<PAGE>  1

                                     CONFORMED
 
                                   UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549
 
                                     FORM 10-Q
 
                                    (Mark One)
 
 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                               EXCHANGE ACT OF 1934
 
 For the quarterly period ended September 30, 1997
 
                                        or
 
 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                               EXCHANGE ACT OF 1934
 
 For the transition period from ___________________ to_____________________
 Commission file number 1-542
 
                                  GROSSMAN'S INC.
 --------------------------------------------------------------------------
 (Exact name of registrant as specified in its charter)
 
                 Delaware                                 38-0524830        
 
 ---------------------------------------          -------------------------
      (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                  Identification No.)
 
              45 Dan Road
          Canton, Massachusetts                              02021          
 
 ----------------------------------------        --------------------------
 (Address of principal executive offices)                  (Zip Code)
 
                                  (617) 830-4000
 --------------------------------------------------------------------------
               (Registrant's telephone number, including area code)
 
 --------------------------------------------------------------------------
               (Former name, former address and former fiscal year,
                           if changed since last report)
 
      Indicate by check mark whether the registrant (1) has filed all
 reports required to be filed by Sections 13 or 15(d) of the Securities
 Exchange Act of 1934 during the preceding 12 months (or for such shorter
 periods that the registrant was required to file such reports), and (2)
 has been subject to such filing requirements for the past 90 days. Yes X
 No
 
      Indicate by check mark whether the registrant has filed all documents
 and reports required to be filed by Sections 12, 13 or 15(d) of the
 Securities and Exchange Act of 1934 subsequent to the distribution of
 securities under a plan confirmed by a court. Yes ____ No ____
 
      Indicate the number of shares outstanding of the issuer's classes of
 common stock, as of the latest practicable date.
 
 Common Stock - $.01 Par Value - 28,080,215 shares as of November 12, 1997.
 
 
                                      1
 

<PAGE>  2 
 
                                  GROSSMAN'S INC.
                                     FORM 10-Q
                          QUARTER ENDED SEPTEMBER 30, 1997
 
                                       INDEX
 
 
                                                                      Page
                                                                     Number
                                                                     ------
 
 PART I. FINANCIAL INFORMATION
 -----------------------------
 
 ITEM 1. FINANCIAL STATEMENTS
 
   GROSSMAN'S INC. AND SUBSIDIARIES
    Consolidated Balance Sheets
      September 30, 1997, December 31, 1996 and September 30,
       1996..........................................................   3
 
 
    Consolidated Statements of Operations
      Three Months and Nine Months Ended September 30, 1997 and 1996.   5
 
 
    Consolidated Statements of Cash Flows
      Nine Months Ended September 30, 1997 and 1996..................   6
 
 
    Notes to Unaudited Interim Consolidated Financial Statements.....   7
 
 
 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...................................  14
 
 PART II. OTHER INFORMATION
 --------------------------
 
 ITEM 1. LEGAL PROCEEDINGS...........................................  24
 
 ITEM 5. OTHER INFORMATION...........................................  25
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................  25
 
 SIGNATURES..........................................................  26
 
 
 
 
 
 
 
 
 
 
 
                                      2
 
 <PAGE>  3


 PART I. FINANCIAL INFORMATION
 -----------------------------
 
 
 ITEM 1. FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION> 
 
                         GROSSMAN'S INC. AND SUBSIDIARIES
                              (DEBTOR-IN-POSSESSION)
                            CONSOLIDATED BALANCE SHEETS
                       (in thousands, except per share data)
                                    (Unaudited)
 
 
                                        SEPT. 30,  DECEMBER 31,   SEPT. 30,
                                           1997       1996          1996
                                        ---------  ------------   --------
 <S>                                     <C>          <C>         <C>
 ASSETS
 
 CURRENT ASSETS
 
  Cash and cash equivalents              $    210     $  1,058    $    734
  Receivables, less allowance of
    $1,974 at September 30, 1997
    $2,810 at December 31, 1996
    and $1,322 at September 30, 1996        4,377       10,710      13,279
  Inventories                              60,717       56,662      60,131
  Property held for sale                    3,491       15,199      12,824
  Other current assets                      2,293        1,559       3,788
                                         --------     --------    --------
    Total current assets                   71,088       85,188      90,756
 
 PROPERTY, PLANT AND EQUIPMENT, net of 
    accumulated depreciation of $18,109 
    at September 30, 1997, $16,114 at 
    December 31, 1996 and $16,108 on
    September 30, 1996                     23,941       25,549      27,605
 PROPERTY HELD FOR SALE                        -            -       25,762
 PREPAID PENSION ASSET                      9,608        9,536          - 
 OTHER ASSETS                               2,915        3,168         751
                                         --------     --------    --------
    TOTAL ASSETS                         $107,552     $123,441    $144,874
                                         ========     ========    ========
 
 
 The accompanying notes are an integral part of these unaudited interim
 consolidated financial statements.
 
</TABLE>
 
 
 
 
 
 
 
 
 
                                      3
 
 <PAGE>  4 

<TABLE>
<CAPTION>
                        GROSSMAN'S INC. AND SUBSIDIARIES
                              (DEBTOR-IN-POSSESSION)
                            CONSOLIDATED BALANCE SHEETS
                       (in thousands, except per share data)
                                    (Unaudited)
 
 
                                          SEPT. 30,  DECEMBER 31, SEPT. 30,
                                            1997        1996        1996   
                                          --------   -----------  ---------
 <S>                                         <C>        <C>       <C>
 LIABILITIES AND STOCKHOLDERS' INVESTMENT    
 
 CURRENT LIABILITIES
  Accounts payable and accrued liabilities   $ 27,005   $ 60,229  $ 56,884
  Liabilities subject to compromise            45,838        --        --
  Accrued interest                                387        397       533
  Revolving term note payable                  35,150     30,024       --
  Current portion of long-term debt and
   capital lease obligations                    2,102     12,228    14,669
                                            ---------   --------  ---------
    Total current liabilities                 110,482    102,878    72,086
 
 REVOLVING TERM NOTE PAYABLE                      --         --     30,301
 LONG-TERM DEBT AND CAPITAL LEASE
  OBLIGATIONS                                     164        634     6,294
 PENSION LIABILITY                                --         --      1,116
 OTHER LIABILITIES                              9,172      7,241     8,772
                                             --------   --------  ---------
    Total liabilities                         119,818    110,753   118,569
 
 COMMITMENTS AND CONTINGENCIES
 STOCKHOLDERS' INVESTMENT
  Common stock, $.01 par value, 
   Shares authorized - 50,000 
   Shares issued - 28,080 in 1997, 
   27,676 at December 31, 1996 and
   27,373 at September 30, 1996                   281        277       274
  Additional paid-in-capital                  157,992    157,825   157,292
  Retained earnings (deficit)                (170,539)  (145,414) (120,269)
  Minimum pension liability                       --         --     (9,550)
  Cumulative foreign currency translation
   adjustment                                     --         --     (1,442)
                                             ---------  --------- ---------
     Total Stockholders' Investment           (12,266)    12,688    26,305
                                             ---------  --------- ---------
     TOTAL LIABILITIES AND STOCKHOLDERS'
      INVESTMENT                             $107,552   $123,441  $144,874
                                             =========  ========= =========
 
 
 The accompanying notes are an integral part of these unaudited interim
 consolidated financial statements.
 
