<TABLE>

Selected Financial Data

<CAPTION>

(Unaudited)

For the years ended December 31
($ in thousands except earnings per share)

                                                           1997          1996          1995          1994          1993*
                     <S>                                   <C>           <C>           <C>            <C>           <C>
                     Net sales                             $161,109      $157,068      $124,848       $94,186       $20,548
                     Operating income                         3,262        10,989         6,795         2,951       (1,179)
                     Net income                               2,304         6,815         3,735         1,995       (1,179)
                     Net income per share -- diluted           0.26          0.88          0.60          0.22        (0.12)

                     At year end:
                     Working capital                          7,739        17,178       (4,814)       (8,324)            42
                     Total assets                            56,589        58,793        30,143        29,275         4,837
                     Debt                                     3,148         1,662         6,216        15,553         1,187
                     Stockholders' equity                    34,210        36,236         4,833           936         (979)
                     Number of sales associates                 631           678           631           496           260
                     Number of independent                    1,577         1,300         1,315         1,003           389
                     installers
                     Number of employees                      1,197         1,260         1,109           857           458

                     Number of jobs installed                64,270        64,338        55,261        37,510         7,294
                     Net sales per employee                    $135          $125          $113          $110           $45


* Period from June 1, 1993, inception of the Company's operations, to December
31, 1993.

</TABLE>

OVERVIEW

     The Company has achieved record sales in each of the last three years, and
record earnings in two of the past three years.  In 1997, the Company's
earnings, as more fully described below, were significantly less than in 1996.
Net sales increased $36.3 million from $124.8 million in 1995 to $161.1 million
in 1997.  Operating income decreased $3.5 million from $6.8 million in 1995 to
$3.3 million in 1997.  Net income decreased $1.4 million, from $3.7 million in
1995 to $2.3 million in 1997.  The growth in net sales was attributable to
increases in lead generation, number of sales associates, number of independent
installers, and in 1996 and 1997, credit participation fee income negotiated
with third-party finance companies and finance interest income from the
Company's finance subsidiary, Marquise Financial   all aimed at executing on the
Company's strategy to participate in the consolidation of the large installed
home improvement industry.  The trend in record earnings in 1995 and 1996 did
not continue in 1997, primarily due to the de-leveraging effects of increased
advertising expenditures without a corresponding increase in lead production, as
well as the costs of recruiting and training a significant number of new sales
associates, in early 1997, coupled with income not realized as a result of
below-plan close ratios for the new sales associates.  In addition, the 1997
results of operations reflect the Company's ongoing investment in its
infrastructure to continue to generate the anticipated sales and installation
activity for 1998 and beyond.

     Stockholders' equity increased $29.4 million from $4.8 million at December
31, 1995 to $34.2 million at December 31, 1997.  During this two-year period,
the Company 1) successfully completed, in June 1996, its initial public offering
resulting in an infusion of cash of $33.0 million, 2) repurchased, in 1997, 6.3%
of its common stock, 3) commenced, in 1997, investment in information technology
systems, and 4) launched and funded its own finance subsidiary.  Cash flow from
operating activities during the three year period aggregated $16.4 million.

RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996

Net Sales
     Net sales increased $4.0 million, or 2.6% from $157.1 million in 1996 to
$161.1 million in 1997.  Net sales attributable to roofing and gutter products
and services decreased $590 thousand, or 0.6%, to $102.2 million in 1997.  Net
sales attributable to fencing products and services increased $442 thousand, or
1.7%, to $26.8 million in 1997.  Net sales attributable to garage doors, entry
doors, and other products and services increased $5.4 million, or 22.9%, to
$29.2 million in 1997.  Net sales attributable to credit participation fee
income decreased $415 thousand to $1.9 million in 1997.  Net sales attributable
to finance interest income decreased $833 thousand to $1.1 million on
receivables financed by the Company's finance subsidiary, Marquise Financial.
The increase in net sales was due primarily to a) higher percentage of higher
priced proprietary products, b) an increase in the number of installations as
the Company increased the number of installation crews operated by the
increasing number of independent installers, and c) an increase in the average
number of sales associates during the comparative years from 707 to 773.
Partially offsetting these increases was a decrease in credit participation fee
and finance interest income.  Backlog, defined as jobs sold but not installed,
decreased $3.9 million from $14.8 million at the end of December 1996 to $10.9
million at the end of December 1997.

Gross Profit
     Gross profit increased $1.2 million, or 1.6%, from $69.3 million, or 44.1%
of net sales, in 1996 to $70.5 million, or 43.7% of net sales, in 1997. The
decrease in gross profit, expressed as a percentage of net sales, resulted from
a $1.2 million decrease in credit participation fee income and in finance
interest income, partially offset by an increase in proprietary product
offerings and an increase in the balance of sales to higher margin products and
services.  The license fee incurred to Sears increased $539 thousand, or 3.3%,
from $16.4 million, or 10.7% of net installed sales, in 1996 to $16.9 million,
or 10.7% of net installed sales, in 1997. The increase in the license fee
incurred to Sears in 1997 was commensurate with the overall increase in sales.
The shift in the balance of sales, primarily doors, to higher license fee
products and services was offset by increases in new test program sales with
reduced license fees. Sears and the Company entered into a three-year license
agreement effective January 1, 1996. Among other things, the license agreement
provides for a fixed license fee, at the March 1995 license fee rate, to be
charged during the term of the license agreement. Gross profit before the Sears
license fee, credit participation fee and finance interest income increased $2.9
million, or 3.6%, from $81.5 million, or 53.3% of net installed sales, in 1996
to $84.4 million, or 53.4% of net installed sales, in 1997. The unit costs of
materials, installation labor and warranty expense remained relatively constant
during the period.

Selling, General and Administrative Expenses
     Selling, general and administrative expenses increased $8.8 million, or
15.2%, from $57.8 million in 1996 to $66.6 million in 1997 and, as a percentage
of net sales, increased from 36.8% to 41.3%. The increase in selling, general
and administrative expenses resulted primarily from expenses associated with
increased net sales, the increased number of and the cost of recruiting and
training new sales associates and expenses related to the hiring of additional
personnel to support the expansion of the infrastructure of the Company's core
sales and installation business including the expansion of Marquise Financial.
Direct advertising expense increased $2.5 million, or 31.4%, from $7.8 million
in 1996 to $10.3 million in 1997; as a percentage of net sales, direct
advertising expense increased from 4.9% in 1996 to 6.4% in 1997, reflecting the
de-leveraging effect created by increased direct advertising placements and
below plan lead generating effectiveness of ad placements during the year.
Selling commission expense, including attendant payroll-related benefits,
increased $850 thousand, or 5.4%, from $15.8 million in 1996 to $16.6 million in
1997; as a percentage of net installed sales, selling commission expense
increased from 10.3% to 10.5% in 1997. Sales representatives are compensated on
a variable commission basis depending upon the type and gross profit of product
sold. Performance-based compensation paid to officers and field, sales and
production managers decreased  $2.9 million, or 71%, from $4.1 million in 1996
to $1.2 million in 1997, primarily due to the decrease in operating income. The
balance of selling, general and administrative expenses, primarily sales lead-
generation activities, administrative, field operations and Marquise Financial
payrolls and related costs and general expenses, increased $8.4 million, or
27.9%, from $30.1 million, or 19.2% of net sales, in 1996 to $38.5 million, or
23.9% of net sales, in 1997. The increase was primarily due to increased
expenses related to recruiting and training new sales associates and support
personnel and services required to manage the Company's anticipated sales volume
increases, expanding infrastructure and finance subsidiary, Marquise Financial.
The increase in selling, general and administrative expenses, as a percentage of
net sales, was caused, in large part, by the aforementioned up-front investments
in infrastructure required to generate future sales and installation activity.

