FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

[ X ]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended                   December 31, 1998
                         -------------------------------------------------------
                                       or
[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                    to
                              --------------------------------------------------
Commission file number                         1-10104
                      ----------------------------------------------------------

                              UNITED CAPITAL CORP.
--------------------------------------------------------------------------------
               (Exact name of Company as specified in its charter)


                 Delaware                              04-2294493
----------------------------------------   -------------------------------------
     (State or other jurisdiction of                (I.R.S. Employer
     incorporation or organization)               Identification Number)

9 Park Place, Great Neck, New York                       11021
----------------------------------------   -------------------------------------
(Address of principal executive offices)              (Zip code)

Company's telephone number, including area code:          (516) 466-6464
                                                --------------------------------

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

        Title of Each Class            Name of Each Exchange on Which Registered
----------------------------------     -----------------------------------------
          Common Stock                         American Stock Exchange
   (Par Value $.10 Per Share)

Indicate by check mark whether the Company (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  Company  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 Company'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  shares  of  the  voting  stock  held  by
nonaffiliates  of  the  Company  as  of  February  24,  1999  was  approximately
$27,932,000.

The number of shares of the Company's $.10 par value common stock outstanding as
of February 24, 1999 was 5,047,147.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required  by Part III of Form  10-K  will be  incorporated  by
reference to certain  portions of a definitive proxy statement which is expected
to be filed by the Company  pursuant to Regulation 14A within 120 days after the
close of its fiscal year.


<PAGE>

                                     PART I

ITEM 1.                    BUSINESS

General
-------

United  Capital  Corp.  (the  "Company"),  incorporated  in 1980 in the State of
Delaware, currently has two industry segments:

1.                Real Estate Investment and Management.

2.                Manufacture and Sale of Engineered Products.

The Company also invests  excess  available  cash in marketable  securities  and
other financial instruments.

On January 2, 1998,  the Company  completed the sale of the stock of its Dorne &
Margolin, Inc. ("D&M") subsidiary to AIL Systems Inc. ("AIL") for $16 million in
cash,  resulting in a pretax gain from discontinued  operations of approximately
$8.6  million.  The net assets and  operating  results of D&M are presented as a
discontinued operation in the accompanying Consolidated Financial Statements for
periods prior to the sale. (See Note 2, "Disposal of Operating Company" of Notes
to Consolidated Financial Statements.)

Description of Business
-----------------------

                  Real Estate Investment and Management
                  -------------------------------------

The Company is engaged in the business of investing in and managing  real estate
properties and the making of high-yield,  short-term  loans secured by desirable
properties.  Most real estate  properties  owned by the Company are leased under
net leases  pursuant  to which the  tenants  are  responsible  for all  expenses
relating to the leased  premises,  including  taxes,  utilities,  insurance  and
maintenance. The Company also owns properties that it manages which are operated
by the City of New York as day-care  centers  and  offices and other  properties
leased as department stores,  hotels and shopping centers around the country. In
addition,  the Company  owns  properties  available  for sale and lease with the
assistance of a consultant or a realtor working in the locale of the premises.

The majority of properties are leased to single tenants. Exclusive of the former
D&M facility and the South  Plainfield  property  reclassified  to real property
held for rental on December 20, 1998 (See Note 6, "Notes Receivable" of Notes to
Consolidated  Financial  Statements),  approximately  96%  of the  total  square
footage of the Company's properties are currently leased.

                  Engineered Products
                  -------------------

The Company's  engineered  products are  manufactured  through Metex Mfg.  Corp.
("Metex")  and  AFP  Transformers,   Inc.  ("AFP  Transformers"),   wholly-owned
subsidiaries   of  the  Company.   The  knitted  wire  products  and  components
manufactured  by Metex  must  function  in adverse  environments  and meet rigid
performance  requirements.  The  principal  areas in which these  products  have
application  are as  high  temperature  gaskets,  seals,  components  for use in
airbags, shock and vibration isolators, noise reduction elements and air, liquid
and solid filtering devices.

                                       1
<PAGE>

Metex has been an original  equipment  manufacturer for the automobile  industry
since 1974 and presently  supplies many  automobile  manufacturers  with exhaust
seals and components for use in exhaust emission control devices.

The Company also  manufactures  transformer  products  which are marketed  under
several brand names including AFP Transformers,  Field  Transformer,  ISOREG and
EPOXYCAST for a wide variety of industrial and research  applications  including
machine power transformers, rectifier and inverter transformers and transformers
for heating.

Sales by the engineered products segment to its three largest customers (each in
excess of 10% of the segment's net sales) accounted for approximately 35% of the
segment's  sales for 1998.  During  1997  sales to its three  largest  customers
accounted for approximately 39% of the segment's sales.

                  Summary Financial Information
                  -----------------------------

The following table sets forth the revenues,  operating  income and identifiable
assets of each  continuing  business  segment of the Company for 1998,  1997 and
1996.

                                                      1998      1997      1996
                                                      ----      ----      ----
                                                           (in thousands)
Real Estate Investment and Management-
--------------------------------------

Rental revenues                                     $ 26,349   $24,042   $23,936
                                                    ========   =======   =======

Operating income                                    $ 12,133   $ 7,718   $ 6,195
                                                    ========   =======   =======

Identifiable assets, including corporate assets     $114,406   $95,080   $99,292
                                                    ========   =======   =======


Engineered Products-
--------------------

Net sales                                           $ 32,170   $36,204   $42,055
                                                    ========   =======   =======

Operating income                                    $  3,239   $ 3,419   $ 3,792
                                                    ========   =======   =======

Identifiable assets                                 $ 11,706   $11,432   $12,174
                                                    ========   =======   =======

                  Distribution
                  ------------

The Company's  manufactured products are distributed by a direct sales force and
through   distributors   to   industrial   consumers   and  original   equipment
manufacturers.

                  Product Methods and Sources of Raw Materials
                  --------------------------------------------

The  Company's  products are  manufactured  at its own  facilities  and a leased
facility in Mexico.  The Company  purchases raw  materials  from a wide range of
suppliers of such  materials.  Most raw  materials  purchased by the Company are
available from several suppliers. The Company has not had and does not expect to
have any problems fulfilling its raw material requirements during 1999.

                                       2
<PAGE>

                  Patents and Trademarks
                  ----------------------

The Company owns several  patents,  patent  licenses and  trademarks.  While the
Company  considers that in the aggregate its patents and trademarks  used in the
engineered  products  operations are  significant  to this segment,  it does not
believe that any of these patents or trademarks are of such  importance that the
loss of one or more of such patents or trademarks  would  materially  affect its
consolidated financial condition or results of operations.

                  Employees
                  ---------

At February  24,  1999,  the Company  employed  approximately  300  persons.  At
December 31, 1998,  approximately 185 of the Company's employees were covered by
a  collective  bargaining  agreement  that expires in February  1999.  While the
Company  believes  that its  relationship  with  its  employees  is good,  it is
currently negotiating a renewal to its labor contract. There can be no assurance
that the  labor  contract  will be  renewed  or the  terms of any such  renewal.
Failure to renew  this  contract  can result in a strike or other work  stoppage
that  could  have  a  material  adverse  effect  on  the  Company's  results  of
operations.

                  Competition
                  -----------

The Company  competes with at least 20 other companies in the sale of engineered
products.  The Company emphasizes product  performance and service in connection
with the sale of these products.  The principal competition faced by the Company
results from the sales price of the products sold by its competitors.

                  Backlog
                  -------

The dollar value of unfilled orders of the Company's engineered products segment
was approximately $2.1 million at December 31, 1998 and $2.2 million at December
31, 1997. It is  anticipated  that  substantially  all such 1998 backlog will be
filled in 1999.  The order backlog  referred to above does not include any order
backlog  with  respect  to sales of knitted  wire mesh  components  for  exhaust
emission  control  devices  or  exhaust  seals  because  of the  manner in which
customer orders are received.

                  Environmental Regulations
                  -------------------------

Federal, state and local requirements regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment, have
had and will  continue to have a significant  impact upon the  operations of the
Company.  It is the policy of the Company to manage,  operate and  maintain  its
facilities in compliance,  in all material respects,  with applicable  standards
for the prevention,  control and abatement of environmental pollution to prevent
damage to the quality of air, land and resources.

The Company has  undertaken  the  completion  of  environmental  studies  and/or
remedial action at Metex' two New Jersey facilities.

The process of  remediation  has begun at one facility  pursuant to a plan filed
with  the  New  Jersey   Department  of  Environmental   Protection  and  Energy
("NJDEPE"). Environmental experts engaged by the Company estimate that under the
most probable  remediation  scenario the remediation of this site is anticipated
to  require  initial  expenditures  of  $860,000  including  the cost of capital
equipment,  and $86,000 in annual operating and maintenance costs over a 15-year
period.

                                       3


<PAGE>

Environmental  studies at the second facility  indicate that  remediation may be
necessary. Based upon the facts presently available,  environmental experts have
advised the  Company  that under the most  probable  remediation  scenario,  the
estimated  cost to remediate this site is anticipated to require $2.3 million in
initial costs, including capital equipment expenditures,  and $258,000 in annual
operating and maintenance  costs over a 10-year  period.  The Company may revise
such estimates in the future due to the uncertainty regarding the nature, timing
and extent of any remediation  efforts that may be required at this site, should
an appropriate regulatory agency deem such efforts to be necessary.

The foregoing  estimates may also be revised by the Company as new or additional
information  in these  matters  become  available  or should the NJDEPE or other
regulatory agencies require additional or alternative remediation efforts in the
future. It is not currently possible to estimate the range or amount of any such
liability.

Although  the  Company  believes  that  it  is  entitled  to  full  defense  and
indemnification  with respect to  environmental  investigation  and  remediation
costs under its  insurance  policies,  the  Company's  insurers have denied such
coverage. Accordingly, the Company has filed an action against certain insurance
carriers  seeking  defense  and  indemnification  with  respect to all prior and
future costs incurred in the  investigation  and remediation of these sites (see
Item 3, "Legal  Proceedings").  Upon the advice of counsel, the Company believes
that based upon a present  understanding  of the facts and the present  state of
the law in New Jersey,  it is  probable  that the  Company  will  prevail in the
pending  litigation and thereby access all or a very substantial  portion of the
insurance coverage it claims; however, the ultimate outcome of litigation cannot
be predicted.

At December 31, 1998 and 1997, a total of $2.9 million in anticipated  insurance
recoveries was recorded in the accompanying  Consolidated  Financial Statements,
and included in other assets.  Additionally,  in 1995 the Company  received $4.1
million of  insurance  recoveries.  The  remaining  balance  of $2.9  million at
December 31, 1998 (from a total of $7 million) is in dispute with the  Company's
insurance  carriers as more fully  discussed in Item 3 "Legal  Proceedings"  and
Note  19,   "Contingencies"  of  Notes  to  Consolidated  Financial  Statements.
Management  believes that  recoveries in excess of the amounts  reflected in the
accompanying Consolidated Financial Statements are available under the insurance
policies but have not been recorded.  There can be no assurance,  however,  that
the Company will prevail in its efforts to obtain amounts at or in excess of the
estimated recoveries.

In the opinion of management,  these matters will be resolved favorably and such
amounts,  if any, not recovered under the Company's  insurance  policies will be
paid  gradually  over a period  of years  and,  accordingly,  should  not have a
material  adverse effect upon the business,  liquidity or financial  position of
the Company. However, adverse decisions or events, particularly as to the merits
of the  Company's  factual and legal basis could cause the Company to change its
estimate of liability with respect to such matters in the future.

                                       4
<PAGE>

ITEM 2.                    PROPERTIES

Real Property Held for Rental
-----------------------------

As of February 24, 1999 the Company owned 223 properties  strategically  located
throughout  the  United  States.  The  properties  are  primarily  leased  under
long-term net leases.  The Company's  classification and gross carrying value of
its properties at December 31, 1998 are as follows (dollars in thousands):

                                                Gross 
                                               Carrying              Number of
       Description                               Value   Percentage  Properties
                                              ---------  ----------  ----------

Shopping centers and retail outlets           $ 72,331      51.6%        30
Commercial properties                           52,822      37.7%       142
Day-care centers and offices                     8,056       5.8%        12
Hotel properties                                 2,916       2.1%         2
Other                                            3,977       2.8%        40
                                              --------   ---------      ---

         Total                                $140,102     100.0%       226
                                              ========   =========      ===
                                                                     
                  Shopping Centers and Retail Outlets
                  -----------------------------------

Shopping  centers  and retail  outlets  include 20  department  stores and other
properties which are primarily leased under net leases.  Taxes,  maintenance and
all other expenses of the properties are the responsibility of the tenants.  The
leases for certain  shopping  centers and retail outlets  provide for additional
rents based on sales volume and renewal options at higher rents.  The department
stores  include  11 K-Mart  stores  and  three  Macy's  stores,  with a total of
approximately  1,064,000,  and 538,000,  square feet,  respectively.  The K-Mart
stores are primarily  located in the Midwest  region of the United  States.  The
Macy's stores are located in the Pacific Coast region of the United States.

                  Commercial Properties
                  ---------------------

Commercial  properties consist of properties leased as 90 restaurants,  26 Midas
Muffler Shops, three convenience stores, nine office buildings and miscellaneous
other  properties.  Commercial  properties are primarily leased under net leases
which in certain cases,  have renewal options at higher rents.  Certain of these
leases  also  provide  for  additional  rents  based  on  sales  volume.  The 90
restaurants,  located throughout the United States, include properties leased as
Roy Rogers, Pizza Hut, Hardee's, Wendy's and Kentucky Fried Chicken. Included in
commercial  properties is the 90,000 square foot facility previously utilized in
the  Company's  D&M  business.  This  facility  was  retained by the Company and
transferred to real property held for rental.

                  Day-Care Centers and Offices
                  ----------------------------

The ten day-care  centers and two  offices,  which are located in New York City,
are leased on a long-term basis, to the City of New York.

                                       5
<PAGE>




                  Hotel Properties
                  ----------------

The Company's two hotel  properties are located in Georgia and California  which
are managed through a local on-site  management  company that is responsible for
all day-to-day operations of the hotels.

The following  summarizes  real  property held for rental by geographic  area at
December 31, 1998 (dollars in thousands):

                                          Number               Gross
                                           of                 Carrying
                                       Properties              Value
                                  -----------------       ----------------

         Northeast                          119               $47,855
         Southeast                           37                24,196
         Midwest                             41                30,371
         Southwest                            9                 9,811
         Pacific Coast                       10                23,607
         Pacific Northwest                    5                   981
         Rocky Mountain                       5                 3,281
                                  -----------------       ----------------

                                            226              $140,102
                                  =================       ================

Manufacturing Facilities
------------------------

The  Company's  engineered  products  are  manufactured  at 970 New Durham Road,
Edison, New Jersey, in a one-story building having  approximately  53,000 square
feet of floor  space  and  also in a second  facility  at 206  Talmadge  Road in
Edison,  New Jersey which has  approximately  54,500 square feet of floor space.
The Company owns these  facilities  together with the sites.  In December  1998,
Metex  leased a  manufacturing  facility in Tijuana,  Mexico with  approximately
10,000 square feet of floor space. Production at this facility began in February
1999.

ITEM 3.                    LEGAL PROCEEDINGS

Rosatelli vs. United Capital Corp.
----------------------------------

In August 1996, Dennis  Rosatelli,  the Company's former Chief Financial Officer
commenced an action in Superior Court of New Jersey, Law Division, Bergen County
("Superior Court"),  seeking,  among other things,  payment under his employment
contract,  and  indemnification  for claims against him by the Internal  Revenue
Service and other  matters in  connection  with his tenure.  In March 1997,  Mr.
Rosatelli  amended his  complaint  to include  Bank of America  Illinois,  Metex
Corporation,  Kentile Inc.,  A.F.  Petrocelli and another  officer of Kentile as
additional defendants.  The Company believes that as a result of Mr. Rosatelli's
gross  negligence,  recklessness  and/or  willful  disregard  of his  duties and
responsibilities,  Mr. Rosatelli is not entitled to the recoveries he seeks. Mr.
Rosatelli's  employment was terminated by the Company in May 1996 for cause. The
matter was removed to the United States District  Court,  District of New Jersey
in October 1996. In March 1998, the U.S. District Court dismissed certain of Mr.
Rosatelli's claims and remanded the remainder of the action back to the Superior
Court.  In May 1998, Mr.  Rosatelli  amended his complaint to include  Kentile's
assignee for the benefit of creditors as an  additional  defendant and to remove
the officer of Kentile  previously  named as a defendant  from this action.  The
material allegations of the complaint are unchanged. This action is in the early
stages of pretrial  discovery.  The Company  intends to  vigorously  defend this
action and 

                                       6

<PAGE>

has asserted  counterclaims  against Mr. Rosatelli for, among other things,  the
set off of amounts by which he has damaged the Company  against his claims under
his employment contract.

