the time of the Distribution.

The  increase  in net  interest  expense  in  fiscal  1996 from  fiscal  1995 is
primarily attributed to lower investment income due to decreased  investments in
marketable securities. Partially offsetting the increase in net interest expense
was a lower  amount of interest  capitalized  in fiscal 1996  compared to fiscal
1995, and lower average outstanding debt balances in fiscal 1996.

Income Tax Provision (Benefit)

The income tax rate for income from  continuing  operations  was 39.5% in fiscal
1997  compared  to 40.2% in  fiscal  1996 and 38.6% in  fiscal  1995.  The lower
effective  rate in fiscal  1997 is  primarily  attributed  to a decrease  in the
effective  tax rate in the  state of  California,  where  most of the  Company's
stores are  located.  The  increase  in the  effective  rate in fiscal 1996 from
fiscal 1995 is primarily  attributed to a lower level of tax-exempt  investments
in fiscal 1996 than in fiscal 1995.

Income (Loss) From Continuing Operations Before Extraordinary Loss

Income (loss) from continuing  operations before  extraordinary  loss for fiscal
1997 was $(0.7)  million,  or  $(0.02)  per share,  diluted,  compared  to $16.3
million,  or $0.49 per share,  diluted,  and $24.5 million,  or $0.74 per share,
diluted, in fiscal 1996 and 1995, respectively. Excluding store closures and 

<PAGE>

other charges,  income from  continuing  operations for fiscal 1997 was $15.6 
million, or $0.44 per share, diluted.

Excluding  store  closures  and other  charges,  income  (loss) from  continuing
operations  for fiscal 1997 as a percentage  of net sales was 1.1%,  compared to
1.1% in fiscal 1996 and 1.7% in fiscal 1995.  The fiscal 1997  percentage,  when
compared to fiscal  1996,  reflects a slightly  lower gross  profit  percentage,
slightly higher SG&A and lower interest expense, as described above. The decline
in fiscal 1996 from fiscal 1995 is primarily  attributed to a lower gross profit
percentage,  slightly higher SG&A and interest expense and a slightly higher tax
provision rate.

Income  from  continuing  operations  includes  all  of the  corporate  overhead
expenses  incurred by the Company prior to the Distribution and an allocation of
the Company's  interest  expense prior to the  Distribution.  As a result of the
Distribution,  the conversion of the convertible  subordinated  debt into common
stock and the  refinancing  of $112 million of other  indebtedness,  income from
continuing  operations for periods  preceding the Distribution is not comparable
to the Company's income from continuing operations after the Distribution.

Net Income

Net  income  in fiscal  1997 was $11.2  million,  or $0.31 per  share,  diluted,
compared to $76.7 million, or $2.31 per share, diluted, in fiscal 1996 and $73.0
million,  or $2.20 per share,  diluted,  in fiscal 1995.  These amounts  include
income from discontinued operations for periods prior to the Distribution.

Income from  discontinued  operations  in fiscal  1997,  which  includes the net
income of BJ's for the first six months,  reduced by $5.0 million of transaction
costs,  net of tax,  incurred in  connection  with the  Distribution,  was $20.6
million,  or $0.57 per share,  diluted,  compared to $60.3 million, or $1.82 per
share,  diluted, in fiscal 1996 and $48.5 million, or $1.46 per share,  diluted,
in fiscal 1995.

The results for fiscal 1997 include an extraordinary  loss of $8.7 million,  net
of tax, recorded in July 1997,  associated with the early  extinguishment of the
Company's  9.58% senior  notes due May 31, 1998 and of $93.4  million of its 11%
senior subordinated notes due May 15, 2004.

Restructuring Reserves

As of January 25, 1997, $13.5 million of the Company's fiscal 1993 restructuring
charge remained  accrued on the Company's consolidated balance sheet.  During 
fiscal 1997, the Company incurred cash expenditures of $3.5 million, primarily
for lease obligations on closed facilities, and non-cash charges of $0.3 million
for write-downs of fixed assets.  As of January 31, 1998, $12.7 million remained
accrued on the Company's consolidated balance sheet (including  $3.0 million in 
fiscal 1997 additions to the reserve), consisting primarily of lease obligations
on closed facilities, which extend through 2007.

Year 2000 Compliance

Since many of the Company's older computer software programs  recognize only the
last two digits of the year in any date  (e.g.  "98" for  1998),  some  software
programs  may  fail to  operate  properly  in the  year  2000  if  they  are not
reprogrammed or replaced (the "Year 2000 Problem").  This could result in errors
and  miscalculations  or even system  failure  causing  disruptions  in everyday
business  activities  and  transactions.  Early  in  fiscal  1996,  the  Company
commenced  a program  designed  to timely  mitigate  and/or  prevent the adverse
effects of the Year 2000  Problem and to pursue  compliance  with  vendors.  The
Company believes that more than 60% of its programs are now Year 2000 compliant,
and that it will be more than 80% Year 2000 compliant by the second quarter of

<PAGE>

fiscal 1998, including all financial and accounting systems.  The  Company  
expects that all remaining systems will be Year 2000 compliant by the end of 
fiscal 1998.  This program is primarily being completed with internal resources.
As a result, the Company does not believe that achieving Year 2000 compliance  
will have a material impact on the Company's financial position, liquidity or 
results of operations.

Seasonality

The Company's business is subject to seasonal influences. Sales and profits have
typically  been lower in the first and fourth  quarters  of the fiscal  year and
higher in the second and third  quarters,  which include the most active seasons
for home improvement sales.

Recent Accounting Standards

Preopening costs consist of direct  incremental  costs of opening a facility and
are charged to  operations  within the fiscal year that a new store  opens.  The
American  Institute  of  Certified  Public  Accountants  recently  approved  the
Statement  of  Position  ("SOP")  entitled  "Reporting  on the Cost of  Start-Up
Activities."  The SOP,  which will  require  entities  to  expense  as  incurred
start-up and preopening costs that are not otherwise capitalizable as long-lived
assets,  is expected to be effective for fiscal years  beginning  after December
15,  1998.  The Company  plans to adopt this SOP in the first  quarter of fiscal
1998,  which  will  not have a  material  impact  on the  Company's  results  of
operations. No amounts were deferred at January 31, 1998.

The Company  adopted  SFAS 128 in fiscal  1997.  All prior period net income per
share figures have been restated to conform to the requirements of SFAS 128.

In June 1997,  Statement of Financial  Accounting  Standards No. 130, "Reporting
Comprehensive  Income" ("SFAS 130") was issued.  SFAS 130 establishes  standards
for reporting and display of comprehensive income and its components  (revenues,
expenses,  gains  and  losses)  in a  full  set  of  general  purpose  financial
statements.  The Company currently does not have items of a material nature that
would require presentation in a separate statement of comprehensive income.

In June 1997, Statement of Financial Accounting Standards No. 131,  "Disclosures
about  Segments of an  Enterprise  and  Related  Information"  ("SFAS  131") was
issued.  SFAS  131  establishes  standards  for the  way  that  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires those  enterprises to report selected  information about
operating  segments in interim  financial  reports issued to  shareholders.  The
provisions of SFAS 131 are effective for fiscal years  beginning  after December
15, 1997. The Company does not currently have any reportable segments as defined
in SFAS 131.

Pro forma Financial Information (Unaudited)

Presented  below are tables that recast income from  continuing  operations on a
pro forma  basis to reflect the  estimated  effects of the  Distribution,  which
include  reductions in  administrative  expenses and interest costs. On this pro
forma basis,  income from continuing  operations for fiscal 1997 (which includes
the  actual  results  for the six  months  ended  January  31,  1998  after  the
Distribution)  was $1.5  million,  compared to $21.8  million  for fiscal  1996.
Excluding  store  closures and other charges,  pro forma income from  continuing
operations in fiscal 1997 was $17.8 million, or $0.47 per share, diluted.

The following  unaudited pro forma  financial  information  for the six quarters
ended July 26,  1997 is based on  management's  good faith  estimate of what the
Company's  operating  performance would have been as a stand-alone  corporation,
and is provided for  comparative  analytical  purposes only.  Also shown are the
actual results for the quarters ended October 25, 1997 and January 31, 1998,

<PAGE>

after the Distribution.  Selling, general, and administrative expenses reflect a
pro forma  estimate of costs that the Company would have  incurred  related to
corporate overhead activities  performed by the Company's corporate staff prior
to the Distribution.  These costs,  estimated at $5.8 million in fiscal 1997 and
1996, have been allocated  evenly between  quarters.  Pro forma interest expense
for all periods assumes  that  the  capital  structure  that  was  established
immediately after the Distribution had been in place for all periods  presented.
The components of interest  expense  are  capital  lease  interest,  mortgage
interest,  and credit  agreement  costs, all of which have been spread evenly by
quarter,  and bank borrowing interest expense, which has been spread to reflect
the typical seasonal  requirements of the business.  The average  estimated draw
under the revolving  credit  facility  is  assumed to be $23  million.  These
unaudited financial  data do not purport to represent the actual changes in the
historical  cash/borrowing position. The provision for income taxes is estimated
at 39.8%.  The number of shares used in the calculation of pro forma diluted net
income  (loss) per share is 37.9 million for all periods  shown,  except for the
quarters ended October 25, 1997 and January 31, 1998, and the year ended January
31, 1998, which reflect the actual weighted  average shares  outstanding of 37.6
million.  Common stock equivalents are considered  antidilutive and are excluded
from this  calculation.  All pro forma  adjustments  are  based  upon  available
information and assumptions  that management  believes are reasonable  under the
circumstances.  This  information does not purport to represent what the results
of operations of the Company would have actually been if the Distribution had in
fact been consummated in prior periods or at any future date or what the results
of operations of the Company will be for any future period.

The pro forma results for the Company are as follows:

Fiscal Year Ended January 31, 1998

<TABLE>
<CAPTION>

                                                         Quarter Ended
-------------------------------- --------------- -------------- ------------- ------------  ------------------
                                     April 26,       July 26,     October 25,  January 31,
(In thousands, except per share        1997           1997           1997          1998          Full Year
 amounts)                          (Pro forma)     (Pro forma)     (Actual)      (Actual)       (Pro forma)
-------------------------------- --------------- -------------- ------------- ------------  ------------------
                                                                               (14 Weeks)      (53 Weeks)
<S>                              <C>             <C>            <C>           <C>            <C>          
Net Sales                        $   360,204     $   420,404    $   368,432   $   328,402    $   1,477,442
Cost of sales, including
  buying and occupancy
  costs                              282,259         327,049        289,527       260,409        1,159,244
Selling, general and
  administrative expenses             70,642          72,768         68,635        73,835          285,880
Store closures and other
  charges                                  -               -         27,000             -           27,000
-------------------------------- --------------- ------------- -------------- ------------  ------------------
Operating income (loss)                7,303          20,587        (16,730)       (5,842)           5,318
Interest on debt and
  capital leases, net                  1,012             853            355           608            2,828
Provision (benefit) for
  income taxes                         2,504           7,854         (6,797)       (2,566)             995
================================ =============== ============= ============== ============  ==================
Income (loss) from
  continuing operations          $     3,787     $    11,880   $    (10,288)  $    (3,884)   $       1,495
================================ =============== ============= ============== ============  ==================

Diluted net income (loss)
  per share from  continuing
  operations                     $      0.10     $      0.31   $      (0.27)  $     (0.10)   $        0.04
================================ =============== ============= ============== ============  ==================
</TABLE>

<PAGE>

Fiscal Year Ended January 25, 1997

<TABLE>
<CAPTION>

                                                       Quarter Ended
------------------------------- -------------- ------------- -------------- ------------- -------------------
                                  April 27,      July 27,      October 26,   January 25,
 (In  thousands, except  per        1996           1996           1996           1996          Full Year
  share amounts)                 (Pro forma)    (Pro forma)    (Pro forma)   (Pro forma)      (Pro forma)
------------------------------- -------------- ------------- -------------- ------------- -------------------

<S>                             <C>            <C>           <C>             <C>             <C>          
Net sales                       $   352,242    $    424,271  $    366,410    $   309,773     $   1,452,696
Cost of sales, including
   buying and occupancy
   costs                            272,484         328,602       287,973        247,938         1,136,997
Selling, general and
   administrative expenses           72,953          74,181        67,878         61,363           276,375
------------------------------- -------------- ------------- -------------- ------------- -------------------
Operating income                      6,805          21,488        10,559            472            39,234
Interest on debt and capital
   leases, net                        1,012             853           771          1,153             3,789
Provision (benefit) for
   income taxes                       2,306           8,213         3,896           (272)           14,143
------------------------------- -------------- ------------- -------------- ------------- -------------------
Income (loss) from
   continuing operations        $     3,487    $     12,422  $      5,892    $      (409)    $      21,392
=============================== ============== ============= ============== ============= ===================

Diluted net income (loss)
   per share from
   continuing operations        $      0.09    $       0.33  $       0.16    $     (0.01)    $        0.56
=============================== ============== ============= ============== ============= ===================
</TABLE>

<PAGE>

Liquidity and Capital Resources

Cash and cash equivalents and marketable  securities classified as available for
sale totaled $50.1 million as of January 31, 1998. Cash flow from operations and
amounts  available  under  the  Company's  revolving  credit  facility  are  the
Company's principal sources of liquidity.