Amortization of Intangibles
     Amortization of intangibles increased from $534 thousand in 1996 to $595
thousand in 1997. The amortization expense relates primarily to goodwill
incurred in connection with the September 1994 stock repurchase from management.

Interest Income (Expense), Net
     Net interest income increased $542 thousand from $183 thousand in 1996 to
$725 thousand in 1997, primarily due to increased interest income from invested
cash balances and the elimination of interest expense related to the notes
payable to certain of the Company's senior managers in connection with the
September 1994 stock repurchase from management.  $4 million of notes payable to
senior managers was repaid during the first six months of 1996.

Income Tax Provision
     The Company's income tax provision decreased from $4.4 million, or an
effective rate of 39.0%, in 1996 to $1.7 million, or an effective rate of 42.2%,
in 1997. The difference in the effective income tax rate and the federal
statutory rate (34%) is due primarily to amortization of intangibles which are
not deductible for income tax purposes and the effect of state income taxes.

Fiscal 1996 Compared to Fiscal 1995

Net Sales
     Net sales increased $32.2 million, or 25.8%, from $124.8 million in 1995 to
$157.1 million in 1996.  Approximately 48.5% of the increase in net sales was
attributable to roofing and gutter products and services, net sales of which
increased $15.7 million to $102.8 million in 1996.  Approximately 26.0% of the
increase in net sales was attributable to fencing products and services, net
sales of which increased $8.4 million to $26.3 million in 1996.  Approximately
12.4% of the increase in net sales was attributable to garage door and entry
door and other products and services, net sales of which increased $3.9 million
to $23.8 million in 1996.  The balance, 13.1% of the increase in net sales was
due to credit participation fee income of $2.3 million primarily from Sears and
its affiliates, which was payable beginning January 1, 1996, on installed sales
financed by Sears and its affiliates and other third-party finance companies
during 1996, and finance interest income of $1.9 million on receivables financed
by the Company's newly-formed consumer finance subsidiary, Marquise Financial.
The increase in net sales was due primarily to: a) an increase in the number of
installations as the Company increased the number of installation crews operated
by the increasing number of independent installers; b) an increase in the
average number of its sales associates during the comparative years from 599 to
707; c) increased prices in the first quarter 1996; and d) new in 1996, credit
participation fee and finance interest income.  Backlog, defined as jobs sold
but not installed, increased $5.6 million, or 60.9%, from $9.2 million at the
end of December 1995 to $14.8 million at the end of December 1996.

Gross Profit

     Gross profit increased $16.7 million, or 31.8%, from $52.6 million or 42.1%
of net sales, in 1995 to $69.3 million, or 44.1% of net sales, in 1996.  The
increase in gross profit resulted from an increased number of installations,
increased selling prices in the first quarter of 1996, increased balance of
sales to higher margin products and services primarily, fencing, credit
participation fees and finance interest income, partially offset by the increase
in the Sears license fee.  The license fee incurred to Sears increased $3.4
million, or 26.1%, from $13.0 million, or 10.4% of net installed sales, in 1995
to $16.4 million, or 10.7% of net installed sales, in 1996.  The increase in the
license fee incurred to Sears for 1996 was due to the increase in installed
sales volume and an increase in the composite license fee rates related to the
shift in balance of sales.  Sears and the Company entered into a new three-year
license agreement effective January 1, 1996.  Among other things, the license
agreement provides for a fixed license fee, at the March 1995 license fee rates,
to be charged during the term of the license agreement.  Gross profit before
Sears license fee, credit participation fee and finance interest income
increased $15.9 million, or 24.2%, from $65.6 million, or 52.5% of net installed
sales, in 1995 to $81.5 million, or 53.3% of net installed sales, in 1996.  The
unit costs of materials, installation labor and warranty expense remained
relatively constant during the year.

Selling, General and Administrative Expenses
     Selling, general and administrative expenses increased $12.5 million, or
27.6%, from $45.3 million in 1995 to $57.8 million and , as a percentage of net
sales, remained relatively constant at 36.3% in 1995 as compared to 36.8% in
1996.  The increase in selling, general and administrative expenses resulted
primarily from expenses associated with the increased sales volume, the
increased number of sales associates, expenses associated with hiring of field
operation personnel to support the expansion of the Company's core sales and
installation business, the start-up and expansion of Marquise Financial and, in
the fourth quarter, expenses related to hiring of senior personnel to direct and
support the anticipated growth in 1997 and beyond.  Direct advertising expenses
increased $1.5 million from $6.3 million in 1995 to $7.8 million in 1996; and,
as a percentage of net sales, however, direct advertising expense decreased from
5.0% in 1995 to 4.9% in 1996.  Selling commission expense, including attendant
payroll-related benefits, increased $3.1 million, or 24.1%, from $12.7 million
in 1995 to $15.8 million in 1996; and , as a percentage of net installed sales,
selling commission expense increased from 10.2% in 1995 to 10.3% in 1996.  Sales
representatives are compensated on a variable commission basis depending upon
the type and gross profit of product sold.  Performance-based compensation paid
to officers and field operation managers increased $156 thousand from $3.9
million in 1995 to $4.1 million in 1996 primarily due to increased operating
income and sales.  Management fees incurred to Globe decreased $247 thousand
from $558 thousand in 1995 to $311 thousand for the first six months in 1996.
The management fee agreement between Globe and the Company was terminated June
20, 1996.  The balance of selling, general and administrative expenses,
primarily sales lead-generation activities, administrative and operation
payrolls and related costs and general expenses, increased $8.0 million, or
36.7%, from $21.8 million, or 17.5% of net sales, in 1995 to $29.8 million, or
18.9% of net sales, in 1996.  This increase was primarily due to support
personnel and services required to manage the Company's expanding infrastructure
and start-up operations of the Company's captive finance subsidiary, Marquise
Financial.

Amortization of Intangibles
     Amortization of intangibles increased from $503 thousand in 1995 to $534
thousand in 1996.  The amortization expense related primarily to goodwill
incurred in connection with the September 1994 stock repurchase from management.

Interest Income (Expense), Net
     Net interest income increased $593 thousand from $410 thousand net interest
expense to $183 thousand in net interest income in 1996, primarily due to
increased interest income from invested cash balances and the reduction of
interest expense related to notes payable to certain of the Company's senior
management in connection with the September 1994 stock repurchase from
management.  $4 million of notes payable to senior managers was repaid during
the first six months of 1996.