Metex Corporation vs. Affiliated FM Insurance Co., et al.
---------------------------------------------------------

On June 27,  1990,  Metex filed an action in the  Superior  Court of New Jersey,
Chancery Division,  Middlesex County,  against several insurance  companies that
provided Metex with liability  insurance  between 1967 and 1986. To date,  Metex
has reached settlements with several carriers. The action seeks both declaratory
relief  and  monetary  damages in  connection  with  reimbursement  of the costs
incurred  and to be  incurred  by Metex in  connection  with the  completion  of
environmental studies and remedial action required at its two Edison, New Jersey
facilities.  The declaratory  relief sought is a determination that the terms of
the liability  insurance policies at issue obligate the defendants to defend and
indemnify  Metex  with  respect  to all  costs  and  expenses  related  to these
environmental  matters.  Metex also  seeks  monetary  damages in an  unspecified
amount for breach of the defendants' duty to indemnify Metex.

In June 1995, the court dismissed,  without prejudice,  the New Durham site from
this action. The court ruled that without a governmental  directive to remediate
the  site no  third-party  liability  exists  and  accordingly  no  coverage  is
available  under the  policies.  The Company  appealed  the  decision to the New
Jersey Appellate  Division which heard the case in February 1996. In April 1996,
the  Appellate  Division  issued a  published  ruling  in  favor of the  Company
reinstating the action as to the general liability  insurance policies regarding
both sites and remanded to the trial court to determine whether the umbrella and
excess  insurance  policies should be similarly  reinstated as to the New Durham
Road site. In November  1996, the umbrella and excess  insurance  companies once
again moved to dismiss the New Durham site. The motion to dismiss was argued and
denied by the trial court on January 24,  1997.  Pretrial  discovery  is nearing
completion  and a trial is  expected  later this year.  The  Company  intends to
continue to vigorously pursue this action.

Other Litigation
----------------

The Company is involved in various other  litigation and legal matters which are
being defended and handled in the ordinary course of business.

None of the  foregoing  is  expected  to result in a judgment  having a material
adverse effect on the Company's  consolidated  financial  position or results of
operations.

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

                                    None.

                                       7
<PAGE>
                                     PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK
               AND RELATED SECURITY HOLDER MATTERS

The Company's  Common Stock is traded on the American  Stock  Exchange under the
symbol AFP.  The table below shows the high and low sales  prices as reported in
the composite transactions for the American Stock Exchange.

                                                  High                 Low
                                                -------              --------

1998            First quarter                   $26-1/2              $23-1/8
----
                Second quarter                   23-3/4               20-1/2
                Third quarter                    24-1/4               17
                Fourth quarter                   18-7/8               14

1997            First quarter                   $12-7/8              $8-3/8
----
                Second quarter                   20-1/2               12-5/8
                Third quarter                    17-5/8               15
                Fourth quarter                   29                   17-1/8

As of February  24, 1999,  there were  approximately  500 record  holders of the
Company's  Common Stock.  The closing sales price for the Company's Common Stock
on such date was $18 1/8.  The Company has never paid any cash  dividends on its
Common Stock. The payment of dividends is within the discretion of the Company's
Board of Directors,  however in view of potential  working  capital needs and in
order to finance  future growth and as a result of certain  restrictions  in the
Company's  Credit  Agreement,  it is unlikely that the Company will pay any cash
dividends on its Common Stock in the near future.

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The  selected  consolidated  financial  data  presented  below should be read in
conjunction  with,  and is  qualified  in its  entirety  by  reference  to,  the
Consolidated Financial Statements and the Notes thereto.

<TABLE>
<CAPTION>
                                                      1998           1997            1996            1995            1994
                                                   --------        --------        --------        --------        ---------
                                                                    (in thousands except per share amounts)
<S>                                                <C>             <C>             <C>             <C>             <C>     

Total revenues (1)                                 $ 58,519        $ 60,246        $ 65,991        $ 64,340        $ 57,499
                                                   ========        ========        ========        ========        ========

Income from continuing operations                  $ 10,583        $  7,465        $  6,634        $  3,910        $  4,158
                                                   ========        ========        ========        ========        ========

Income from continuing operations
     per basic common share (2)                    $   2.03        $   1.41        $   1.21        $    .67        $    .68
                                                   ========        ========        ========        ========        ========

Total assets, end of year                          $126,112        $113,353        $116,761        $110,366        $120,404
Total liabilities, end of year                       73,694          75,873          87,186          84,137          87,623
Stockholders' equity, end of year                    52,418          37,480          29,575          26,229          32,781
                                                   ========        ========        ========        ========        ========
</TABLE>


Notes to Selected Consolidated Financial Data
---------------------------------------------

(1)               Certain reclassifications have been reflected in the financial
                  data  to   conform   prior   years'   data   to  the   current
                  classifications.

                                       8

<PAGE>

(2)               Earnings per share amounts prior to 1997 have been restated as
                  required  to comply with  Statement  of  Financial  Accounting
                  Standards No. 128,  "Earnings Per Share" ("SFAS No. 128"). For
                  further  discussion  of  earnings  per share and the impact of
                  SFAS No. 128, see Note 1, "Summary of  Significant  Accounting
                  Policies" of Notes to Consolidated Financial Statements.

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

Results of Operations 1998 and 1997
-----------------------------------

                  General
                  -------

The following  discussion of the  Company's  financial  condition and results of
operations  should be read in conjunction  with the description of the Company's
business  and  properties  contained  in  Items  1  and  2 of  Part  I  and  the
Consolidated Financial Statements and Notes thereto,  included elsewhere in this
report.

The total  revenues  generated  by the Company  during  1998 were $58.5  million
versus $60.2 million in 1997.  Income from  continuing  operations  for 1998 was
$10.6  million or $2.03 per basic share,  a 44% increase  over 1997 earnings per
basic share of $1.41.  Income from  continuing  operations  during 1997 was $7.5
million.  Income from the disposal of  discontinued  operations,  net of tax for
1998,  was $4.8 million or $.93 per basic share versus income from  discontinued
operations of $1 million or $.19 per basic share in 1997.  Net income  increased
to $15.4  million or $2.96 per basic share in 1998 versus $8.5  million or $1.60
per basic share in 1997, an 85% increase in earnings per share.

               Real Estate Operations
               ----------------------

Rental revenues from real estate  operations  during 1998 increased $2.3 million
or 10% over those of the prior year.  This increase is primarily due to revenues
associated with properties acquired in the current and prior year.

Mortgage  interest  expense for 1998  decreased  by $397,000 as compared to such
expense  incurred  during 1997. This decrease of 13% results from the continuing
amortization  of  mortgages  during  the  current  year,   including  repayments
associated with properties  sold.  Additionally,  the Company  refinanced  three
mortgages in 1998 with a total principal value of  approximately  $12.3 million,
reducing the weighted average interest rate on these three mortgages from 10.26%
to 6.56%.

Depreciation  expense  associated with real properties held for rental decreased
approximately  $308,000 or 5% from such expense  incurred in the preceding year.
This decrease is primarily  attributable to properties sold, partially offset by
depreciation expense on acquisitions.

Other  operating  expenses  associated  with the  management of real  properties
decreased  approximately  $1.4 million during 1998 versus such expenses incurred
in 1997.  This  decrease is  principally  due to a one time  adjustment  in 1998
associated with real estate tax abatements.

                                       9
<PAGE>

               Engineered Products
               -------------------

The Company's  engineered  products  segment  includes  Metex Mfg. Corp. and AFP
Transformers,  Inc. The operating results of the engineered products segment for
the years ended December 31 follows-

                                                              1998       1997
                                                            -------    --------
                                                              (in thousands)

        Net sales                                           $32,170    $36,204
                                                            =======    =======
        
        Cost of sales                                       $22,260    $25,972
                                                            =======    =======
        
        Selling, general and administrative expenses        $ 6,671    $ 6,813
                                                            =======    =======
        
        Income from operations                              $ 3,239    $ 3,419
                                                            =======    =======

Net sales of the engineered products segment were $32.2 million, an 11% decrease
from prior year's  revenues.  This decrease  resulted  primarily  from continued
price  competition  and declining  worldwide  automotive  sales.  Management has
continued  to  aggressively  pursue  new  revenue  opportunities  including  new
geographical  markets for its existing  products as well as new applications for
its core technologies.

Cost of sales as a percentage of net sales  decreased  approximately  3% between
1997 and 1998. This decline is primarily due to a favorable market for stainless
steel  purchases,  and a  continued  emphasis on cost  reductions,  productivity
improvements and product mix.

Selling,  general and administrative expenses of the engineered products segment
decreased  $142,000 or 2% during 1998,  as compared to such costs in 1997.  This
reduction is principally due to reduced selling  expenses,  primarily salary and
salary related expenses.

               General and Administrative Expenses
               -----------------------------------

General  and  administrative  expenses  not  associated  with the  manufacturing
operations  increased  approximately  $768,000  during  1998 as compared to such
expenses  incurred  in  the  preceding  year  primarily  due to an  increase  in
professional fees.

               Other Income and Expense, Net
               -----------------------------

Other income and expense, net for 1998 increased approximately $1.8 million from
$3.2 million in 1997 to $5.0 million in 1998. The increase is principally due to
an increase in gain on the sale of real estate properties of approximately  $2.0
million partially offset by increases in other net expenses.

Results of Operations 1997 and 1996
-----------------------------------

Total  revenues  generated  by the  Company  during 1997 were $60.2  million,  a
decrease of $5.8  million from total 1996  revenues of $66 million.  Income from
continuing  operations  for the period was $7.5 million or $1.41 per basic share
as compared to income from  continuing  operations  of $6.6 million or $1.21 per
basic  share for  1996.  Income  from  discontinued  operations  for 1997 was $1
million or $.19 per basic share versus a loss of  ($797,000) or ($.15) per basic
share in 1996. Net income  increased to $8.5 million or $1.60 per basic share in
1997 versus $5.8 million or $1.06 per basic share in 1996.


                                       10
<PAGE>

               Real Estate Operations
               ----------------------

Rental revenues from real estate  operations  during 1997 increased  $106,000 or
less than 1% over those of 1996.  Revenues  from new  property  additions  and a
one-time  adjustment  for  percentage  rents on  certain  properties  offset the
reduction in revenues resulting from properties sold.

Mortgage  interest  expense for 1997  decreased  by $613,000 as compared to such
expense  incurred  during 1996. This decrease of 17% results from the continuing
amortization  of mortgages  which  approximated  $5.1 million during the current
year, including repayments associated with properties sold.

Depreciation  expense  associated with real properties held for rental decreased
approximately  $521,000 or 8% from such expense  incurred in 1996. This decrease
is primarily attributable to properties sold in 1997 and 1996.

Other  operating  expenses  associated  with the  management of real  properties
decreased  approximately  $283,000 during 1997 versus such expenses  incurred in
1996.  This  decrease  is  primarily   attributable  to  costs  associated  with
properties  sold,  reductions in legal expenses from the prior year, and certain
cost reductions and capital improvements implemented in 1996.

               Engineered Products
               -------------------

The Company's  engineered  products segment includes Metex Mfg.  Corporation and
AFP Transformers,  Inc. The operating results of the engineered products segment
for the years ended December 31 follows-

                                                              1997        1996
                                                            -------      -------
                                                              (in thousands)

          Net sales                                         $36,204      $42,055
                                                            =======      =======
          
          Cost of sales                                     $25,972      $30,891
                                                            =======      =======
          
          Selling, general and administrative expenses      $ 6,813      $ 7,372
                                                            =======      =======
          
          Income from operations                            $ 3,419      $ 3,792
                                                            =======      =======

Net sales of the engineered  products segment were $36.2 million,  a decrease of
$5.9 million versus such sales in 1996.  This decrease  resulted  primarily from
increased price competition and declining worldwide automotive sales.

Cost of sales as a percentage of net sales  decreased  approximately  2% between
1996 and 1997.  This decline is primarily due to continued  management  focus on
cost containment as well as product mix.

Selling, general and administrative expenses ("SG&A") of the engineered products
segment decreased $559,000 or 8% during 1997, as compared to such costs in 1996.
While sales  decreased  approximately  14% in 1997 as  compared to 1996,  the 8%
decline in SG&A expenses reflects management's commitment to increasing sales in
this segment.

                                       11
<PAGE>

               General and Administrative Expenses
               -----------------------------------

General  and  administrative  expenses  not  associated  with the  manufacturing
operations  decreased  approximately  $595,000  during  1997 as compared to such
expenses incurred in 1996. This decrease is primarily due to lower  compensation
and related expenses.

               Other Income and Expense, Net
               -----------------------------

Other income and expense, net for 1997 decreased approximately $1.5 million from
$4.8 million in 1996 to $3.3 million in 1997. The decrease is principally due to
a nonrecurring gain of $1.4 million in 1996 resulting from the settlement of all
claims  from an  investment  that  was  principally  written  off in 1990  and a
reduction  in gains  on the  sale of real  estate  properties  of  approximately
$438,000 partially offset by a reduction of other net expenses.

Liquidity and Capital Resources
-------------------------------

At December 31, 1998, the Company had positive  working capital of approximately
$10.2  million  principally  due to the sale of D&M on  January  2, 1998 for $16
million  in cash.  (See Note 2,  "Disposal  of  Operating  Company"  of Notes to
Consolidated  Financial  Statements.)  A portion  of these  proceeds  along with
existing cash balances were utilized for general  corporate  purposes and to pay
down debt of approximately $5.0 million, to purchase and retire common shares of
approximately $3.9 million and for acquisitions of real property held for rental
of  approximately  $15.9  million.  It is  anticipated  that the remaining  cash
balances  will be  reinvested  into the Company's  businesses  during 1999.  The
current liabilities of the Company have historically exceeded its current assets
principally due to the financing of the purchase of long-term  assets  utilizing
short-term   borrowings  and  from  the   classification   of  current  mortgage
obligations without the corresponding current asset for such properties.  Future
financial  statements  may  reflect  current  liabilities  in excess of  current
assets.   Management  is  confident   that  through  cash  flow  generated  from
operations,  together  with  borrowings  available  under the  revolving  credit
facility  discussed below and the sale of select assets, all obligations will be
satisfied as they come due.

The Company's portfolio of available for sale securities had a fair market value
of  approximately  $14.3  million  at  December  31,  1998,   reflecting  pretax
unrealized holding gains of approximately $4.5 million.

The Company's  Credit  Agreement  with two banks  provides for both a $7 million
term  loan  ("Term  Loan")  and  a  $40  million   revolving   credit   facility
("Revolver").  Under the terms of the  Credit  Agreement,  the  Company  will be
provided  with  eligibility  based  upon  the  sum of (i)  50% of the  aggregate
annualized  and  normalized   year-to-date  net  operating  income  of  eligible
properties, as defined,  capitalized at 11.5% and (ii) the lesser of $12 million
or the sum of 75% of eligible accounts receivable and 50% of eligible inventory,
as defined.  Eligibility is also limited by amounts  outstanding  under the Term
Loan.  At December  31,  1998,  eligibility  under the Revolver was $40 million,
based upon the above terms. The Credit Agreement  contains certain financial and
restrictive covenants, including minimum consolidated equity, interest coverage,
debt service coverage and capital expenditures (other than for real estate). The
Company was in compliance  with all  covenants at December 31, 1998.  The Credit
Agreement also contains provisions which allow the lenders to perfect a security
interest in certain  operating and real estate assets in the event of a default,
as  defined in the  Credit  Agreement.  Borrowings  under the  Revolver,  at the
Company's option, bear interest at the bank's prime lending rate or at the

                                       12
<PAGE>

London  Interbank  Offered Rate ("LIBOR") plus 1.75% while  borrowings under the
Term Loan bear  interest at 90 day LIBOR plus 1.4%.  The Term Loan is payable in
quarterly  principal  installments  of  $350,000  with the final  payment due on
September  30, 2002.  The Revolver  expires on January 15, 2000. At December 31,
1998, there were no amounts  outstanding under the Revolver and $5.3 million was
outstanding on the Term Loan.

The Company entered into an interest-rate swap agreement to effectively  convert
its floating  rate Term Loan to a fixed rate basis,  thus reducing the impact of
interest rate changes on future expense.  Under the swap agreement,  the Company
agreed to exchange  with the  counterparty  (a commercial  bank) the  difference
between the fixed and floating rate interest  amounts.  The  differential  to be
paid or received on the interest  rate swap is  recognized  over the term of the
agreement  as an  adjustment  to  interest  expense.  The fair value of the swap
agreement is not recognized in the financial statements.