In July 1997, the Company entered into a new $125 million credit agreement ("New
Credit  Agreement")  with a group of banks  which  expires  July 9,  2000.  This
agreement  replaced  the  Company's  $150  million  credit  facility  which  was
scheduled to expire March 30, 1999, but was terminated immediately following the
Distribution.  In October  1997,  the New Credit  Agreement  was amended and the
total facility was reduced to $90 million.  The New Credit Agreement  includes a
$40  million  sub-facility  for  letters  of  credit  and is  collateralized  by
inventory  and  accounts  receivable.  The  Company is required to pay an annual
facility  fee which is  currently  0.35% of the total  commitment.  Interest  on
borrowings is payable at the Company's  option either at (a) the Eurodollar rate
plus a margin, which is currently 1.45%, or (b) the agent bank's prime rate plus
a margin,  which is currently  0.2%. The facility fee and borrowing  margins are
subject to adjustment based upon the Company's  fixed-charge coverage ratio. The
credit facility is subject to certain  covenants which include minimum  tangible
net  worth   and   fixed-charge   coverage   requirements,   a  maximum   funded
debt-to-capital limitation, and a prohibition on the payment of cash dividends.

At January 31, 1998, the Company had no borrowings under its revolving facility,
and had $20.9 million of letters of credit  outstanding.  At April 2, 1998,  the
Company had $71.8 million available for borrowing under the revolving facility.

During  fiscal 1997,  net cash  provided by operating  activities  of continuing
operations  was $51.2  million  compared  to net cash used of $17.7  million  in
fiscal 1996. The increase in fiscal 1997 was primarily  attributable to a higher
accounts  payable-to-inventory  ratio and higher accrued  expenses at the end of
fiscal 1997 relative to fiscal 1996.

Net cash used in investing activities of continuing operations was $38.8 million
in fiscal  1997  compared  to net cash  used of $23.8  million  in fiscal  1996.
Investing  activities  primarily consist of capital expenditures and investments
in marketable securities.

Fiscal 1997 capital  expenditures  for continuing  operations were $26.4 million
compared to $48.4 million in fiscal 1996. During fiscal 1997, the Company opened
two new stores and closed three stores.  In fiscal 1996, the Company opened five
new stores.  Capital expenditures for fiscal 1997 also include the remodeling of
25 stores  (eight of which had been  completed  before  year end),  compared  to
capital  expenditures  for the  remodeling  of 16  stores  (14 of which had been
completed  before year end) in fiscal 1996. The Company's  capital  expenditures
are expected to total  approximately  $45 million to $55 million in fiscal 1998.
The timing of actual store  openings and  renovations  and the amount of related
expenditures  could vary from these  estimates due,  among other things,  to the
complexity of the real estate development process.

As a result of the Company's  accelerated growth strategy,  the Company incurred
remodel  related  costs of  approximately  $4 million  in the fourth  quarter of
fiscal 1997 and expects to incur a similar amount in the first quarter of fiscal
1998.

During fiscal 1997, the Company had net purchases of $12.8 million of marketable
securities,  compared to net proceeds of $20.2  million in fiscal  1996.  Fiscal
1997  purchases of  marketable  securities  includes $7.7 million of US Treasury
securities,  which the Company  deposited  in escrow with the trustee of its 11%
senior  subordinated  notes to cover  interest  and  principal  payments for the
outstanding notes balance of $6.6 million at January 31, 1998.

<PAGE>

Net cash used in financing activities of continuing operations was $35.0 million
for fiscal  1997,  compared  to net cash used of $15.6  million in fiscal  1996.
Fiscal 1997  activities  primarily  consisted of repayment of $130.7  million in
long-term debt, including approximately $12.7 million of call premiums, and cash
paid to BJ's of $5.0  million in  connection  with the  Distribution.  Partially
offsetting  these  payments  were  proceeds from the sale and issuance of common
stock of $5.8 million,  and net proceeds of  approximately  $96 million from the
private placement of a $100 million 5.25% convertible debt offering.

During the second  quarter of fiscal 1997,  the Company  repaid its 9.58% senior
notes  totaling  $24.0 million  (including  $12.0 million then currently due and
$12.0  million due May 15,  1998),  and repaid  $93.4  million of its 11% senior
subordinated  notes,  replacing  this debt with $96 million of  short-term  bank
borrowings.  BJI assumed $72 million of the bank  borrowings  at the time of the
Distribution.  A total of $6.6 million of the Company's 11% senior  subordinated
notes remains  outstanding,  which the Company  intends to call and repay on May
15, 1999, with the maturities of the US Treasury  Securities  deposited with the
trustee of the notes.

During the quarter ended July 26, 1997,  $106.7  million of the  Company's  6.5%
convertible  subordinated  debentures  was  converted  into common stock and the
remaining $0.2 million was redeemed for cash.

On November  17,  1997,  the Company  completed  the private  placement  of $100
million,  5.25%  convertible  subordinated  notes due November 1, 2004 through a
Rule 144A/Regulation S offering,  and received approximately $96 million, net of
debt issue costs.  The Company  subsequently  filed a registration  statement on
Form S-3,  which was declared  effective on February 10, 1998,  registering  the
notes and the common stock into which the notes are  convertible.  The notes are
convertible,  subject to adjustment in certain events,  into  approximately  9.8
million shares of the Company's common stock at a conversion price of $10.22 per
share at any time after  February 15, 1998 and prior to maturity  unless earlier
redeemed  or  repurchased.  Subsequent  to  November  1,  2000,  the  notes  are
redeemable  at the  option of the  Company,  in whole or in part,  initially  at
103.15% of  principal  and  thereafter  at prices  declining to 100% on or after
November  1,  2003,   together  with  accrued  interest.   Interest  is  payable
semi-annually  on May 1 and November 1 of each year,  commencing on May 1, 1998.
The  Company  intends to use the  proceeds  to finance  its  accelerated  growth
strategy and for general corporate purposes.

The  Company  expects  that  its  current  resources,  including  the  revolving
facility,   together  with  anticipated  cash  flow  from  operations,  will  be
sufficient to finance its operations and capital  expenditures  through  January
30, 1999.

Forward-Looking Information

This  report on Form  10-K  contains  "forward-looking  statements"  within  the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the  Securities  Exchange  Act of 1934,  as  amended.  When  used in this
report, the words "believe,"  "estimate," "expect,"  "anticipate,"  "plans," and
similar  expressions are intended to identify  forward-looking  statements.  For
this  purpose,  any  statements  contained  herein  that are not  statements  of
historical fact may be deemed to be forward-looking  statements. Such statements
are subject to certain risks and uncertainties, including those discussed below,
that could  cause  actual  results  to differ  materially  from those  expected.
Although the Company  believes that comments  reflected in such  forward-looking
statements are  reasonable,  they are based on information  existing at the time
made.  Important  factors that could cause actual  results to differ  materially
from expectations include, but are not limited to, the successful implementation
of the  Company's  accelerated  growth  strategy,  general  economic  conditions
prevailing  in the Company's  markets,  competition  and other factors  included
below.

<PAGE>

Risk Factors

Risks Associated with Accelerated Growth Strategy. 

The Company is implementing a strategy designed to strengthen its market 
position in the western United States and improve its profitability.  
Specifically, the Company completed the remodeling of eight stores during fiscal
1997, and expects to complete the remodeling of 16 stores in the first quarter 
of fiscal 1998 and one store in the third quarter of fiscal 1998.  The Company 
may continue to experience a negative impact on sales and margins at stores 
being remodeled during the remodel period.  In addition, the Company intends to
increase the pace of new store openings.  There can be no assurance that the  
Company will be able to complete this remodeling program on schedule or within 
budget or that remodeled  stores will realize an improvement in net sales.

The  Company  opened two new stores in fiscal  1997 and  intends to open two new
stores  during  fiscal 1998.  The Company  expects to open between  eight and 10
stores in each of fiscal 1999 and fiscal  2000.  The Company  estimates  that it
will cost approximately $4.5 million to open each of these new stores (excluding
land acquisition and building  development costs). The Company's ability to open
new stores on a timely and profitable basis is subject to various contingencies,
some of which are beyond the Company's control.  These contingencies include the
Company's  ability  to (i)  find  suitable  new  warehouse  store  locations  of
sufficient   size  and  at  acceptable   prices,   (ii)  acquire  the  necessary
governmental  and  regulatory  permits  and  approvals,   including  zoning  and
development  permits,  (iii) construct the warehouse stores at budgeted cost and
in a timely manner,  (iv) hire and train  sufficient  numbers of qualified store
managers and staff for new stores,  and (v) integrate these new warehouse stores
into the Company's  operations.  There can be no assurance that the Company will
achieve its planned expansion or that the Company's new or remodeled stores will
achieve sales,  gross profit or operating income  comparable to existing stores.
Although the Company's management  carefully selects new store locations,  there
can be no assurance that the opening of additional  HomeBase  stores in existing
markets will not negatively impact sales at existing HomeBase locations.

The accelerated  growth strategy will require an increase in Company  personnel,
particularly  store managers and sales associates,  who possess the training and
experience  necessary to meet the  Company's  customer  service  standards.  The
Company  may find it  difficult  to attract,  develop  and retain the  personnel
necessary to pursue its growth strategy successfully. The Company will also need
to  continually  evaluate the adequacy of its  management  information  systems,
including its inventory control and distribution  systems, and in the future may
need to upgrade or reconfigure its management information systems to support its
planned expansion.  Moreover,  as the Company grows, it will need to continually
analyze the sufficiency of its warehouse and distribution  space and may require
additional  facilities  to support such growth.  The inability of the Company to
attract and retain the necessary personnel, to expand and enhance its management
information  systems,  or to increase its warehouse and distribution space could
have a  material  adverse  effect on the  Company's  results of  operations  and
financial condition.

The  Company's  operating  results and financial  condition  could be materially
adversely affected if it encounters difficulties in implementing any part of its
accelerated growth strategy.  There can be no assurance that the Company will be
able to  successfully  implement its  accelerated  growth  strategy or that such
strategy,  if  successfully  implemented,  will result in an  improvement of the
Company's operating results.

Competition.  

The home improvement, hardware and garden businesses are highly competitive.  
The Company competes with a large number and variety of wholesalers and 
retailers,  including  several large national chains in the home improvement
warehouse  merchandising  business,  some of which  have  significantly  greater
financial and marketing resources  than the Company.  Major  competitors of the
Company that use the warehouse store format include The Home Depot,  Inc., Eagle
Hardware & Garden, Inc. and Builder's Square (a division of Hechinger Company).

<PAGE>

Competition exists primarily in the areas of price, product selection, location,
service and name recognition. Competitive factors could require price reductions
or cause an increase in operating costs, including increases in expenditures for
marketing  and  customer  service,  that would  adversely  affect the  Company's
operating  results.  The Company will also experience  competition for qualified
personnel and for suitable new store  locations of sufficient size at acceptable
prices.

Some  markets in which the Company  currently  operates or might  operate in the
future  may  already  be at or  near  the  saturation  point  in  terms  of home
improvement  stores.  Certain of the Company's  principal  competitors appear to
have a strategy of clustering stores within or saturating  markets in which they
operate,  or of placing their warehouse  stores so close to the Company's stores
as to directly  challenge  the Company's  competitive  position in such markets.
Such strategies  could have a material  adverse effect on the Company's  current
operations  and upon  the  profitability  of the  Company's  accelerated  growth
strategy.  Approximately  95% of the  Company's  stores  have at least  one home
improvement  warehouse retailer within their trading area at an average distance
of approximately three miles. The Company expects that its existing competitors,
some of whom  either  have  expansion  plans in place or may seek to imitate the
Company's strategy,  will open additional stores in the Company's current market
areas, which could adversely affect the Company's competitive position.

Absence of Operating History as a Separate  Company.  

Prior to the Distribution, the business of the Company was operated as a 
division of a much larger company, and therefore,  the Company does not have a 
significant  operating  history as a separate stand-alone company.  Prior to the
Distribution, BJ's and the HomeBase division each had access to the cash flow  
generated by the other and to the Company's combined credit,  which was based on
the combined assets and operating results of BJ's and the HomeBase division.  
The ability of the Company to access credit facilities and capital markets in 
the future will depend on its financial performance  as a  separate  stand-alone
company.  To the extent the Company experiences  reduced access to capital or 
higher capital costs, the Company may have difficulty financing its growth  
strategy, which could have a material adverse effect on the Company's results of
operations and financial condition.

Reliance on Certain Markets.  

The Company's home improvement stores are located in the western  United States,
with more than half of them in  California.  The Company has been adversely 
affected from time to time by economic downturns experienced in its geographic 
markets, and future economic downturns in such regions could adversely affect 
the Company.  In particular, the performance of the Company's  stores in recent 
years has been  affected by the downturn in the Southern California housing 
market.  Although the Company believes that the Southern California housing 
market is experiencing a recovery, there is no assurance that such recovery will
continue or that such recovery, if sustained, would improve the  Company's  
operating results.  In addition, the Company is subject to other regional risks,
including those related to or arising out of weather conditions, natural 
disasters, and state and local government regulation.  The occurrence of any of
the events described above may have a material adverse effect on the Company's 
results of operations  and financial condition, and on its store expansion 
program.

Declines in Comparable  Store Sales. 