Income Tax Provision
     The Company's income tax provision increased from $2.7 million, or an
effective rate of 41.5%, in 1995, to $4.4 million, or an effective tax rate of
39.0%, in 1996.  The decrease in the effective income tax rate was primarily due
to the reduction in amortization of intangibles, which are not deductible for
income tax purposes, as a percentage of taxable income and, in the fourth
quarter of 1996, in the effective state income tax rates paid to 44 states
resulting from the change in income among states.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary capital needs have been to fund the growth of the
Company, to fund the September 1994 stock repurchase from management, and, more
recently, to fund the operations of the Company's finance subsidiary, Marquise
Financial.  The Company's primary sources of liquidity have been cash flow from
operations, borrowings under its bank credit facility, and, in June 1996, the
net proceeds of its initial public offering.  The Company's core sales and
installation business is not capital intensive.  Capital expenditures for 1997,
1996 and 1995 were approximately $4.3 million, $461 thousand and $888 thousand,
respectively.  Capital expenditures for 1998 are expected to approximate $3.0
million, primarily related to ongoing new equipment purchases and software
development for the Company's information technology systems.  Future
requirements for new information technology and other capital expenditures are
expected to be funded by cash flow from operations and operating leases.  On
April 30, 1997, the Company announced a stock repurchase program to repurchase
up to 500,000 shares of its common stock and on August 12, 1997, the Company
increased the number of shares it is authorized to repurchase by 500,000 to
1,000,000 shares.  During the second and third quarters 1997 the Company
purchased 572,300 shares of its common stock for $4.7 million.  In March, 1998,
the Company signed a stock purchase agreement to acquire all of the issued and
outstanding stock of Reeves Southeastern Corp. for approximately $42 million.
In connection with the proposed acquisition, the Company is in the process of
replacing its $15 million unsecured line of credit with a $45 million secured
line.  The Company believes that it has sufficient operating cash flow, working
capital base, and available bank lines of credit to meet all of its obligations
for the foreseeable future, including ongoing funding for Marquise Financial,
for the stock repurchase program announced in 1997, for investments in
information technology, and for the acquisition, development, and expansion of
complementary new products and services and markets.

     In November 1995, the Company commenced the operations of Marquise
Financial.  Marquise's primary objective is to support, along with other
designated third-party finance companies, the Company's requirement for
providing financing to its core installation business customers.  In the fourth
quarter 1996, as a follow-on objective to expanding Marquise Financial's
consumer financing markets and products, Marquise introduced a new finance
product -- fixed rate loans secured by developed residential real estate -- to a
segment of its creditworthy customers that cannot obtain unsecured consumer
loans.  During the second quarter 1997, Marquise Financial expanded its scope of
operations, in part to leverage its consumer finance infrastructure to i)
purchase from third parties portfolios of secured receivables, and ii) originate
secured receivables from customers of, and/or purchase individual secured
receivables originated by, entities other than the Company and its affiliates.
These entities do not necessarily engage in business in any of the Company's
product lines.  As a general proposition, these entities are all expected to
operate businesses related to installed home improvement products and services,
although from time to time Marquise Financial may also originate or purchase
receivables secured by commercial real estate or otherwise acquire or originate
loans that do not constitute obligations arising from installed home
improvements.  The outstanding principal amount of individual receivables
purchased by Marquise Financial from entities other than the Company may
significantly exceed the average amount of all receivables owned by Marquise
Financial.  The Company is continually mindful of the risks associated with
consumer financing and plans to increase its consumer finance receivable
portfolio at a measured pace commensurate with its available resources and
acceptable levels for losses on finance receivables.  Marquise Financial has
been capitalized and funded with the Company's excess operating cash flow and
secured borrowings under the Company's $15 million bank line of credit, which
were subsequently paid down with a portion of the proceeds from the Company's
June 1996 initial public offering.  In December 1997, Marquise Financial
obtained a $10 million secured line of credit and, at December 31, 1997, had
borrowed $2.1 million.  At December 31, 1997, Marquise Financial has
approximately $8.8 million in net finance receivables.  During 1997, Marquise
Financial originated or purchased approximately $5.5 million of fixed rate,
secured loans.  At December 31, 1997, Marquise had approximately $800 thousand
in outstanding commitments of the fixed rate, secured loans.  The Company
anticipates that its existing cash balances, the bank lines of credit, the sale
of Marquise Financial's consumer loan finance receivables as market conditions
may warrant from time to time and excess cash flow from its core installation
operations will be sufficient to satisfy the Company's financing cash
requirements in the foreseeable future.

     In December 1996, with an initial investment of approximately $450
thousand, the Company completed agreements with insurance companies with the
effect of establishing a captive insurance company.  At December 31, 1997, the
investment in the captive insurance company has been increased to approximately
$1.0 million.  The primary objective of this captive insurance business is to
provide the means for offering workers' compensation and general liability
insurance coverage, primarily for Company installations, to qualified installers
as the Company seeks to maintain and expand its core complement of independent
installers.  Premiums are immediately collected through deductions from payments
to installers; and the excess cash balances, after administrative expenses, are
invested, pursuant to agreement, with the insurance companies.  Losses are
comprised of actual claims paid, reserves for open claims and allowances for
incurred but not reported claims.  The Company maintains individual and
aggregate stop-loss reinsurance coverage at levels deemed to be adequate by
management of the Company.  Premiums collected in 1997 were approximately $571
thousand.

     In June 1996, the Company issued 2,824,950 shares of Common Stock
(including underwriters' over-allotment option) at $13 per share in its initial
public offering.  Proceeds from the offering, net of underwriting commissions
and related expenses totaling $3.8 million, were $33.0 million.  A portion of
the offering proceeds was used to pay a $8.6 million special dividend to pre-
offering stockholders, repay all borrowings aggregating $11.9 million under the
bank line of credit (used to finance Marquise Financial receivables) and repay
$3.2 million of notes to senior managers related to the September 1994 stock
repurchase.  From its inception in June 1993, the Company has generated cash
flow from operations of approximately $23.3 million.  The Company used $12.5
million of cash in connection with the repurchase of 40.2% of its Common Stock
in September 1994, $6.5 million for capital expenditures and $5.0 million for
the initial funding of Marquise's financing activities and start-up operations.
At December 31, 1997, the Company had approximately $16.6 million in cash and
cash equivalents and trade receivables and net working capital of $7.7 million.
At December 31, 1997, the Company had $25 million in bank lines of credit and
$3.3 million total debt including $2.1 million under its bank line of credit.

Year 2000
     The Year 2000 date change issue is believed to affect virtually all
companies and organizations.  If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000.  The Company has not
completed its assessment of compliance issues for the Company's computer systems
(both hardware and software), for equipment ancillary to the Company's business
that contains computers or computer chips, or for the computer systems of other
entities with which the Company does business, such as installers, suppliers,
creditors, and Sears.  The Company has also not determined the cost of these
compliance issues or the time it will take to complete compliance.

     As a preliminary assessment, the Company believes its new investments in
information technology systems, including software, are Year 2000 compliant and
as such should not pose significant operational problems for its computer
systems.  The Company expects to complete its full assessment of the Year 2000
issue not later than December 31, 1998, which is prior to any anticipated impact
on its operating systems.  As part of the Year 2000 assessment, the Company
expects to communicate with all of its significant suppliers, third-party
finance sources, and Sears to determine the extent to which the Company's
interface systems are vulnerable to those parties' failure to remedy their Year
2000 issues.  There is no guarantee that the systems of other companies on which
the Company relies will be corrected in a timely manner or that the failure to
correct will not have a material adverse effect on the Company's systems.  Year
2000 modifications and assessments are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
availability of certain resources and other factors.  However, there can be no
guarantee the estimates and assessments will be achieved or come to pass, and
actual results could differ materially from those anticipated.