The Company has  undertaken  the  completion  of  environmental  studies  and/or
remedial  action at Metex'  two New  Jersey  facilities  and has filed an action
against certain insurance  carriers seeking recovery of costs incurred and to be
incurred in these matters. Based upon the advice of counsel, management believes
such recovery is probable and therefore should not have a material effect on the
liquidity or capital resources of the Company.  However, the ultimate outcome of
litigation  cannot be  predicted.  To date  settlements  have been  reached with
several carriers in this matter.

At  December  31,  1998  and  December  31,  1997 a  total  of $2.9  million  in
anticipated   insurance   recoveries  has  been  recorded  in  the  accompanying
Consolidated Financial Statements and is included in other assets. Additionally,
in 1995 the Company received  approximately $4.1 million of insurance  proceeds.
The  remaining  balance of $2.9 million at December 31, 1998 (from a total of $7
million)  is in dispute  with the  Company's  insurance  carriers  as more fully
discussed in Item 3 "Legal Proceedings" and Note 19, "Contingencies" of Notes to
Consolidated Financial Statements. Management believes that recoveries in excess
of the amounts reflected in the accompanying  Consolidated  Financial Statements
are available under the insurance policies but have not been recorded. There can
be no assurance, however, that the Company will prevail in its efforts to obtain
amounts at or in excess of the estimated recoveries.

In October 1998, the Company's  Board of Directors  authorized the repurchase of
up to an additional $5 million of the Company's common stock.  Purchases will be
made from time to time in the open market at prevailing market prices and may be
made in privately negotiated transactions, subject to available resources.

The cash  needs of the  Company  have been  satisfied  from funds  generated  by
current  operations  and  additional  borrowings.  It is  expected  that  future
operational  cash needs and the cash required to repurchase the Company's common
stock will also be satisfied from existing cash balances, ongoing operations and
additional  borrowings  on the Revolver.  The primary  source of capital to fund
additional real estate  acquisitions and to make additional  high-yield mortgage
loans will come from existing funds, the sale,  financing and refinancing of the
Company's  properties  and from third party  mortgages and purchase  money notes
obtained in connection with specific acquisitions.

In addition to the  acquisition  of properties for  consideration  consisting of
cash and mortgage financing proceeds, the Company may acquire real properties in
exchange for the issuance of the Company's  equity  securities.  The Company may
also finance  acquisitions of other companies in the future with borrowings from
institutional  lenders and/or the public or private  offerings of debt or equity
securities.

                                       13


<PAGE>

Funds of the Company in excess of that needed for  working  capital,  purchasing
real estate and arranging financing for real estate acquisitions are invested by
the Company in corporate equity  securities,  corporate  notes,  other financial
instruments, certificates of deposit and government securities.

Market Risk
-----------

The Company's  interest  income and expense are most sensitive to changes in the
general levels of U.S. interest rates. Changes in U.S. interest rates affect the
interest  earned  on the  Company's  cash and cash  equivalents.  The  Company's
available-for-sale  securities  consist of U.S.  investments  in both common and
preferred  equity  issues and are  subject  to the  fluctuations  in U.S.  stock
markets.  All of the  Company's  mortgages  payable  are  fixed  rate  and  self
amortizing  from the net cash flow on the underlying  properties.  The Company's
term loan debt is variable rate but is  effectively  hedged by an  interest-rate
swap  agreement,  whose  notional  amount  matches the principal  balance of the
variable rate debt it hedges.

The Company  manufactures its products in the United States and Mexico and sells
its products in those markets as well as the European,  South American and Asian
markets.  Substantially  all of the  Company's  sales  are  denominated  in U.S.
dollars  and the  Company's  operating  results  are not  materially  exposed to
changes in  exchange  rates.  The  Company's  manufacturing  operations  utilize
various metal  commodities  (principally  stainless steel) in the  manufacturing
process.  Global  competition has stabilized or reduced prices in the key metals
used in the Company's manufacturing  processes.  While key metals purchased from
foreign entities are generally denominated in U.S. dollars,  fluctuations in the
suppliers'  local  currencies  may have some impact on  materials  pricing.  The
Company is unable to quantify the effects of such fluctuations, however, it does
enter into  purchase  commitments  for certain key metals that  generally do not
exceed twelve months and tend to minimize short-term currency fluctuations.  The
Company's  financial  results,  however,  could  be  significantly  affected  by
fluctuations  in metals  pricing.  The  following is a tabular  presentation  of
quantitative market risks at December 31, 1998:

<TABLE>
<CAPTION>
                                                          Principal (Notional) Amount by Expected Maturity
                                                ------------------------------------------------------------------     Fair
                                                                                                  There-               Value
(dollars in thousands)                           1999       2000     2001    2002       2003      after     Total    12/31/98
------------------------------------------------------------------------------------------------------------------------------

<S>                                              <C>      <C>      <C>      <C>       <C>       <C>        <C>       <C>    
Assets

Available-for-sale securities,
principally equity securities                   $14,290        0        0        0         0         0     $14,290   $14,290
Mortgage notes receivable                        $2,121      $34      $18     $364       $18      $159      $2,714    $2,763
Average Interest Rate                             12.9%      10%      10%      10%       10%       10%

Liabilities

Long-term Debt, including Current Portion
Fixed Rate                                       $5,875   $5,886   $5,365   $4,868    $4,195    $6,615     $32,804   $32,705
Average Interest Rate                             7.76%    7.71%    7.60%    7.44%     7.43%     7.19%

Variable Rate                                    $1,400   $1,400   $1,400   $1,050         0         0      $5,250    $5,250
Average Interest Rate-LIBOR
     +1.40%                                       6.71%    6.71%    6.71%    6.71%

Interest Rate Derivative Financial 
Instruments Related to Variable Rate Debt

Interest Rate Swaps
     Pay Fixed/Receive Variable                  $1,400   $1,400   $1,400   $1,050         0         0      $5,250    ($125)
     Average Pay Rate                             7.75%    7.75%    7.75%    7.75%
     Average Receive Rate                         6.71%    6.71%    6.71%    6.71%

</TABLE>

                                       14
<PAGE>
Business Trends
---------------

Total 1998 revenues of the Company  decreased  approximately  $1.7 million or 3%
from 1997 levels to $58.5 million.  The reduction in revenues is attributable to
revenue reductions in the engineered  products segment as real estate operations
posted a 10% increase in revenues.  Income from continuing  operations increased
to $10.6  million  in 1998  from  $7.5  million  in 1997  principally  due to an
increase in operating profit of the Company's real estate  operations  partially
offset by reduced operating profit in the engineered  products segment resulting
from the reduction in revenues and an increase in general corporate expenses.

The  results of the  Company's  real  estate  operations  reflect an increase in
operating  profit of $4.4  million on a revenue  increase of $2.3  million.  The
increase in operating  profits is primarily  attributable  to operating  profits
associated with properties acquired in 1997 and 1998, a nonrecurring  adjustment
for  real  estate  tax  abatements,  reduced  interest  expense  from  continued
amortization of mortgage indebtedness, and lower depreciation expense associated
with properties sold in the prior year.  Continuing  lease renewals and mortgage
amortization  will  continue  to have a positive  effect upon the  revenues  and
operating profit of this segment.

Where appropriate,  management may use permanent long-term financing rather than
its   short-term   revolving   credit   facility  to  finance  its  real  estate
acquisitions.  In September 1998, the Company borrowed $5.1 million secured by a
mortgage  on two  properties  that the  Company  purchased  in May  1998.  These
properties  are leased for five years with option  periods  and the  mortgage is
self amortizing over the primary lease term,  bearing interest at 6.66%.  Future
acquisitions of real estate may also be financed with self amortizing mortgages.

The Company's  engineered  products  segment  posted an 11% decrease in revenues
during the twelve  months  ended  December 31, 1998,  from the  comparable  1997
period while operating profits  decreased  approximately 5%. The decrease in net
sales was primarily due to continuing price competition and declining  worldwide
automotive sales.  Operating profit as a percentage of sales decreased less than
the reduction in revenues  principally  due to a favorable  market for stainless
steel  purchases,  as  well  as an  ongoing  emphasis  on  cost  reductions  and
productivity  improvements.  Sales in 1999 are  anticipated to approximate  1998
levels;  however,  management is aggressively  pursuing new sales  opportunities
including  new   geographical   markets  for  its  existing   products  and  new
applications  for its  core  technologies.  In  addition,  the  results  of this
segments'   transformer   operations  have  continued  to  reflect   significant
improvements  over the prior year and  management  is hopeful to  continue  this
trend.

At December 31, 1998,  approximately 185 of the Company's employees were covered
by a collective  bargaining  agreement that expires in February 1999.  While the
Company  believes  that  its  relationship  with  its  employees  is  good it is
currently negotiating a renewal to its labor contract. There can be no assurance
that the labor  contract  will be  renewed  or the terms of any such  agreement.
Failure to renew  this  contract  can result in a strike or other work  stoppage
that could have a material effect on the Company's results of operations.

Year 2000 Conversion
--------------------

The  Company  currently  believes  that its  essential  processes,  systems  and
business functions will be ready for the millennium transition and is taking the
necessary  steps to accomplish  this  objective.  The Company has undertaken the
implementation in its manufacturing  operations of a fully integrated Enterprise
Resource  Planning  (ERP)  software  package.   Although  the  ERP  package  was
implemented  for purposes other than  remediating  the Year 2000 issue,  the ERP
package is certified  as Year 2000  

                                       15
<PAGE>

compliant. As part of this implementation, which was completed in December 1998,
the Company also believes that it has  identified  and addressed all its related
Year 2000 hardware issues. The Company believes that the costs, if any, directly
associated  with Year 2000  compliance  will not be  material  to its  financial
conditions or results of operations. Year 2000 issues are not significant to the
Company's  real  estate  operations.  Substantially  all third  parties  (banks,
suppliers,  customers)  for which the  Company has a business  relationship  are
among the  largest  and most  sophisticated  companies  in the  country  and the
Company is providing the data  necessary for these  companies to evaluate  their
Year 2000 issues.

The Company  believes  that it has taken  reasonable  steps in preparing for the
Year 2000 issue,  but cannot ensure that all of its Year 2000 issues or those of
its  significant  third  parties  will be resolved or  addressed  satisfactorily
before the Year 2000 commences.  Any resulting  disruption could have a material
adverse impact on its business.

Forward Looking Statements
--------------------------

This Form 10-K contains certain 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 (the  "Exchange  Act"),  which are
intended to be covered by the safe harbors created thereby.  All forward-looking
statements  involve  risks and  uncertainty  including  without  limitation  the
statements  expressed under "Business Trends" and "Year 2000 Conversion"  above.
Although   the   Company   believes   that  the   assumptions   underlying   the
forward-looking   statements  contained  herein  are  reasonable,   any  of  the
assumptions could be inaccurate,  and therefore,  there can be no assurance that
the  forward-looking  statements  included  in this Form  10-K will  prove to be
accurate.   In  light  of  the   significant   uncertainties   inherent  in  the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and plans of the Company will be achieved.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial  statements and  supplementary  information  filed as part of this
Item 8 are listed under Part IV, Item 14,  "Exhibits,  Financial  Statements and
Schedules  and  Reports  on Form  8-K"  and are  contained  in this  Form  10-K,
beginning on page F-1.

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

                    None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

This information will be contained in the Proxy Statement of the Company for the
1999 Annual Meeting of Stockholders  under the captions  "Election of Directors"
and "Executive Compensation" and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

This information will be contained in the Proxy Statement of the Company for the
1999 Annual Meeting of Stockholders under the caption  "Executive  Compensation"
and is incorporated herein by reference.

                                       16
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
               AND MANAGEMENT

This information will be contained in the Proxy Statement of the Company for the
1999 Annual Meeting of Stockholders under the captions "Security  Ownership" and
"Election of Directors" and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

This information will be contained in the Proxy Statement of the Company for the
1999 Annual Meeting of Stockholders under the caption "Certain Relationships and
Related Transactions" and is incorporated herein by reference. Also see Note 14,
"Transactions  with  Related  Parties,"  of  Notes  to  Consolidated   Financial
Statements, contained elsewhere in this report.

                                     PART IV

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

(a)  (1) Consolidated Financial Statements.  The following Consolidated
         Financial  Statements  and  Consolidated  Financial  Statement
         Schedules of the Company are included in this Form 10-K at the
         pages indicated:

                   Index to Consolidated Financial Statements
                   ------------------------------------------

                                                                    Page
                                                                    ----

         Report of Independent Public Accountants                   F-1
         Consolidated Balance Sheets as of December 31, 1998 
              and 1997                                              F-2
         Consolidated Statements of Income for the Years            F-3
              Ended December 31, 1998, 1997 and 1996                to F-4
         Consolidated Statements of Stockholders' Equity and 
              Comprehensive Income for the Years Ended 
              December 31, 1998, 1997 and 1996                      F-5
         Consolidated Statements of Cash Flows for the              F-6
              Years Ended December 31, 1998, 1997 and 1996          to F-7
         Notes to Consolidated Financial Statements                 F-8
                                                                    to F-27
     (2) Consolidated Financial Statement Schedules

         Schedule II     --    Allowance for Doubtful Accounts      F-28
         Schedule III    --    Real Property Held for Rental and    F-29
                                   Accumulated Depreciation
         Schedule IV     --    Mortgage Loans on Real Estate        F-30

     (3) Supplementary Data

         Quarterly Financial Data (Unaudited)                       F-31 to F-32

         Schedules not listed above are omitted as not applicable or
         the information is presented in the financial statements or
         related notes.

(b) Reports on Form 8-K

No  reports  on Form 8-K were filed by the  Company  during the last  quarter of
fiscal 1998.

                                       17
<PAGE>

(c) Exhibits

      3.1.        Amended  and  restated  Certificate  of  Incorporation  of the
Company  (incorporated  by  reference  to exhibit  3.1 filed with the  Company's
report on Form 10-K for the fiscal year ended December 31, 1993).

      3.2.        By-laws of the Company (incorporated by reference to exhibit 3
filed with the Company's  report on Form 10-K for the fiscal year ended December
31, 1980).

    *10.1.        1988 Incentive Stock Option Plan of the Company, as amended.

    *10.2.        1988 Joint Incentive and  Non-Qualified  Stock Option Plan, as
amended.

     10.3.        Employment  Agreement  dated  as of  January  1,  1990  by and
between the Company and A. F. Petrocelli  (incorporated  by reference to exhibit
10.9 filed  with the  Company's  report on Form 10-K for the  fiscal  year ended
December 31, 1989).

     10.4.        Amendment dated as of December 3, 1990 to Employment Agreement
dated as of January 1, 1990,  by and between  the  Company and A. F.  Petrocelli
(incorporated  by reference to exhibit 10.10 filed with the Company's  report on
Form 10-K for the fiscal year ended December 31, 1990).

     10.5.        Amendment  dated as of June 8,  1993 to  Employment  Agreement
dated as of January 1, 1990 by and  between  the  Company  and A. F.  Petrocelli
(incorporated  by reference to exhibit 10.5 filed with the  Company's  report on
Form 10-K for the fiscal year ended December 31, 1993).

     10.6.        Revolving Credit Agreement dated as of January 15, 1997 and as
amended  September  29, 1997 and  January 2, 1998,  with the  financial  parties
thereto  (incorporated  by reference  to exhibit  10.6 filed with the  Company's
report on Form 10-K for the fiscal year ended December 31, 1997).

   * 10.7.        Amendments  dated as of October 5, 1998 and  December 31, 1998
to Revolving Credit Agreement.

     10.8.        Stock Purchase Agreement, dated as of November 20, 1997 by and
among AIL Systems Inc., United Capital Corp. and Metex Corporation (incorporated
by reference to exhibit  10.7 filed with the  Company's  report on Form 10-K for
the fiscal year ended December 31, 1997).

     *21.         Subsidiaries of the Company

     *23.         Accountants'  consent to the  incorporation  by  reference  in
Company's  Registration  Statements  on Form S-8 of the  Report  of  Independent
Public Accountants included herein.

     *27.         Financial Data Schedule

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

* Filed herewith

                                       18
<PAGE>

                                   SIGNATURES

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

                                         UNITED CAPITAL CORP.


Dated:  February 24, 1999                By: /s/ A.F. Petrocelli
        -----------------                    -------------------
                                                  A. F. Petrocelli
                                                  Chairman, President and
                                                  Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  persons on behalf of the Company and in
the capacities and on the date indicated.