</TABLE>
 
 
 
 
 
 
                                      4
 
 <PAGE>  5

<TABLE>
<CAPTION>
                        GROSSMAN'S INC. AND SUBSIDIARIES
                              (DEBTOR-IN-POSSESSION)
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (in thousands, except per share data)
                                    (Unaudited)
 
 
                                     THREE MONTHS           NINE MONTHS
                                    ENDED SEPT. 30,        ENDED SEPT. 30,
                                   ----------------       ----------------
                                    1997       1996        1997      1996
                                    ----       ----        ----      ----
 <S>                              <C>        <C>        <C>       <C>
 SALES                            $ 69,596   $ 95,972   $174,720  $296,657
 COST OF SALES                      53,115     71,520    134,792   225,364
                                  ---------  ---------  --------- ---------
   Gross Profit                     16,481     24,452     39,928    71,293
 
 OPERATING EXPENSES
   Selling and administrative       18,863     22,675     58,112    83,638
   Depreciation and amortization       898      1,043      2,869     3,889
   Store closing expense                -          -          -     40,150
   Preopening expense                   74         51        272       807
                                  ---------  ---------  --------- ---------
                                    19,835     23,769     61,253   128,484
                                  ---------  ---------  --------- ---------
 OPERATING INCOME (LOSS)            (3,354)       683    (21,325)  (57,191)
 
 OTHER EXPENSES (INCOME)
   Interest expense                    997      1,444      2,396     4,080
   Net gain on disposals of
    property                            -         (72)        -        (99)
   Other                            (1,194)    (2,337)    (3,298)   (5,503)
                                   --------  ---------  --------- ---------
                                      (197)      (965)      (902)   (1,522)
 EQUITY IN NET LOSS OF
  UNCONSOLIDATED AFFILIATE              -          78         -        394
                                  ---------  ---------  --------- ---------
 (LOSS) BEFORE REORGANIZATION
  ITEMS AND INCOME TAXES            (3,157)     1,570    (20,423)  (56,063)
 
 REORGANIZATION ITEMS                2,381         -       4,702        -
                                  ---------  ---------  --------- ---------
 
 INCOME (LOSS) BEFORE INCOME TAXES  (5,538)     1,570    (25,125)  (56,063)
 PROVISION FOR INCOME TAXES             -          -          -         -
                                  ---------  ---------  --------- ---------
 NET INCOME (LOSS)                $ (5,538)  $  1,570   $(25,125) $(56,063)
                                  =========  =========  ========= =========
 NET INCOME (LOSS) PER COMMON
  SHARE (PRIMARY)                   $(0.20)    $ 0.05     $(0.90)   $(2.11)
                                  =========  =========  ========= =========
 WEIGHTED AVERAGE SHARES AND
  EQUIVALENT SHARES OUTSTANDING
   (Primary)                        28,080     34,044     27,988    26,571
                                  =========  =========  ========= =========
 
 
 The accompanying notes are an integral part of these unaudited interim
 consolidated financial statements.

</TABLE>
 
                                      5
 
<PAGE>  6

<TABLE>
<CAPTION>
                         GROSSMAN'S INC. AND SUBSIDIARIES
                              (DEBTOR-IN-POSSESSION)
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (in thousands, except per share data)
                                    (Unaudited)
 
                                                       NINE MONTHS ENDED
                                                         SEPTEMBER 30,
                                                   ------------------------
                                                     1997            1996
                                                     ----            ----
 <S>                                               <C>            <C>
 OPERATING ACTIVITIES
 Net loss                                          $(25,125)      $(56,063)
 Adjustments to reconcile net loss to net 
   cash (used for) operating activities:
   Depreciation and amortization                      2,869          3,889
   Net gain on disposals of property                    --             (99)
   Provision for losses on accounts receivable        1,245          1,777
   Provision for store closings                         --          25,911
   Reorganization items                               4,702            --
   Undistributed loss of unconsolidated affiliate       --             394
   (Increase) decrease in net assets:
    Receivables                                       5,088          8,067
    Inventories                                      (4,055)        28,834
    Note receivable and other assets                   (550)        12,839
   Increase (Decrease) in accounts payable and
    accrued and other liabilities                    14,507        (42,403)
                                                   ---------      ---------
    Total adjustments                                23,806         39,209
 
 NET CASH (USED FOR) OPERATING ACTIVITIES            (1,319)       (16,854)
  BEFORE REORGANIZATION PAYMENTS
 
   Reorganization payments                           (4,674)           --
                                                    --------      ---------
 NET CASH (USED FOR) OPERATING ACTIVITIES            (5,993)       (16.854)
 
 INVESTING ACTIVITIES
  Capital expenditures                                 (495)        (1,871)
  Proceeds from sales of property, net
    Pre-Bankruptcy                                    3,641         24,277
    Post-Bankruptcy                                   7,301            --
  Investment in unconsolidated affiliate                --            (460)
                                                   ---------      ---------
 NET CASH PROVIDED BY INVESTING ACTIVITIES           10,447         21,946
  FINANCING ACTIVITIES
  Proceeds from mortgage financing                      --          33,000
  Payments on mortgage financing                        --         (18,876)
                                                   ---------      ---------
  Net proceeds from mortgage financing                  --          14,124
  Payment in total of pre-bankruptcy revolver       (15,703)           --
  Proceeds from Debtor in Possession
   financing, net                                    20,829            --
  Payments on long-term debt and capital
   lease obligations                                (10,596)       (18,540)
  Net (repayments) of revolving
   term note payable                                    --          (2,543)
  Issuance of common stock as payments for
   Directors fees                                       168             65
                                                   ---------      ---------
  NET CASH (USED FOR) FINANCING ACTIVITIES           (5,302)        (6,894)
 
 Net(decrease) in cash and cash equivalents            (848)        (1,802)
 
 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     1,058          2,536
                                                   ---------      ---------
 CASH AND CASH EQUIVALENTS AT END OF PERIOD        $    210       $    734
                                                   =========      =========
 
 The accompanying notes are an integral part of these unaudited interim
 consolidated financial statements.
 
</TABLE>
 
                                      6
 


<PAGE>  7

 
                         GROSSMAN'S INC. AND SUBSIDIARIES
                              (DEBTOR-IN-POSSESSION)
          NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                SEPTEMBER 30, 1997
 
 
 
 NOTE 1 - BASIS OF PRESENTATION
 ------------------------------
 
 On April 7, 1997, the Company and two of its wholly owned affiliates, GRS
 Holding Company, Inc. and GRS Realty Company, Inc.,filed Chapter 11
 bankruptcy petitions under Title 11 of the United States Code ("Chapter
 11"). The Company is presently operating its business as a
 debtor-in-possession subject to the jurisdiction of the United States
 Bankruptcy Court for the District of Delaware (the "Court"). The Company
 will continue to operate as a debtor-in-possession while pursuing a
 reorganization plan to restructure operations and the Company's
 capitalization.  The Company and its subsidiaries, together with JELD-WEN,
 inc. ("JELD-WEN"), a major supplier to the Company and an affiliate of its
 largest shareholder, have filed a joint Chapter 11 plan of reorganization. 
 As discussed in more detail below, the disclosure statement describing
 that plan has been approved by the Bankruptcy Court as containing adequate
 information and a hearing to confirm the plan is scheduled for December 8,
 1997.  As a debtor-in-possession in Chapter 11, the Company may not engage
 in transactions outside of the ordinary course of business, without
 approval, after notice and hearing, of the Court. The accompanying
 consolidated financial statements do not include any adjustments to
 reflect the possible future effects of the recoverability and
 classification of assets, the amounts and classification of liabilities
 which may be allowed in the Chapter 11 plan, or the ultimate
 capitalization of the Company.
 