Seasonality
     The Company's results of operations may fluctuate from year to year or
quarter to quarter due to a variety of factors.  The Company expects lower
levels of sales and profitability during the period from mid-November through
mid-March, impacting the first and fourth quarter of each year.  The Company
believes that this seasonality is caused by winter weather in certain of the
Company's markets located in the northeastern and north central U.S. and by
rainy weather, each of which limits the Company's ability to install exterior
home improvement products.

Inflation
     Inflation has not had a material impact upon the operating results and the
Company does not expect it to have such an impact in the future.  To date, in
those instances where the Company has experienced cost increases, it has been
able to increase selling prices to offset such increases in cost.  There can be
no assurances, however, that the Company's business will not be affected in the
future by inflation or that it can continue in the future to increase its
selling prices to offset increased costs.

Forward-looking Statements
     This Annual Report contains forward-looking statements that involve risks
and uncertainties regarding the Company's operations and future results.  In
accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides cautionary statements,
detailed in the Company's Securities and Exchange Commission filings including,
without limitation, the Company's Form 10-K and Form 10-Qs, which identify some
of the specific factors which could cause actual results or events to differ
materially from those described in the forward-looking statements.

<TABLE>

CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                  December 31
                                                                               1997           1996
                                                                                 (In Thousands)
<S>                                                                           <C>              <C>
Assets
Current assets:
  Cash and cash equivalents                                                    $9,966        $  18,982
  Accounts receivable                                                           6,630            8,621
  Refundable income taxes                                                         986            1,725
  Prepaids and other current assets                                             1,959            1,377
  Deferred income taxes                                                           872              794
Total current assets                                                           20,413           31,499

Finance receivables                                                             8,758            5,312
Property and equipment                                                          6,469            2,193
Less:  Accumulated depreciation                                                 (923)            (586)
Net property and equipment                                                      5,546            1,607

Intangible assets, net                                                         16,514           16,961
Deferred income taxes                                                           1,892            1,313
Other                                                                           3,466            2,101

Total assets                                                                  $56,589          $58,793

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
  Due to bank                                                                  $2,050$        --
  Accounts payable                                                              6,529            8,995
  Accrued liabilities                                                           3,541            4,772
  Due to stockholders                                                             554              554
Total current liabilities                                                      12,674           14,321

Long-term liabilities:
  Warranty                                                                      7,415            5,702
  Retention                                                                     1,746            1,426
  Due to stockholders                                                             544            1,108
Total long-term liabilities                                                     9,705            8,236

Commitments and contingencies (Notes 10 and 11)                                    --               --

Common stockholders' equity:
   Preferred stock, $.001 par value; 4,000,000 shares                              --               --
      authorized; none issued and outstanding

  Common stock, $.001 par value; 25,000,000 shares authorized;                      9                9
    9,079,675 and 9,075,425 shares issued
  Additional paid-in capital                                                   34,040           33,971
  Officer notes receivable                                                      (221)            (510)
  Retained earnings                                                             5,070            2,766
  Treasury stock (at cost); 572,300 shares                                    (4,688)               --
Total common stockholders' equity                                              34,210           36,236
Total liabilities and common stockholders' equity                             $56,589          $58,793
See accompanying notes.

</TABLE>

<TABLE>

CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                  YEARS ENDED DECEMBER 31
                                                            1997           1996             1995
                                                             (In Thousands, except per share)

<S>                                                         <C>              <C>              <C>
Net sales                                                   $161,109         $157,068         $124,848
Cost of sales                                                 90,633           87,739           72,245
Gross profit                                                  70,476           69,329           52,603
Operating expenses:
  Selling, general, and administrative expenses               66,619           57,806           45,305
  Amortization expense                                           595              534              503
Operating profit                                               3,262           10,989            6,795
Interest income (expense), net                                   725              183            (410)
Income before income taxes                                     3,987           11,172            6,385
Income tax provision                                           1,683            4,357            2,650

Net income                                                 $   2,304         $  6,815       $    3,735

Net income per share:
  Basic                                                    $     .26         $    .88       $      .60
  Diluted                                                  $     .26         $    .88       $      .60
Weighted average number of common shares
  outstanding:
  Basic                                                        8,833            7,713             6,250
  Diluted                                                      8,833            7,778             6,250

See accompanying notes.

</TABLE>


<TABLE>

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, and 1995

<CAPTION>
                                                             ADDITIONAL      OFFICER
                                                  COMMON       PAID-IN        NOTES       TREASURY      RETAINED
                                                  STOCK        CAPITAL     RECEIVABLE       STOCK       EARNINGS        TOTAL
                                                                                 (In Thousands)

 <S>                                           <C>           <C>            <C>            <C>          <C>          <C>
 December 31, 1994                             $         6   $       119    $        --    $            $       816  $       936
                                                                                                 (5)
 Sale of treasury stock                                 --           864          (869)            5             --           --
 Repayment of officer notes                             --            --            162           --             --          162
 Net income   1995                                      --            --             --           --          3,735        3,735
 December 31, 1995                                       6           983          (707)           --          4,551        4,833
 Issuance of common stock                                3        32,948             --           --             --       32,951
 Common stock special dividend                          --            --             --           --        (8,600)      (8,600)
 Repayment of officer notes                             --            --            197           --             --          197
 Exercise of common stock options and other             --            40             --           --             --           40
 Net income   1996                                      --            --             --           --          6,815        6,815
 December 31, 1996                                       9        33,971          (510)           --          2,766       36,236
 Purchase of common stock for treasury                  --            --             --      (4,688)             --      (4,688)
 Repayment of officer notes                             --            --            289           --             --          289
 Exercise of common stock options and other             --            69             --           --             --           69
 Net income   1997                                      --            --             --           --          2,304        2,304
 December 31, 1997                             $         9         $            $               $      $      5,070        $
                                                                  34,040          (221)      (4,688)                      34,210
See accompanying notes.

</TABLE>





             <TABLE>

             CONSOLIDATED STATEMENTS OF CASH FLOWS

             <CAPTION>
                                                                                           Years ended December 31,
                                                                                      1997         1996           1995
                                                                                                (In Thousands)
                     OPERATING ACTIVITIES
                     <S>                                                              <C>          <C>              <C>
                     Net income                                                       $  2,304     $  6,815         $  3,735
                     Adjustments to reconcile net income to net cash provided
                       by (used in) operating activities:
                          Depreciation and amortization
                                                                                           932           825             706
                          Deferred income taxes
                                                                                         (657)         (652)           (468)
                          Provision for credit losses                                    1,259           767               4
                          Other                                                             --          (78)              37
                          Changes in operating assets and liabilities:
                            Accounts receivable                                          1,991       (5,232)             163
                            Refundable income taxes                                        739       (1,725)              --
                            Prepaids and other assets                                  (1,120)       (1,762)            (37)
                            Accounts payable                                           (2,466)         1,352           2,746
                            Accrued expenses                                           (1,431)         (853)           2,120
                            Income taxes payable                                            --            --           (904)
                            Warranty                                                     1,913         2,241           1,957
                            Retention                                                      320           461             389
                     Net cash provided by operating activities                           3,784         2,159          10,448