A variety of factors  affects the Company's same store sales,  including,  among
others, the timing and concentration of new store openings, actions of 
competitors (including the opening of additional stores in the Company's 
markets), the retail sales environment, general economic conditions, weather 
conditions and the Company's ability to execute its business strategy  
effectively.  In recent years, the Company's comparable stores sales have been 
negatively affected by increased competition and the depressed economic 
conditions in its major markets, particularly Southern California.  There  can 
be no  assurance  that  these and other  factors  will not  result in further 
declines or fluctuations in comparable  store sales,  which could have a 
material  adverse  effect on the Company's  results of operations  and financial
condition.

<PAGE>

Environmental  Risks and  Regulations.  

The  Company  is subject to a variety of federal,  state and local governmental
laws and regulations relating to the use, storage,  discharge,  emission and 
disposal of hazardous  materials.  Failure to comply  with  environmental  laws 
could  result  in the  imposition  of  severe penalties or restrictions  on 
operations by  governmental  agencies or courts of law,  which  could  adversely
affect  operations.  The  Company  does  not have environmental  liability 
insurance to cover such events. The Company has engaged and may  continue  to 
engage in real  estate  development  projects  and owns 18 parcels of real  
estate on which its stores are  located.  While the  Company is unaware of any 
significant  environmental  hazard on  properties it owns or has owned,  or 
operates  or has  operated.  In the event of any  discovery  of such hazard,  
severe penalties,  including the costs of remediation,  could be sought against
the Company, which could have a material adverse effect on the Company's results
of operations and financial condition.

Negative  Consequence of Failure to Qualify as Tax Free  Spin-Off.  

Prior to the Distribution,  the Company  received a letter ruling (the "Letter  
Ruling") from the Internal  Revenue Service ("IRS") to the effect that, for 
Federal income tax purposes,  the Distribution and certain related asset 
transfers would qualify as a spin-off  under  Section 355 of the Internal 
Revenue Code of 1986, as amended (the  "Code")  that would be  tax-free  to the
Company and to the holders of the Company's Common Stock at the time of the 
Distribution.  The Letter Ruling is based on and subject to certain assumptions,
facts, representations and advice provided by the  Company,  BJI,  holders of 5%
or more of the  Company's  Common Stock  and the  Company's  financial  advisor
at the time of the  Distribution.  Although the Company is not aware of any 
facts or circumstances  that would make such assumptions, facts, representations
and advice  unobtainable or untrue, certain future events not within the control
of the Company and BJI, including, for example, an IRS challenge to the  
Distribution in the event that BJI or the Company is acquired before the end of 
fiscal 1998,  could cause the Distribution not to qualify for tax-free 
treatment, resulting in adverse consequences to the Company and to its 
stockholders.

Potential Conflicts of Interest;  Management Overlap.

The interests of BJI and the Company may conflict due to the ongoing 
relationships between the companies.  Such sources of conflict  include the fact
that the Company  remains  liable for certain  contractual  obligations  of BJI,
including BJI leases, and the other arrangements  between the parties  regarding
lease liabilities.  In addition, Herbert J.  Zarkin  currently  holds the  
executive offices of Chairman of the Company's Board of Directors and Chairman 
of BJI's Board of Directors;  Lorne R. Waxlax serves as a member of the board of
directors of both the Company and BJI; and Edward J. Weisberger serves as an 
officer and director of both the Company and BJI.  Appropriate procedures are 
being followed by the Company's Board of Directors to limit the involvement of 
Messrs. Zarkin, Weisberger and Waxlax in conflict situations, including 
requiring them to abstain from voting as directors of the Company on certain 
matters.

Repurchase  of  Notes  at the  Option  of  Holders  Upon a  Change  of  Control;
Non-availability of Funds. 

In the event of a Change of Control, as defined, each holder of the  Company's  
$100  million  5.25%  Senior  Subordinated  Notes (the "Notes") has the right to
require the Company to repurchase the Notes in whole or in part at a redemption 
price of 100% of the principal amount thereof, plus accrued interest to the 
repurchase date.  If a Change of Control were to occur, there can be no 
assurance that the Company would have the financial resources or be able to 
arrange financing on acceptable terms to pay the repurchase price for all the
Notes  as to  which  the  purchase  right is  exercised.  Further,  any
repurchase  in  connection  with a Change of  Control  could,  depending  on the
circumstances  and absent a waiver from the holders of Senior  Debt,  be blocked
due to the  subordination  provisions  of the Notes.  Failure by the  Company to
repurchase  the Notes  when  required  may  result in an Event of  Default  with
respect  to the Notes  (and with  respect  to Senior  Debt)  whether or not such
repurchase is permitted by the subordination provisions.

<PAGE>

Continuing Obligations of the Company for Certain Lease Liabilities After the 
Distribution.  Pursuant  to the  Distribution,  BJI  assumed all  liabilities 
to third-party lessors with respect to leases entered into by the Company with 
respect to BJ's.  While the Company will continue to be liable, by law, with 
respect to such lease liabilities, BJI has agreed to indemnify the Company for 
such liabilities.  However, there is no assurance that BJI will be able to make
payments under the indemnity.

<PAGE>

Item 8. Financial Statements and Supplementary Data

                      INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>

<S>                                                                                                                      <C>
Report of Independent Accountants........................................................................................25

Report of Management.....................................................................................................25

Consolidated Statements of Income for the fiscal years ended January 31, 1998,
January 25, 1997 and January 27, 1996....................................................................................26

Consolidated Balance Sheets as of January 31, 1998 and January 25, 1997..................................................27

Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1998,
January 25, 1997 and January 27, 1996....................................................................................28

Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 1998,
January 25, 1997 and January 27, 1996....................................................................................29

Notes to Consolidated Financial Statements...............................................................................30
</TABLE>

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of HomeBase, Inc.:

We have audited the accompanying  consolidated balance sheets of HomeBase,  Inc.
(formerly  Waban Inc.) and  subsidiaries  as of January 31, 1998 and January 25,
1997, and the related consolidated  statements of income,  stockholders' equity,
and cash flows for each of the three fiscal  years in the period  ended  January
31, 1998. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
HomeBase, Inc. (formerly Waban Inc.) and subsidiaries as of January 31, 1998 and
January 25, 1997,  and the  consolidated  results of their  operations and their
cash flows for each of the three fiscal  years in the period  ended  January 31,
1998, in conformity with generally accepted accounting principles.


                                         /s/ COOPERS & LYBRAND, L.L.P.

Los Angeles, California
March 2, 1998


                              REPORT OF MANAGEMENT


The consolidated  financial statements and related financial information in this
annual report have been prepared by and are the  responsibility  of  management.
The consolidated financial statements were prepared in accordance with generally
accepted  accounting  principles and necessarily include amounts which are based
upon judgments and estimates made by management.

The  company  maintains a system of internal  controls  designed to provide,  at
appropriate  cost,   reasonable  assurance  that  the  assets  are  safeguarded,
transactions are executed in accordance with management's  authorization and the
accounting  records may be relied upon for the  preparation of the  consolidated
financial  statements.  The  accounting  and  control  systems  are  continually
reviewed  by  management  and  modified  as  necessary  in  response to changing
business  conditions and the  recommendations of the Company's internal auditors
and independent accountants.

The Audit Committee, which is comprised of members of the Board of Directors who
are neither officers nor employees,  meets  periodically  with  management,  the
internal auditors and the independent  accountants to review matters relating to
the Company's financial  reporting,  the adequacy of internal accounting control
and the  scope  and  results  of  audit  work.  The  internal  auditors  and the
independent accountants have free access to the Committee.

The  consolidated  financial  statements  have been audited by Coopers & Lybrand
L.L.P., whose opinion as to their fair presentation in accordance with generally
accepted accounting principles appears above.



/s/ ALLAN P. SHERMAN                              /s/ WILLIAM B. LANGSDORF

Allan P. Sherman                                  William B. Langsdorf
President and                                     Executive Vice President and
Chief Executive Officer                           Chief Financial Officer


<PAGE>

                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

                        CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended
-------------------------------------------------------------------------------------------------------------------
                                                                 January 31,         January 25,       January 27,
                                                                    1998                1997              1996
-------------------------------------------------------------------------------------------------------------------
                                                                 (53 Weeks)

  <S>                                                         <C>                 <C>              <C>           
  Net sales                                                   $   1,477,442       $   1,452,696    $    1,448,776

  Cost of sales, including buying and
    occupancy costs                                               1,159,253           1,136,997         1,124,460
-------------------------------------------------------------------------------------------------------------------
  Gross profit                                                      318,189             315,699           324,316

  Selling, general and administrative
    expenses                                                        287,181             277,841           275,655
  Store closures and other charges                                   27,000                   -                 -
-------------------------------------------------------------------------------------------------------------------
  Operating income                                                    4,008              37,858            48,661

  Interest on debt and capital leases (net)                           5,136              10,506             8,790
-------------------------------------------------------------------------------------------------------------------
  Income (loss) from continuing operations before 
     income taxes and extraordinary loss                             (1,128)             27,352            39,871

  Provision (benefit) for income taxes                                 (445)             11,005            15,386
-------------------------------------------------------------------------------------------------------------------
  Income (loss) from continuing operations before
    extraordinary loss                                                 (683)             16,347            24,485

  Income from discontinued operations, net of
    income taxes of $16,496, $38,661, and $31,075                    20,575              60,313            48,492
-------------------------------------------------------------------------------------------------------------------
  Income before extraordinary loss                                   19,892              76,660            72,977

  Extraordinary loss on early extinguishment
    of debt, net of income tax benefit of $5,896                     (8,663)                  -                 -
-------------------------------------------------------------------------------------------------------------------
  Net income                                                  $      11,229       $      76,660     $      72,977
===================================================================================================================

  Basic net income per share:
    Income (loss) from continuing operations before
      extraordinary loss                                      $       (0.02)      $        0.50     $        0.74
    Income from discontinued operations                                0.57                1.83              1.47
    Extraordinary loss                                                (0.24)                  -                 -
-------------------------------------------------------------------------------------------------------------------
    Net income                                                $        0.31       $        2.33     $        2.21
===================================================================================================================

  Diluted net income per share:
    Income (loss) from continuing operations before
      extraordinary loss                                      $       (0.02)      $        0.49     $        0.74
    Income from discontinued operations                                0.57                1.82              1.46
    Extraordinary loss                                                (0.24)                  -                 -
-------------------------------------------------------------------------------------------------------------------
    Net income                                                $        0.31       $        2.31     $        2.20
===================================================================================================================

  Shares used in computation of net income per share:

  Basic                                                              35,770              32,839            33,014
  Diluted                                                            35,770              33,205            33,220
</TABLE>

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


<PAGE>


                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                January 31,       January 25,
                                                                                                  1998              1997
---------------------------------------------------------------------------------------------------------------------------------
 ASSETS
   Current assets:
     <S>                                                                                        <C>              <C>          
     Cash and cash equivalents                                                                  $     44,603     $      16,896
     Marketable securities                                                                             5,515                 -
     Accounts receivable, net of allowance for doubtful accounts
      of $293 and $227                                                                                27,781            25,261
     Merchandise inventories                                                                         314,188           316,538
     Current deferred income taxes                                                                    11,973             9,876
     Prepaid expenses and other current assets                                                         9,857             4,975
     Prepaid federal and state income taxes                                                           10,265             8,768
     Net current assets of discontinued operations                                                         -            62,942
---------------------------------------------------------------------------------------------------------------------------------
         Total current assets                                                                        424,182           445,256

   Property and equipment, net                                                                       258,697           249,035
   Property under capital leases, net                                                                  5,637             6,090
   Deferred income taxes                                                                              13,965            11,300
   Other assets                                                                                       13,127             4,632
   Net noncurrent assets of discontinued operations                                                        -           360,746
=================================================================================================================================
         Total assets                                                                           $    715,608     $   1,077,059
=================================================================================================================================

 LIABILITIES
   Current liabilities:
     Accounts payable                                                                           $     96,122     $      84,903
     Restructuring reserve                                                                             6,151             2,799
     Accrued expenses and other current liabilities                                                   80,783            69,058
     Current installments of long-term debt                                                               72            12,474
     Obligations under capital leases due within one year                                                226               180
---------------------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                                   183,354           169,414

   Long-term debt                                                                                    107,015           221,018
   Obligations under capital leases, less portion due within one year                                  8,650             8,876
   Noncurrent restructuring reserve                                                                    6,537            10,738
   Other noncurrent liabilities                                                                       50,385            35,088

   Commitments and contingencies

 STOCKHOLDERS' EQUITY
   Common stock, par value $.01 per share, authorized 190,000,000 shares,
     issued 37,707,372 and 33,269,537 shares                                                             377               333
   Additional paid-in capital                                                                        373,456           329,719
   Unrealized holding gains                                                                                6                 -
   Retained net income (deficit)                                                                     (14,172)          311,873
   Treasury stock, at cost,  0 and 528,596 shares                                                          -           (10,000)
---------------------------------------------------------------------------------------------------------------------------------
       Total stockholders' equity                                                                    359,667           631,925

       Total liabilities and stockholders' equity                                               $    715,608     $   1,077,059
=================================================================================================================================
</TABLE>