 The accompanying Unaudited Interim Consolidated Financial Statements have
 been prepared on a going concern basis in conformity with generally
 accepted accounting principles applied on a consistent basis and, in the
 opinion of management, include all adjustments, consisting of normal
 recurring accruals, necessary for a fair presentation of the results for
 the interim periods. The results of operations for the interim periods are
 not necessarily indicative of results to be expected for the year.
 
 The Company is following the American Institute of Certified Public
 Accountants' (AICPA) Statement of Position 90-7, "Financial Reporting by
 Entities in Reorganization Under the Bankruptcy Code". This statement
 modifies standard reporting practices, requiring, among other things,
 separate disclosure of all liabilities subject to compromise in a Plan of
 Reorganization and the segregation of items directly related to the
 Chapter 11 filing from operating results.
 
 The principle categories of claims classified as "Liabilities subject to
 compromise" are identified below and may be subject to future adjustments
 depending on Bankruptcy Court actions, further developments with respect
 to disputed claims or other events.
 
 
 
 
 
 
 
                                     7

<PAGE>  8

<TABLE>
<CAPTION>

 NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
 ------------------------------------------
       <S>                                       <C> 
       Accounts Payable pre-petition             $  40,811
       Convertible notes payable, due
        April 1999                                   1,500
       Non-convertible notes payable,
        due April 1999                               3,355
       Other                                           172
                                                 ---------
                                                 $  45,838
                                                 =========
</TABLE>
 
 The Company provided for or incurred the following expense items directly
 associated with the Chapter 11 reorganization
 proceedings:

<TABLE>
<CAPTION>
                                      Three Months Ended  Nine Months Ended
                                        Sept. 30, 1997     Sept. 30, 1997
                                      ------------------  -----------------
    <S>                                  <C>                 <C>
    Professional fees                    $   1,421           $   3,456
    Other (Mailing, Printing, Bank Fees)       960               1,246
                                         ---------           ---------
                                         $   2,381           $   4,702
                                         =========           =========
</TABLE>
 
 These interim consolidated financial statements should be read in
 conjunction with the consolidated financial statements and related notes
 contained in the Annual Report on Form 10-K of Grossman's Inc. for the
 year ended December 31, 1996.  The balance sheet as of December 31, 1996
 has been derived from the audited financial statements as of that date.
 
 The Unaudited Interim Consolidated Financial Statements include the
 accounts of Grossman's Inc. and its wholly-owned subsidiaries (the
 "Company") after elimination of intercompany balances and transactions.
 
 The Company's fiscal year end is December 31.  The Company records
 activity in quarterly accounting periods of equal length, ending on the
 last Saturday of each quarter.  The differences in amounts presented and
 those which would have been presented using actual quarter end dates are
 not material.
 
 Certain amounts in the consolidated financial statements for prior years
 have been reclassified to conform to the current year presentation. Such
 reclassifications had no effect on previously reported results of
 operations.
 
 
 NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION
 -------------------------------------------------
 
 In each of the past four years, the Company has downsized its operations
 and closed stores.  Net losses were reported in each of these years and
 significant operating losses were reported in the past two years.  The
 largest group of store closings occurred in March 1996 when the Company
 closed its 60 store Grossman's Division.  Inventory shortages were
 experienced in all divisions prior to and shortly after these store
 closings, and sales results following the closure of the Grossman's
 Division were adversely affected through the remainder of 1996.  During
 early January 1997, limited availability under the Company's revolving
 credit agreement, combined with operating deficits, resulted in an
 inability to meet current obligations.
 
 
                                     8 

<PAGE>  9


 NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
 -------------------------------------------------------------
 
 On January 22, 1997, the Company announced that it was experiencing a
 severe liquidity shortage. The Company also announced that it was
 exploring all available options, including seeking protection from
 creditors under Chapter 11 of the U.S. Bankruptcy Code.  For a period of
 approximately six weeks, during which the Company sought, negotiated and
 obtained interim financing, almost no inventory was received from
 suppliers.
 
 On February 7, 1997, the Company and JELD-WEN, inc. ("JELD-WEN"), a major
 supplier to the Company and an affiliate of its largest shareholder,
 entered into a letter of intent which stipulated terms under which the
 Company would be provided financing involving JELD-WEN.
 
 On March 4, 1997, the Company announced an agreement with GDI Company,
 Inc. ("GDI"), a subsidiary of JELD-WEN, pursuant to which GDI purchased
 the $4 million convertible note payable by GRS Realty Company, Inc.
 ("GRS"), a subsidiary of Grossman's, to Combined Investors LLP, an
 affiliate of Gordon Brothers Partners Realty, Inc. Following the purchase,
 $1.1 million of segregated cash collateral from the sale of real estate
 was released to the Company. The funds received by the Company also
 included $1.99 million pursuant to a note secured by three parcels of real
 estate of GRS Realty Company, Inc., previously pledged to secure the $4
 million note.
 
 Following the loan from GDI Company, Inc., Congress Financial Corporation
 ("Congress") amended its credit agreement with the Company and provided
 the Company an additional $10 million, guaranteed and supported by a
 stand-by letter of credit obtained by an affiliate of JELD-WEN in favor of
 Congress and $5 million of real estate previously pledged to secure the $4
 million note.  The total $13.1 million of proceeds received were used for
 essential expenses and the restocking of inventories. The $10 million loan
 was refinanced, as discussed below.
 
 On April 8, 1997, first day orders granting the Company authority to pay
 employees, honor customer practices and take certain other actions which
 assist business operations in Chapter 11 were entered by the Court.
 Pursuant to interim financing orders entered by the Court on April 9 and
 10, 1997, Congress, Grossman's principal pre-bankruptcy revolving credit
 lender, continued to extend credit on essentially pre-bankruptcy terms
 under a revolving loan facility.  In addition GDI made available up to $11
 million in overadvances, of which the Company had drawn approximately $5.6
 million as of September 30, 1997.
 
 On April 30, 1997, GDI purchased the Congress loan and collateral
 position, subject to a $1 million senior lien on inventory and receivables
 retained by Congress, related to a termination fee (the "Congress
 Termination Fee") in dispute.  Congress also received a release from the
 Company as part of the assignment of its loans.  The loan and security
 agreement was amended and restated, and under the terms of the final
 amended DIP (Debtor in Possession)financing facility from GDI (the "GDI
 Loan Agreement"), availability is calculated on a borrowing base of 60% of
 eligible inventory plus 80% of eligible accounts receivable.  There was
 also an available overadvance above this borrowing base of $11 million. 
 At September 30, 1997 the overadvance was subject to a $1 million reserve
 pending resolution of the disputed Congress termination fee which was
 settled during October 1997 for $695 thousand.  The interest rate for the
 DIP facility is prime plus 1.0% and the maximum amount which can be 
 
                                     9


<PAGE>  10

 NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
 -------------------------------------------------------------
 
 borrowed is $50 million (or, if less, the sum of the borrowing base and
 the overadvance).  This GDI DIP financing facility is in addition to the
 $5.99 million of pre-petition real estate loans held by GDI which was paid
 down to $1.59 million by the end of the third quarter.  See Note 5 for
 outstanding long term indebtedness as of September 30, 1997.
 