                     INVESTING ACTIVITIES
                     Capital expenditures                                              (4,276)         (461)           (888)
                     Loans originated and purchased                                    (5,468)      (23,606)           (550)
                     Loans repaid                                                          763         5,362              --
                     Proceeds from sale of finance receivables                              --        12,707              --
                     Organizational costs                                                (221)          (22)           (107)
                     Advances to "captive" insurance company                             (484)         (448)              --
                     Acquisition spending and other                                      (270)          (58)            (61)
                     Net cash used in investing activities                             (9,956)       (6,526)         (1,606)

                     Financing activities
                     Issuance of Common Stock, net of offering expenses                     --        32,951              --


                     Payments on notes receivable from officers for treasury
                       stock and other                                                     358           237             162
                     Common Stock special dividend                                          --       (8,600)              --


                     Borrowings (repayment) of bank line of credit                       2,050            --         (7,283)
                     Payments to stockholders                                            (564)       (4,554)         (2,054)
                     Preferred Stock redemption                                             --       (1,400)
                     Payments for purchase of common stock                             (4,688)
                     Net cash provided by (used in) financing activities               (2,844)        18,634         (9,175)
                     Net increase (decrease) in cash and cash equivalents              (9,016)        14,267           (333)
                     Cash and cash equivalents at beginning of period                   18,982         4,715           5,048
                     Cash and cash equivalents at end of period                        $ 9,966     $  18,982        $  4,715


                     Supplemental cash flow disclosure:
                       Interest paid                                                   $   344     $    377         $    233
                       Income taxes paid                                               $ 1,601     $  6,734         $  4,082

                      See accompanying notes.

             </TABLE>






             1.  BUSINESS AND ORGANIZATION

             Diamond Home Services, Inc., formerly Diamond Exteriors,
             Inc. (Home Services or the Company), was incorporated on May
             13, 1993.  Effective April 18, 1996, the Company transferred
             substantially all of its assets and liabilities to its
             newly-formed, wholly-owned subsidiary, Diamond Exteriors,
             Inc. (Exteriors) as a capital contribution and Exteriors
             made a dividend to the Company of all of the capital stock
             of its two wholly-owned subsidiaries, Marquise Financial
             Services, Inc. (Marquise), which was incorporated in
             Delaware on July 14, 1995, and Solitaire Home Heating and
             Cooling, Inc. (Solitaire), which was incorporated in
             Delaware on November 27, 1995.  The accompanying financial
             statements are presented as if such transfer and dividend
             had taken place on December 31, 1994.  Accordingly, the
             accompanying consolidated financial statements include the
             accounts of the Company's wholly-owned subsidiaries,
             Exteriors, Marquise, and Solitaire, collectively referred to
             as the Company.

             The Company provides in-home direct sales and marketing for
             installed home improvement products, through direct consumer
             marketing under a license between Exteriors and Sears,
             Roebuck and Co. (Sears), for the sale, furnishing, and
             installation of roofing, gutters, doors, fencing, and
             related installed exterior home improvement products.  The
             Company commenced its roofing, door, and related exterior
             home improvement business on June 1, 1993, and entered into
             its first license with Sears on that date.  During 1994, the
             Company was granted the license for fencing in certain
             additional markets.  In conjunction with obtaining the
             fencing license, certain assets were acquired from the
             former licensee.  See Note 9 for information pertaining to
             the formation and start-up of operations of Marquise.

             Exteriors negotiated a three-year license agreement with
             Sears effective January 1, 1996.  License fees are based on
             gross sales and vary by product and service.  License fees
             approximated $16,950,000, $16,400,000, and $13,000,000 in
             1997, 1996, and 1995, respectively.

             On September 23, 1994, the Company and its stockholders
             approved and adopted a Stock Purchase Agreement.  The
             agreement resulted in the Company's purchase of 4,018,800
             shares of common stock in exchange for cash and notes
             payable totaling $10.9 million, non-interest-bearing
             agreements with stockholders providing $2,770,100 in equal
             monthly installments over five years beginning January 1995
             and performance notes payable to the stockholders totaling
             $4,000,000 and bearing interest at 9% per annum effective
             January 1, 1995.  The performance notes were fully paid in
             June 1996.

             The stock acquisitions described above have been reflected
             in the accompanying financial statements using the purchase
             method of accounting as if Globe Building Materials, Inc.
             (Globe), the former majority holder of the Company's common
             stock, made the acquisitions and pushed-down its basis to
             the Company.  The cost of the shares purchased in excess of
             their par value and the direct costs incurred by the Company
             were assigned to goodwill which is classified on the balance
             sheet as intangible assets. The Company retired 3,750,050 of
             the acquired shares of common stock in 1994.  The remaining
             shares (268,750) were sold on a subscription basis to
             employees on January 2, 1995, in exchange for $5,000 in cash
             and stock subscription notes receivable totaling
             approximately $864,000.  The notes bear interest at 7%
             payable annually.

             At December 31, 1997 and 1996, approximately 40.2% and
             37.7%, respectively, of the Company's outstanding common
             stock was owned by a wholly-owned subsidiary of Globe.  The
             preferred stock of the Company, which was redeemed in June
             1996, was owned by Globe.

             In June 1996, the Company issued 2,824,950 shares of common
             stock (including underwriters' over-allotment) at $13 per
             share in its initial public offering.  Proceeds from the
             offering, net of underwriting commission and related
             expenses totaling $3.8 million, were $33.0 million.
             Following the offering, the Company had 9,074,900 common
             shares issued and outstanding.

             In September 1996, Globe sold 750,000 shares of the
             Company's common stock at $29 per share in a public
             offering.  The Company did not receive any proceeds from the
             public offering.

             2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             PRINCIPLES OF CONSOLIDATION

             The consolidated financial statements include the accounts
             of the Company and its wholly-owned subsidiaries after
             eliminating significant inter-company accounts and
             transactions.

             CASH AND CASH EQUIVALENTS

             Cash and cash equivalents consist of cash and short-term
             investments.  The Company considers all highly liquid
             investments with a maturity of three months or less when
             purchased to be cash equivalents.

             PROPERTY AND EQUIPMENT

             Property and equipment are stated at cost.  Depreciation is
             based on the straight-line method over the estimated useful
             lives of five to seven years.  The cost to acquire and
             develop internal-use software is capitalized and depreciated
             over its estimated useful life of five years.

             REVENUE RECOGNITION

             The Company recognizes revenue upon completion of each
             installation and receipt from the customer of a signed
             certificate of satisfaction.  The Company receives credit
             participation fee income on receivables financed by third-
             party finance companies.  Credit participation fees are
             earned, following contractual agreement, generally,
             commensurate with the income stream implicit in the
             receivable.  For the years 1997 and 1996, the Company earned
             $1,853,000 and $2,268,000, respectively, in credit
             participation fee income.  Included in the balance sheet
             under the captions prepaids and other current assets are
             $960,000 and $543,000 and in other assets $1,187,000 and
             $795,000 of credit participation fee income due from Sears
             and its affiliates at December 31, 1997 and 1996,
             respectively.

             Interest income from finance receivables is recognized using
             the interest method.  Loan origination fees and costs on
             finance receivables are deferred and recognized in interest
             income using the level-yield amortization method.  Accrual
             of interest income on finance receivables is suspended when
             a loan is contractually delinquent for 90 days or more and
             resumes when the loan becomes contractually current.