Dated:  February 24, 1999                By: /s/ A.F. Petrocelli
        -----------------                    -----------------------------------
                                                  A. F. Petrocelli
                                                  Chairman, President and
                                                  Chief Executive Officer

Dated:  February 24, 1999                By: /s/ Howard M. Lorber
        -----------------                    -----------------------------------
                                                  Howard M. Lorber
                                                  Director

Dated:  February 24, 1999                By: /s/ Anthony J. Miceli
        -----------------                    -----------------------------------
                                                  Anthony J. Miceli
                                                  Chief Financial Officer,
                                                  Chief Accountant, Secretary
                                                  and Director

Dated:  February 24, 1999                By: /s/ Arnold S. Penner
        -----------------                    -----------------------------------
                                                  Arnold S. Penner
                                                  Director

                                       19

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors
     and Stockholders of

          United Capital Corp.:


We have audited the accompanying  consolidated  balance sheets of United Capital
Corp.  (a Delaware  Corporation)  and  subsidiaries  as of December 31, 1998 and
1997, and the related  consolidated  statements of income,  stockholders' equity
and  comprehensive  income  and cash  flows for each of the  three  years in the
period ended December 31, 1998. These consolidated  financial statements and the
schedules referred to below are the responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
schedules 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 financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of United  Capital  Corp.  and
subsidiaries  as of  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedules  listed in the index to
consolidated  financial  statements  and schedules are presented for purposes of
complying with the Securities and Exchange  Commission's  rules and are not part
of the basic  financial  statements.  These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our  opinion,  fairly  state in all  material  respects  the  financial  data
required to be set forth therein in relation to the basic  financial  statements
taken as a whole.



                                               /S/ ARTHUR ANDERSEN LLP
                                                   ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 11, 1999


                                      F-1
<PAGE>
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

          CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
          ------------------------------------------------------------

                                 (In Thousands)
                                 --------------


<TABLE>
                                      ASSETS                                                    1998             1997
                                      ------                                                    ----             ----

<S>                                                                                         <C>               <C>     
CURRENT ASSETS:
     Cash and cash equivalents                                                              $  8,154          $  5,250
     Marketable securities                                                                    14,290               355
     Notes and accounts receivable, net of allowance for doubtful
         accounts of $390 and $326, respectively                                               7,819            11,319
     Inventories                                                                               4,339             3,693
     Prepaid expenses and other current assets                                                   209               292
     Deferred income taxes                                                                         0             1,219
     Net current assets of discontinued operations                                                 0             4,492
                                                                                            --------          --------

                                Total current assets                                          34,811            26,620
                                                                                            --------          --------

PROPERTY, PLANT AND EQUIPMENT, net                                                             4,686             4,299


REAL PROPERTY HELD FOR RENTAL, net                                                            71,437            58,578


NONCURRENT NOTES RECEIVABLE                                                                      593             7,356


OTHER ASSETS                                                                                  11,296            11,185


DEFERRED INCOME TAXES                                                                          3,289             2,966


NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS                                                   0             2,349
                                                                                            --------          --------

                                Total assets                                                $126,112          $113,353
                                                                                            ========          ========
</TABLE>

<TABLE>
                                  LIABILITIES AND STOCKHOLDERS' EQUITY                        1998              1997
                                  ------------------------------------                        ----              ----


<S>                                                                                        <C>                <C>     
 CURRENT LIABILITIES:
    Current maturities of long-term debt                                                   $  5,875           $  5,232
    Borrowings under credit facilities                                                        1,400              6,000
    Accounts payable and accrued liabilities                                                 10,821             14,129
    Income taxes payable                                                                      6,355              5,872
    Deferred income taxes                                                                       152                  0
                                                                                           --------           --------

                            Total current liabilities                                        24,603             31,233


LONG-TERM LIABILITIES:
    Borrowings under credit facilities                                                        3,850              5,250
    Long-term debt                                                                           26,929             26,560
    Other long-term liabilities                                                              18,312             12,830
                                                                                           --------           --------

                            Total liabilities                                                73,694             75,873
                                                                                           --------           --------

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' EQUITY:
    Common stock $.10 par value, authorized 7,500 shares;
        issued and outstanding 5,148 and 5,286 shares, respectively                             515                528
    Additional paid-in capital                                                                3,536              6,819
    Retained earnings                                                                        45,429             29,997
    Accumulated other comprehensive income, net of tax                                        2,938                136
                                                                                           --------           --------

                            Total stockholders' equity                                       52,418             37,480
                                                                                           --------           --------

                            Total liabilities and stockholders' equity                     $126,112           $113,353
                                                                                           ========           ========
</TABLE>


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

                                      F-2
<PAGE>

                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

                        CONSOLIDATED STATEMENTS OF INCOME
                        ---------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
              ----------------------------------------------------

                      (In Thousands, Except Per Share Data)
                      -------------------------------------



<TABLE>
                                                                          1998                1997               1996
                                                                          ----                ----               ----

<S>                                                                     <C>                <C>                <C>     
REVENUES:
     Net sales                                                          $ 32,170           $ 36,204           $ 42,055
     Rental revenues from real estate operations                          26,349             24,042             23,936
                                                                        --------           --------           --------

                                Total revenues                            58,519             60,246             65,991
                                                                        --------           --------           --------

COSTS AND EXPENSES:
     Cost of sales                                                        22,260             25,972             30,891
     Real estate operations-
         Mortgage interest expense                                         2,661              3,058              3,671
         Depreciation expense                                              5,530              5,838              6,359
         Other operating expenses                                          6,025              7,428              7,711
     General and administrative expenses                                   6,057              5,038              5,798
     Selling expenses                                                      3,712              4,104              4,498
                                                                        --------           --------           --------

                                Total costs and expenses                  46,245             51,438             58,928
                                                                        --------           --------           --------

                                Operating income                          12,274              8,808              7,063
                                                                        --------           --------           --------

OTHER INCOME (EXPENSE):
     Interest income                                                       1,961              2,613              1,108
     Interest expense                                                       (962)            (1,408)              (929)
     Other income and expense, net                                         5,035              3,262              4,801
                                                                        --------           --------           --------

                                Total other income                         6,034              4,467              4,980
                                                                        --------           --------           --------

     Income from continuing operations before
         income taxes                                                     18,308             13,275             12,043

     Provision for income taxes                                            7,725              5,810              5,409
                                                                        --------           --------           --------

     Income from continuing operations                                    10,583              7,465              6,634
                                                                        --------           --------           --------
</TABLE>

                                      F-3
<PAGE>

<TABLE>
                                                                                     1998                1997                1996
                                                                                     ----                ----                ----


<S>                                                                                <C>                 <C>                <C>      
DISCONTINUED OPERATIONS:
     Operating income (loss), net of tax (provision)
         benefit of ($635) in 1997 and $413 in 1996                                $        0          $   1,016          ($    797)
     Gain on disposal of discontinued operations, net
         of tax provision of $3,700                                                     4,849                  0                  0
                                                                                   ----------          ---------          ---------

     Income (loss) from discontinued operations                                         4,849              1,016               (797)
                                                                                   ----------          ---------          ---------

     Net income                                                                    $   15,432          $   8,481          $   5,837
                                                                                   ==========          =========          =========


BASIC EARNINGS (LOSS) PER COMMON SHARE:
     Income from continuing operations                                             $     2.03          $    1.41          $    1.21
     Discontinued operations                                                              .93                .19               (.15)
                                                                                   ----------          ---------          ---------

     Net income per common share                                                   $     2.96          $    1.60          $    1.06
                                                                                   ==========          =========          =========


DILUTED EARNINGS (LOSS) PER COMMON
  SHARE:
     Income from continuing operations                                             $     2.00          $    1.40          $    1.20
     Discontinued operations                                                              .92                .19               (.14)
                                                                                   ----------          ---------          ---------

     Net income per common share assuming dilution                                 $     2.92          $    1.59          $    1.06
                                                                                   ==========          =========          =========

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

                                      F-4
</TABLE>

<PAGE>
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
    ------------------------------------------------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
              ----------------------------------------------------

                                 (In Thousands)
                                 --------------
<TABLE>
<CAPTION>
                                                                                                                                    
                                                                                       Common Stock Issued              Additional  
                                                                                  -----------------------------         Paid-in     
                                                                                     Shares            Amount           Capital     
                                                                                  -----------        -----------       -----------  
<S>                                                                                 <C>                 <C>              <C>        
BALANCE - December 31, 1995                                                         5,606               $561             $10,100    

     Purchase and retirement of common shares                                        (425)               (43)             (3,575)   
     Proceeds from the exercise of stock options                                      165                 16                 891    
     Net income                                                                         0                  0                   0    
     Other comprehensive income, net of tax-
         Change in net unrealized gain on available-for-sale securities, 
         net of tax provision of $28                                                    0                  0                   0    
         Change in minimum pension liability, net of tax provision of $85               0                  0                   0    
                                                                                                                                    
                                                                                                                                    
     Comprehensive income                                                         -----------        -----------       -----------  

BALANCE--December 31, 1996                                                          5,346                534               7,416   
                                                                                  -----------        -----------       -----------  

     Purchase and retirement of common shares                                         (67)                (7)               (659)   
     Proceeds from the exercise of stock options                                        7                  1                  62    
     Net income                                                                         0                  0                   0    
     Other comprehensive income, net of tax-
         Change in net unrealized gain on available-for-sale securities, 
         net of tax provision of $14                                                    0                  0                   0    
                                                                                                                                    
                                                                                                                                    
     Comprehensive income                                                         -----------        -----------       -----------  

BALANCE--December 31, 1997                                                          5,286                528               6,819   
                                                                                  -----------        -----------       -----------  

     Purchase and retirement of common shares                                        (189)               (18)             (3,846)   
     Proceeds from the exercise of stock options                                       51                  5                 563    
     Net income                                                                         0                  0                   0    
     Other comprehensive income, net of tax-
         Change in net unrealized gain on available-for-sale securities, 
         net of tax provision of $1,444                                                 0                  0                   0    
                                                                                                                                    
                                                                                                                                    
     Comprehensive income                                                         -----------        -----------       -----------  

BALANCE--December 31, 1998                                                          5,148               $515              $3,536   
                                                                                  ===========        ===========       ===========  
</TABLE>
<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other         Total
                                                                          Retained      Comprehensive  Stockholders'   Comprehensive
                                                                          Earnings          Income        Equity           Income  
                                                                         ------------   -------------  -------------   ------------
                                                                                                                                   
<S>                                                                        <C>             <C>           <C>           <C>         
BALANCE - December 31, 1995                                                $15,679         ($111)        $26,229                   
                                                                                                                                   
     Purchase and retirement of common shares                                    0             0          (3,618)                  
     Proceeds from the exercise of stock options                                 0             0             907                   
     Net income                                                              5,837             0           5,837          $5,837   
     Other comprehensive income, net of tax-                                                                                       
         Change in net unrealized gain on available-for-sale securities,                                                           
         net of tax provision of $28                                             0            54              54              54   
         Change in minimum pension liability, net of tax provision of $85        0           166             166             166   
                                                                                                                       ----------  
                                                                                                                          $6,057   
     Comprehensive income                                                ------------   -----------    -------------   ==========  
                                                                                                                                   
                                                                                                                                   
BALANCE--December 31, 1996                                                  21,516           109          29,575                  
                                                                         ------------   -----------    -------------               
                                                                                                                                   
     Purchase and retirement of common shares                                    0             0            (666)                  
     Proceeds from the exercise of stock options                                 0             0              63                   
     Net income                                                              8,481             0           8,481          $8,481   
     Other comprehensive income, net of tax-                                                                                       
         Change in net unrealized gain on available-for-sale securities,                                                           
         net of tax provision of $14                                             0            27              27              27   
                                                                                                                       ----------  
                                                                                                                          $8,508   
     Comprehensive income                                                ------------   -----------    -------------   ==========  
                                                                                                                                   
                                                                                                                                   
BALANCE--December 31, 1997                                                  29,997           136          37,480                   
                                                                         ------------   -----------    -------------               
                                                                                                                                   
     Purchase and retirement of common shares                                    0             0          (3,864)                  
     Proceeds from the exercise of stock options                                 0             0             568                   
     Net income                                                             15,432             0          15,432         $15,432   
     Other comprehensive income, net of tax-                                                                                       
         Change in net unrealized gain on available-for-sale securities,                                                           
         net of tax provision of $1,444                                          0         2,802           2,802           2,802   
                                                                                                                       ----------  
                                                                                                                         $18,234   
     Comprehensive income                                                ------------   -----------    -------------   ==========  
                                                                                                                                   
                                                                                                                                   
BALANCE--December 31, 1998                                                 $45,429        $2,938         $52,418                  
                                                                         ============   ===========    =============               
</TABLE>
        The accompanying notes to consolidated financial statements are
                      an integral part of these statements.

                                      F-5
<PAGE>
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
              ----------------------------------------------------

                                 (In Thousands)
                                 --------------

<TABLE>
<CAPTION>
                                                                                              1998          1997          1996
                                                                                            --------      --------      --------

<S>                                                                                         <C>           <C>           <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                             $ 15,432      $  8,481      $  5,837
                                                                                            --------      --------      --------
     Adjustments to reconcile net income
         to net cash provided by operating activities-
              Gain on sale of discontinued operations, net of tax                             (4,849)            0             0
              Purchase of trading securities                                                  (5,891)            0             0
              Proceeds from sale of trading securities                                         5,966             0             0
              Depreciation and amortization                                                    6,566         6,657         7,246
              Loss from equity investments                                                       402           263             0
              Gain on sale of trading securities                                                 (75)            0             0
              Changes in assets and liabilities, net of effects from
                  business disposals (A)                                                     (10,589)       11,313        (9,257)
                                                                                            --------      --------      --------

                                Total adjustments                                             (8,470)       18,233        (2,011)
                                                                                            --------      --------      --------

                                Net cash provided by operating activities                      6,962        26,714         3,826
                                                                                            --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from sale of discontinued operations                                            16,000             0             0
     Investments in and advances to affiliates                                                  (237)       (5,395)            0
     Purchase of available-for-sale securities                                                (9,690)            0          (147)
     Acquisition of property, plant and equipment                                             (1,846)         (806)         (735)
     Investing activities of discontinued operations                                               0          (569)         (261)
                                                                                            --------      --------      --------

                                Net cash provided by (used in) investing activities            4,227        (6,770)       (1,143)
                                                                                            --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Principal payments on mortgage commitments, notes
         and loans                                                                           (18,141)       (6,715)      (13,046)
     Proceeds from mortgage commitments, notes and loans                                      19,153             0         1,025
     Net (repayments) borrowings under credit facilities                                      (6,000)       (8,570)       12,035
     Purchase and retirement of common shares                                                 (3,865)         (666)       (3,618)
     Proceeds from the exercise of stock options                                                 568            63           907
     Financing activities of discontinued operations                                               0        (1,385)         (582)
                                                                                            --------      --------      --------

                                Net cash used in financing activities                         (8,285)      (17,273)       (3,279)
                                                                                            --------      --------      --------

                                Net increase (decrease) in cash and
                                    cash equivalents                                           2,904         2,671          (596)

CASH AND CASH EQUIVALENTS, BEGINNING OF
     YEAR                                                                                      5,250         2,579         3,175
                                                                                            --------      --------      --------

CASH AND CASH EQUIVALENTS, END OF YEAR                                                      $  8,154      $  5,250      $  2,579
                                                                                            ========      ========      ========
</TABLE>

                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                                                                                               1998         1997        1996
                                                                                            --------     --------     -------

<S>                                                                                         <C>          <C>          <C>    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION:
         Cash paid during the year for-
              Interest                                                                      $  3,640     $  4,832     $ 4,734
              Taxes                                                                            7,874        3,655       2,876
                                                                                            ========     ========     =======

SUPPLEMENTAL SCHEDULE OF NONCASH
     INVESTING AND FINANCING ACTIVITIES:
         Noncash Investing Activities-
              Capital Lease Obligations                                                     $      0     $    511     $     0
                                                                                            ========     ========     =======



             (A)    Changes  in assets  and  liabilities  for the
                    years ended December 31, 1998, 1997 and 1996,
                    net of effects from business  disposal are as
                    follows-


                                                                                               1998         1997        1996
                                                                                            --------     --------     -------

                  Decrease (increase) in notes and accounts
                       receivable, net                                                      $  3,500     $  7,425     ($7,597)
                  Decrease (increase) in inventories                                            (646)         659         (77)
                  Decrease (increase) in prepaid expenses and
                       other current assets                                                       84          414        (173)
                  Increase in deferred income taxes                                             (395)        (958)     (1,115)
                  Decrease (increase) in real property held for
                       rental, net                                                           (17,965)       1,275        (228)
                  Decrease (increase) in noncurrent notes receivable                           6,763       (1,424)     (2,308)
                  Increase in other assets                                                      (277)        (257)     (1,464)
                  Increase (decrease) in accounts payable and
                       accrued liabilities                                                    (3,918)          16        (665)
                  Increase (decrease) in income taxes payable                                 (3,217)       1,635         557
                  Increase in other long-term liabilities                                      5,482        1,810       3,184
                  Discontinued operations - noncash charges and working capital changes            0          718         629
                                                                                            --------     --------     -------

                                Total                                                       ($10,589)    $ 11,313     ($9,257)
                                                                                            ========     ========     =======
</TABLE>

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

                                      F-7
<PAGE>
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                        DECEMBER 31, 1998, 1997 AND 1996
                        --------------------------------

                 (In Thousands, Except Share And Per Share Data)
                 -----------------------------------------------


(1)      SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES:
         --------------------

              Nature of Business-
              -------------------

                  United Capital Corp. (the "Company") and its  subsidiaries are
                  currently  engaged in the  investment  and  management of real
                  estate and in the manufacture and sale of engineered products.