 Both the final DIP financing facility and the assignment of the loan from
 Congress to GDI were approved by the Court on April 30, 1997.
 
 Pursuant to an order of the Court dated October 9, 1997, the GDI Loan
 Agreement was amended to eliminate the $11 million overadvance and to
 replace such provision as of September 8, 1997 with an addition to the
 borrowing base of 75% of stipulated values of real estate held as 
 collateral less a reserve for certain senior secured indebtedness held by
 GDI.  In addition, on October 21, 1997, the Congress Termination Fee was
 settled for payment of $620,000 plus $75,000 attorney's fees, thereby
 releasing the $1 million senior lien of Congress on inventory and
 receivables.
 
 On September 16, 1997, the Company announced that it had reached an
 agreement in principle with its Official Unsecured Creditors Committee on
 the terms of a plan of reorganization ("the Plan").  The Plan and
 Disclosure Statement were filed on October 1, 1997 and the Court approved
 the Disclosure Statement on October 27, 1997.  Acceptance or rejection of
 the Plan is subject to balloting by those creditors eligible to vote, and
 a Plan confirmation hearing is scheduled for December 8, 1997.
 
 Upon confirmation of the Plan, the reorganized company would emerge from
 bankruptcy as a privately held company owned 50% by certain creditors and
 50% by JELD-WEN.
 
 The Plan's basic terms provide for 23 cents on the dollar to all unsecured
 creditors holding valid claims of $25,000 or less and 17 cents on the
 dollar plus 50% of the common stock of the reorganized Grossman's to all
 qualified unsecured creditors holding valid claims above $25,000. 
 Outstanding common stock will be cancelled, and no distribution will be
 made to stockholders prior to the reorganization.  The remaining 50% of
 Grossman's stock will be purchased by JELD-WEN for $8.25 million.  Under
 certain circumstances after the first anniversary of the effective date of
 the Plan, the creditor/shareholders have the right to offer their shares
 for sale to the reorganized Grossman's for a pro rata share (depending on
 the number of shares) of the sum of $8.25 million plus $577,500 per annum. 
 The Company is not obligated to accept the offer.  If such an offer by the
 holders of at least 80% of the creditor/stockholders is rejected, the
 creditor/stockholders have the right to require the Company to register
 their shares for sale.  In the event valid unsecured claims exceed $46.2
 million, the Plan may be altered.
 
 An affiliate of JELD-WEN is the current debtor-in-possession lender to
 Grossman's and has agreed, as part of the plan of reorganization, to lend
 (directly or through support of a third-party loan) sufficient funds to
 make the distributions contemplated in the plan and to provide working
 capital for the reorganized Grossman's.
 
 Although Grossman's has reserved the right to pursue offers from third-
 parties that are more beneficial than the JELD-WEN sponsored plan, none 
 
                                    10


<PAGE>  11

 NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
 -------------------------------------------------------------
 
 has been received to date, despite efforts through Grossman's investment
 banking firm.
 
 The Company and the Subsidiaries filed a motion on May 6, 1997 which asks
 the Court to establish procedures requiring prior written notice to the
 Company by any party or group proposing (i) to acquire shares of Company's
 stock resulting in a more than 1,350,000 share block, or (ii) to acquire 
 prepetition unsecured claims against the Company or its subsidiaries
 resulting in a more than $6 million block of such claims.  The procedures 
 also would require such notice by any party or group proposing to acquire
 such stock or claims if such party or group hold or are acquiring both
 stock and claims.  If the Company objects during a 30 day period after
 such notice, the transaction would become effective only upon Court
 approval. The Company believes that this relief is necessary to protect
 the Net Operating Loss Carryforwards (approximately $300 million at
 December 31, 1996), which it believes will be critical to its ability to
 reorganize. An order granting interim approval was signed on May 14, 1997
 and the Court entered a final approval order on October 9, 1997, which
 reduced the amount of claims allowed to be acquired to $3.5 million.
 
 See Management's Discussion and Analysis of Financial Condition and
 Results of Operations for further information with respect to refinancing
 and projected reorganization of the Company.
 
 
 NOTE 3 - 1996 STORE CLOSINGS
 ----------------------------
 
 In March 1996, the Company announced a restructuring and refinancing plan
 under which its 60 Grossman's stores, located in eight Northeastern
 states, were closed, and a $40.2 million restructuring charge was
 recorded.
 
 
 NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 -------------------------------------------------
<TABLE>
 
 Accounts payable and accrued liabilities consist of the following (in
 thousands):
<CAPTION>
                                      Sept. 30,   December 31,   Sept. 30,
                                        1997          1996         1996
                                      --------    ------------   --------
 <S>                                   <C>           <C>          <C> 
 Accounts payable                      $ 6,042       $37,856      $34,948
 Accrued salaries, wages,
  commissions and related taxes          2,622         2,857        2,834
 Accrued income and franchise taxes        369           245          252
 Accrued taxes other than income
  and franchise                          3,152         3,218        3,726
 Accrued store closing costs             5,244         4,322        2,026
 Accrued insurance                       5,990         7,403        8,606
 Other accrued liabilities               3,586         4,328        4,492
                                       -------       -------      -------
                                       $27,005       $60,229      $56,884
                                       =======       =======      =======
 
 Accounts payable pre-petition         $40,811       $    --      $    --
                                       =======       =======      =======
</TABLE>


                                    11



<PAGE>  12

 NOTE 5 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
 ------------------------------------------------------
<TABLE>
<CAPTION>
 
 Long-term debt consists of the following (in thousands):
 
                                      Sept. 30,  December 31,  Sept. 30,
                                        1997         1996         1996
                                      --------   ------------  ---------
 <S>                                   <C>          <C>          <C>
 Convertible notes payable, due
  April 1999                           $   --       $ 1,500      $ 1,500
 Non-convertible notes payable,
  due April 1999                           --         2,971        2,700
 Mortgage notes                          1,592        6,552       14,388
 Other notes payable                       --           224          -- 
 Capital lease obligations                 674        1,615        2,375
                                       -------      -------      -------
                                         2,266       12,862       20,963
 
 Less current portion                    2,102       12,228       14,669
                                       -------      -------      -------
 Long term debt                        $   164      $   634      $ 6,294
                                       =======      =======      =======
 
 Pre-petition long term debt
  Convertible notes payable, due
   April 1999                          $ 1,500          --           --
  Non-convertible notes payable,
   due April 1999                        3,355          --           --
  Other                                    172
                                       -------      -------      -------
                                       $ 5,027          --           --
                                       =======      =======      =======
</TABLE>
 
 In April 1997, the Company received a DIP financing facility from GDI, for
 borrowings up to $50 million, including letters of credit up to $15
 million, under a formula based on a percentage of qualified inventory and
 accounts receivable.  The new agreement replaces the revolving credit
 agreement previously in effect.  Borrowings pursuant to this new agreement
 are secured by inventory, accounts receivable and other assets.  The new
 agreement bears interest at 1.0% over Prime Rate.  See Note 2 for
 additional description of the GDI Loan Agreement.
 