             ALLOWANCE FOR LOSS ON FINANCE RECEIVABLES

             Marquise Financial maintains an allowance for losses on
             secured and unsecured finance receivables at an amount
             sufficient to protect for estimated losses of principal and
             interest in the current portfolio.  Additions to the
             allowance are charged to the provision for credit losses on
             finance receivables.  Finance receivables are charged to the
             allowance for credit losses when they are deemed
             uncollectible.  Additionally, Marquise Financial provides
             for the full charge-off of finance receivables when the
             receivable becomes 180 days contractually delinquent.

             GOODWILL

             The Company amortizes goodwill over 40 years.  The Company
             at each balance sheet date evaluates for recognition of
             potential impairment of its recorded goodwill against the
             current and undiscounted expected future cash flows.
             Impairment in recorded goodwill is charged to income when
             identified.

             Goodwill at December 31, 1997 and 1996, was $16,255,000 and
             $16,706,000, respectively, net of accumulated amortization
             of $1,576,000 and $1,125,000, respectively.

             WARRANTY

             The Company warrants its installed home improvement products
             and services to meet certain manufacturing and material and
             labor specifications.  The warranty policy is unique for
             each installed product and service, ranges generally from 2
             to 10 years, is generally for the material cost and labor,
             and requires the owner to meet certain preconditions such as
             proof of purchase.  The Company accrues for estimated
             warranty costs based on an analysis of historical claims
             data.

             ORGANIZATIONAL COSTS

             Organizational costs are included in intangible assets and
             amortized on the straight-line method over five years.

             EARNINGS PER SHARE

             In 1997, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards No. 128,
             "Earnings per Share" (SFAS No. 128), which replaced the
             calculation of primary and fully diluted earnings per common
             share with basic and diluted earnings per common share.
             Unlike primary earnings per common share, basic earnings per
             common share excludes any dilutive effects of options,
             warrants and convertible securities.  All earnings per
             common share amounts for all periods have been presented
             and, where appropriate, restated to conform to the SFAS No.
             128 requirements (see Note 14.)

             IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

             In June 1997, the FASB issued SFAS No. 130, "Reporting
             Comprehensive Income".  SFAS No. 130 establishes standards
             for reporting and display of comprehensive income and its
             components in the financial statements.  SFAS No. 130 is
             effective for fiscal years beginning after December 15,
             1997.  The adoption of SFAS No. 130 will have no impact on
             the Company's consolidated financial position, results of
             operations, or cash flows.

             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 amounts
             reported in the financial statements and accompanying notes.
             Actual results could differ from those estimates.

             RECLASSIFICATION

             Certain amounts have been reclassified from 1996 to conform
             to the 1997 presentation.

             3.  PROPERTY AND EQUIPMENT

             The cost of property and equipment at December 31 is as
             follows:

             <TABLE>
             <CAPTION>

                                                                                       1997             1996

                              <S>                                                       <C>          <C>
                              Equipment and software                                    $5,660,000   $1,548,000

                              Leasehold improvements                                       454,000       379,000
                              Furniture and fixtures                                       355,000       266,000
                                                                                        $6,469,000   $2,193,000
                      </TABLE>



             4.  ADVERTISING

             The Company expenses the cost of advertising as such costs
             are incurred, except for direct-response advertising, which
             is capitalized and expensed over its expected period of
             future benefits.  Direct-response advertising consists

             primarily of newspaper and radio advertisements that require
             the use of designated phone numbers for responding.  The
             capitalized costs of direct-advertising are expensed when
             the jobs are completed and the revenue related thereto is
             recognized, generally within one to three months of the date
             of sale.


             At December 31, 1997 and 1996, $757,000 and $839,000,
             respectively, of deferred direct-response advertising costs
             was reported as non-current assets.  Net advertising expense
             was $10,244,000, $7,772,000, and $6,239,000 in 1997, 1996,
             and 1995, respectively.


             5.  ACCRUED LIABILITIES

             The components of accrued liabilities at December 31 are as
             follows:


             <TABLE>
             <CAPTION>
                                                                                       1997             1996

                              <S>                                                       <C>              <C>
                              Payroll and payroll-related                               $2,537,000       $3,922,000

                              Warranty                                                   1,000,000          800,000
                              Other                                                          4,000           50,000
                                                                                        $3,541,000       $4,772,000


             </TABLE>

             6.  DEBT

             At December 31, 1997, the Company had a $15,000,000
             unsecured bank line of credit with no related borrowings
             outstanding, and a $10,000,000 secured bank line of credit
             for Marquise Financial.  At December 31, 1997, $2,050,000
             was borrowed under the Marquise Financial bank line of
             credit.  Interest on unsecured bank borrowings is payable
             monthly at the bank's prime rate or at LIBOR plus 1.35%.
             Interest on secured bank borrowings is payable monthly at
             the bank's prime rate less 0.50% or LIBOR plus 1.25%.  The
             secured bank borrowings are secured by finance receivables,
             among other things, owned by Marquise Financial and
             supported by a capital maintenance agreement from Home
             Services and Exteriors.  At December 31, 1997, the interest
             rate on the secured line of credit was 8%.  The bank lines
             of credit require the Company to maintain defined levels of
             equity and working capital and certain financial ratios and
             limit the payment of dividends to common stockholders.
             Non-interest-bearing agreements with stockholders provide
             for the payment of $2,770,100 in equal monthly installments
             over five years beginning January 1995.  All amounts due to
             stockholders are subordinate to the unsecured bank line of
             credit.  The Company's debt approximates fair value at
             December 31, 1997.

             7.  INCOME TAXES

             For the period January 1, 1996, through June 30, 1996, and
             for the year ended December 31, 1995,  the Company was

             included in the consolidated U.S. federal income tax return
             of Globe.  For the period indicated, a tax-sharing agreement
             existed between the Company and Globe specifying the
             allocation and payment of liabilities and benefits arising
             from the filing of a consolidated tax return.  The operation
             of the tax allocation method required the Company to pay its
             share of the consolidated U.S. federal tax liability if it
             had taxable income, and to be compensated for losses or
             credits for benefits which were utilized to reduce the
             consolidated tax liability.  There would be no difference,
             in the indicated period, in the Company's tax liability if a
             tax-sharing agreement did not exist.  For the period
             subsequent to June 30, 1996, the Company was no longer
             included in Globe's consolidated U.S. federal income tax
             return.

             The provision (benefit) for the year ended December 31 is as
             follows:


             <TABLE>
             <CAPTION>

                                                                               1997             1996             1995


                     Current:
                     <S>                                                       <C>              <C>              <C>
                       Federal                                                 $2,025,000       $4,324,000       $2,567,000
                       State                                                      315,000          685,000          551,000


                     Deferred:
                       Federal                                                  (598,000)        (567,000)        (385,000)
                       State                                                     (59,000)         (85,000)         (83,000)
                                                                               $1,683,000       $4,357,000       $2,650,000


             </TABLE>

             A reconciliation of the Company's provision for income taxes
             based on the federal statutory income tax rate to the
             Company's effective tax rate is as follows:


             <TABLE>
             <CAPTION>

                                                                              1997              1996             1995

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

                     Federal statutory income tax rate                34.0%              34.0%            34.0%
                     Increase (decrease) resulting from:
                       State income tax, net of federal tax
                          benefit
                                                                      4.2                3.5              4.8
                       Goodwill amortization                          3.2                1.1              2.0
                       Other, net                                     .8                 .4               .7

                     Effective tax rate                               42.2%              39.0%            41.5%

             </TABLE>


             Deferred tax assets and liabilities are recognized for the
             expected future tax impact of temporary differences between
             the carrying amounts and the tax basis of assets and
             liabilities.