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


<PAGE>
                                                                   
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------------
                                                                       January 31,     January 25,    January 27,
                                                                          1998            1997           1996
-----------------------------------------------------------------------------------------------------------------
                                                                       (53 Weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:
   <S>                                                                <C>             <C>            <C>       
   Net income                                                         $    11,229     $   76,660     $   72,977
   Adjustments to reconcile net income to net cash provided by
     operating activities:
        Net income from discontinued operations                           (20,575)       (60,313)       (48,492)
        Depreciation and amortization                                      25,409         23,620         20,118
        Extraordinary loss                                                  8,663              -              -
        Loss on property disposals                                            620          1,037            671
        Amortization of premium on marketable securities                        -            122            752
        Other noncash items (net)                                           1,755            375            643
        Deferred income taxes                                              (4,762)         7,384          4,044

     Increase (decrease) in cash due to changes in:
        Accounts receivable                                                  (136)         3,018            394
        Merchandise inventories                                             2,350        (17,740)       (20,036)
        Prepaid expenses and other current assets                          (4,882)          (952)          (724)
        Other assets                                                          (74)          (488)          (154)
        Accounts payable                                                   11,219        (21,945)         7,210
        Restructuring reserve                                              (1,135)       (14,591)       (14,460)
        Accrued expenses and other current liabilities                       (345)        (6,988)         5,188
        Prepaid federal and state income taxes                              6,601         (5,315)        10,466
        Other noncurrent liabilities                                       15,297         (1,572)         6,358
-----------------------------------------------------------------------------------------------------------------

     Net cash provided by (used in) operating activities of:
        Continuing operations                                              51,234        (17,688)        44,955
        Discontinued operations                                             1,559        111,851         57,543
-----------------------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                             52,793         94,163        102,498

 CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of marketable securities                                    (13,203)       (29,903)      (146,778)
     Sale of marketable securities                                              -         46,957        131,632
     Maturity of marketable securities                                        365          3,140         58,352
     Property additions                                                   (26,431)       (48,393)       (73,300)
     Property disposals                                                       489          4,438          8,461
-----------------------------------------------------------------------------------------------------------------

     Net cash used in investing activities of:
        Continuing operations                                             (38,780)       (23,761)       (21,633)
        Discontinued operations                                           (23,269)       (71,282)       (90,114)
-----------------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                                (62,049)       (95,043)      (111,747)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings of  long-term debt                                        100,000              -              -
     Repayment of long-term debt                                         (130,746)       (12,828)       (12,763)
     Debt issue costs                                                      (4,861)             -              -
     Repayment of capital lease obligations                                  (180)          (395)          (657)
     Purchase of treasury stock                                                 -        (11,392)        (9,906)
     Proceeds from sale and issuance of common stock                        5,815          9,016          2,044
     Cash paid to BJ's Wholesale Club, Inc. in spin-off                    (5,000)             -             -
-----------------------------------------------------------------------------------------------------------------

     Net cash provided by (used in) financing activities of:
        Continuing operations                                             (34,972)       (15,599)       (21,282)
        Discontinued operations                                            71,935           (231)          (304)
-----------------------------------------------------------------------------------------------------------------
     Net cash provided by (used in) financing activities                   36,963        (15,830)       (21,586)

     Net increase (decrease) in cash and cash equivalents                  27,707        (16,710)       (30,835)
     Cash and cash equivalents at beginning of year                        16,896         33,606         64,441
-----------------------------------------------------------------------------------------------------------------

     Cash and cash equivalents at end of year                         $    44,603     $   16,896     $   33,606
=================================================================================================================

Supplemental cash flow information:
   Interest paid (including discontinued operations)                  $     9,480     $   21,229     $   21,038
   Income taxes paid (including discontinued operations)                   35,713         45,937         37,222

 Noncash financing and investing activities:
   Conversion of long-term debt to stock (net)                        $   107,061     $       24     $        -
   Tax benefit of employee stock options                                    2,202          2,122            955
-----------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                             Unrealized
                                                                  Additional   Holding   Retained                          Total
                                                                    Paid-In     Gains    Earnings                      Stockholders'
                                                 Common Stock       Capital   (Losses)   (Deficit)     Treasury Stock     Equity
------------------------------------------------------------------------------------------------------------------------------------

                                                Shares     Amount                                      Shares     Amount
                                              ---------  ---------                                   ---------   --------

<S>                                            <C>          <C>    <C>         <C>       <C>            <C>     <C>       <C>  
Balance, January 28, 1995                      33,186       $332   $325,565    $   (44)  $162,236          -    $     -   $ 488,089
   Net income                                       -          -          -          -     72,977          -          -      72,977
   Unrealized holding gains (losses)                -          -          -         66          -          -          -          66
   Purchase of treasury stock                       -          -          -          -          -       (622)    (9,906)     (9,906)
   Exercise of stock options                      126          1      1,204          -          -         54        839       2,044
   Income tax benefit of stock options              3          -        955          -          -          -          -         955
   Amortization of restricted stock grants          -          -        895          -          -          -          -         895
   Cancellation of restricted stock               (18)         -          -          -          -          -          -           -
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 27, 1996                      33,297        333    328,619         22    235,213       (568)    (9,067)    555,120
   Net income                                       -          -          -          -     76,660          -          -      76,660
   Unrealized holding gains (losses)                -          -          -        (22)         -          -          -         (22)
   Purchase of treasury stock                       -          -          -          -          -       (570)   (11,392)    (11,392)
   Exercise of stock options                        -          -       (715)         -          -        567      9,731       9,016
   Income tax benefit of stock options              -          -      2,122          -          -          -          -       2,122
   Issuance of restricted stock                     -          -       (704)         -          -         41        704           -
   Amortization of restricted stock grants          -          -        397          -          -          -          -         397
   Cancellation of restricted stock               (27)         -          -          -          -          -          -           -
   Conversion of 6.5% debentures                    -          -          -          -          -          1         24          24
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 25, 1997                      33,270        333    329,719          -    311,873       (529)   (10,000)    631,925
   Net income                                       -          -          -          -     11,229          -          -      11,229
   Unrealized holding gains (losses)                -          -          -          6          -          -          -           6
   Exercise of stock options                      158          2      1,780          -          -        213      4,031       5,813
   Income tax benefit of stock options              -          -      2,202          -          -          -          -       2,202
   Issuance of restricted stock                   263          2          -          -          -          -          -           2
   Amortization of restricted stock grants          -          -        467          -          -          -          -         467
   Cancellation of restricted stock               (46)         -          -          -          -          -          -           -
   Conversion of 6.5% debentures                4,062         40    101,052          -          -        316      5,969     107,061
   Equity transfer in spin-off of BJ's
     Wholesale Club, Inc.                           -          -    (61,764)         -   (337,274)         -          -    (399,038)
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998                      37,707    $   377   $373,456    $     6   $(14,172)         -    $     -   $ 359,667
====================================================================================================================================
</TABLE>

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

<PAGE>

                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Organization

HomeBase,  Inc. (the  "Company"),  formerly  known as Waban Inc.,  operates home
improvement warehouse stores in 10 western states.

On July 26,  1997,  the  Company  transferred  all of the net assets of its BJ's
Wholesale Club division ("BJ's") to BJ's Wholesale Club, Inc.  ("BJI").  On July
28, 1997, the Company distributed to its stockholders on a pro-rata basis all of
the  outstanding  common  stock  of  BJI  (the  "Distribution").  The  financial
statements  for the periods  presented  have been  restated to present BJ's as a
discontinued operation.  Income from discontinued operations for the fiscal year
ended January 31, 1998 includes  transaction  costs of $5.0 million (net of tax)
incurred in connection with the Distribution.

2.   Summary of Accounting Policies

Basis of Presentation

The  consolidated  financial  statements  of the Company  include the  financial
statements of the Company's subsidiaries, all of which are wholly owned.

Fiscal Year

The Company operates within a conventional 52 or 53 week accounting  fiscal year
that ends on the last  Saturday in January.  The 53 weeks ended January 31, 1998
is referred to herein as "fiscal 1997".  The 52 weeks ended January 25, 1997 and
January 27,  1996 are  referred  to herein as "fiscal  1996" and "fiscal  1995",
respectively.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions 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 those estimates.

Cash Equivalents

The Company  considers highly liquid  investments  with an original  maturity of
three  months or less at time of  purchase to be cash  equivalents.  Investments
with maturities exceeding three months are classified as marketable securities.

Marketable Securities

Management  determines the appropriate  classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt  securities  are  classified as  held-to-maturity  when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost,  adjusted for  amortization of premiums
and accretion of discounts to maturity.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Marketable   equity   securities   and  debt   securities   not   classified  as
held-to-maturity  are  classified  as   available-for-sale.   Available-for-sale
securities are carried at fair value, with the unrealized gains and losses,  net
of tax, reported as a separate  component of stockholders'  equity.  The cost of
securities  sold is based on the specific  identification  method.  Interest and
dividends  on  securities  classified  as  available-for-sale  are  included  in
investment income.

Merchandise Inventories

Inventories  are  stated at the  lower of cost,  determined  under the  weighted
average  cost  method,  or market.  The Company  recognizes  the  write-down  of
slow-moving  or obsolete  inventory in cost of sales when such  write-downs  are
probable and estimable.

Property and Equipment

Property  and  equipment  are  stated  at cost.  Depreciation  expense  includes
amortization of property under capital leases.  Depreciation and amortization is
provided using the  straight-line  method using the following  estimated  useful
lives.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
  <S>                                                                    <C>
  Buildings                                                              33 years
  Property under capital leases and leasehold improvements               Shorter of lease term or useful life
  Furniture, fixtures, and equipment                                     3-10 years
--------------------------------------------------------------------------------------------------------------
</TABLE>

Preopening Costs

Preopening costs consist of direct  incremental  costs of opening a facility and
are charged to  operations  within the fiscal year that a new store  opens.  The
American  Institute  of  Certified  Public  Accountants  recently  approved  the
Statement  of  Position  ("SOP")  entitled  "Reporting  on the Cost of  Start-Up
Activities."  The SOP,  which will  require  entities  to  expense  as  incurred
start-up and preopening costs that are not otherwise capitalizable as long-lived
assets,  is expected to be effective for fiscal years  beginning  after December
15,  1998.  The Company  plans to adopt this SOP in the first  quarter of fiscal
1998,  which  will  not have a  material  impact  on the  Company's  results  of
operations. No amounts were deferred at January 31, 1998.

Interest on Debt and Capital Leases

Interest on debt and capital leases in the consolidated  statements of income is
presented net of interest and investment  income of $2.6 million,  $1.8 million,
and $5.9 million in fiscal 1997, 1996, and 1995, respectively.

Capitalized Interest

The Company capitalizes interest related to the development of owned facilities.
No  interest  was  capitalized  in fiscal  1997.  Interest in the amount of $0.9
million and $1.6 million was capitalized in fiscal 1996 and 1995, respectively.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Lived Assets

In fiscal 1996, the Company adopted Statement of Financial  Accounting Standards
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS  121").  The adoption of SFAS 121 had no impact
on the Company's financial position or on its results of operations.

In accordance with SFAS 121,  long-lived assets held and used by the Company are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  For purposes of
evaluating the recoverability of long-lived  assets, the recoverability  test is
performed  using  undiscounted  net cash  flows  of the  individual  stores  and
consolidated  undiscounted net cash flows for long-lived assets not identifiable
to individual  stores.  Impairment  losses are calculated based on the estimated
salvage value of the impaired assets.

Advertising Costs

Advertising costs are expensed as incurred.  Net advertising  expense was $19.5 
million,  $18.9 million and $18.1 million for fiscal years 1997, 1996 and 1995, 
respectively.

Income Taxes

The Company  accounts for income taxes under  Statement of Financial  Accounting
Standards No. 109,  "Accounting  for Income Taxes" ("SFAS 109").  SFAS 109 is an
asset and  liability  approach  that  requires the  recognition  of deferred tax
assets and liabilities  for the expected future tax  consequences of events that
have been recognized in the Company's  financial  statements or tax returns.  In
estimating  future tax consequences,  SFAS 109 generally  considers all expected
future events other than proposed changes in the tax law or rates.

Discontinued Operations

Net sales from discontinued  operations were $1,464.4 million,  $2,922.8 million
and  $2,529.6  million  for  fiscal  years  1997,  1996 and 1995,  respectively.
Interest expense was allocated to discontinued  operations based on the ratio of
BJ's net assets to the sum of consolidated net assets plus consolidated debt.

Stock-Based Compensation

The Company applies the intrinsic value based method of accounting prescribed by
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  ("APB  25")  and  related  Interpretations  in  accounting  for its
stock-based compensation.

Reclassifications

Certain prior period  amounts have been  reclassified  to conform to the current
year presentation.

New Accounting Standards

In June 1997,  Statement of Financial  Accounting  Standards No. 130, "Reporting
Comprehensive  Income" ("SFAS 130") was issued.  SFAS 130 establishes  standards
for reporting and display of comprehensive income and its components  (revenues,
expenses,  gains  and  losses)  in a  full  set  of  general  purpose  financial
statements.  The Company currently does not have items of a material nature that
would require presentation in a separate statement of comprehensive income.


<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In June 1997, Statement of Financial Accounting Standards No. 131,  "Disclosures
about  Segments of an  Enterprise  and  Related  Information"  ("SFAS  131") was
issued.  SFAS  131  establishes  standards  for the  way  that  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires those  enterprises to report selected  information about
operating  segments in interim  financial  reports issued to  stockholders.  The
provisions of SFAS 131 are effective for fiscal years  beginning  after December
15, 1997. The Company does not currently have any reportable segments as defined
in SFAS 131.