 At September 30, 1997, cash borrowings under the Company's new DIP
 financing facility totalled $35.2 million and outstanding standby letters
 of credit totalled $5.0 million.  The maximum borrowings under this
 agreement during the nine months ended September 1997 was $40.4 million,
 including letters of credit of $5.0 million.  The weighted average annual
 interest rate on such borrowings in the first nine months of 1997 was
 9.5%. At September 30, 1997, the DIP financing facility provided for
 borrowings of up to $45.7 million.
 
 Upon entering into the DIP financing facility, the Company's prior
 revolving credit agreement with Congress was assigned to GDI.  The maximum
 borrowings in 1997 under this agreement was $35.4 million, including
 letters of credit of $5.4 million.  The maximum borrowings in 1996 under
 this agreement was $31.1 million, including letters of credit of $8.8
 million.  The weighted average annual interest rates on such borrowings in
 1997 and 1996 were 10.3% and 11.1%, respectively.
 
 See Note 2 for discussion of restructuring of the loan and security
 agreement, subsequent termination and replacement of the agreement with
 debtor-in-possession financing and the amendment to the GDI Loan Agreement
 as of September 8, 1997.
 
 
                                    12


<PAGE>  13

 NOTE 6 - OTHER LIABILITIES
 --------------------------
<TABLE>
<CAPTION>
 
 Other long-term liabilities consist of the following (in thousands):
 
                                      Sept. 30,   December 31,   Sept. 30,
                                        1997         1996          1996
                                      -------     ------------   -------- 
 <S>                                   <C>           <C>           <C>
 Accrued insurance claims              $7,528        $6,129        $6,729
 Accrued store closing costs              768           768         1,685
 Other accrued liabilities                876           344           358
                                       ------        ------        ------
                                       $9,172        $7,241        $8,772
                                       ======        ======        ======
 
</TABLE>
 
 NOTE 7 - EARNINGS PER SHARE
 ---------------------------
 
 In February 1997, the Financial Accounting Standards Board issued
 Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
 ("FAS 128"), which is required to be adopted in the fourth quarter of
 1997.  At that time, the Company will be required to change the method
 currently used to compute earnings per share ("EPS") and to restate all 
 prior periods.  FAS 128 simplifies the previous standard for computing EPS
 and replaces the presentation of primary and fully diluted EPS with the 
 presentation of basic and diluted EPS.  The basic EPS calculation will not
 include the dilutive effects of stock options, previously included in the
 determination of primary EPS.  As a result, in profitable periods the
 Company's basic EPS calculation will exceed primary EPS. The calculation
 of diluted EPS will not differ materially from fully diluted EPS.  The
 differences between the FAS 128 calculations, as compared to primary and
 fully diluted EPS, for the third quarters and nine month periods of 1996
 and 1997 are not material.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                   13


<PAGE>  14

 ITEM 2.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 ---------------------------------------------
 
 FINANCIAL CONDITION
 -------------------
 
 SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996
 --------------------------------------------------
 
 INTRODUCTION
 
 This discussion should be read in conjunction with the financial
 statements contained in Item 1 hereof, and the consolidated financial
 statements, related notes and Management's Discussion and Analysis of
 Financial Condition and Results of Operations contained in the Annual
 Report on Form 10-K for the year ended December 31, 1996.
 
 PETITION FOR RELIEF UNDER CHAPTER 11
 
 On April 7, 1997 (the "Petition Date"), the Company and two of its wholly
 owned affiliates, GRS Holding Company, Inc. and GRS Realty Company, Inc.,
 filed Chapter 11 petitions for reorganization under Title 11 of the United
 States Code ("Chapter 11").  The Company is presently operating its
 business as a debtor-in-possession, subject to the jurisdiction of the
 United States Bankruptcy Court for the District of Delaware (the "Court").
 The Company will continue to operate its business as a
 debtor-in-possession while pursuing a reorganization plan to restructure
 operations and the Company's capitalization.  As a debtor-in-possession in
 Chapter 11, the Company may not engage in transactions outside of the
 ordinary course of business, without the approval, after notice and
 hearing, of the Court.
 
 The Chapter 11 filing results in an automatic stay of the commencement or
 prosecution of claims against the Company that arose before the Petition
 Date.  Until a reorganization plan is confirmed by the Court, payments of
 pre-petition liabilities will be limited to those payments approved by the
 Court.  As a result of the filing, the Company may sell or otherwise
 realize assets and liabilities for amounts other than those reflected in
 the financial statements.  In addition, a plan of reorganization could
 materially change the amounts currently recorded in the financial
 statements.  The financial statements do not include any adjustments to
 reflect the possible future effects of the recoverability and
 classification of assets, the amounts and classification of liabilities
 which may be allowed in the reorganization plan, or the ultimate
 capitalization of the Company.
 
 In each of the past four years, the Company has downsized its operations
 and closed stores.  Net losses were reported in each of these years and
 significant operating losses were reported in both 1995 and 1996.  The
 largest group of store closings occurred in March 1996 when the Company
 closed its 60 store Grossman's Division.  Inventory shortages were
 experienced in all divisions prior to and shortly after these store
 closings, and sales results following the closure of the Grossman's
 Division were adversely affected through the remainder of 1996.  During
 early January 1997, limited availability under the Company's revolving
 credit agreement, combined with operating deficits, resulted in an
 inability to meet obligations.
 
                                     14


<PAGE>  15
 
 SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
 --------------------------------------------------------------
 
 On January 22, 1997, the Company announced that it was experiencing a
 severe liquidity shortage.  The Company also announced that it was
 exploring all available options, including seeking protection from
 creditors under Chapter 11 of the U.S. Bankruptcy Code.  For a period of
 approximately six weeks, during which the Company sought, negotiated and
 obtained interim financing, almost no inventory was received from
 suppliers.
 
 On March 4, 1997, the Company announced an agreement with GDI Company,
 Inc. ("GDI"), a subsidiary of JELD-WEN, pursuant to which GDI purchased
 the $4 million convertible note payable by GRS Realty Company, Inc.
 ("GRS"), to Combined Investors LLP, an affiliate of Gordon Brothers
 Partners Realty, Inc.  Following the purchase, $1.1 million of segregated
 cash collateral from the sale of real estate was released to the Company.
 The funds received by the Company also included $1.99 million pursuant to
 a note secured by three parcels of real estate of GRS Realty Company,
 Inc., previously pledged to secure the $4 million note.
 
 Following the loan from GDI Company, Inc., Congress Financial Corporation
 ("Congress"), Grossman's principal pre-bankruptcy revolving credit lender,
 amended its credit agreement with the Company and provided the Company an
 additional $10 million, guaranteed and supported by a stand-by letter of
 credit obtained by an affiliate of JELD-WEN in favor of Congress and $5
 million of real estate previously pledged to secure the $4 million note.
 The total $13.1 million of proceeds received were used for essential
 expenses and the restocking of inventories.  This $10 million loan was
 refinanced, as discussed below.
 
 Funding levels under the interim financing provided by GDI and Congress
 did not allow for the purchase of inventory sufficient to restock the
 Company's stores.
 
 Pursuant to interim financing orders entered by the Court on April 9 and
 10, 1997, Congress continued to extend credit on essentially
 pre-bankruptcy terms under a revolving loan facility, and GDI made
 available up to $11 million in overadvances of which the Company drew
 approximately $6.0 million as of April 30, 1997.
 