              Principles of Consolidation-
              ----------------------------

                  The consolidated  financial statements include the accounts of
                  the Company and its wholly-owned subsidiaries. All significant
                  intercompany  accounts and transactions  have been eliminated.
                  The equity method of accounting is used for investments in 50%
                  or less owned companies over which the Company has the ability
                  to exercise significant influence.

              Income Recognition --
              Real Estate Operations-
              -----------------------

                  The Company  leases  substantially  all of its  properties  to
                  tenants under net leases. Under this type of lease, the tenant
                  is  obligated  to pay  all  operating  costs  of the  property
                  including  real  estate  taxes,   insurance  and  repairs  and
                  maintenance. Rental income is recognized based on the terms of
                  the leases.  Certain lease  agreements  provide for additional
                  rent based on a percentage of tenants' sales.  Such additional
                  rents  are  recorded  as income  when  they can be  reasonably
                  estimated.  Gains on sales of real estate  assets are recorded
                  when the gain  recognition  criteria under generally  accepted
                  accounting principles have been met.

                  Income on  leveraged  leases is  recognized  by a method which
                  produces  a  constant  rate  of  return  on  the   outstanding
                  investment  in the  lease,  net of the  related  deferred  tax
                  liability  in  the  years  in  which  the  net  investment  is
                  positive.

              Revenue Recognition --
              Manufacturing Operations-
              -------------------------

                  Sales are recorded when products are shipped to the customer.

              Cash and Cash Equivalents-
              --------------------------

                  The Company  considers  all highly liquid  investments  with a
                  maturity,  at the purchase date, of three months or less to be
                  cash equivalents.


                                      F-8
<PAGE>
              Statements of Comprehensive Income-
              -----------------------------------

                  In 1998, the Company adopted Statement of Financial Accounting
                  Standards No. 130,  "Reporting  Comprehensive  Income," ("SFAS
                  No. 130"),  which requires  companies to report all changes in
                  equity during a period, except those resulting from investment
                  by owners and distribution by owners, in a financial statement
                  for the period in which they are  recognized.  The Company has
                  chosen to disclose comprehensive income, which consists of net
                  income,  change in net unrealized  gain on  available-for-sale
                  securities and minimum pension liability  adjustments,  in the
                  Consolidated    Statements   of   Stockholders'   Equity   and
                  Comprehensive  Income.  Prior  years  have  been  restated  to
                  conform to the SFAS No. 130 requirements.

              Marketable Securities-
              ----------------------

                  The  Company  determines  the  appropriate  classification  of
                  securities  at  the  time  of  purchase  and   reassesses  the
                  appropriateness  of the classification at each reporting date.
                  At  December  31,  1998  and  1997,  all   marketable   equity
                  securities have been classified as available-for-sale  and, as
                  a result,  are  stated  at fair  value.  Unrealized  gains and
                  losses on  available-for-sale  securities  are  recorded  as a
                  separate   component  of  stockholders'   equity.   Marketable
                  securities  defined as trading  securities  are stated at fair
                  value and unrealized holding gains and losses are reflected in
                  earnings. Realized gains and losses on the sale of securities,
                  as determined on a specific identification basis, are included
                  in the Consolidated Statements of Income.

              Inventories-
              ------------

                  Inventories  are  stated at the  lower of cost or  market  and
                  include  material,   labor  and  manufacturing  overhead.  The
                  first-in,  first-out  (FIFO)  method is used to determine  the
                  cost of inventories.

                  The components of inventory at December 31, are as follows-

                                               1998          1997
                                             ---------    -----------

                       Raw materials          $1,851        $1,959
                       Work in process           403           265
                       Finished goods          2,085         1,469
                                             ---------    -----------

                                              $4,339        $3,693
                                             =========    ===========

              Depreciation and Amortization-
              ------------------------------

                  Depreciation  and amortization are provided on a straight-line
                  basis over the estimated useful lives of the related assets as
                  follows-

                       Real property held for rental-
                           Buildings                          5 to 39 years
                           Equipment                           5 to 7 years

                       Property, plant and equipment-
                           Buildings and improvements        18 to 20 years
                           Machinery and equipment            3 to 10 years

                                      F-9
<PAGE>


              Real Property Held for Rental-
              ------------------------------

                  Real  property  held  for  rental  is  carried  at  cost  less
                  accumulated  depreciation.  Major renewals and betterments are
                  capitalized. Maintenance and repairs are expensed as incurred.

                  Certain  mortgage  obligations  assumed by the Company contain
                  provisions  whereby the  mortgage  holder may  acquire,  under
                  certain conditions, an interest in the properties securing the
                  obligation,  for a nominal amount.  The Company  considers any
                  costs incurred as a result of these provisions to be a cost of
                  acquisition  and the  basis  in such  properties  is  adjusted
                  accordingly.

              Research and Development-
              -------------------------

                  The  Company  expenses   research,   development  and  product
                  engineering costs as incurred. Approximately $63, $77 and $112
                  of such costs were  incurred by the Company in 1998,  1997 and
                  1996, respectively.

              Common Stock-Based Compensation-
              --------------------------------

                  The Company  accounts for  stock-based  compensation  plans in
                  accordance  with Accounting  Principles  Board Opinion No. 25,
                  "Accounting   for  Stock  Issued  to  Employees"  and  related
                  Interpretations  ("APB No.  25").  Under APB No. 25,  when the
                  exercise price of the Company's  employee stock options equals
                  the market price of the underlying stock on the date of grant,
                  no compensation cost is recognized.

              Earnings Per Share-
              -------------------

                  In 1997,  the Financial  Accounting  Standards  Board ("FASB")
                  issued  Statement  No. 128,  "Earnings  per Share"  ("SFAS No.
                  128").  SFAS No. 128 replaced the  calculation  of primary and
                  fully  diluted  earnings  per share  with  basic  and  diluted
                  earnings  per share.  Basic  earnings  per share  excludes any
                  dilutive   effects  of  options,   warrants  and   convertible
                  securities.  Diluted  earnings  per share gives  effect to all
                  potentially  dilutive  common  shares  that  were  outstanding
                  during the  period.  All  earnings  per share  amounts for all
                  periods have been presented,  and where appropriate,  restated
                  to conform to the SFAS No. 128 requirements.

              Derivative Financial Instruments-
              ---------------------------------

                  The Company has entered into an interest  rate swap  agreement
                  (the  "Swap")  to modify  the  interest  characteristics  of a
                  particular  term loan by  effectively  converting its floating
                  rate to a fixed  rate,  thus  reducing  the impact of interest
                  rate changes on future  expense.  The Swap is designated  with
                  the principal balance and term of the Company's Term Loan. The
                  amount paid or received on the  interest  rate Swap is accrued
                  and recognized as an adjustment of interest expense related to
                  the debt (the accrual  accounting  method).  The fair value of
                  the Swap and  changes in the fair value as a result of changes
                  in market  interest  rates are not recognized in the financial
                  statements. The Company has not traded in derivative financial
                  instruments.

                                      F-10
<PAGE>


              Prior Year Financial Statements-
              --------------------------------

                  Certain  amounts  have been  reclassified  in the December 31,
                  1997  and 1996  financial  statements  and  notes  thereto  to
                  present them on a basis consistent with the current year.

              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.

              Changes in Accounting Policies-
              -------------------------------

                  In  June  1998,   the  FASB  issued   Statement  of  Financial
                  Accounting   Standards  No.  133  "Accounting  for  Derivative
                  Instruments and Hedging  Activities"  ("SFAS No. 133"),  which
                  establishes  accounting and reporting standards for derivative
                  instruments.  SFAS No. 133 requires  that an entity  recognize
                  all  derivatives  as  either  assets  or  liabilities  in  the
                  statement of financial  position and measure those instruments
                  at fair value.  The  statement  requires  that  changes in the
                  derivative's  fair value be  recognized  currently in earnings
                  unless  specific hedge  accounting  criteria are met.  Special
                  accounting for qualifying  hedges allows a derivative's  gains
                  and losses to offset related results on the hedged item in the
                  income statement. This statement is effective for fiscal years
                  beginning   after   June  15,   1999  and  cannot  be  applied
                  retroactively  to financial  statements of prior periods.  The
                  Company is in the process of  evaluating  the  accounting  and
                  reporting requirements and believes that SFAS No. 133 will not
                  have  a  material  impact  on  the  consolidated   results  of
                  operations, financial position or cash flows.

(2)      DISPOSAL OF OPERATING COMPANY:
         ------------------------------

                  On January  2, 1998,  the  Company  completed  the sale of the
                  stock of its Dorne & Margolin,  Inc. ("D&M") subsidiary to AIL
                  Systems,  Inc. for $16 million in cash,  resulting in a pretax
                  gain  from  discontinued   operations  of  approximately  $8.6
                  million.  The net  assets  and  operating  results  of D&M are
                  presented  as a  discontinued  operation  in the  accompanying
                  consolidated  financial  statements  for periods  prior to the
                  sale. Net current assets of discontinued  operations consisted
                  primarily of  inventory  and  accounts  receivable,  partially
                  offset  by  accounts   payable  and  accrued   expenses.   Net
                  noncurrent   assets  of  discontinued   operations   consisted
                  primarily of machinery  and  equipment.  The Company  retained
                  D&M's 90,000  square foot  manufacturing  facility in Bohemia,
                  New York,  which has been  reclassified  to real property held
                  for  rental  in  the   accompanying   consolidated   financial
                  statements.

                  Revenues applicable to discontinued  operations,  were $19,985
                  in 1997 and $18,883 in 1996.

                                      F-11
<PAGE>

(3)      REAL PROPERTY HELD FOR RENTAL:
         ------------------------------

                  The  Company  is the  lessor of real  estate  under  operating
                  leases which expire in various years through 2078.

                  The following is a summary of real property held for rental at
                  December 31-

                                                     1998              1997
                                                  ---------         ---------
        
                 Land                             $  19,732         $  14,075
                 Buildings                          120,370           110,271
                                                  ---------         ---------
                 
                                                    140,102           124,346
                 
                 Less- Accumulated depreciation     (68,665)          (65,768)
                                                  ---------         ---------
 
                                                  $  71,437         $  58,578
                                                  =========         =========

                  As of December 31, 1998,  total minimum  future  rentals to be
                  received under noncancellable leases for each of the next five
                  years and thereafter are as follows-

                  Year Ended December 31-
                       1999                                           $20,607
                       2000                                            18,823
                       2001                                            17,045
                       2002                                            15,095
                       2003                                            13,191
                       Thereafter                                      45,944
                                                                   ------------
                                                          
                  Total Minimum Future Rentals                       $130,705
                                                                   ============
                                                   
                  Minimum future rentals do not include  additional rentals that
                  may be received  under  certain  leases which provide for such
                  rentals based upon a percentage of lessees' sales.  Percentage
                  rents included in the  determination of income from operations
                  in 1998, 1997 and 1996 were approximately  $1,018,  $1,603 and
                  $1,045, respectively.

(4)      PROPERTY, PLANT AND EQUIPMENT:
         ------------------------------

                  Property,  plant  and  equipment  is  principally  used in the
                  Company's   manufacturing   operations  and  consists  of  the
                  following at December 31-

                                                     1998              1997
                                                    -------           -------
                                                                
                  Land                              $    37           $    37
                  Buildings and improvements          1,010               963
                  Machinery and equipment             8,556             7,193
                                                    -------           -------
                                                                
                                                      9,603             8,193
                                                                
                  Less- Accumulated depreciation     (4,917)           (3,894)
                                                    -------           -------
                                                                
                                                    $ 4,686           $ 4,299
                                                    =======           =======
                                                               
                                      F-12
<PAGE>


(5)      MARKETABLE SECURITIES:
         ----------------------

                  The aggregate market value of marketable securities, which are
                  all equity  securities and  classified as  available-for-sale,
                  was  $14,290   and  $355  at  December   31,  1998  and  1997,
                  respectively,  while unrealized  holding gains were $2,938 and
                  $136 on a net of tax basis, respectively.

                  There were no sales of marketable  securities in 1997 or 1996.
                  Proceeds from the sale of trading securities and the resulting
                  gross realized gains and losses included in the  determination
                  of net  income  for the year ended  December  31,  1998 are as
                  follows-

                                                                     1998
                                                                  ----------
                                                    
                  Proceeds                                         $5,966
                                                                  ==========
                                                    
                  Realized gains                                      $75
                                                                  ==========
                                                    
                  Realized losses                                      $0
                                                                  ==========
                                           
(6)      NOTES RECEIVABLE:
         -----------------

                  Notes receivable consist of the following at December 31-

                                                       1998         1997
                                                    ----------    ----------

                  High yield mortgage loans (a)       $1,963       $3,226
                  Mortgage note receivable (b)             0        3,355
                  Mortgage note receivable (c)             0        3,249
                  Mortgage participation (d)               0        1,147
                  Mortgage notes receivable (e)          526          633
                  Due from related party (Note 14)         0          398
                  Other                                  225          255
                                                    ----------    ----------

                                                       2,714       12,263
                  Less- Current portion included in 
                       and accounts receivable         2,121        4,907
                                                    ----------    ----------

                                                        $593       $7,356
                                                    ==========    ==========

                  (a)   In 1998, the Company participated in high yield mortgage
                        loans which in certain  instances,  may include  related
                        party  participants  (see Note 14). At December 31, 1998
                        there are three notes  outstanding with balances ranging
                        from $400 to $863,  with  varying  terms  maturing  from
                        January  1999 to August  1999.  The notes are  generally
                        secured by a first or second  mortgage  lien on property
                        which  is  generally  fully  leased  with a  substantial
                        value-to-loan  ratio  or other  appropriate  collateral.
                        Management believes that sufficient collateral exists to
                        satisfy the obligations.  The notes are interest bearing
                        and in most cases, the Company receives a commitment fee
                        of  4%.  The   effective   yields  on  these  notes  are
                        approximately 18%. High yield mortgage loans at December
                        31, 1997  consisted of four notes.  Three of these notes
                        were fully  satisfied  in 1998 and one was  satisfied in
                        January 1999.


                                      F-13
<PAGE>




                  (b)   In  September   1997,   the  Company   purchased  a  non
                        performing  mortgage  secured by an office  building  in
                        Great Neck, New York for $3.4 million. The mortgage note
                        had a face  amount  outstanding  of  approximately  $4.8
                        million  and  bore  interest  at  approximately  10% per
                        annum.  The Company  foreclosured  and took title to the
                        property in October  1998.  At December 31,  1998,  this
                        property  has been  included in real  property  held for
                        rental  on the  Company's  Consolidated  Balance  Sheet.
                        There was no gain or loss recorded on this transaction.

                  (c)   In February  1994,  the Company  acquired the underlying
                        mortgage secured by Kentile Floors Inc.'s ("KFI"), South
                        Plainfield,  New Jersey  facility for $2.25 million plus
                        the assumption of certain liabilities in connection with
                        operating and  maintaining  the  property.  The mortgage
                        note had a face amount outstanding of approximately $6.5
                        million plus delinquent  accrued  interest.  Included in
                        the carrying  value of the mortgage note  receivable are
                        costs  associated  with readying th underlying  property
                        for rental.  In December 1998, KFI reorganized  pursuant
                        to a plan  submitted  and  approved  by  the  Bankruptcy
                        Court,  which  included  the  issuance  of a 100% equity
                        interest in KFI to the Company. Accordingly, at December
                        31, 1998 such  amounts  have been  reclassified  to real
                        property  held  for  rental.  There  was no gain or loss
                        recorded on this transaction.