3.   Supplemental Balance Sheet Information

Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                            January 31,      January 25,
(In thousands)                                                                 1998             1997
-----------------------------------------------------------------------------------------------------------

<S>                                                                       <C>              <C>        
Land and buildings                                                        $   157,488      $   156,862
Leasehold improvements                                                         62,310           58,762
Furniture, fixtures and equipment                                             144,662          132,409
-----------------------------------------------------------------------------------------------------------
                                                                              364,460          348,033
Accumulated depreciation                                                     (105,763)         (98,998)
-----------------------------------------------------------------------------------------------------------
Property and equipment, net                                               $   258,697      $   249,035
===========================================================================================================
</TABLE>

Property under Capital Leases

Property under capital leases consists of the following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                          January 31,      January 25,
(In thousands)                                                               1998             1997
-----------------------------------------------------------------------------------------------------------

<S>                                                                       <C>              <C>        
Property under capital leases                                             $     9,696      $    10,213
Accumulated depreciation                                                       (4,059)          (4,123)
-----------------------------------------------------------------------------------------------------------
Property under capital leases, net                                        $     5,637      $     6,090
===========================================================================================================
</TABLE>

Accrued Expenses and Other Current Liabilities

The major  components of accrued  expenses and other current  liabilities are as
follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                          January 31,      January 25,
(In thousands)                                                               1998             1997
-----------------------------------------------------------------------------------------------------------

<S>                                                                       <C>               <C>        
Self-insurance reserves                                                   $    16,818       $    14,497
Employee compensation                                                          16,471            12,856
Sales and use taxes                                                             7,241            11,691
Rent, utilities, advertising and other                                         40,253            30,014
-----------------------------------------------------------------------------------------------------------
Total  accrued expenses and other current liabilities                     $    80,783       $    69,058
===========================================================================================================
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.   Net income Per Share

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings  per  Share"  ("SFAS  128") in  fiscal  1997.  SFAS 128  replaced  the
calculation  of primary  and fully  diluted  net income per share with basic and
diluted net income per share.  Unlike  primary  net income per share,  basic net
income per share excludes any dilutive  effects of stock options and convertible
securities.  Diluted net income per share is similar to the previously  reported
fully  diluted  net income per share.  All net income per share  amounts for all
periods presented have been restated to conform to SFAS 128 requirements.

The following table sets forth the computation of net income per share:

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended
------------------------------------------------------- ---------------------------------------------------
                                                          January 31,       January 25,      January 27,
(In thousands)                                                1998             1997             1996
------------------------------------------------------- ----------------- ---------------- ----------------
Numerator:

<S>                                                       <C>               <C>              <C>          
   Income (loss) from continuing operations
     before extraordinary loss                            $        (683)    $      16,347    $      24,485
   Income from discontinued operations                           20,575            60,313           48,492
   Extraordinary loss                                            (8,663)                -                -
------------------------------------------------------- ----------------- ---------------- ----------------
   Numerator for basic net income per share               $      11,229     $      76,660    $      72,977

Effect of dilutive securities:
   6.5% convertible debentures (1)                                    -                 -                -
   5.25% convertible subordinated notes (1)                           -                 -                -
------------------------------------------------------- ----------------- ---------------- ----------------
   Numerator for diluted net income per share               $    11,229     $      76,660    $      72,977
======================================================= ================= ================ ================
</TABLE>

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended
------------------------------------------------------- ----------------- ---------------- ----------------
                                                           January 31,       January 25,      January 27,
(In thousands)                                                1998              1997             1996
------------------------------------------------------- ----------------- ---------------- ----------------
Denominator:

<S>                                                              <C>               <C>              <C>   
   Denominator for basic net income per share-
     weighted average shares                                     35,770            32,839           33,014

Effect of dilutive securities:
   Employee stock options (2)                                         -               366              206
   Assumed conversion of 6.5%
     convertible debentures (1)                                       -                 -                -
   Assumed conversion of 5.25%
     convertible subordinated notes (1)                               -                 -                -
------------------------------------------------------- ----------------- ---------------- ----------------
   Denominator for diluted net income per share                  35,770            33,205           33,220
======================================================= ================= ================ ================
</TABLE>

(1) The effect of the conversion of the convertible securities has been 
    excluded from the computation of diluted net income per share because it was
    antidilutive in fiscal 1997, 1996 and 1995.
(2) The effect of stock options was antidilutive in fiscal 1997 because the
    Company reported a netloss from continuing operations.  These shares have
    been excluded from the computation of diluted net income per share in fiscal
    1997.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.   Debt

At January 31,  1998 and  January 25,  1997,  long-term  debt  consisted  of the
following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                          January 31,      January 25,
(In thousands)                                                               1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>
Real estate debt, interest at 9.25%, maturing through March 1,
   2003                                                                   $       450      $       924
Senior notes, interest at 9.58%, maturing May 31, 1997
   through May 31, 1998                                                             -           24,000
Senior subordinated notes, interest at 11%,
   maturing May 15, 2004 (1)                                                    6,637          100,000
Convertible Subordinated Debt:
   Convertible debentures, interest at 6.5%,
     maturing July 1, 2002                                                          -          108,568
   Convertible subordinated notes, interest at 5.25%,
     maturing November 1, 2004                                                100,000                -
-----------------------------------------------------------------------------------------------------------
                                                                              107,087          233,492
Less current installments                                                         (72)         (12,474)
-----------------------------------------------------------------------------------------------------------
Total long term debt                                                      $   107,015      $   221,018
===========================================================================================================
</TABLE>

The aggregate  maturities of long-term debt outstanding at January 31, 1998 were
as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                  Real          Senior      Convertible
                                                 Estate      Subordinated   Subordinated
(In thousands)                                    Debt           Debt           Debt           Total
-----------------------------------------------------------------------------------------------------------
Fiscal years ending January:

         <C>                                     <C>           <C>           <C>           <C> 
         1999                                    $   72        $        -    $         -   $          72
         2000                                        78                 -              -              78
         2001                                        86                 -              -              86
         2002                                        95                 -              -              95
         2003                                       104                 -              -             104
         Later years (1)                             15             6,637        100,000         106,652
-----------------------------------------------------------------------------------------------------------
                           Total                 $  450        $    6,637    $   100,000   $     107,087
===========================================================================================================
</TABLE>

(1)  The  company  intends  to call  and  repay  the  $6.6  million  11%  senior
     subordinated  notes on May 15, 1999. In July 1997, the Company purchased US
     Treasury  securities  and deposited  them in escrow with the trustee of the
     notes, to be used to retire the debt and pay interest through May 1999.

As of January 31, 1998,  long-term real estate debt was  collateralized  by land
and buildings with a net book value of $8.6 million.

In July 1997,  $106.7  million of the Company's  6.5%  convertible  subordinated
debentures  was converted  into common stock and the remaining  $0.2 million was
redeemed  for cash.  In July 1997,  the Company  repaid all of its 9.58%  senior
notes due May 31, 1998, totaling $12.0 million,  and pursuant to a tender offer,
$93.4 million of its 11% senior  subordinated notes due May 15, 2004,  replacing
this debt with $96  million in  short-term  bank  borrowings.  BJI  assumed  $72
million  of the bank  borrowings  at the time of the  Distribution.  Results  of
operations for fiscal 1997 included an extraordinary loss of $8.7 million, net 
<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of tax, related to the early extinguishment of Company debt, primarily 
consisting of call premiums and the write-off of debt issue costs.

A total of $6.6 million of the Company's 11% senior  subordinated  notes remains
outstanding,  which the Company  intends to call and repay on May 15,  1999.  In
July 1997,  the Company  purchased US Treasury  securities and deposited them in
escrow  with the  trustee  of the  notes,  to be used to retire the debt and pay
interest through May 1999.

In July 1997, the Company entered into a new $125 million credit agreement ("New
Credit  Agreement")  with a group of banks  which  expires  July 9,  2000.  This
agreement  replaced  the  Company's  $150  million  credit  facility,  which was
scheduled to expire March 30, 1999, but was terminated immediately following the
Distribution.  In October  1997,  the New Credit  Agreement  was amended and the
total facility was reduced to $90 million.  The New Credit Agreement  includes a
$40  million  sub-facility  for  letters  of  credit  and is  collateralized  by
inventory  and  accounts  receivable.  The  Company is required to pay an annual
facility  fee which is  currently  0.35% of the total  commitment.  Interest  on
borrowings is payable at the Company's  option either at (a) the Eurodollar rate
plus a margin, which is currently 1.45%, or (b) the agent bank's prime rate plus
a margin,  which is currently  0.2%. The facility fee and borrowing  margins are
subject to adjustment based upon the Company's  fixed-charge coverage ratio. The
credit facility is subject to certain  covenants which include minimum  tangible
net  worth   and   fixed-charge   coverage   requirements,   a  maximum   funded
debt-to-capital limitation, and a prohibition on the payment of cash dividends.

At  January  31,  1998,  the  Company  had  letters  of  credit  outstanding  of
approximately $20.9 million primarily to support the purchase of inventories.

On November  17,  1997,  the Company  completed  the private  placement  of $100
million,  5.25%  convertible  subordinated  notes due November 1, 2004 through a
Rule 144A/Regulation S offering,  and received approximately $96 million, net of
debt issue costs.  The Company  subsequently  filed a registration  statement on
Form S-3,  which was declared  effective on February 10, 1998,  registering  the
notes and the common stock into which the notes are  convertible.  The notes are
convertible,  subject to adjustment in certain events,  into  approximately  9.8
million shares of the Company's common stock at a conversion price of $10.22 per
share at any time after  February 15, 1998 and prior to maturity  unless earlier
redeemed  or  repurchased.  Subsequent  to  November  1,  2000,  the  notes  are
redeemable  at the  option of the  Company,  in whole or in part,  initially  at
103.15% of  principal  and  thereafter  at prices  declining to 100% on or after
November  1,  2003,   together  with  accrued  interest.   Interest  is  payable
semi-annually on May 1 and November 1 of each year, commencing on May 1, 1998.

6.   Commitments and Contingencies

The Company is obligated  under  long-term  leases for the rental of real estate
and fixtures  and  equipment,  some of which are  classified  as capital  leases
pursuant to Statement on Financial  Accounting Standards No. 13, "Accounting for
Leases". In addition,  the Company is generally required to pay insurance,  real
estate taxes and other operating expenses and, in some cases, additional rentals
based on a percentage  of sales or increases  in the Consumer  Price Index.  The
real estate leases range up to 25 years and have varying  renewal  options.  The
fixture and equipment leases range up to 10 years.

<PAGE>

Future minimum lease payments as of January 31, 1998 were:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------- -------------------
                                                                          Capital           Operating
(In thousands)                                                            Leases              Leases
--------------------------------------------------------------------------------------- -------------------
Fiscal years ending January:

   <S>                                                                  <C>                <C>         
   1999                                                                 $     1,432        $     65,695
   2000                                                                       1,455              62,723
   2001                                                                       1,455              61,949
   2002                                                                       1,455              61,416
   2003                                                                       1,455              54,936
   Later years                                                               11,766             352,059
--------------------------------------------------------------------------------------- -------------------

   Total minimum lease payments                                              19,018     $       658,778
                                                                                        ===================
   Less amount representing interest                                        (10,142)
=======================================================================================
   Present value of net minimum capital lease payments                  $     8,876
=======================================================================================
</TABLE>

Rental expense under operating  leases amounted to $64.8 million,  $65.1 million
and $62.4  million in fiscal 1997,  1996 and 1995,  respectively.  These amounts
exclude rent of $2.4 million, $3.5 million and $5.2 million in fiscal 1997, 1996
and 1995,  respectively,  which was charged to the restructuring or closed store
reserves.

The table of future minimum lease payments above includes lease  commitments for
three  stores  that were closed in  connection  with the  Company's  fiscal 1993
restructuring and two stores that were closed in fiscal 1997, but which were not
subleased or assigned at January 31, 1998.

The Company is involved in various legal  proceedings  incident to the character
of its  business.  Although  it is not  possible to predict the outcome of these
proceedings,  or any claims  against the Company  related  thereto,  the Company
believes that such proceedings will not, individually or in the aggregate,  have
a material adverse effect on its financial condition or results of operations.