 On April 30, 1997, GDI purchased the Congress loan and collateral
 position, subject to a $1 million senior lien on inventory and receivables
 retained by Congress, related to a termination fee in dispute.  Congress
 also received a release from the Company as part of the assignment of its
 loans.  The loan and security agreement was amended and restated, and
 under the terms of the final amended DIP financing facility from GDI,
 availability is calculated on a borrowing base of 60% of eligible
 inventory plus 80% of eligible accounts receivable.  There was also an
 available overadvance above this borrowing base of $11 million.  At
 September 30, 1997 the overadvance was subject to a $1 million reserve
 pending resolution of the disputed Congress termination fee which was
 settled during October for $695 thousand.  The interest rate for the DIP
 financing facility is prime plus 1.0% and the maximum amount which can be
 borrowed is $50 million (the sum of the borrowing base and the
 overadvance, if less).  This GDI DIP financing facility is in addition to
 the $5.99 million of pre-petition real estate loans held by GDI which was
 paid down to $1.59 million by the end of the third quarter.
 
 
                                     15
 

<PAGE>  16

 FINANCIAL CONDITION
 -------------------
 
 SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
 --------------------------------------------------------------
 
 For further information see Note 2 to the Company's Financial Statements
 included in this Report on Form 10-Q and incorporated herein by reference.
 
 Both the final DIP financing facility and the assignment of the loan from
 Congress to GDI were approved by the Court on April 30, 1997. The DIP
 financing has allowed for the stores to be fully restocked during the
 second and third quarters.  At September 30, 1997 cash borrowings under
 the Company's new DIP financing facility totalled $35.2 million and
 outstanding standby letters of credit totalled $4.7 million.  At that date
 the DIP financing facility provided for borrowings/letters of credit up to
 $45.2 million.  In August 1997, the Company began to experience cash
 shortages.  The shortage was primarily due to unavailability of vendor
 credit and larger than anticipated payments in advance of receipt and
 inclusion of inventory in the borrowing base.  GDI has agreed to a
 temporary loan of up to $2 million, provided in transit inventory is at
 least $5 million.  The Company completed formulating its revised 1997
 business plan during June.
 
 On September 16, 1997, the Company announced that it had reached an
 agreement in principle with its Official Unsecured Creditors Committee on
 the terms of a plan of reorganization ("the Plan").  The Plan and
 Disclosure Statement were filed on October 1, 1997 and the Court approved
 the Disclosure Statement on October 27, 1997.  Acceptance or rejection of
 the Plan is subject to balloting by those creditors eligible to vote and a
 Plan confirmation hearing is scheduled for December 8, 1997.
 
 The reorganized company would emerge from bankruptcy as a privately held
 company owned 50% by certain creditors and 50% by JELD-WEN.
 
 The Plan's basic terms provide for 23 cents on the dollar to all unsecured
 creditors holding valid claims of $25,000 or less and 17 cents on the
 dollar, plus 50% of the common stock of the reorganized Grossman's, to all
 qualified unsecured creditors (original holders of trade debt) holding
 valid claims above $25,000.  The remaining 50% of Grossman's stock will be
 purchased by JELD-WEN for $8.25 million.  No distribution will be made to
 stockholders prior to the reorganization.  Under certain circumstances
 after the first anniversary of the effective date of the plan, the
 creditor/shareholders have the right to offer their shares for sale to the
 reorganized Grossman's for a pro rata share (depending on the number of
 shares) of $8.25 million plus $577,500 per annum.  The Company is not
 obligated to accept the offer.  If the offer is rejected, the
 creditor/shareholders have the right to require the Company to register
 their shares for sale, in which case the Company will do so.  In the event
 valid unsecured claims exceed $46.2 million, the Plan may be altered.
 
 JELD-WEN is the current debtor-in-possession lender to Grossman's and has
 agreed, as part of the plan of reorganization, to lend (directly or
 through support of a third-party loan) sufficient funds to make the
 distributions contemplated in the plan and to provide working capital for
 the reorganized Grossman's.
 
 Under the proposed plan, existing Grossman's shareholders will receive no
 interest in the reorganized Grossman's and their shares will be cancelled.
 
                                    16


  <PAGE>  17

 SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
 --------------------------------------------------------------
 
 Although Grossman's has received the right to pursue offers from third-
 parties that are more beneficial than the JELD-WEN sponsored plan, none
 has been received to date, despite efforts through Grossman's investment
 banking firm.
 
 The Company and the Subsidiaries filed a motion on May 6, 1997 which asks
 the Court to establish procedures requiring prior written notice to the
 Company by any party or group proposing (i) to acquire shares of Company's
 stock resulting in a more than 1,350,000 share block, or (ii) to acquire
 prepetition unsecured claims against the Company or its subsidiaries
 resulting in a more than $6 million block of such claims.  The procedures
 also would require such notice by any party or group proposing to acquire
 such stock or claims if such party or group hold or are acquiring both
 stock and claims.  If the Company objects during a 30 day period after
 such notice, the transaction would become effective only upon Court
 approval. The Company believes that this relief is necessary to protect
 the Net Operating Loss Carryforwards (approximately $300 million at
 December 31, 1996), which it believes will be critical to its ability to
 reorganize. An order granting interim approval was signed on May 14, 1997
 and the Court entered a final approval order on October 9, 1997, which
 reduced the amount of claims allowed to be acquired to $3.5 million.
 
 
 OTHER FINANCIAL CONDITION CHANGES
 
 Inventory levels increased by $4.1 million during the period as the stores
 were restocked to support seasonal demand.
 
 Real property held for sale declined by $17.2 million during the nine
 months, reflecting the continued sale of surplus properties.
 
 Pre-petition accounts payable are subject to compromise, and any payment
 must be approved by the Bankruptcy Court.
 
 
 RESULTS OF OPERATIONS
 ---------------------
 
 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996
 ------------------
 
 Results of operations during the nine months ended September 30, 1996
 include the results of the Grossman's Division, whose operations
 terminated on March 31, 1996.
 
 The Company's first quarter historically has been a period of low sales
 activity with resultant losses, as fewer home improvement projects and
 construction activities in the Company's markets are undertaken during the
 winter months.  Sales from ongoing operations during the first nine months
 of 1997 were adversely affected by out-of-stock situations which did not
 improve until late in the second quarter.  Sales results in 1996 were also
 affected by inventory supply problems encountered in advance of the
 closing of the Grossman's stores, but not to the extent that 1997 sales
 were affected.
 