                  (d)   In  October  1997,   the  Company,   together  with  two
                        unrelated participants, purchased an 8.5% interest ("the
                        Participation") in a portfolio of mortgage loans secured
                        by  first   liens  on  17   multi-tenanted   residential
                        properties. At the time of the acquisition the portfolio
                        had outstanding approximately $24.4 million in principal
                        and stated  interest  rates  ranging  between  6.82% and
                        9.4%. The Participation, in which the Company held a 78%
                        interest,  was purchased for $2 million,  subordinate to
                        the  interest  of a  bank  who  was  the  holder  of the
                        remaining  balance  of the  portfolio,  which  had  been
                        acquired at a 4% discount to face value. In exchange for
                        a 50% interest in the  discount,  upon  collection,  the
                        holders  of the  Participation  agreed,  in the event of
                        default, on certain indemnities to the bank. At December
                        31, 1998, all  underlying  mortgages have been satisfied
                        and the  Company's  obligations  under this  arrangement
                        have ceased.

                  (e)   As  partial   consideration   in  the  sale  of  several
                        properties,  the Company received  mortgage notes in the
                        aggregate amount of $1.88 million.  The notes, which are
                        secured by the  properties  sold,  bore interest in 1998
                        and 1997 at various rates ranging  between 9% and 10.25%
                        and bear  interest  in future  periods at rates  ranging
                        between  9% and 11%.  Interest  under  the  notes is due
                        monthly.  Principal  repayment  terms vary with periodic
                        installments through December 2008.

                        In  accordance   with  generally   accepted   accounting
                        principles, the gains from the sales of certain of these
                        properties are being  recognized  under the  installment
                        method,   and   accordingly,   the  carrying   value  of
                        noncurrent notes receivable has been reduced by deferred
                        gains of  approximately  $664 and $799 at  December  31,
                        1998 and  1997,  respectively.  The  deferred  gains are
                        being  recognized  as income as  payments  are  received
                        under the note.

                                      F-14
<PAGE>


(7)      OTHER ASSETS:
         -------------

              Other assets consist of the following at December 31-

<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                       -------      -------

        <S>                                                            <C>          <C>
        Anticipated insurance recoveries (a)                           $ 2,893      $ 2,893
        Deposits                                                           644          638
        Pension (Note 17)                                                  840          722
        Cash surrender value of life insurance policies, net               248          245
        Patents, net of accumulated amortization                           138          140
        Investments in and advances to affiliates (b)                      461        1,510
        Lease financing (c)                                              5,792        4,907
        Other                                                              489          422
                                                                       -------      -------
        
                                                                        11,505       11,477
        Less- Amounts included in prepaid expenses and
                          other current assets                             209          292
                                                                       -------      -------
        
                                            Total other assets         $11,296      $11,185
                                                                       =======      =======
</TABLE>

                  (a)   The Company has recorded the anticipated recoveries from
                        its   insurance   carriers   in   connection   with  the
                        environmental  investigation and remediation costs to be
                        incurred  at  two  of  its  manufacturing  sites  in New
                        Jersey. ( See Note 19, "Contingencies.")

                  (b)   Through  its  subsidiaries,  the  Company  owned  a  50%
                        partnership  interest in a Miami, Florida hotel operated
                        as a Holiday Inn. The hotel began  operations in January
                        1997 and the Company's  share of losses incurred in 1998
                        and 1997 were $423 and $340,  respectively,  which  have
                        been  recorded  under the equity method of accounting in
                        other income and expense (See Notes 14 and 16).

                  (c)   Lease financing  consists of a 50% interest in a limited
                        partnership,  whose  principal  assets are two leveraged
                        leases with Kmart Corporation. The components of the net
                        investment  in  the  leveraged  leases  at  December  31
                        consists of the following-

<TABLE>
<CAPTION>
                                                                         1998       1997
                                                                         ----       ----

                  <S>                                                  <C>         <C>     
                  Rentals receivable                                   $ 93,601    $ 97,630
                  Residual values                                        10,000      10,000
                  Non recourse debt service                             (72,252)    (75,470)
                  Unearned income                                       (25,557)    (27,253)
                                                                       --------    --------
                                                                          5,792       4,907
                  Less-  Deferred taxes arising from leveraged leases       503         268
                                                                       --------    --------
                                                                       $  5,289    $  4,639
                                                                       ========    ========
</TABLE>

                                      F-15
<PAGE>

(8)      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
         -----------------------------------------

              Accounts payable and accrued  liabilities consist of the following
              at December 31-

                                                             1998        1997
                                                           -------     -------

              Accounts payable                             $ 2,822     $ 3,768
              Accrued wages and benefits                     1,946       2,056
              Liabilities for discontinued operations        2,758       2,792
              Other accrued expenses                         3,295       5,513
                                                           -------     -------
              
                                                           $10,821     $14,129
                                                           =======     =======

(9)      LONG-TERM DEBT:
         ---------------

              Long-term debt consists of the following at December 31-

                                                       1998             1997
                                                      -------         -------

              Mortgages on real property (a)          $31,339         $29,605
              Loan payable to bank (b)                  1,102           1,733
              Capital lease obligation                    363             454
                                                      -------         -------
              
                                                       32,804          31,792
              
              Less- Current maturities                  5,875           5,232
                                                      -------         -------
              
                                                      $26,929         $26,560
                                                      =======         =======
              
              (a)       First mortgages  bearing  interest at rates ranging from
                        4% to 10.25% per annum are collateralized by the related
                        real  property.  Such amounts are scheduled to mature at
                        various dates from January 1999 through  February  2010.
                        In 1998, the Company  refinanced  three mortgages with a
                        total outstanding principal value of approximately $12.3
                        million and  interest  rates  ranging from 10% to 10.5%.
                        The new  mortgages  bear  interest  ranging from 6.5% to
                        6.68%  and  have  maturities  similar  to  the  original
                        obligations.

              (b)       The  Company has a fixed rate note  bearing  interest at
                        7.94%  per  annum,  which is due in 60  equal  principal
                        installments,  together with accrued  interest  thereon,
                        through  September  2000. The loan  agreement  contains,
                        among  other   things,   several   financial   covenants
                        regarding  net  worth  and  debt-to-equity  ratios.  The
                        Company was in compliance with all covenants.


                                      F-16

<PAGE>

                  The approximate  aggregate  maturities of these obligations at
                  December 31, 1998 are as follows-

                                                    Long-Term   Capital Lease
                                                       Debt      Obligation
                                                    ---------   -------------

        1999                                         $ 5,776       $124
        2000                                           5,781        124
        2001                                           5,251        124
        2002                                           4,823         43
        2003                                           4,195          0
       Thereafter                                      6,615          0
                                                     -------       ----
                                                               
       Total minimum payments                        $32,441        415
                                                     =======
       Less- Amount representing interest                            52
                                                                   ----
                                                               
       Total present value of minimum lease payments                363
                                                               
       Less- Current portion                                         99
                                                                   ----
                                                               
       Total noncurrent portion                                    $264
                                                                   ====
                                                             


(10)   CREDIT FACILITIES:
       ------------------

                  The Company's  Credit  Agreement  with two banks  provides for
                  both a $7 million  term loan  ("Term  Loan") and a $40 million
                  revolving credit facility ("Revolver"). Under the terms of the
                  Credit   Agreement,   the  Company   will  be  provided   with
                  eligibility  based  upon  the sum of (i) 50% of the  aggregate
                  annualized and normalized year-to-date net operating income of
                  eligible properties, as defined, capitalized at 11.5% and (ii)
                  the  lesser  of  $12  million  or the  sum of 75% of  eligible
                  accounts receivable and 50% of eligible inventory, as defined.
                  Eligibility is also limited by amounts  outstanding  under the
                  Term  Loan.  At  December  31,  1998,  eligibility  under  the
                  Revolver  was $40  million,  based upon the above  terms.  The
                  Credit Agreement  contains  certain  financial and restrictive
                  covenants,  including minimum  consolidated  equity,  interest
                  coverage,  debt  service  coverage  and  capital  expenditures
                  (other than for real  estate).  The Company was in  compliance
                  with all covenants at December 31, 1998. The Credit  Agreement
                  also contains  provisions which allow the lenders to perfect a
                  security  interest in certain operating and real estate assets
                  in the event of a default, as defined in the Credit Agreement.
                  Borrowings under the Revolver,  at the Company's option,  bear
                  interest at the bank's prime lending rate  ("Prime") or at the
                  London  Interbank  Offered  Rate  ("LIBOR")  plus 1.75%  while
                  borrowings  under the Term Loan bear  interest at 90 day LIBOR
                  plus 1.4%.  The Term Loan is payable  in  quarterly  principal
                  installments  of $350, with the final payment due on September
                  30,  2002.  The  Revolver  expires on  January  15,  2000.  At
                  December 31, 1998, there were no amounts outstanding under the
                  Revolver and $5.3 million was outstanding on the Term Loan.

                  At  December   31,  1997,   approximately   $4.6  million  was
                  outstanding   under  the   Revolver   at  Prime   (8.5%)   and
                  approximately $6.7 million was outstanding on the Term Loan.

(11)   FAIR VALUE OF FINANCIAL INSTRUMENTS:
       ------------------------------------

                  The Company has limited involvement with financial instruments
                  and has not used  them for  trading  purposes.  The  following
                  methods and assumptions were used by the Company in estimating
                  its fair value disclosures for financial instruments-

                                      F-17

<PAGE>


                  The  carrying  amount  reported  in the  Consolidated  Balance
                  Sheets for cash and cash  equivalents and accounts  receivable
                  approximate their fair value.

                  The fair value of fixed rate notes  receivable  are  estimated
                  using  discounted  cash flow  analyses,  with  interest  rates
                  comparable  on loans  with  similar  terms  and  borrowers  of
                  similar  credit  quality.   The  carrying   amounts  of  notes
                  receivable approximate fair value.

                  Marketable securities  available-for-sale,  which are held for
                  investment  purposes are carried at fair value based on quoted
                  market  prices or dealer  quotes.  If a quoted market price is
                  not  available,  fair value is estimated  using quoted  market
                  prices for similar securities.

                  Carrying  amounts of  borrowings  under the credit  facilities
                  approximate their fair value. The fair value of long-term debt
                  was calculated based on interest rates available for debt with
                  terms and due dates  similar to the  Company's  existing  debt
                  arrangements. The fair value of long-term debt at December 31,
                  1998  and 1997  was  approximately  $32.7  million  and  $32.2
                  million  respectively,  while  the  carrying  value  was $32.8
                  million and $31.8 million for the same periods.

                  The fair  value of  interest  rate  swaps  (used  for  hedging
                  purposes) is the estimated  amount that the bank would receive
                  or pay to terminate the swap agreements at the reporting date,
                  taking into  account  current  interest  rates and the current
                  creditworthiness of the swap  counterparties.  At December 31,
                  1998 and 1997,  the fair values of the swap were  estimated at
                  ($125) and ($63), respectively.

(12)          STOCKHOLDERS' EQUITY:
              ---------------------

                  Stock Options-
                  --------------

                  The Company has two stock option  plans under which  qualified
                  and  nonqualified  options may be granted to key  employees to
                  purchase the  Company's  common stock at the fair market value
                  on the date of grant.  Under both plans, the options typically
                  become exercisable in three equal installments,  beginning one
                  year from the date of grant.  The 1988 Incentive  Stock Option
                  Plan (the  "Incentive  Plan")  provides  for the  granting  of
                  incentive  stock  options  and the 1988  Joint  Incentive  and
                  Non-Qualified  Stock Option Plan (the "Joint  Plan")  provides
                  for the granting of incentive or  nonqualified  stock options.
                  On  June  9,  1998  the  Company's  shareholders  approved  an
                  amendment to the  Company's  Incentive  Plan and Joint Plan to
                  increase the number of authorized shares reserved for issuance
                  pursuant  to each  plan,  from  325,000  shares  to  1,325,000
                  shares, respectively. In December 1998, the Board of Directors
                  approved a  proposal,  subject  to  stockholder  approval,  to
                  extend the term of the Incentive Plan and Joint Plan to 2008.

                  At December 31, 1998,  there were 647,630 and 224,251  options
                  outstanding   under  the  Joint  Plan  and   Incentive   Plan,
                  respectively.  At December  31,  1997,  there were 262,130 and
                  216,751 options outstanding under the Joint Plan and Incentive
                  Plan, respectively.

                  A summary of the  Company's  stock  options as of December 31,
                  1998,  1997 and 1996,  and changes during the years then ended
                  are summarized below-

                                      F-18
<PAGE>
<TABLE>
<CAPTION>
                                                                                          Weighted-
                                                                                          Average
                                                                                          Exercise 
                                                           Shares                          Price
                                                            --------------               ----------

                       <S>                                    <C>                           <C>
                       Outstanding at December 31, 1995       344,926                        $7.51

                           Granted                             20,000                        $7.25
                           Exercised                         (185,250)                       $5.48
                           Forfeited                          (10,248)                       $7.49
                                                            -------------

                       Outstanding at December 31, 1996       169,428                        $9.45

                           Granted                            319,381                       $17.31
                           Exercised                           (6,700)                       $9.48
                           Forfeited                           (3,228)                      $10.88
                                                            -------------

                       Outstanding at December 31, 1997       478,881                       $14.68

                           Granted                            444,000                       $23.08
                           Exercised                          (51,000)                      $11.13
                                                            -------------

                       Outstanding at December 31, 1998       871,881                       $19.16
                                                            =============                 =========
</TABLE>

                  The  following  table  summarizes  information  about  options
                  outstanding and exercisable at December 31, 1998-

<TABLE>
<CAPTION>
                          Options Outstanding                                       Options Exercisable
---------------------------------------------------------------------------    ----------------------------------
                                          Weighted-
                                           Average               Weighted                          Weighted     
                                          Remaining              Average                           Average      
  Range of             Number            Contractual             Exercise        Number           Exercise
Exercise Price       Outstanding            Life                  Price         Exercisable         Price         
----------------    --------------       -----------          -------------   ------------------------------------

<S>                     <C>               <C>                   <C>                <C>               <C>      
$5.00 - $7.25           49,500            3.18 years            $    5.91          49,500            $    5.91
$11.00                  60,000            4.96 years            $   11.00          60,000            $   11.00
$17.00 - $18.75        318,381            8.47 years            $   17.31         105,461            $   17.30
$22.88 - $25.16        444,000            9.44 years            $   23.08               0            $    0
                       -------                                                    -------

$5.00 - $25.16         871,881            8.42 years            $   19.16         214,961            $   12.92
                       =======                                                    ======
</TABLE>

                  The Company  applies APB No. 25 in accounting for  stock-based
                  compensation plans. If stock-based compensation costs had been
                  recognized  based on the estimated fair values at the dates of
                  grant  of  options  awarded,   as  required  by  Statement  of
                  Financial   Accounting  Standard  No.  123,   "Accounting  for
                  Stock-Based   Compensation  to  Employees"  ("SFAS  No.  123")
                  proforma  net income  and net income per basic  share for 1998
                  and 1997  would have been  approximately  $14,234 or $2.74 and
                  $8,091 or $1.53 pe share, respectively.  Proforma compensation
                  costs for the Company's stock option plans  determined,  based
                  on the fair  value at the  grant  date for 1996  awards  under
                  those plans,  consistent with the method of SFAS No. 123, were
                  not material.  The SFAS No. 123 method of  accounting  has not
                  been  applied  to  periods  prior to  January  1, 1995 and the
                  resulting proforma  compensation expense may not be indicative
                  of  proforma   expense  in  future  years.   For  purposes  of
                  estimating the fair value of each option on the date of grant,
                  the Company  utilized the  Black-Scholes  option pricing model
                  with the following assumptions

                                      F-19
<PAGE>

                  for 1998,  1997 and 1996;  risk free interest  rates of 5.60%,
                  6.27% and 5.84%,  respectively;  no dividend  yield;  weighted
                  average   expected   option   lives  of  5,  5  and  3  years,
                  respectively,  and,  expected  volatility of 33%, 39% and 40%,
                  respectively.