7.   Income Taxes

Income (loss) before income taxes and the related provision (benefit) for income
taxes are as follows:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997              1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>        
Income (loss) before income taxes:
     Continuing operations                              $    (1,128)      $    27,352      $    39,871
     Discontinued operations                                 37,071            98,974           79,567
     Extraordinary loss                                     (14,559)                -                -
-----------------------------------------------------------------------------------------------------------
Total                                                   $    21,384       $   126,326      $   119,438
===========================================================================================================
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997              1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>        
Provision (benefit) for income taxes attributable
     to income from continuing operations               $      (445)      $    11,005      $    15,386
Provision for income taxes attributable to income
     from discontinued operations                            16,496            38,661           31,075
Benefit for income taxes attributable to
     extraordinary loss                                      (5,896)                -                -
-----------------------------------------------------------------------------------------------------------
Total provision (benefit) for income taxes              $    10,155       $    49,666      $    46,461
===========================================================================================================
</TABLE>

The  significant   components  of  the  provision  (benefit)  for  income  taxes
attributable to continuing operations are as follows:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997             1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>        
Current:
     Federal                                            $     3,475       $     3,710      $    15,380
     State                                                      842               (73)           1,916
-----------------------------------------------------------------------------------------------------------
Total current                                           $     4,317       $     3,637      $    17,296
-----------------------------------------------------------------------------------------------------------
Deferred:
     Federal                                            $    (3,847)      $     5,822      $    (2,143)
     State                                                     (915)            1,546              233
-----------------------------------------------------------------------------------------------------------
Total deferred                                          $    (4,762)      $     7,368      $    (1,910)
-----------------------------------------------------------------------------------------------------------

Total provision (benefit) for income taxes 
     attributable to income from continuing 
     operations                                         $      (445)      $    11,005      $    15,386
===========================================================================================================
</TABLE>

The following is a reconciliation  of the statutory  federal income tax rate and
the effective income tax rate for income from continuing operations:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
                                                            1998             1997              1996
-----------------------------------------------------------------------------------------------------------

<S>                                                          <C>               <C>              <C>
Statutory federal income tax rate                            35%               35%              35%
State income taxes, net of federal tax
    benefit                                                   4                 4                4
Other                                                         1                 1                -
-----------------------------------------------------------------------------------------------------------
Effective income tax rate                                    40%               40%              39%
===========================================================================================================
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant components of the Company's deferred tax assets and liabilities as 
of January 31, 1998 and January 25, 1997 are as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                          January 31,      January 25,
(In thousands)                                                               1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>        
Deferred tax assets:
     Self-insurance reserves                                              $    16,754       $    14,539
     Rental step liabilities                                                    4,940             5,008
     Restructuring reserve                                                      5,748             5,869
     Closed store reserve                                                       7,866                 -
     Capital leases                                                             1,399             1,201
     Compensation and benefits                                                  2,255             2,765
     Other                                                                      4,416             2,530
-----------------------------------------------------------------------------------------------------------
Total deferred tax assets                                                 $    43,378       $    31,912

Deferred tax liabilities:
     Accelerated depreciation-property                                    $    10,225       $     8,551
     Other                                                                      7,215             2,185
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                            $    17,440       $    10,736

Net deferred tax assets                                                   $    25,938       $    21,176
===========================================================================================================
</TABLE>

The Company has not established a valuation  allowance  because its deferred tax
assets can be realized by  offsetting  taxable  income  mainly in the  carryback
period,  and also against  deferred tax  liabilities  and future taxable income,
which  management  believes  will more likely  than not be earned,  based on the
Company's historical earnings record.

8. Investments In Marketable Securities

Available-for-sale  securities at January 31, 1998 and January 25, 1997 included
the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------ ---------------- -----------------
                                                                           January 31,      January 25,
(In thousands)                                                                1998              1997
------------------------------------------------------------------------ ---------------- -----------------
<S>                                                                        <C>              <C>        
Debt securities issued by states and political subdivisions:
   Cost                                                                    $     5,509      $         -
   Unrealized holdings gains                                                         7                -
   Unrealized holding losses                                                        (1)               -
------------------------------------------------------------------------ ---------------- -----------------
   Estimated fair value                                                      $   5,515      $         -
======================================================================== ================ =================
</TABLE>

The contractual maturities of available-for-sale  securities at January 31, 1998
were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                            Estimated
(In thousands)                                                               Cost           Fair Value
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>        
Less than one year                                                         $     1,502      $     1,506
1-5 years                                                                        4,007            4,009
-----------------------------------------------------------------------------------------------------------
                                                                           $     5,509      $     5,515
===========================================================================================================
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Other information on available-for-sale securities was as follows:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997              1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>             <C>         
Sales proceeds                                          $        -       $   46,957      $    131,632
Gross realized gains                                             -               13               257
Increase in unrealized holding gains (losses),
  net of taxes                                                   6              (22)               66
-----------------------------------------------------------------------------------------------------------
</TABLE>

The specific  identification  method is used to compute realized gains or losses
on the sale of marketable securities.

As of January 31, 1998,  marketable  securities  classified as  held-to-maturity
consisted of US Treasury  securities,  which are included in other assets on the
consolidated  balance  sheet  at their  amortized  cost of $7.5  million.  These
securities  were  purchased  and  deposited  in escrow  with the  trustee of the
Company's  senior  subordinated  notes  to be used to  retire  the  debt and pay
interest through May 1999.

The contractual maturities of held-to-maturity securities as of January 31, 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>        
Less than one year                                                                         $       730
1-5 years                                                                                        7,367
-----------------------------------------------------------------------------------------------------------
Total                                                                                      $     8,097
===========================================================================================================
</TABLE>

9.   Disclosures About Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

Cash and Cash Equivalents

The carrying  amount  approximates  fair value because of the short  maturity of
these instruments.

Marketable Securities

The fair value of the Company's marketable  securities is based on quoted values
provided by an independent pricing service utilized by broker dealers and mutual
fund companies.

Real Estate Debt and General Corporate Debt

The fair value of the Company's  real estate debt and general  corporate debt is
estimated  based on the current rates for similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Subordinated Debt

The fair  value of the  Company's  subordinated  debt is based on quoted  market
prices.

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                              January 31, 1998                   January 25, 1997
-----------------------------------------------------------------------------------------------------------
                                        Carrying                            Carrying
(In thousands)                           Amount          Fair Value          Amount         Fair Value
-----------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>                <C>              <C>        
Cash and cash equivalents              $    44,603      $    44,603        $    16,896      $    16,896
Marketable securities                        5,515            5,515                  -                -
Real estate debt                              (450)            (479)              (924)            (944)
General corporate debt                           -                -            (24,000)         (24,771)
Senior subordinated debt (1)                (6,637)          (7,538)          (100,000)        (111,750)
Convertible subordinated debt             (100,000)         (92,500)          (108,568)        (120,510)
-----------------------------------------------------------------------------------------------------------
</TABLE>

(1) A total of $6.6 million of the Company's  11%  senior  subordinated  notes
    remains  outstanding, which the Company intends to call and repay on May 15,
    1999.  In July  1997, the  Company  purchased  US  Treasury  securities  and
    deposited them in escrow with the trustee of the notes, to be used to retire
    the debt and pay interest through May 1999. Therefore, the fair value of the
    senior subordinated  debt at January 31, 1998 is deemed to be the  amortized
    cost of the treasury securities.

10.   Capital Stock, Stock Options and Stock Purchase Plans

At January 31, 1998, the Company had three stock-based  compensation  plans: two
employee plans and one non-employee director plan.

Under its 1989 Stock  Incentive  Plan  ("1989  Plan"),  the  Company has granted
options to certain key employees,  which expire 10 years from the grant date, to
purchase  common  stock at prices equal to 100% of the market price on the grant
date.  Options  outstanding  are  exercisable  over  various  periods  generally
starting one year after the grant date.  The Company has also issued  restricted
stock  awards to certain  key  employees  at no cost  under the 1989  Plan.  The
restrictions on the  transferability of those shares tied to Company performance
lapse over periods that range up to eight years; for other awards,  restrictions
on the sale of shares  range up to four years.  The 1989 Plan expired in January
1998, except as to options and restricted  shares then  outstanding.  At January
31, 1998,  2,328,671 options issued under the 1989 Plan remained  outstanding at
prices ranging from $2.20 to $6.45 per share.

Under  its 1995  Director  Stock  Option  Plan,  the  Company  has  granted  its
non-employee  directors options to purchase common stock at prices equal to 100%
of the market price on the grant date. These options, which expire 10 years from
the grant date, are  exercisable  over periods  starting one year after they are
granted. A maximum of 150,000 shares may be issued under the 1995 Director Stock
Option Plan.

Under its 1997 Stock  Incentive  Plan,  the  Company  has  granted  certain  key
employees options, which expire 10 years from the grant date, to purchase common
stock at prices  equal to 100% of the market  price on the grant  date.  Options
outstanding are exercisable  over various  periods  generally  starting one year
after the grant date.  The Company has also issued  restricted  stock  awards to
certain  key  employees  at no cost under its 1997  Stock  Incentive  Plan.  The
restrictions  on the  transferability  of those  shares  lapse over periods that
range up to four years.  A maximum of  3,500,000  shares may be issued under the
1997 Stock Incentive Plan.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In connection with the  Distribution,  all outstanding  options of directors and
employees who transferred to BJI were canceled.  All outstanding options held by
the remaining  directors and employees of the Company were replaced;  the number
of options was  proportionately  adjusted and the exercise prices were decreased
using a ratio of the average closing price of the Company's common stock for the
10 days  immediately  following  the  Distribution  to the  market  price of the
Company's  common stock before the  Distribution.  The adjustment  preserved the
economic  value of the options that existed prior to the  Distribution  date. In
July 1997,  the number of options  issuable under the 1989 Plan was increased by
1.5 million shares in connection with the proportionate option adjustment.

The  Company  applies APB 25 in  accounting  for its  stock-based  compensation.
During fiscal 1997 and 1996,  263,391 and 41,000 shares of restricted stock were
issued  at a  weighted-average  grant-date  fair  value  of  $7.45  and  $22.92,
respectively.   Total  pre-tax   compensation  cost  recognized  in  income  for
stock-based  employee  compensation  awards in fiscal 1997 and 1996 was $0.5 and
$0.4 million,  respectively,  and  consisted  entirely of  compensation  expense
related to restricted stock,  which is charged to income ratably over the period
during which the restrictions lapse. No compensation cost was recognized for the
Company's  stock  options  under APB 25 because the exercise  price  equaled the
market price of the underlying stock on the date of the grant.

Pro forma information  regarding net income and net income per share is required
by  Statement  of  Financial  Accounting  Standards  No.  123,  "Accounting  for
Stock-Based  Compensation,"  ("SFAS  123")  and has  been  determined  as if the
Company had  accounted for its stock options under the fair value method of that
statement.  The fair value for these  options  was  estimated  at the grant date
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 5.64%, 6.47%, and 5.80% in fiscal 1997,
1996 and 1995,  respectively;  volatility factor of the expected market price of
the Company's  common stock of .36, .37, and .37 in fiscal 1997,  1996 and 1995,
respectively,  and expected  option life of 4.5 years for fiscal 1997,  1996 and
1995. No dividends were expected.

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, in management's
opinion,  the existing  models may not provide a reliable  single measure of the
fair value of its stock options.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options'  vesting period.  The Company's pro forma
information is as follows:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands, except per share amounts)                    1998             1997              1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>        
Pro forma income (loss) from continuing
     operations                                         $    (1,772)      $    15,246      $    23,894

Pro forma net income                                    $    10,140       $    75,559      $    72,386

Pro forma income (loss) per share--income (loss)
     from continuing operations:
        Basic                                           $     (0.05)      $      0.46      $      0.72
        Diluted                                         $     (0.05)      $      0.46      $      0.72

Pro forma net income per share--net income:
        Basic                                           $      0.28       $      2.30      $      2.19
        Diluted                                         $      0.28       $      2.28      $      2.18
-----------------------------------------------------------------------------------------------------------
</TABLE>

The effects of applying the provisions of SFAS 123 for pro forma  disclosure are
not necessarily  representative of the effects on reported net income for future
years because  options vest over several years and additional  awards  generally
are made each year. In accordance with the transition  requirements of SFAS 123,
the pro forma disclosures above only include stock options awarded after January
28, 1995.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Below  is  a  summary  of  the  Company's  stock  option  activity  and  related
information:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                           Number Of     Weighted-Average
                                                                            Options       Exercise Price
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>        
Fiscal Year Ended January 27, 1996:

Outstanding at beginning of year                                            2,542,729        $     16.25
          Granted                                                             270,500              15.74
          Exercised                                                          (189,126)             11.30
          Forfeited                                                          (144,553)             16.40
          Expired                                                                   -                  -
-----------------------------------------------------------------------------------------------------------
Outstanding at January 27, 1996                                             2,479,550        $     16.56
===========================================================================================================

Fiscal Year Ended January 25, 1997:
          Granted                                                             789,625        $     24.13
          Exercised                                                          (566,923)             15.96
          Forfeited                                                          (162,628)             19.22
          Expired                                                                   -                  -
-----------------------------------------------------------------------------------------------------------
Outstanding at January 25, 1997                                             2,539,624        $     18.88
===========================================================================================================

Fiscal Year Ended January 31, 1998:
          Granted                                                             817,650        $      9.26
          BJ's spin-off adjustments                                         1,213,988                  -
          Exercised                                                          (422,337)             17.35
          Forfeited                                                        (1,040,860)             17.82
          Expired                                                                   -                  -
-----------------------------------------------------------------------------------------------------------
Outstanding at January 31, 1998                                             3,108,065        $      5.30
===========================================================================================================

Exercisable at:
          January 27, 1996                                                    953,031        $     16.66
          January 25, 1997                                                  1,064,190              16.67
          January 31, 1998                                                  1,100,056               3.82
-----------------------------------------------------------------------------------------------------------

Weighted-average fair value of options granted during the year:
          Fiscal 1995                                                                        $      6.60
          Fiscal 1996                                                                              10.40
          Fiscal 1997                                                                               3.55
-----------------------------------------------------------------------------------------------------------
</TABLE>

Additional  information related to stock options outstanding at January 31, 1998
is presented below:

<TABLE>
<CAPTION>
                         Options Outstanding                                  Options Exercisable
----------------------------------------------------------------------- -----------------------------------
                                                          Weighted-
                                           Weighted-       Average                          Weighted-
                                            Average       Remaining                          Average
        Range Of             Number        Exercise      Contractual         Number          Exercise
     Exercise Prices       Outstanding       Price      Life (Years)      Exercisable         Price
----------------------------------------------------------------------- -----------------------------------

   <C>                        <C>             <C>             <C>             <C>                <C>    
   $ 2.20   to  $ 3.23          435,454       $ 2.75          6.1             378,454            $  2.70
     3.24   to    4.64        1,238,763         4.13          6.9             594,881               4.07
     4.65   to    6.45          668,525         5.99          8.1             126,721               6.02
     6.46   to    8.44          765,323         8.04          9.6                   -                  -
                         ----------------                               -----------------

   $ 2.20   to  $ 8.44        3,108,065       $ 5.30          7.7           1,100,056            $  3.82
                         ================                               =================
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of January 31,  1998,  January 25, 1997 and January 27,  1996,  respectively,
2,723,306,  1,687,373  and  2,327,972  shares were reserved for future stock 
awards under the Company's stock option plans.