                                    17


<PAGE>  18

 RESULTS OF OPERATIONS
 ---------------------
 
 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996 (CONTINUED)
 ------------------------------
<TABLE>
<CAPTION>
 
 The following table shows comparative sales results by division and store
 type (dollars in millions):
 
                                        Six Months
                                        Ended June
                                    ------------------
                                      1997      1996
                                      ----      ----
 <S>                                 <C>       <C>
 SALES                                                          
 Ongoing Operations
  Contractors' Warehouse             $  77.8   $ 124.7
  Bargain Outlet                        27.3      28.0
                                     -------   -------
    Total Ongoing
     Operations                        105.1     152.7
 Closed Stores
  Grossman's                             --       48.0
                                     -------   -------
 Total Grossman's Inc.               $ 105.1   $ 200.7
                                     =======   =======
 
 % OF TOTAL SALES
 Ongoing Operations
  Contractors' Warehouse                74.0%     62.1%
  Bargain Outlet                        26.0      14.0
                                     -------   -------
    Total Ongoing
     Operations                        100.0      76.1
 Closed Stores
  Grossman's                            --        23.9
                                     -------   -------
 Total Grossman's Inc.                 100.0%    100.0%
                                     =======   =======
 
 
</TABLE>
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                      18
 
<PAGE>  19

 RESULTS OF OPERATIONS
 ---------------------
 
 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996 (CONTINUED)
 ------------------------------
<TABLE>
<CAPTION>
 
 (TABLE CONTINUED)
                                        Six Months 
                                        Ended June
                                    ------------------
                                      1997      1996
                                      ----      ----
 <S>                                 <C>       <C>
 SALES % INCREASE (DECREASE)
  VERSUS PRIOR YEAR
 Ongoing Operations
  Contractors' Warehouse             (37.6)%      7.1 %
  Bargain Outlet                      (2.5)      12.4
                                    -------    -------
    Total Ongoing                                                           
       
     Operations                      (31.2)       8.1
 Closed Stores                                                              
       
  Grossman's                        (100.0)     (73.3)
                                    -------    -------
 Total Grossman's Inc.               (47.6)%    (37.4)%
                                    =======    =======
                                                                            
 COMPARABLE STORE SALES %                                                   
  INCREASE (DECREASE)                                                       
  VERSUS PRIOR YEAR                                                         
 Ongoing Operations                                                         
  Contractors' Warehouse             (37.7)%     (6.4)%
  Bargain Outlet                     (18.0)      (7.2)
                                     ------     ------
    Total Ongoing                                                           
     Operations                      (34.0)      (6.5)
 Closed Stores                                                              
  Grossman's                            NA         NA
                                     ------     ------
 Total Grossman's Inc.               (34.0)%     (6.5)%
                                     ======     ======
                                                                            
       
 TOTAL NUMBER OF STORES                                                     
 Ongoing Operations                                                         
  Contractors' Warehouse                 15         16
  Bargain Outlet                         28         24
 Closed Stores                                                              
   Grossman's                             -          -
                                     ------     ------
 Total Number of Stores                  43         40
                                     ======     ======
                                                                            
</TABLE>
       
 
 
                                     19


<PAGE>  20

 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996 (CONTINUED)
 ------------------------------
<TABLE>
<CAPTION>
 
 The following table shows comparative sales results by division and store
 type during each quarter and for the total nine months (dollars in
 millions):
 
                               Three Months           Nine Months
                             Ended September        Ended September
                            ------------------     ------------------
                              1997      1996         1997      1996
                              ----      ----         ----      ----
 <S>                          <C>       <C>          <C>       <C>
 SALES                                                          
 Ongoing Operations
  Contractors' Warehouse      $ 51.9    $ 79.9       $129.7    $204.6
  Bargain Outlet                17.7      16.1         45.0      44.1
                              -------   -------      -------   -------
    Total Ongoing
     Operations                 69.6      96.0        174.7     248.7
 Closed Stores
  Grossman's                      -         -            -       48.0
                              -------   -------      -------   -------
 Total Grossman's Inc.        $ 69.6    $ 96.0       $174.7    $296.7
                              ======-   =======      =======   =======
 
 % OF TOTAL SALES
 Ongoing Operations
  Contractors' Warehouse        74.6 %    83.2 %       74.2 %    68.9 %
  Bargain Outlet                25.4      16.8         25.8      14.9
                              -------   -------      -------   -------
    Total Ongoing
     Operations                100.0     100.0        100.0      83.8
 Closed Stores
  Grossman's                      -         -            -       16.2
                              -------   -------      -------   -------
 Total Grossman's Inc.         100.0 %   100.0 %      100.0 %   100.0 %
                              =======   =======      =======   =======
 
 
 SALES % INCREASE (DECREASE)
  VERSUS PRIOR YEAR
 Ongoing Operations
  Contractors' Warehouse       (35.0)%    13.0 %      (36.6)%     9.4 %
  Bargain Outlet                10.0      34.2          2.0      19.5
                              -------   -------      -------   -------
    Total Ongoing                                                           
       
     Operations                (27.4)     16.1        (29.8)     11.0
 Closed Stores                                                              
       
  Grossman's                      -         NA           NA     (83.5)
                              -------   -------      -------   -------
 Total Grossman's Inc.         (27.4)%   (50.5)%      (41.1)%   (42.4)%
                              =======   =======      =======   =======
</TABLE>
                                                                            
 
 
 
                                    20


<PAGE>  21

 RESULTS OF OPERATIONS
 ---------------------
 
 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996 (CONTINUED)
 ------------------------------
<TABLE>
<CAPTION>
 
 (TABLE CONTINUED)
                               Three Months            Nine Months
                              Ended September        Ended September
                            ------------------     ------------------
                              1997      1996         1997      1996
                              ----      ----         ----      ----
 <S>                          <C>       <C>         <C>       <C>
 COMPARABLE STORE SALES %                                                   
  INCREASE (DECREASE)                                                       
  VERSUS PRIOR YEAR                                                         
 Ongoing Operations                                                         
  Contractors' Warehouse      (31.4)%     (3.6)%    (35.2)%     (5.4)%
  Bargain Outlet              (11.9)       7.3      (18.0)      (2.8)
                              ------     ------     ------     ------
    Total Ongoing                                                           
     Operations               (28.0)%     (2.0)     (33.1)      (4.9)
 Closed Stores                                                              
  Grossman's                     NA         NA         NA         NA
                              ------     ------     ------     ------
 Total Grossman's Inc.        (28.0)%     (2.0)%    (33.1)%     (4.9)%
                              ======     ======     ======     ======
                                                                            
       
 TOTAL NUMBER OF STORES                                                     
 Ongoing Operations                                                         
  Contractors' Warehouse                                15         16
  Bargain Outlet                                        29         26
 Closed Stores                                                              
  Grossman's                                            -          -
                                                    ------     ------
 Total Number of Stores                                 44         42
                                                    ======     ======
                                                                            
</TABLE>
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                     21

<PAGE>  22

 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
 --------------------------------------------------------------------
 SEPTEMBER 30, 1996 (CONTINUED)
 ------------------------------
 
 Sales results also were affected by store openings and closings.  The 1997
 results include the results of six Bargain Outlet stores opened and one
 store closed subsequent to the second quarter of 1996.  Contractors'
 Warehouse results reflect one Midwest store opened in May 1996 and the
 December 1996 closing of the Reno, Nevada store.
 
 Gross profit declined by $31.4 million, reflecting the sales decline and a
 decrease in gross margin from 24.0% to 22.9%.  The decrease in gross
 margin was due principally both to the closing of the Grossman's stores,
 which operated at higher margin rates, and a decline within Contractors'
 Warehouse stores, due to the sales mix experienced as inventories became
 depleted.
 
 Selling and administrative expenses declined by $25.5 million, reflecting
 the Grossman's store closings and reductions in head office expense, but
 experienced a large increase as a percent of sales, from 28.2% in 1996 to
 33.3% in 1997, due to the low sales volume.
 
 Depreciation and amortization declined from $3.9 million in 1996 to $2.9
 million in 1997, reflecting the downsizing.  Depreciation on all
 Grossman's Division stores ceased after March 1996.
 