(13)          EARNINGS PER SHARE:
              -------------------

                  The following  table sets forth the  computation  of basic and
                  diluted earnings per share-

<TABLE>
<CAPTION>
                                                                             1998          1997         1996
                                                                            -------       ------       ------
                      <S>                                                   <C>           <C>          <C>   
                       Numerator-
                           Income from continuing operations                $10,583       $7,465       $6,634
                                                                            -------       ------       ------
                       
                       Denominator-
                           Denominator for basic earnings per
                                share--weighted-average shares                5,203        5,288        5,497
                       Effect of dilutive securities-
                           Employee stock options                                85           51           10
                       Denominator for diluted earnings per                 -------       ------       ------
                           share-adjusted weighted-average shares
                           and assumed conversions                            5,288        5,339        5,507
                                                                            -------       ------       ------
                       
                       Basic earnings per share                             $  2.03       $ 1.41       $ 1.21
                                                                            =======       ======       ======
                       
                       Diluted earnings per share                           $  2.00       $ 1.40       $ 1.20
                                                                            =======       ======       ======
</TABLE>

(14)          TRANSACTIONS WITH RELATED PARTIES:
              ----------------------------------

                  The Company has a 50%  interest in an  unconsolidated  limited
                  liability   corporation,   whose  principal   assets  are  two
                  leveraged leases with Kmart. A group that includes the wife of
                  the Board Chairman,  two Directors of the Company and the wife
                  of one of the  Directors  have an 8%  interest  in this entity
                  (see Note 7).

                  In July 1998,  the Company  participated  in a $3 million loan
                  transaction  secured by stock in a corporation whose principal
                  assets  were  leased  equipment  and  stock  in a  cooperative
                  apartment.  The Company advanced approximately $1.8 million in
                  connection with this loan. The remaining amounts were advanced
                  by the Board Chairman of the Company, $250; and the balance by
                  the wife of the Board  Chairman.  The note,  which  matures in
                  August 1999,  bears interest at 14% per annum payable monthly.
                  The  participants  also  received  a  commitment  fee of 4% in
                  connection  with the loan. In September  1998, the corporation
                  sold its stock in the  cooperative  apartment  and the Company
                  received $800 in addition to its normally scheduled payment.

                  In September  1996, the Company  purchased a 50% interest in a
                  limited  partnership  that owns and  operates a hotel in Miami
                  Beach,  Florida.  At the time of the acquisition,  the Company
                  participated in a $2.5 million loan transaction to the limited
                  partnership  secured by a mortgage  lien against the property.
                  The Company  advanced  approximately  $683 in connection  with
                  this  note.  The  remaining   amounts  were  advanced  by  the
                  following:  a Director of the Company,  $250;  the wife of the
                  Board  Chairman,  $1 million;  an officer of the Company $100;
                  and the balance by unrelated  parties.  The note bore interest
                  at 14% per annum  payable  monthly and the  participants  also
                  received  a  commitment  fee  of  4%.  This  note  matured  in
                  September 1997

                                      F-20
<PAGE>

                  and was  extended in  accordance  with  original  terms of the
                  note, for one year, in  consideration  of a 4% commitment fee.
                  The limited  partnership  repaid the full  amount  outstanding
                  together  with  accrued  interest  in July 1998.  All  amounts
                  invested  in and  advanced to the  partnership  by the Company
                  have  been  classified  as  investments  in  and  advances  to
                  affiliate and are included in other assets in the Consolidated
                  Financial Statements.

                  In 1996 and 1997, in order to  effectively  manage the cost to
                  the Company of the remediation  efforts at Metex Corporation's
                  ("Metex") two New Jersey facilities (see Note 19), the Company
                  sold,  in  total,  approximately  a 4%  interest  for $40 in a
                  subsidiary   that   manages   the   Company's    environmental
                  remediation  efforts to an Officer and Director of the Company
                  and other  employees,  as well as an interest to the Company's
                  environmental consulting company. These shares contain certain
                  restrictions on transfer and, under certain circumstances, are
                  redeemable at the net book value of the subsidiary.

                  The Company's two hotel  properties  are managed by a publicly
                  traded  company  for  which  the Board  Chairman  and  another
                  Director of the Company are  directors.  In  addition,  during
                  1998 the Company's  Board Chairman was also named Chairman and
                  President of this  company.  Fees paid for the  management  of
                  these  properties  are based upon a percentage  of revenue and
                  were  approximately  $139,  $143 and $159 for  1998,  1997 and
                  1996,  respectively.  Included  in  marketable  securities  at
                  December  31, 1998 was  approximately  $9.4  million of common
                  stock in this  company  which  represents  less than 2% of the
                  company's outstanding shares.

                  During 1997 the Company advanced, in the aggregate $398 to the
                  Board  Chairman  and $375 to a  Director  and  Officer  of the
                  Company.   Such   advances  bore  interest  at  the  Company's
                  borrowing rate under its revolving  credit  facility which was
                  8.5% at December 31, 1997. Amounts outstanding at December 31,
                  1997 of $398  together  with  accrued  interest  thereon  were
                  repaid in  January  1998.  No such  advances  were made by the
                  Company in 1998.

(15)          INCOME TAXES:
              -------------

                  Deferred  income taxes are determined on the liability  method
                  in accordance with Statement of Financial Accounting Standards
                  No. 109, "Accounting for Income Taxes" ("SFAS No.109").  Under
                  SFAS  No.109,   deferred  tax  assets  and   liabilities   are
                  determined based on the difference between the tax basis of an
                  asset or liability and its reported amount in the consolidated
                  financial  statements  using  enacted  tax  rates.  Future tax
                  benefits  attributable to these  differences are recognized to
                  the extent that  realization  of such  benefits is more likely
                  than not.

                  Deferred tax assets primarily arose from basis  differences of
                  real  properties  held for rental for financial  statement and
                  income tax purposes.  Based upon the Company's  historical and
                  projected levels of pretax income,  management  believes it is
                  more  likely  than not  that the  Company  will  realize  such
                  benefits in the future and, accordingly,  no valuation reserve
                  has been recorded.

                                      F-21

<PAGE>

        The  components of the net deferred tax asset  (liability)  at
        December 31, follows-

<TABLE>
<CAPTION>
                                                                    1998            1997
                                                                  -------        -------
        
        <S>                                                       <C>            <C>    
        Realization allowances related to
            accounts receivable and inventories                   $   276        $   259
        Net unrealized gain on marketable securities               (1,514)           (70)
        Basis differences relating to real
            property held for rental                                3,239          3,990
        Anticipated insurance proceeds                               (983)        (2,380)
        Accrued expenses, deductible when paid                      5,112          4,856
        Deferred revenue and profit (for tax purposes)                 61            112
        Basis differences relating to business acquisitions        (1,859)        (1,859)
        Leveraged lease                                              (503)          (268)
        Property, plant and equipment                                (582)          (606)
        Pensions                                                      (81)           (49)
        Other, net                                                    (29)           200
                                                                  -------        -------
        
        
               Net deferred tax asset                               3,137          4,185
        
        Current portion                                              (152)         1,219
                                                                  -------        -------
        
               Noncurrent portion                                 $ 3,289        $ 2,966
                                                                  =======        =======
</TABLE>


                  Income tax provision  (benefit)  reflected in the accompanying
                  Consolidated Statements of Income for the years ended December
                  31, follows-

                                                   1998       1997        1996
                                                  ------      ------      ------

                    Current-
                        Federal                  $ 6,325     $ 4,823    $ 4,589
                        State                      1,900       1,860      1,838
                    Deferred                        (500)       (873)    (1,018)
                                                 -------     -------    -------
                                                          
                                                 $ 7,725     $ 5,810    $ 5,409
                                                 =======     =======    =======
                                                   
                  A  reconciliation  of the tax provision  computed at statutory
                  rates to the amounts  shown in the  accompanying  Consolidated
                  Statements of Income for the years ended December 31, follows-


          Computed Federal income
               tax provision at statutory rates   $6,408      $4,513      $4,094
          State income taxes, net of
               Federal income tax benefit          1,293       1,272       1,266
          Other, net                                  24          25          49
                                                  ------      ------      ------

                                                  $7,725      $5,810      $5,409
                                                  ======      ======      ======
                                      F-22

<PAGE>

(16)          OTHER INCOME AND EXPENSE, NET:
              ------------------------------

                  The  components  of  other  income  and  expense,  net  in the
                  accompanying  Consolidated  Statements of Income for the years
                  ended December 31, follows-

<TABLE>
<CAPTION>
                                                                          1998               1997             1996
                                                                          ----               ----             ----

                       <S>                                               <C>                <C>             <C>   
                       Gain on sales of real estate assets               $5,444             $3,481          $3,919
                       Gain on sale of trading securities (Note 5)           75                  0               0
                       Loss from equity investments (a)                    (402)              (263)              0
                       Settlement income (b)                                  0                  0           1,443
                       Other, net (c)                                       (82)                44            (561)
                                                                       ----------        ------------     ------------

                                                                         $5,035             $3,262          $4,801
                                                                       ==========        ============     ============
</TABLE>

                  (a)   Loss from equity investments  principally represents the
                        Company's  share of losses in a Miami Beach hotel.  (See
                        Note  7),   partially   offset  by   nonrecurring   cash
                        distributions received by the Company in connection with
                        interests  held in certain  real estate  ventures  which
                        were acquired in the 1991 merger with BMG Equities Corp.
                        Such  investments  were valued at historical cost at the
                        date of acquisition.

                  (b)   In December  1996,  the Company  received  approximately
                        $1.4  million  in  settlements  of all  claims  from  an
                        investment that was principally written off in 1990.

                  (c)   In March 1991, the Company was named as a defendant in a
                        suit by certain  investors and limited  partners seeking
                        actual,   punitive   and  treble   damages  in  a  total
                        unspecified  amount.   While  management   continued  to
                        believe  that the  allegations  of the action were false
                        and without  merit,  as a result of  escalating  defense
                        costs  and  the   continued   likelihood   of   extended
                        litigation,  the  Company  settled  this matter in April
                        1996 for approximately $425, after taxes.

(17)          RETIREMENT PLAN:
              ----------------

                  The Company has a noncontributory defined benefit pension plan
                  that covers  substantially  all  full-time  employees  and the
                  former employees of the Company's discontinued resilient vinyl
                  flooring segment.

                  The   following   table  sets  forth  the  change  in  benefit
                  obligation, the change in plan assets and the funded status of
                  the plan as of December 31-

                                      F-23
<PAGE>





                                                            1998          1997
                                                            ----          ----
Change in benefit obligation:

       Benefit obligation, beginning of year               $  9,052    $  8,983
              Service cost                                      308         325
              Interest cost                                     640         626
              Actuarial gain                                    326         392
              Benefits paid                                  (1,036)     (1,274)
                                                           --------    --------
       Benefit obligation, end of year                        9,290       9,052
                                                           --------    --------


Change in plan assets:

       Fair value of plan assets, beginning of year          12,643      12,904
               Actual return on plan assets                     610       1,013
               Benefits paid                                 (1,036)     (1,274)
                                                           --------    --------
       Fair value of plan assets, end of year                12,217      12,643
                                                           --------    --------

Funded status                                                 2,927       3,591
                                                           --------    --------

     Unrecognized prior service cost                            587         665
     Unrecognized net actuarial loss                          1,724         929
     Unrecognized net transition asset                         (954)     (1,189)
     Unrecognized net gain                                   (3,444)     (3,274)
                                                           --------    --------

Prepaid benefit obligation                                 $    840    $    722
                                                           ========    ========

Net  periodic  pension  income for the years  ended  December  31  includes  the
following components-

                                                    1998        1997       1996
                                                    ----        ----       ----

Service cost                                        ($308)    ($  325)    ($230)
Interest cost                                        (640)       (626)     (643)
Actual return on plan assets                          610       1,013       883
Net amortization and deferral                         456          87       102
                                                    -----     -------     -----

             Net periodic pension income            $ 118     $   149     $ 112
                                                    =====     =======     =====

In determining the projected benefit  obligation for 1998 and 1997, the weighted
average assumed discount rate was 7% and 7.5%,  respectively,  while the rate of
expected increases in future salary levels was 3.5% for both years. The expected
long-term rate of return on assets used in determining net periodic pension cost
for all years presented was 9%. No  contributions  were made during 1998 or 1997
as the  plan is  overfunded.  Plan  assets  consist  primarily  of  U.S.  bonds,
government backed mortgage obligations, equity securities and mutual funds.

                                      F-24

<PAGE>

(18)   BUSINESS SEGMENTS:
       ------------------

                  During  1998,  the  Company  adopted  Statement  of  Financial
                  Accounting  Standards No. 131,  "Disclosures About Segments of
                  an  Enterprise  and Related  Information,"  which  establishes
                  standards for the way that companies report  information about
                  operating  segments,  based on the  approach  that  management
                  utilizes to organize the segments for management reporting and
                  decision making.

                  The Company  operates  through  two  business  segments:  real
                  estate investment and management and engineered products.  The
                  real estate  investment and  management  segment is engaged in
                  the  business  of  investing  in  and  managing   real  estate
                  properties  and the  making of  high-yield,  short-term  loans
                  secured  by  desirable  properties.  Engineered  products  are
                  manufactured through wholly-owned  subsidiaries of the Company
                  and primarily  consist of knitted wire products and components
                  and transformer products.

                  Information on the Company's  business  segments for the years
                  ended December 31 follows-

<TABLE>
<CAPTION>
                                                                  1998          1997          1996
                                                                  ----          ----          ----

<S>                                                              <C>          <C>          <C>      
Net revenues and sales-
    Real estate investment and management                        $  26,349    $  24,042    $  23,936
    Engineered products                                             32,170       36,204       42,055
                                                                 ---------    ---------    ---------

                                                                 $  58,519    $  60,246    $  65,991
                                                                 =========    =========    =========

Operating income-
    Real estate investment and management                        $  12,133    $   7,718    $   6,195
    Engineered products                                              3,239        3,419        3,792
                                                                 ---------    ---------    ---------

                                                                    15,372       11,137        9,987

General corporate expenses                                          (3,097)      (2,329)      (2,924)
Other income, net                                                    6,033        4,467        4,980
                                                                 ---------    ---------    ---------

                      Income from continuing
                           operations before income taxes        $  18,308    $  13,275    $  12,043
                                                                 =========    =========    =========

Identifiable assets-
    Real estate investment and management 
    and corporate assets                                         $ 114,406    $  95,080    $  99,292
    Engineered products                                             11,706       11,432       12,174
    Discontinued operations                                              0        6,841        5,295
                                                                 ---------    ---------    ---------

                                                                 $ 126,112    $ 113,353    $ 116,761
                                                                 =========    =========    =========

Depreciation and amortization expense-
    Real estate investment and management                        $   5,530    $   5,838    $   6,359
    Engineered products                                                662          577          481
    General corporate expenses                                         374          242          406
                                                                 ---------    ---------    ---------

                                                                 $   6,566    $   6,657    $   7,246
                                                                 =========    =========    =========

Mortgage interest expense-
    Real estate investment and management                        $   2,661    $   3,058    $   3,671
                                                                 =========    =========    =========
</TABLE>

                                      F-25
<PAGE>

<TABLE>
<CAPTION>
                                                                                       1998           1997        1996
                                                                                       ----           ----        ----

<S>                                                                                  <C>              <C>        <C>
                  Additions to long-lived assets-
                        Real estate investment and management                        $22,043          $3,188     $3,500
                        Engineered products                                              510           1,077        721
                                                                                     -------          ------     ------

                                                                                     $22,553          $4,265     $4,221
                                                                                     =======          ======     ======
</TABLE>

                  Sales  by  the  Company's   engineered   products  segment  to
                  automobile  original  equipment  manufacturers  accounted  for
                  approximately  25%,  31%  and  32%  of  1998,  1997  and  1996
                  consolidated  revenues,  respectively.  Approximately 13%, 13%
                  and 14% of 1998,  1997 and 1996 total sales generated from the
                  engineered  products  segment  were  from  foreign  customers.
                  Substantially  all  assets  held by the  Company's  engineered
                  products segment are located within the United States.

                  Included  in  the  identifiable  assets  of  the  real  estate
                  investment and management  segment for 1998, 1997 and 1996 are
                  approximately $2.0, $5.1 and $13.5 million,  respectively,  of
                  high yield  mortgage  notes  receivable  (see Note 6).  Income
                  generated  by these notes  receivable  is included in interest
                  income.  Also included in the identifiable  assets of the real
                  estate  investment and management  segment for 1998,  1997 and
                  1996 is  approximately  $1.8  million  related  to the  former
                  manufacturing facility of the Company's antenna segment.

(19)          CONTINGENCIES:
              --------------

                  The Company has  undertaken  the  completion of  environmental
                  studies  and/or  remedial  action  at  Metex'  two New  Jersey
                  facilities.

                  The process of remediation has begun at one facility  pursuant
                  to  a  plan   filed  with  the  New   Jersey   Department   of
                  Environmental Protection and Energy ("NJDEPE").  Environmental
                  experts  engaged by the Company  estimate  that under the most
                  probable  remediation scenario the remediation of this site is
                  anticipated to require initial expenditures of $860, including
                  the cost of capital equipment, and $86 in annual operating and
                  maintenance costs over a 15-year period.

