Notes to Consolidated Balance Sheet:

(a)   Under the Agreement of   Transfer  dated  December 24,   1936,   New York Railways

Corporation transferred to New York City Omnibus Corporation (1) all rights and
claims arising from the abandonment of the perpetual street railway franchises and
the conveyance of street railway properties to The City of New York, (2) all rights
and claims to any benefits under the Recapture Contract dated January 29. 1935,
between The City of New York, New York City Omnibus Corporation and Madison
Avenue Coach Company, Inc. (a subsidiary company) and (3) all rights and claims to
the routes of the New York City Omnibus Corporation, subject to the lien of the Prior
Lien Bonds. Under the Recapture Contract, the City at its election has the irrevocable
right, after ten years from the date of the contract, to terminate the franchises of the
New York City Omnibus Corporation and Madison Avenue Coach Company, Inc.,
(which otherwise terminate on December 26. 1958) and to purchase the property and
equipment used in the operation of the routes (other than real estate, cash, rceiv-
ables, and similar items, which are to be retained by the companies) upon payment
by the City of (1) the balance which shall remain of the amount of $7,500,000 after
being reduced by amortization from the date of the Recapture Contract to the date
of recapture upon a cumulative sinking fund basis calculated with interest at the rate
of 3% per annum, compounded annually, so that at the end of the twenty-five year
term of the bus franchises said amount of $7,500,000 would have been completely
amortized, and (2) the value at the date of recapture (to be determined in the
manner set forth in the Recapture Contract) of the property and equipment so to
be purchased. With further reference to franchises, the franchise of Eighth Avenue
Coach Corporation, another subsidiary company, covers a period to October 16, 1945,
subject to termination on February 1, 1945 in the event The City of New York
exercises its right to purchase the property and equipment of New York City Omnibus
Corporation and Madison Avenue Coach Company, Inc.

(b)   Capital surplus includes $368,220.62 arising from cancellation of a liability formerly

owing to the Fifth Avenue Coach Company. At December 31, 1936, this liability had
not been canceled but since that date the rights formerly held by the Fifth Avenue
Coach Company in respect thereto have been acquired by New York Railways Corpo¬
ration and this liability has been released and discharged pursuant to the Agreement
of Transfer. With further reference to such agreement it was also provided that
New York Railways Corporation would contribute certain receivables of Madison
Avenue Coach Company, Inc. and Eighth Avenue Coach Corporation. A portion of
the receivables so contributed were not actually transferred to New York City
Omnibus Corporation until subsequent to December 31, 1936.

(c)   At   December   31,   1936,   the  interest   rate  on  these  obligations   was  6%   per   annum.

However, the companies advise that arrangements iiave been made, subject to the
approval of the Transit Commission of the State of New York, whereby the annual
interest rate will be reduced to 4%% retroactive to November 9, 1936.

(d)   The 458,450 shares outstanding at December 31, 1936, include 10,000 shares which, as

provided by the Plan of Readjustment and Motorization of New York Railways
Corporation, are set aside for delivery to Fifth Avenue Coach Company as compen¬
sation for its agreements under such Plan, If it is determined by the Court that
a lesser number of shares will be delivered to Fifth Avenue Coach Company as
compensation, the remainder of the 10,000 shares will be returned to New York City
Omnibus Corporation for cancellation.

The 42,633 shares of reserved stock are for issue upon the exercise of warrants which
are to be issued to the holders of New York Railways Corporation preferred stock,
under the Plan of Readjustment and Motorization of that company. Under such
Plan the warrants will entitle the holders thereof to purchase stock at $17.50 per
share over a period of 10 years from date of issue.    In this connection the order of