 Store closing expense in 1996 totalled $40.2 million, related to the
 Grossman's store closings.
 
 Interest expense declined from $4.1 million in 1996 to $2.4 million in
 1997, reflecting lower revolving credit borrowings, lower levels of
 capital lease financing due to store closings, and savings related to
 long-term debt paid with proceeds from property sales.
 
 Other income declined by $2.2 million, principally due to lower volume of
 tool rentals in Contractors' Warehouse stores.
 
 The Company's Mexican joint venture, for which the Company's share of net
 loss during the nine months ended September 30, 1996 was $394 thousand,
 was terminated in December 1996.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                      22



<PAGE>  23

 THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
 ----------------------------------------------------------------------
 SEPTEMBER 30, 1996
 ------------------
 
 A net loss of $5.5 million for the third quarter of 1997 compared with a
 profit of $1.6 million in 1996.  The lingering effects of inventory supply
 problems affected sales and results of operations throughout the third
 quarter, although to a lesser extent as the quarter progressed.
 
 Gross profit declined by $8.0 million, as a result of decreased sales.
 Gross margin was 23.7% for the third quarter of 1997, compared with 25.5%
 during the third quarter 1996.
 
 Selling and administrative expenses declined by $3.8 million from 1996 to
 1997, due in part to reduction of head office expenses, but increased as a
 percent of sales from 23.6% in 1996 to 27.1% in 1997.  Selling and
 administrative expenses, the largest component of which is payroll, are
 expected to remain at higher than historic percentages of sales during the
 Company's restructuring.
 
 Interest expense declined from $1.4 million in 1996 to $1.0 million,
 reflecting lower revolving credit borrowings, lower levels of capital
 lease obligations as a result of closing stores and savings related to
 long-term debt paid as part of the refinancing. Interest expense is
 expected to continue to decline as properties are sold and mortgage debt
 is paid.
 
 Other income decreased by $1.1 million as a result of lower tool rental
 income.
 
 Reorganization costs of $2.4 million were incurred during the third
 quarter of 1997 and are anticipated to continue until the Company is
 reorganized.
 
 Statements contained in this Management's Discussion and Analysis of
 Financial Condition and Results of Operations that are not based on
 historical fact are "forward-looking statements" within the meaning of the
 Private Securities Litigation Reform Act of 1995.  Important factors,
 beyond the Company's control, that could cause actual results to differ
 materially from those in the forward-looking statements include, but are
 not limited to, the need for Bankruptcy Court approvals, approval of the
 Plan of Reorganization, adequacy and absence of default under the DIP
 facility, competition, stability of customer demand, and the sufficiency
 of capital resources.  The Company undertakes no obligation to publicly
 release revisions to these forward-looking statements to reflect events or
 circumstances which occur between filing dates for the Company's reports
 under the Security Exchange Act of 1934.
 
 
 
 
 
 
 
 
 
 
 
 
                                        23
 

<PAGE>  24

 PART II - OTHER INFORMATION
 ---------------------------
 
 ITEM 1. LEGAL PROCEEDINGS
 
      The Company previously reported on its Form 8-K dated April 22, 1997,
 the filing on April 7, 1997 by the Company and two of its subsidiaries
 (the "Subsidiaries") of voluntary Chapter 11 bankruptcy petitions in the
 United States Bankruptcy Court for the District of Delaware (the "Court")
 under Title 11 of the United States Code.  Due to its pre-petition
 liquidity crisis, the Debtors were past due on significant amounts of
 trade and other unsecured obligations.  In the Company's Chapter 11
 petition, it listed approximately $41.9 million of unsecured debt.  As a
 general matter, such debt will only be paid when and to the extent
 provided in a confirmed Chapter 11 plan.  A claims bar date has been fixed
 and claims are being processed as set forth in the Disclosure Statement.
 
      The Company files monthly operating reports with the Court; copies of
 such reports are available from the Clerk of the Court.
 
      The Company and the Subsidiaries filed a motion on May 6, 1997 which
 asks the Court to establish procedures requiring prior written notice to
 the Company by any party or group proposing to (i) acquire shares of
 Company's stock resulting in a more than 1,350,000 share block, or (ii)
 acquire prepetition unsecured claims against the Company or those
 subsidiaries resulting in a more than $6 million block of such claims. 
 The procedures would also require such notice by any party or group
 proposing to acquire such stock or claims if such party or group hold or
 are acquiring both stock and claims.  If the Company objects during a 30
 day period after such notice, the transaction would become effective only
 upon Court approval.  The Company believes that this relief is necessary
 to protect the Net Operating Loss Carryforwards (approximately $300
 million at December 31, 1996), which it believes will be critical to its
 ability to reorganize.  An order granting interim approval was signed on
 May 14, 1997 and the Court entered a final approval order on October 9,
 1997.
 
     Information on the Company's projected Plan of Reorganization is
 contained in Note 2 to the Financial Statements included in this Report on
 Form 10-Q and incorporated herein by reference.
 
     Statements contained in this Item 1, Legal Proceedings, that are not
 based on historical fact are "forward-looking statements" within the
 meaning of the Private Securities Litigation Reform Act of 1995. 
 Important factors, beyond the Company's control, that could cause actual
 results to differ materially from those in the forward-looking statements
 include, but are not limited to, the need for Bankruptcy Court approvals
 and approvals by creditors entitled to vote on the Company's Plan of
 Reorganization, adequacy and absence of default under the DIP facility,
 competition, stability of customer demand, and the sufficiency of capital
 resources.  The Company undertakes no obligation to publicly release
 revisions to these forward-looking statements to reflect events or
 circumstances which occur between filing dates for the Company's reports
 under the Security Exchange Act of 1934.
 
 
 
 
 
 
                                    24




<PAGE>  25

 ITEM 5. OTHER INFORMATION
 
      In addition to the previously announced engagement of Thomas E.
 Arnold, Jr., as President and Chief Executive Officer on an interim basis,
 and Dirck Iacobelli as Acting Executive Vice President and interim Chief
 Financial Officer and the elimination of certain executive positions, the
 following additional changes have occurred during the third quarter of
 1997.
 
      (a) Arthur S. Ryan, Vice President and Treasurer left the company
 effective August 31, 1997, as his position was eliminated.
 
      (b) Robert J. Haggerty, Vice President, Human Resources left the
 company effective August 3, 1997, as his position was eliminated.
 
      On July 23, 1997, the Company's common stock was delisted from the
 NASDAQ National Market.
 
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
         (a) EXHIBITS
 
             11(a)          Statement re computation of earnings per share,
                            filed herewith.
 
         (b) REPORTS ON FORM 8-K
 
             The Company did not file any reports on Form 8-K
             during the three months ended September 30, 1997.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                      25


<PAGE>  26

 SIGNATURES
 ----------
 
 
 
      Pursuant to the requirements of the Securities Exchange Act of 1934,
 the Registrant has duly caused this report to be signed on its behalf by
 the undersigned thereunto duly authorized.
 
                                        GROSSMAN'S INC.
                                        ---------------
                                           Company
 
 
 
                                     by      /s/ Dirck K. Iacobelli
                                     --------------------------------------
                                                Dirck K. Iacobelli
                                           Executive Vice President and
                                             Chief Financial Officer
                                            (Chief Accounting Officer)
 
 
 
 
 
 
 
 
 DATE:  November 14, 1997
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                     26