                  Environmental  studies at the second  facility  indicate  that
                  remediation  may be necessary.  Based upon the facts presently
                  available, environmental experts have advised the Company that
                  under the most probable  remediation  scenario,  the estimated
                  cost to  remediate  this site is  anticipated  to require $2.3
                  million  in  initial  costs,   including   capital   equipment
                  expenditures,  and $258 in annual  operating  and  maintenance
                  costs over a 10-year  period.  The  Company  may  revise  such
                  estimates in the future due to the  uncertainty  regarding the
                  nature,  timing and extent of any remediation efforts that may
                  be required  at this site,  should an  appropriate  regulatory
                  agency deem such efforts to be necessary.

                  The foregoing  estimates may also be revised by the Company as
                  new  or  additional   information   in  these  matters  become
                  available  or should the NJDEPE or other  regulatory  agencies
                  require additional or alternative  remediation  efforts in the
                  future. It is not currently  possible to estimate the range or
                  amount of any such liability.

                  Although  the  Company  believes  that it is  entitled to full
                  defense  and  indemnification  with  respect to  environmental
                  investigation   and  remediation  costs  under  its  insurance
                  policies,  the Company's  insurers have denied such  coverage.
                  Accordingly,  the Company has filed an action 

                                      F-26
<PAGE>


                  against  certain   insurance   carriers  seeking  defense  and
                  indemnification  with  respect to all prior and  future  costs
                  incurred in the  investigation and remediation of these sites.
                  Upon the advice of counsel,  the Company  believes  that based
                  upon a present  understanding  of the  facts  and the  present
                  state  of the  law in New  Jersey,  it is  probable  that  the
                  Company  will  prevail in the pending  litigation  and thereby
                  access  all or a very  substantial  portion  of the  insurance
                  coverage  it  claims;   however,   the  ultimate   outcome  of
                  litigation cannot be predicted.

                  At  December  31,  1998 and 1997,  a total of $2.9  million in
                  anticipated   insurance   recoveries   is   recorded   in  the
                  accompanying consolidated financial statements and is included
                  in other assets.  Additionally,  in 1995 the Company  received
                  approximately  $4.1  million  of  insurance  recoveries.   The
                  remaining balance of $2.9 million at December 31, 1998 (from a
                  total  of  $7  million)  is  in  dispute  with  the  Company's
                  insurance  carriers.  Management  believes that  recoveries in
                  excess  of  the   amounts   reflected   in  the   accompanying
                  consolidated  financial  statements  are  available  under the
                  insurance policies but have not been recorded. There can be no
                  assurances,  however,  that the  Company  will  prevail in its
                  efforts  to obtain  amounts  at or in excess of the  estimated
                  recoveries.

                  In the opinion of  management,  these matters will be resolved
                  favorably  and such amounts,  if any, not recovered  under the
                  Company's  insurance  policies will be paid  gradually  over a
                  period of years and,  accordingly,  should not have a material
                  adverse  effect  upon the  business,  liquidity  or  financial
                  position of the Company. However, adverse decisions or events,
                  particularly  as to the merits of the  Company's  factual  and
                  legal basis could cause the Company to change its  estimate of
                  liability with respect to such matters in the future.

                  The Company is involved in various other  litigation and legal
                  matters  which are being  defended and handled in the ordinary
                  course of  business.  None of these  matters  are  expected to
                  result in a judgment  having a material  adverse effect on the
                  Company's   consolidated  financial  position  or  results  of
                  operations.


                                      F-27
<PAGE>
                                                                     SCHEDULE II


                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------


                         ALLOWANCE FOR DOUBTFUL ACCOUNTS
                         -------------------------------

                                (In Thousands)
                                --------------



<TABLE>
                                                          Write-offs
                                                            Net of
                                                          Recoveries
                                  Balance    Charged      of Accounts    Balance
                                    at          to        Previously       at
                                 Beginning  Costs and       Written      End of
                                 of Period   Expenses         Off        Period
                                 ---------  ---------     -----------    -------

<S>                                <C>          <C>          <C>         <C> 
Allowance for doubtful accounts:

   Year ended December 31, 1998    $326         $70          $6          $390

   Year ended December 31, 1997     377           0          51           326

   Year ended December 31, 1996     332          46           1           377
</TABLE>

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

                                      F-28

<PAGE>
                                                                    SCHEDULE III
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------
           REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
           ----------------------------------------------------------
                                DECEMBER 31, 1998
                                -----------------
                                 (In Thousands)
                                 --------------
<TABLE>
<CAPTION>
                                            Mortgage       Initial Cost to Registrant  Costs Capitalized
                                              Loans       --------------------------     Subsequent to
                                             Payable                   Building and      Acquisition/
       Description                           (Gross)       Land        Improvements      Improvements
       -----------                          --------      --------     -------------     -------------
<S>                                         <C>           <C>            <C>               <C>   
Shopping Centers and Retail Outlets-
     Culver, CA                             $ 4,564       $    842       $  7,576          $    0
     Northbrook, IL                           4,872            898          8,075               0
     Miscellaneous Investments               14,426          5,330         48,602           1,008
                                            -------       --------       --------          ------
                                             23,862          7,070         64,253           1,008
                                            -------       --------       --------          ------
Commercial Properties-
     Miscellaneous Investments                7,067          9,622         42,261             939
Day Care Centers and Offices-
     Miscellaneous Investments                  410            643          5,786           1,627
Hotel Properties-
     Miscellaneous Investments                    0              0          2,868              48
Other-
     Miscellaneous Investments                    0          2,397            999             581
                                            -------       --------       --------          ------
                                            $31,339       $ 19,732       $116,167          $4,203
                                            =======       ========       ========          ======
</TABLE>
<TABLE>
<CAPTION>
                                                                                                                       Life on Which
                                                           Gross Amounted at Which                                     Depreciation 
                                                         Carried at Close at Period                                      In Latest  
                                          ---------------------------------------------------                          Statement of 
                                                         Building                 Accumulated                            Income is  
                                                           and          Total    Depreciation    Date of      Date       Computed   
       Description                            Land     Improvements    (a) (c)        (b)     Construction  Acquired      (Years)   
       -----------                            ----     ------------    -------  ------------- ------------  ---------- ------------ 
<S>                                       <C>           <C>          <C>            <C>            <C>        <C>         <C>       
Shopping Centers and Retail Outlets-                                                                                                
     Culver, CA                            $   842      $  7,576      $  8,418       $ 5,034        N/A          1986        18     
     Northbrook, IL                            898         8,075         8,973         5,220        N/A          1987        18     
     Miscellaneous Investments               5,330        49,610        54,940        31,648        N/A       1986-98     10-39     
                                          --------      --------      --------       -------                                        
                                                                                                                                    
                                             7,070        65,261        72,331        41,902                                        
                                          --------      --------      --------       -------                                        
                                                                                                    
Commercial Properties-                                                                              
     Miscellaneous Investments               9,622        43,200        52,822        16,992        N/A       1986-98     12-39     
Day Care Centers and Offices-                                                                                                       
     Miscellaneous Investments                 643         7,413         8,056         5,957        N/A       1986-91      7-39     
Hotel Properties-                                                                                                                   
     Miscellaneous Investments                   0         2,916         2,916         2,868        N/A       1986-96     10-39     
Other-                                                                                                                              
     Miscellaneous Investments               2,397         1,580         3,977           946        N/A       1986-97     10-39     
                                          --------      --------      --------       -------                                        
                                                                                                    
                                           $19,732      $120,370      $140,102       $68,665      
                                          ========      ========      ========       =======      
</TABLE>
Notes:

(a)  Reconciliations  of the carrying value of real property held for rental for
the three years ended December 31, 1998 are as follows-
<TABLE>
                                                          1998       1997       1996
                                                        --------   --------   --------
<S>                                                     <C>        <C>        <C>     
Real property held for rental at beginning of period    $124,346   $126,876   $128,135
Additions during the period-
     Acquisitions and improvements                        12,958      2,276      3,480
     Transfers from property, plant and equipment              0          0      2,195
     Transfers from noncurrent notes receivable            8,165          0          0
                                                        --------   --------   --------

                                                         145,469    129,152    133,810
Deductions during period-
     Cost of real estate sold                              5,367      4,806      6,934
                                                        --------   --------   --------

                                                        $140,102   $124,346   $126,876
                                                        ========   ========   ========
</TABLE>
(b)  Reconciliations  of  accumulated  depreciation  for the three  years  ended
December 31, 1998 are as follows-
<TABLE>
<CAPTION>
                                                            1998       1997       1996
                                                        --------   --------   --------
<S>                                                     <C>        <C>         <C> 
Accumulated depreciation at beginning of period         $ 65,768   $ 61,187    $58,122
Additions during the period-
     Provision for depreciation                            5,529      5,836      6,588
     Transfers from property, plant and equipment              0          0        159
                                                        --------   --------   --------

                                                          71,297     67,023     64,869
Deductions during period-
     Accumulated depreciation of real estate sold          2,632      1,255      3,682
                                                        --------   --------   --------

                                                        $ 68,665   $ 65,768   $ 61,187
                                                        ========   ========   ========
</TABLE>
(c) The aggregate cost for Federal income tax purposes is approximately $180,956


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

                                      F-29
<PAGE>
                                                                     SCHEDULE IV
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

                          MORTGAGE LOANS ON REAL ESTATE
                          -----------------------------

                                DECEMBER 31, 1998
                                -----------------

                                 (In Thousands)
                                 --------------



<TABLE>
<CAPTION>
                 Description                                     Interest Rate                    Final Maturity Date
                 -----------                                     -------------                    -------------------

<S>                                                         <C>                             <C>
Mortgage loans secured by Commercial Property -
         Other - Two loans - Face amounts $325 or less        Varies from 9% - 10%          From August 2000 - December 2008

Mortgage loans secured by Hotels-
     Montgomery, AL                                         Varies from 10.25% - 11%                  November 2001
     Beaumont, TX                                            Varies from 10% - 11%                    February 2002


Mortgage loans secured by Mortgage Notes
     Long Beach, NY                                                   14%                             January 1999


</TABLE>

<TABLE>
<CAPTION>
                                                                                                                  Principal Amount 
                                                                                                      Carrying    of Loans Subject 
                                                                                          Face        Amount of    to Delinquent   
                                                                             Prior      Amount of     Mortgages    Principal or    
                 Description                 Periodic Payment Terms          Liens      Mortgages       (b)           Interest     
                 -----------               ---------------------------    -----------   ---------     ----------  ---------------- 

<S>                                                                             <C>        <C>            <C>              <C>
Mortgage loans secured by 
  Commercial Property -           
         Other - Two loans - 
           Face amounts $325 or less       Principal and interest 
                                             due monthly                        $0         $370           $44              $0

Mortgage loans secured by Hotels-
     Montgomery, AL                        Principal and interest
                                             due monthly,                        0          610           121               0
     Beaumont, TX                          Principal and interest
                                             due monthly, additionally,
                                             there is a principal
                                             payment $773 due in
                                             February 2002                       0          900           361               0
                                                                             -----       ------        ------            ----
                                                                                 0        1,510           482               0
                                                                             -----       ------        ------            ----
Mortgage loans secured by Mortgage Notes
     Long Beach, NY                        Interest due monthly, with 
                                             principal due at maturity           0          700           700               0
                                                                             -----       ------        ------            ----
                                                                                $0       $2,580        $1,226  (a)(c)      $0
                                                                             =====       ======        ======            ====
</TABLE>

NOTES:                                                    

(a)      A  reconciliation  of mortgage  loans on real estate for the year ended
         December 31, 1998 is a follows-

Balance at beginning of period                                $ 5,006
Additions during period-
    New mortgage loans                                            100
Deductions during period-
    Collection of principal                                    (3,880)
                                                               -------

Balance at end of period                                      $ 1,226
                                                               =======


(b)      In accordance with generally  accepted  accounting  principles  certain
         gains from the sale of real  property  are being  recognized  under the
         installment method and, accordingly, notes receivable have been reduced
         by the following deferred gains at December 31, 1998:-

         Mortgage note receivable in connection with sale of property in-


Montgomery, Alabama                                              $132
Beaumont, Texas                                                   442
Waterbury, Connecticut                                             66
Augusta, Georgia                                                   24
                                                                 ----

                                                                 $664
                                                                 ====

(c)      The carrying  value for Federal  income tax  purposes is  substantially
         equal to the carrying amount for book purposes.


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


                                      F-30


<PAGE>
                      UNITED CAPITAL CORP. AND SUBSIDIARIES
                      -------------------------------------

                            QUARTERLY FINANCIAL DATA
                            ------------------------

                                   (Unaudited)
                                   -----------

                  (Dollars In Thousands Except Per Share Data)
                  --------------------------------------------

<TABLE>
<CAPTION>
                                                           First            Second            Third             Fourth
                                                          Quarter           Quarter           Quarter           Quarter
                                                          -------           -------           -------           -------
<S>                                                       <C>               <C>               <C>               <C>    

FOR THE YEAR 1998:
     Revenues                                             $14,548           $14,996           $13,883           $15,092
                                                          =======           =======           =======           =======

     Costs and expenses                                   $10,747           $12,734           $10,814           $11,950
                                                          =======           =======           =======           =======

     Other income                                         $   349           $ 3,753           $   400           $ 1,532
                                                          =======           =======           =======           =======

     Income from continuing operations                    $ 2,414           $ 3,423           $ 1,961           $ 2,785
                                                          =======           =======           =======           =======

     Income from discontinued operations,
         net of tax                                       $ 4,849           $     0           $     0           $     0
                                                          -------           -------           -------           -------

     Net income                                           $ 7,263           $ 3,423           $ 1,961           $ 2,785
                                                          =======           =======           =======           =======

Per share data:
BASIC EARNINGS PER COMMON SHARE:
     Income from continuing operations                    $   .46           $   .66           $   .38           $   .54
     Discontinued operations, net of tax                      .92               .00               .00               .00
                                                          -------           -------           -------           -------

     Net income per common share                          $  1.38           $   .66           $   .38           $   .54
                                                          =======           =======           =======           =======

DILUTED EARNINGS PER COMMON SHARE:
     Income from continuing operations                    $   .45           $   .64           $   .37           $   .54
     Discontinued operations, net of tax                      .90               .00               .00               .00
                                                          -------           -------           -------           -------

     Net income per common share assuming
         dilution                                         $  1.35           $   .64           $   .37           $   .54
                                                          =======           =======           =======           =======

FOR THE YEAR 1997:
     Revenues                                             $15,200           $16,092           $14,379           $14,575
                                                          =======           =======           =======           =======

     Costs and expenses                                   $13,640           $13,274           $12,523           $12,001
                                                          =======           =======           =======           =======

     Other income                                         $ 2,789           $   523           $   233           $   922
                                                          =======           =======           =======           =======

     Income from continuing operations                    $ 2,386           $ 1,886           $ 1,071           $ 2,122
                                                          =======           =======           =======           =======
</TABLE>

                                      F-31

<PAGE>
<TABLE>
<CAPTION>
                                                                             First          Second           Third          Fourth
                                                                            Quarter         Quarter         Quarter         Quarter
                                                                           ---------       ---------       ---------       ---------

<S>                                                                        <C>             <C>             <C>             <C>      
     Income from discontinued operations,
         net of tax                                                        $     249       $     104       $     448       $     215
                                                                           =========       =========       =========       =========

     Net income                                                            $   2,635       $   1,990       $   1,519       $   2,337
                                                                           =========       =========       =========       =========

Per share data:
BASIC EARNINGS PER COMMON SHARE:
     Income from continuing operations                                     $     .45       $     .36       $     .20       $     .40
     Discontinued operations, net of tax                                         .05             .02             .09             .04
                                                                           ---------       ---------       ---------       ---------
     Net income per common share                                           $     .50       $     .38       $     .29       $     .44
                                                                           =========       =========       =========       =========

DILUTED EARNINGS PER COMMON SHARE:
     Income from continuing operations                                     $     .45       $     .35       $     .20       $     .39
     Discontinued operations, net of tax                                         .05             .02             .08             .04
                                                                           ---------       ---------       ---------       ---------
     Net income per common share assuming dilution
                                                                           $     .50       $     .37       $     .28       $     .43
                                                                           =========       =========       =========       =========
</TABLE>


Notes to quarterly financial data

(1)       The first three  quarters of 1997 earnings per share amounts have been
          restated to comply with  Statement of Financial  Accounting  Standards
          No. 128, "Earnings per Share".


                                      F-32