In 1989 the Company  adopted a  stockholder  rights plan  designed to discourage
attempts to acquire the Company on terms not approved by the Board of Directors.
Under the plan,  stockholders  were  issued  one Right for each  share of common
stock  owned,  which  entitles  them to purchase  1/100 share of Series A Junior
Participating Preferred Stock (Series A Preferred Stock) at an exercise price of
$75. The Company has designated 1,900,000 shares of Series A Preferred Stock for
use under the rights  plan;  none has been issued.  Generally,  the terms of the
Series A Preferred  Stock are designed so that 1/100 share of Series A Preferred
Stock is the economic  equivalent of one share of the Company's common stock. In
the event any person  acquires 15% or more of the Company's  outstanding  stock,
the Rights become  exercisable  for the number of common  shares  which,  at the
time, would have a market value of two times the exercise price of the Right.

The Company has authorized 10,000,000 shares of preferred stock, $.01 par value,
of which no shares have been issued.

11.  Pensions

The Waban  Inc.  Retirement  Plan (the  "Plan")  is a  non-contributory  defined
benefit retirement plan covering full-time  employees who have attained 21 years
of  age  and  have  completed  one  year  of  service.  Benefits  are  based  on
compensation earned in each year of service. No benefits have accrued under this
plan  since  July  4,  1992,  when it was  frozen.  In June  1995,  the  Company
terminated its non-contributory  retirement plan covering directors who were not
employees or officers of the Company.  The net income effect of the  termination
and settlement of this plan was not material.

The Company's Board of Directors  approved the termination of the Plan effective
July 26,  1997.  However,  in  accordance  with  generally  accepted  accounting
principles,  the additional  cost to terminate the Plan is not recognized  until
the  Plan  termination  is  settled.  Prior  to the  Distribution,  the  Company
contributed  to the Plan amounts  sufficient  to make the Plan's assets equal to
its estimated  termination  liabilities,  based on actuarial projections at that
time.  The Company's  share of these amounts is included in prepaid  expenses on
its  consolidated  balance  sheet.  The Company  expects to record an expense of
approximately  $0.8  million,  net of taxes,  when the Plan is settled in fiscal
1998.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net periodic  pension cost under the  Company's  plans,  presented in accordance
with Statement of Financial Accounting Standards No. 87, "Employers'  Accounting
for Pensions", ("SFAS 87") includes the following components (in thousands):

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997             1996
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>        
Service cost                                            $        62       $        89      $        94
Interest cost on projected benefit obligation                   203               226              223
Actual return on assets                                        (260)             (466)            (646)
Net amortization and deferrals                                   18               278              463
-----------------------------------------------------------------------------------------------------------
Net pension cost                                        $        23       $       127      $       134
===========================================================================================================
</TABLE>

The  following  table  sets  forth the funded  status of the  Company's  defined
benefit pension plan for full-time  employees as of January 31, 1998 and January
25, 1997 in accordance with SFAS 87:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                          January 31,      January 25,
(In thousands)                                                               1998             1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>         
Actuarial present value of accumulated benefit obligation:
   Vested benefits                                                       $     (3,331)     $    (3,204)
-----------------------------------------------------------------------------------------------------------
Projected benefit obligation                                                   (3,331)          (3,204)
Plan assets at fair market value                                                3,450            3,206
-----------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation                             119                2
Unrecognized net loss from past experience different from
   that assumed and effects of changes in assumptions                             676              436
-----------------------------------------------------------------------------------------------------------
Prepaid pension cost                                                     $        795       $      438
===========================================================================================================
</TABLE>

The weighted  average  discount rate used in determining  the actuarial  present
value of the projected benefit  obligation was 6.75% in fiscal 1997 and 7.25% in
fiscal 1996.  The expected  long-term  rate of return on assets used was 9.0% in
fiscal 1997,  fiscal 1996 and fiscal 1995.  The Company's  funding  policy is to
contribute annually an amount allowable for federal income tax purposes. Pension
plan assets consist solely of fixed income securities at January 31, 1998.

Under the  Company's  401(k)  Savings  Plans,  participating  employees may make
pre-tax  contributions  up to 15% of covered  compensation.  The Company matches
employee  contributions at 100% of the first one percent of covered compensation
and 50% of the next four  percent and is payable as of the end of each  calendar
quarter. The Company's expense under these plans was $1.8 million,  $2.1 million
and $2.1 million in fiscal years 1997, 1996 and 1995, respectively.

In  1994,  the  Company  established  a  non-contributory  defined  contribution
retirement  plan for certain key  employees.  Under the plan,  the Company funds
annual retirement  contributions for the designated participants on an after-tax
basis. For fiscal years 1997, 1996 and 1995, the Company's  contribution equaled
5% of the participants' base salary.  Participants  become fully vested in their
contribution  accounts at the end of the fiscal year in which they complete four
years of service.  The Company's expense under this plan was $0.5 million,  $0.4
million, and $0.5 million in fiscal years 1997, 1996 and 1995, respectively.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Postretirement Medical Benefits

The Company sponsors a defined benefit  postretirement  medical plan that covers
employees  and their  spouses who retire  after age 55 with at least 10 years of
service,  who  are  not  eligible  for  Medicare,  and  who  participated  in  a
Company-sponsored  medical plan. Amounts  contributed by retired employees under
this plan are based on years of  service  prior to  retirement.  The plan is not
funded. Net periodic postretirement medical benefit cost presented in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for  Postretirement  Benefits  other than Pensions"  ("SFAS 106"),  includes the
following components:

<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended
-----------------------------------------------------------------------------------------------------------
                                                        January 31,       January 25,      January 27,
(In thousands)                                              1998             1997             1996
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>              <C>      
Service cost                                              $     102         $      69        $      63
Interest cost                                                    32                24               23
Net amortization and deferrals                                   (2)               (8)              (5)
-----------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost                  $     132         $      85        $      81
===========================================================================================================
</TABLE>

The  following  table  sets  forth the  status of the  Company's  postretirement
medical plan and the amount  recognized  in the Company's  consolidated  balance
sheet at January 31, 1998 and January 25, 1997 in accordance with SFAS 106:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                              January 31,      January 25,
(In thousands)                                                                   1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>      
Accumulated postretirement benefit obligation:
         Retired participants                                               $       -        $       -
         Fully eligible active participants                                         -               35
         Other active participants                                                595              358
-----------------------------------------------------------------------------------------------------------
Unfunded accumulated postretirement benefit obligation                            595              393
Unrecognized net gain                                                              41              115
-----------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost                                         $     636        $     508
===========================================================================================================
</TABLE>

For measurement  purposes,  an annual rate of increase in the per capita cost of
medical  coverage  of 7.5% in 1997  grading  down to 4.5% after  seven years was
assumed as of January 25, 1997.  Increasing  the assumed  health care cost trend
rate one  percentage  point  would  increase  the  aggregate  of the service and
interest cost components of net periodic postretirement benefit cost for 1997 by
$17,000 and would increase the accumulated  postretirement benefit obligation as
of January 31, 1998 by $72,000.

The  weighted   average  discount  rate  used  in  determining  the  accumulated
postretirement  benefit  obligation  as of January 31, 1998 and January 25, 1997
was 6.75% and 7.25%, respectively.

13.  Store Closures and Other Charges

In October 1997, the Board of Directors  approved an accelerated growth strategy
that  included  remodeling  the  remaining  17 stores in the  Company's  remodel
program  over the  following  six  months and  increasing  the rate of new store
openings. In connection with this strategy, the Board of Directors also approved
the closure of three under-performing stores. In the third quarter of fiscal

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1997,  the Company  recorded  store  closures and other  charges of $27.0 
million  consisting  of $22.3  million  for store  closures  and  other  related
settlement  costs,  a $3.0  million  increase in the fiscal  1993  restructuring
reserve and $1.7 million in asset impairment charges.

Costs  included  in the  reserve  for store  closures  primarily  include  lease
obligations on closed facilities,  write-downs of fixed assets and other related
settlement  costs. The Company closed two stores in the fourth quarter of fiscal
1997 and expects to close a third store by the end of fiscal 1999. During fiscal
1997,  the  Company  increased  the fiscal  1993  restructuring  reserve by $3.0
million for additional lease obligations due to delays in obtaining subleases on
terms acceptable to the Company.

In accordance with SFAS 121,  long-lived assets held and used by the Company are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  For purposes of
evaluating the recoverability of long-lived  assets, the recoverability  test is
performed  using  undiscounted  net cash  flows of the  individual  stores.  The
Company's  quarterly SFAS 121 analysis  performed in the third quarter of fiscal
1997  indicated  that  the  long-lived  assets  at  two  stores  were  impaired.
Accordingly, the Company estimated the fair value of these assets based on their
estimated salvage value and recorded an impairment charge of $1.7 million, which
is included in store closures and other charges.

14.  Restructuring Reserves

As of January 25, 1997, $13.5 million of the Company's fiscal 1993 restructuring
charge  remained  accrued on the Company's  consolidated  balance sheet.  During
fiscal 1997, the Company incurred cash  expenditures of $3.5 million,  primarily
for lease obligations on closed facilities, and non-cash charges of $0.3 million
for write-downs of fixed assets.  As of January 31, 1998, $12.7 million remained
accrued on the Company's  consolidated  balance sheet (including $3.0 million in
fiscal 1997 additions to the reserve), consisting primarily of lease obligations
on closed facilities, which extend through 2007.

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15.  Selected Quarterly Financial Data (Unaudited)

Fiscal Year ended January 31, 1998:

<TABLE>
<CAPTION>
                                                                     Quarter Ended
--------------------------------------------- --------------- -------------- -------------- --------------
                                                April 26,       July 26,      October 25,    January 31,
(In thousands, except per share data)              1997           1997           1997           1998
--------------------------------------------- --------------- -------------- -------------- --------------
                                                                                              (14 Weeks)
  <S>                                         <C>              <C>           <C>             <C>        
  Net sales                                   $   360,204      $    420,404  $   368,432     $   328,402
  Gross profit                                     77,936            93,355       78,905          67,993
  Income (loss) from continuing
     operations                                     2,271            11,218      (10,288)         (3,884)
  Income from discontinued operations               8,532            12,043            -               -
  Net income (loss)                                10,803            14,598      (10,288)         (3,884)

  Basic net income per share:
   Income (loss) from continuing operations    $     0.07     $      0.32     $    (0.27)    $    (0.10)
   Income from discontinued operations               0.25            0.34              -              -
   Net income (loss)                                 0.32            0.42          (0.27)         (0.10)

  Diluted net income per share:
   Income (loss) from continuing operations    $     0.07     $      0.31     $    (0.27)    $    (0.10)
   Income from discontinued operations               0.25            0.34              -              -
   Net income (loss)                                 0.32            0.41          (0.27)         (0.10)
--------------------------------------------- --------------- -------------- -------------- --------------
</TABLE>

Fiscal Year ended January 25, 1997:

<TABLE>
<CAPTION>
                                                                     Quarter Ended
--------------------------------------------- --------------- -------------- -------------- --------------
                                                April 27,       July 27,      October 26,    January 25,
(In thousands, except per share data)              1996           1996           1996           1997
--------------------------------------------- --------------- -------------- -------------- --------------
  <S>                                          <C>             <C>            <C>           <C>         
  Net sales                                    $  352,242      $    424,271   $  366,410    $    309,773
  Gross profit                                     79,758            95,669       78,437          61,835
  Income (loss) from continuing
     operations                                     2,465            11,229        4,406          (1,753)
  Income from discontinued operations               7,050            14,383       11,620          27,260
  Net income                                        9,515            25,612       16,026          25,507

  Basic net income per share:
   Income (loss) from continuing operations    $     0.08     $      0.34     $     0.13     $    (0.05)
   Income from discontinued operations               0.21            0.44           0.36           0.83
   Net income                                        0.29            0.78           0.49           0.78

  Diluted net income per share:
   Income (loss) from continuing operations    $     0.07     $      0.33     $     0.13     $    (0.05)
   Income from discontinued operations               0.21            0.38           0.36           0.83
   Net income                                        0.28            0.71           0.49           0.78
--------------------------------------------- --------------- -------------- -------------- --------------
</TABLE>

<PAGE>
                                 HOMEBASE, INC.
                              (Formerly Waban Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net income for the second quarter of fiscal 1997 included an extraordinary loss
of $8.7  million,  net of tax,  related to the early  extinguishment  of Company
debt,  primarily  consisting  of call  premiums and the  write-off of debt issue
costs.