             The significant components of deferred tax assets and

             liabilities at December 31 are as follows:

             <TABLE>
             <CAPTION>
                                                                                       1997             1996


                              Deferred tax assets:
                                <S>                                                     <C>              <C>
                                Warranty                                                $3,973,000       $2,511,000
                                Allowance for loss on finance receivables                  337,000          155,000

                                Other                                                      461,000          504,000
                              Total deferred tax assets                                  4,771,000        3,170,000

                              Deferred tax liabilities:
                                Advertising                                              (432,000)        (397,000)
                                Depreciation                                             (198,000)        (153,000)

                                Other                                                  (1,377,000)        (513,000)
                              Total deferred tax liabilities                           (2,007,000)      (1,063,000)
                              Net deferred tax assets                                   $2,764,000       $2,107,000
                     </TABLE>


             8.  EMPLOYEE BENEFITS

             DEFINED CONTRIBUTION PLAN

             The Company has one defined-contribution plan that covers
             substantially all employees.  Annual contributions are
             determined by formula based on earnings.  Since inception,
             there have been no contributions to the Plan.

             INCENTIVE STOCK OPTION PLAN

             In connection with the Diamond Home Services, Inc. 1996
             Incentive Stock Option Plan (the "Employee Stock Option
             Plan"), 620,000 shares of the Company's Common Stock were
             reserved for issuance.  At December 31, 1997, 188,150 shares
             were available for future grant.  The Employee Stock Option
             Plan provides for issuance of incentive stock options, non-
             qualified stock options, stock appreciation rights and stock
             awards to key associates.  All options granted have ten year
             terms and vest ratably over three years of continued
             employment.  At December 31, 1997, there were no stock
             appreciation rights or awards attached to stock options.
             Also, in 1996, the Company adopted the 1996 Non-employee
             Director Stock Option Plan and has reserved 50,000 shares
             for future issuance.  At December 31, 1997, 47,000 shares
             were available for future grant.  The Non-employee Director
             Stock Option Plan provides for the automatic issuance, after
             one year from date of election as a director, of non-
             qualified stock options and are exercisable over a 10 year
             term and vest ratably over three years of continued service.

             A summary of the Company's stock option activity, and
             related information for the two years ended December 31,
             1997, is set forth below.  The Company did not have
             Incentive Stock Option Plans prior to 1996.


             <TABLE>
             <CAPTION>
                                                                                                Weighted Average
                                                                             Shares              Exercise Price
                     <S>                                                          <C>                        <C>
                     Outstanding, December 31, 1995                                     --                       --

                     Granted                                                       275,000                   $13.00
                     Exercised                                                       (525)                    13.00
                     Forfeited                                                     (1,950)                    13.00
                     Outstanding, December 31, 1996                                272,525                    13.00
                     Granted                                                       203,000                    10.40

                     Exercised                                                     (4,250)                    13.00
                     Forfeited                                                    (36,425)                    13.00
                     Outstanding, December 31, 1997                                434,850                   $11.79
                     Exerciseable, December 31, 1996                                68,131                   $13.00

                     Exerciseable, December 31, 1997                               166,925                   $12.20
                     </TABLE>

                     <TABLE>

                     <CAPTION>
                                                             Outstanding                              Exerciseable
                                                            Weighted      Weighted Average                 Weighted Average
                       Range of Option                      Average        Exercise Price                   Exercise Price
                       Exercise Prices       Shares      Remaining Life                        Shares

                           <S>                 <C>              <C>                 <C>          <C>                 <C>
                           $13.00-$18.50       331,850          9 years             $13.23       140,925             $13.13
                                  $7.125       100,000         10 years             $7.125        25,000             $7.125
                                   $8.75         3,000        9.3 years              $8.75         1,000              $8.75
                                               434,850                                           166,925

                     </TABLE>

             The Company has elected to follow Accounting Principles
             Board Opinion No. 25, "Accounting for Stock Options Issued
             to Employees" (APB No. 25) and related Interpretations in
             accounting for its employee stock options because, as
             discussed below, the alternative fair value accounting
             provided for under Financial Accounting Standards Board No.
             123, "Accounting for Stock-Based Compensation" (SFAS No.
             123), requires use of option valuation models that were not
             developed for use in valuing employee stock options.  Under
             APB No. 25, because 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
             expense is recognized.

             Disclosure of pro forma information regarding net income and
             net income per common share is required by SFAS No. 123, and
             has been determined as if the Company had accounted for its
             stock options granted in 1997 and 1996 using SFAS No. 123.
             The options granted in 1997 and 1996 were valued using the
             Black-Scholes option pricing model.  The weighted average
             value of options granted during 1997 and 1996 was $3.02 and
             $7.35, respectively.  The Black-Scholes option valuation
             model requires the input of highly subjective assumptions
             and, because changes in the subjective input assumptions can
             materially affect the fair value estimate, in management's
             opinion, the model cannot necessarily provide a single
             measure of the fair value of its stock options.  The
             following assumptions were utilized in the valuation:


             <TABLE>
             <CAPTION>
                                                           December 31
                                                            1997       1996
                     <S>                                  <C>         <C>

                     Risk-free interest rate               6.20%      6.22%
                     Expected dividend yield                  0%         0%
                     Expected stock price                  50.0%      58.8%
                     volatility
                     Expected life options               5 years    5 years
                     </TABLE>


             Had compensation cost for the Company's stock options
             granted in 1997 and 1996 been determined based on the fair
             value at the dates of the grants, the Company's net income
             and net income per common share would have been as follows
             on a pro forma basis (in thousands, except per share data):


             <TABLE>
             <CAPTION>

                                                                                      Years Ended December 31,
                                                                                           1997            1996
                     <S>                                               <C>               <C>             <C>

                     Net income applicable to common stock holders:    As reported       $2,304          $6,815
                                                                       Pro forma          1,886           6,535
                     Basic earnings per common share:                  As reported         0.26            0.88
                                                                       Pro forma           0.21            0.85
                     Diluted earnings per common share:                As reported         0.26            0.88
                                                                       Pro forma           0.21            0.84

                     </TABLE>


             9.  CONSUMER FINANCING

             The following summarized financial information for Marquise
             is before elimination of inter-company transactions in
             consolidation.