Net income for the third quarter of fiscal 1997 includes $27.0 million ($16.3  
million, net of tax) in store closures and other charges.

In fiscal 1997 and 1996,  the  quarterly per share amounts do not sum to the per
share amounts for the respective  year-to-date periods due to differences in the
weighted average number of shares outstanding in each quarterly reporting period
versus the weighted  average  number of shares  outstanding  for the  respective
year-to-date periods.

The quarterly per share amounts for all periods  presented have been restated in
accordance with SFAS 128.

<PAGE>

                                    PART III

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

None

Item 10. Directors and Executive Officers of the Registrant

     The  Company  will file  with the  Securities  and  Exchange  Commission  a
definitive  Proxy Statement no later than 120 days after the close of its fiscal
year ended January 31, 1998 (the "Proxy Statement"). The information required by
this Item that is not set forth below or under the heading  "Executive  Officers
of the Registrant" in Part I of this report is incorporated  herein by reference
to the Proxy Statement.

Item 11. Executive Compensation

     The information  required by this Item is incorporated  herein by reference
to the Proxy  Statement.  However,  information  under  "Executive  Compensation
Committee  Report"  and  "Performance  Graph" in the Proxy  Statement  is not so
incorporated.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

<PAGE>

                                     PART IV

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

A. The Financial  Statements and Financial  Statement Schedules filed as part of
this report are listed and indexed on page 24. Schedules other than those listed
in the index have been omitted  because they are not included  elsewhere in this
report.

B. Listed below are all exhibits filed as part of this report.  Certain exhibits
are  incorporated by reference to documents  previously  filed by the Registrant
with the  Securities and Exchange  Commission  pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.

<TABLE>
<CAPTION>
Exhibit
  No.                Exhibit
------               ---------------------------------------------------------------------------------------
<C>                 <S>                                                            
3.1                  Amended and Restated  Certificate of Incorporation of the Company (incorporated herein
                     by reference to the Registrant's Form S-8 (#333-32473), dated July 30, 1997).  
3.2                  By-Laws,  as  Amended,  of  the  Company  (incorporated  herein  by  reference  to the
                     Registrant's Form S-8 (#333-32473), dated July 30, 1997).
4.0                  Instruments  Defining  Rights of Security  Holders  (See  Exhibits  3.1,  3.2, 4.7 and
                     10.13).
4.1                  Specimen  Common  Stock   Certificate   (incorporated   herein  by  reference  to  the
                     Registrant's Form S-3 (Registration No. 333-43789), dated February 10, 1998).
4.2                  5.25% Convertible Subordinated Note (Rule 144A)(incorporated herein by reference to the 
                     Registrant's Form S-3 (Registration No. 333-43789), dated February 10, 1998).
4.3                  5.25% Convertible  Subordinated Note (Regulation S) (incorporated  herein by reference
                     to the Registrant's Form S-3 (Registration No. 333-43789), dated February 10, 1998).
4.4                  Indenture, dated as of November 10, 1997, between the Company and State Street Bank and
                     Trust Company of California, N.A. (incorporated herein by reference to the Registrant's 
                     Form S-3 (Registration No. 333-43789), dated February 10, 1998).
4.5                  Registration Rights Agreement, dated as of November 10, 1997, by and between the
                     Company and Prudential  Securities  Incorporated  (incorporated herein by reference to
                     the Registrant's Form S-3 (Registration No. 333-43789), dated February 10, 1998).
4.6                  Purchase Agreement,  dated as of December 10, 1997, between the Company and Prudential
                     Securities  Incorporated  (incorporated  herein by reference to the Registrant's  Form
                     S-3 (Registration No. 333-43789), dated February 10, 1998).
4.7                  Rights Agreement dated as of May 23, 1989 between the Company and First Chicago Trust 
                     Company of New York, formerly Morgan Shareholder Services Trust Company, as Rights 
                     Agent (incorporated herein by reference to the Registrant's Form 10, filed with the 
                     SEC, dated May 12, 1989).
4.8                  5.25% Convertible Subordinated Note(Registered) (incorporated herein by reference to 
                     the Registrant's Form S-3 (Registration No. 333-43789), dated February 10, 1998).
<PAGE>

Exhibit
  No.                Exhibit
-------              ---------------------------------------------------------------------------------------
10.0 *               Change  of  Control   Severance  Benefit  Plan  for  Key Employees,  dated January 28, 
                     1998 (incorporated herein by reference to the Registrant's Form S-3 (Registration No.
                     333-43789), dated February 10, 1998).
10.1 *               HomeBase, Inc. 1989 Stock Incentive Plan, as amended (incorporated  herein  by reference
                     to the Registrant's Form 10-Q (File No. 1-10259), dated July 26, 1997).
10.2 *               Waban  Inc.  Executive  Retirement  Plan  (incorporated  herein  by  reference  to the
                     Registrant's Form 10-K for the fiscal year ended January 29, 1994).
10.3 *               Waban Inc. Retirement Plan for Directors,  as amended September 17, 1990 (incorporated
                     herein by  reference  to the  Registrant's  Form  10-Q for the  fiscal  quarter  ended
                     October 27, 1990).
10.4 *               Waban Inc. General Deferred Compensation Plan (incorporated herein by reference to the 
                     Registrant's Form 10-K for the fiscal year ended January 27, 1990).
10.5 *               Waban Inc. Growth Incentive Plan, as amended  (incorporated herein by reference to the
                     Registrant's Form 10-K for the fiscal year ended January 27, 1990).
10.6 *               Amendment  dated as of January  29, 1994  between  the Company and The TJX  Companies,
                     Inc. to Executives  Services  Agreement with respect to Arthur F. Loewy  (incorporated
                     herein by reference to the  Registrant's  Form 10-K for the fiscal year ended  January
                     29, 1994).
10.7 *               Employment  Agreement  dated as of July 28, 1997 with Herbert J. Zarkin  (incorporated
                     herein by reference to the Registrant's  Form 10-Q (File No. 1-10259),  dated July 26,
                     1997).
10.8 *               Employment   Agreement   dated  as  of  July  28,  1997  with  Edward  J.   Weisberger
                     (incorporated  herein by reference to the  Registrant's  Form 10-Q (File No. 1-10259),
                     dated July 26, 1997).
10.9 *               Employment  Agreement  dated as of July 28, 1997 with Allan P.  Sherman  (incorporated
                     herein by reference to the Registrant's  Form 10-Q (File No.  1-10259),  dated October
                     25, 1997).
10.9.1 *             Loan Agreement dated as of January 19, 1994 with Allan P. Sherman (incorporated herein
                     by reference to the Registrant's Form 10-K for the fiscal year ended January 29, 1994).
10.9.2 *             Promissory  Note dated as of January 19, 1994 with Allan P. Sherman to the Company 
                     (incorporated herein by reference to the Registrant's Form 10-K for the fiscal year 
                     ended January 29, 1994).
10.10 *              Employment Agreement, dated  as  of  July  28,  1997  with  Thomas  F.   Gallagher
                     (incorporated  herein by reference to the  Registrant's  Form 10-Q (File No. 1-10259),
                     dated July 26, 1997).
10.11 *              Employment Agreement, dated as of July 28, 1997 with Scott Richards (incorporated
                     herein by reference to the Registrant's Form 10-Q (File No. 1-10259), dated July 26,
                     1997).
10.12 *              Employment Agreement, dated as of July 28, 1997 with William  B. Langsdorf
                     (incorporated  herein by reference to the  Registrant's  Form 10-Q (File No. 1-10259),
                     dated July 26, 1997).
10.13 *              Form of  Indemnification  Agreement between the Company and its officers and directors
                     (incorporated  herein by reference to the  Registrant's  Form 10-K for the fiscal year
                     ended January 27, 1990).
<PAGE>

Exhibit
  No.                Exhibit
------               ---------------------------------------------------------------------------------------
10.14 *              Form of Change of Control Severance Agreement between the Company and officers of the 
                     Company (incorporated herein by reference to the Registrant's Form 10-Q (File No.
                     1-10259), dated July 26, 1997).
10.15                Credit Agreement dated as of July 9, 1997 among the Company and certain  banks 
                     (incorporated  herein by reference to the  Registrant's  Form 10-Q (File No. 1-10259),
                     dated July 26, 1997).
10.15.1 #            First  Amendment  to Credit  Agreement,  dated  October 28, 1997 among the Company and
                     certain banks.
10.15.2 #            Second  Amendment to Credit  Agreement,  dated  November 7, 1997 among the Company and
                     certain banks.
10.15.3 #            Third  Amendment to Credit  Agreement,  dated  December 24, 1997 among the Company and
                     certain banks.
10.16 *              Waban Inc. 1995 Director  Stock Option Plan  (incorporated  herein by reference to the
                     Registrant's  definitive  Proxy  Statement on Schedule 14A (File No.  1-10259) for the
                     Registrant's 1995 Annual Meeting of Stockholders).
10.17                Separation and Distribution Agreement, dated as of July 10, 1997, between the Company 
                     and BJ's Wholesale Club, Inc. (incorporated herein by reference to the Registrant's 
                     Form 8-K (File No. 1-10259), dated July 28, 1997).
10.18                Services Agreement, dated as of July 28, 1997, between the Company and BJ's Wholesale 
                     Club, Inc. (incorporated herein by reference to the Registrant's Form 8-K (File No. 
                     1-10259), dated July 28, 1997).
10.19                Tax  Sharing  Agreement,  dated as of July 28,  1997,  between  the  Company  and BJ's
                     Wholesale Club, Inc.  (incorporated  herein by reference to the Registrant's  Form 8-K
                     (File No. 1-10259), dated July 28, 1997).
10.20 *              Employee Benefits  Agreement,  dated as of July 28, 1997, between the Company and BJ's
                     Wholesale Club, Inc.  (incorporated  herein by reference to the Registrant's  Form 8-K
                     (File No. 1-10259), dated July 28, 1997).
10.21 *              HomeBase,  Inc. 1997 Stock  Incentive  Plan  (incorporated  herein by reference to the
                     Registrant's Form 10-Q (File No. 1-10259), dated July 26, 1997).
13.0 #               Annual report of the Company.
21.0 #               Subsidiaries of the Company.
23.0 #               Consent of Independent Accountants.
27.0 #               Financial Data Schedule--Fiscal 1997.
27.1 #               Financial Data Schedule--Fiscal 1996.
</TABLE>
*                    Management contract or other compensatory plan or 
                     arrangement.
#                    Filed herewith.

                     Reports on Form 8-K
                     -----------------------------------------------------------
                     On October 28, 1997, the Company filed a report on Form 8-K
                     under  items  5  and 7  thereof,  reporting  the  Company's
                     preliminary   third  quarter  results,   which  included  a
                     non-recurring  charge to close three  stores.  In addition,
                     the  Company   announced  plans  to  accelerate  its  store
                     remodeling  program,  which would be funded by $100 million
                     in convertible subordinated debentures.

<PAGE>
                     Reports on Form 8-K--Continued
                     -----------------------------------------------------------
                     On November  11, 1997,  the Company  filed a report on Form
                     8-K under item 5 thereof,  reporting that it entered into a
                     purchase  agreement with an investment banking firm for the
                     sale by the Company of $100  million of  seven-year,  5.25%
                     convertible subordinated debt, due November 1, 2004.

                     On November  17, 1997,  the Company  filed a report on Form
                     8-K  under  items  5  and  7  thereof,  reporting  that  it
                     completed  the private  placement  of $100  million,  5.25%
                     convertible  subordinated  notes,  due  November  1,  2004,
                     through a Rule 144A/Regulation S offering.

<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                                         HomeBase, Inc.


   Dated April 6, 1998                               By: /s/ ALLAN P. SHERMAN
                                                         -----------------------
                                                         Allan P. Sherman
                                                         President and
                                                         Chief Executive Officer



Pursuant  to  the   requirements  of  the  Securities  Act  of  1934,  this
Registration  Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

                 Signature                                  Title                      Date
-------------------------------------------------------------------------------------------------

     <S>                                                                          <C>    
    /s/ HERBERT J. ZARKIN                                                          April 6, 1998
    --------------------------------
        Herbert J. Zarkin                  Chairman of the Board of Directors

    /s/ ALLAN P. SHERMAN                                                           April 6, 1998
    --------------------------------
        Allan P. Sherman                   President, Chief Executive Officer of
                                           the Company and Director
                                           (Principal Executive Officer)

    /s/ WILLIAM B. LANGSDORF                                                       April 6, 1998
    ------------------------
        William B. Langsdorf               Executive Vice President, Chief 
                                           Financial Officer (Principal
                                           Financial Officer and Principal
                                           Accounting Officer)

    /s/ JOHN D. BARR                                                               April 6, 1998
    --------------------------------
        John D. Barr                       Director

    /s/ LORNE R. WAXLAX                                                            April 6, 1998
    --------------------------------
        Lorne R. Waxlax                    Director

    /s/ ARTHUR F. LOEWY                                                            April 6, 1998
    --------------------------------
        Arthur F. Loewy                    Director

    /s/ EDWARD J. WEISBERGER                                                       April 6, 1998
    ------------------------
        Edward J. Weisberger               Director


</TABLE>