             Financial position at December 31:

             <TABLE>
             <CAPTION>

                                                                                                 1997                   1996
                     <S>                                                                   <C>                   <C>

                     Assets
                     CASH                                                                   $      23,000       $       50,000


                     Finance receivables, net of allowances of $569,000 and
                       $404,000 in 1997 and 1996                                                8,758,000            5,312,000
                     Other assets                                                               1,046,000              349,000
                     Total assets                                                              $9,827,000           $5,711,000


                     LIABILITIES AND STOCKHOLDER'S EQUITY
                     Due to bank                                                               $2,050,000                   --
                     Due to Diamond Exteriors, Inc.                                             7,388,000           $5,623,000
                     Other liabilities                                                            147,000               50,000
                     Total liabilities                                                          9,585,000            5,673,000

                     Stockholder's equity                                                         242,000               38,000
                     Total liabilities and stockholder's equity                                $9,827,000           $5,711,000
                     Operations for the period ended December 31:

                                                                                       1997           1996           1995

                     <S>                                                              <C>            <C>                <C>
                     Total finance income                                             $1,108,000     $1,811,000         $
                     Interest expense paid to Diamond Exteriors, Inc.                    400,000        668,000             --
                     Provision for credit losses                                       1,259,000        767,000        4,000

                     Net interest income (loss)                                        (551,000)        376,000        (4,000)

                     Other income                                                             --        130,000             --
                     Other expenses                                                    (894,000)      (807,000)       (39,000)
                     Loss before income tax benefit                                  (1,445,000)      (301,000)       (43,000)
                     Income tax benefit                                                  539,000        115,000         17,000

                     Net loss                                                         $(906,000)     $ (186,000)     $ (26,000)

                     Cash flows for the period ended December 31:

                                                                                       1997           1996           1995
                     Cash, at beginning of year                                    $      50,000  $     --        $    --
                     Net cash provided by (used in) operating activities                 272,000       (115,000)       (36,000)
                     Net cash used in investing activities                            (5,224,000)    (5,016,000)      (656,000)
                     Net cash provided by financing activities                         4,925,000      5,181,000        692,000
                     Cash, at end of year                                          $      23,000  $      50,000  $

                     </TABLE>

             At December 31, 1997, Marquise Financial had approximately
             $800 thousand in approved but not funded loan commitments.

             10.  COMMITMENTS

             The Company leases certain real property and equipment under
             long-term non-cancelable leases expiring at various dates
             through 2001.  In December 1997 and January 1998, the
             Company entered into long term non-cancelable lease
             agreements for computer equipment.  The future minimum lease
             payments with respect to the January 1998 agreements are
             also included in the table below.  Future minimum lease
             payments under non-cancelable operating leases with initial
             terms of one year or more consisted of the following at
             December 31, 1997:

             <TABLE>
             <CAPTION>

                           <S>                                                       <C>
                           1998                                                      $2,129,000
                           1999                                                       1,581,000
                           2000                                                       1,180,000
                           2001                                                         167,000
                           Thereafter                                                   -
                           Total minimum lease payments                              $5,057,000


                     </TABLE>

             Rent expense was $1,323,000, $1,127,000, and $850,000 in
             1997, 1996, and 1995, respectively.

             During 1994, the Company entered into agreements with
             certain employees providing for the payment of $4,230,000 in
             equal monthly installments over five years beginning in
             January 1995, contingent on the continued employment of each
             employee.  During 1997 and 1996, payments of $696,000 and
             $769,000, respectively, were made to the related employee
             group and $0 and $614,000, respectively, were forfeited due
             to change in employment status of respective employees.
             During 1995, payments of $769,000 were made to the related
             employee group and $308,000 were forfeited due to change in
             employment status of respective employees.  The remaining
             liability of $1,074,000 for such contingent payments is not
             reflected in the consolidated financial statements at
             December 31, 1997.

             11.  CONTINGENCIES

             The Company is involved in various legal actions arising in
             the ordinary course of business.  Although management cannot
             predict the ultimate outcome of these matters with
             certainty, it believes, after taking into consideration
             legal counsel's evaluation of such actions, that the outcome
             of these matters will not have a material effect on the
             financial position or operations of the Company.

             12.  RELATED PARTY TRANSACTIONS

             It is the Company's practice to have all related party
             transactions and arrangements discussed and reviewed by the
             Company's Board of Directors.

             For the period January 1, 1996 through June 23, 1996, and
             for the year 1995, the Company had an agreement with Globe
             for the performance of various administrative services.  In
             consideration for such services, the Company paid management
             fees based on annual net sales, as defined.  The Company
             believes that the cost of such services, on a stand-alone
             basis, approximates the management fees incurred by the
             Company during the indicated period.  The Company incurred
             management fees of $ 311,000 and $558,000 for the indicated
             period in 1996, and for the year 1995, respectively.  No
             amounts were due to Globe at December 31, 1997 and 1996.

             During 1996, the Company, in an informal arrangement, leased
             a portion of its headquarters' office space and services to
             a division of H I, Inc., at cost, in the aggregate amount of
             $126,000.  In addition, in 1996, the Company  began a
             program to systematically centralize and outsource its four
             regional lead-taking activities to H I, Inc.'s Lawrence, KS,
             facility.  The aggregate amount of lead-taking activities
             expenses incurred to H I, Inc. in 1997 and 1996 approximated
             $2,230,000 and $302,000, respectively.  In 1997, the Company
             contracted with Alexander & Walsh, Inc. to provide
             advertising and other marketing and communications services
             to the Company.  The total expenses incurred to Alexander &
             Walsh in 1997 was $110,000.  The quoted rates for the
             various activities performed by H I, Inc. and Alexander &
             Walsh, in the opinion of management of the Company, have
             been obtained at a cost and on terms no more favorable than
             if it were to obtain them from a non-related party.  At
             December 31, 1997, approximately $88,500 was due to H I,
             Inc.

             13.  INCOME PER SHARE

             The following table summarizes the information used in
             computing basic and diluted income per share.

             <TABLE>
             <CAPTION>
                                                                                      Years Ending December 31,
                                                                               1997             1996              1995
                     <S>                                                      <C>                <C>              <C>
                     Numerator for both basic and diluted income per
                     share -- Net Income                                      $2,304,000        $6,815,000       $3,735,000
                     Denominator for basic income per share
                          weighted shares outstanding                          8,832,840         7,712,795        6,249,950
                     Effect of employee stock options
                          (dilutive potential of common shares)                      570            64,900               --
                     Denominator for diluted income per share
                          diluted shares                                       8,833,410         7,777,695        6,249,950

                     </TABLE>

             14.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

             Selected quarterly financial data for 1997 and 1996 is as
             follows (in thousands, except per share data):

             <TABLE>
             <CAPTION>
                                                             First        Second        Third        Fourth
                                                            Quarter      Quarter       Quarter       Quarter       Total
                                    1997
                     <S>                                      <C>          <C>           <C>           <C>         <C>
                     Net sales                                $30,175      $43,787       $48,301       $38,846     $161,109
                     Gross profit                              13,363       19,722        21,245        16,146       70,476
                     Net income                                   155          651         1,350           148        2,304
                     Basic earnings per common share             0.02         0.07          0.16          0.02         0.26
                     Diluted earnings per common share           0.02         0.07          0.16          0.02         0.26

                                    1996
                     Net sales                                $27,093      $41,389       $46,492       $42,094     $157,068
                     Gross profit                              11,800       18,548        20,530        18,451       69,329
                     Net income                                   349        1,919         2,591         1,956        6,815
                     Basic earnings per common share             0.06         0.30          0.29          0.22         0.88
                     Diluted earnings per common share           0.06         0.30          0.28          0.21         0.88


             </TABLE>

             Note:  Earnings per common share have been restated to
             comply with SFAS No. 128.  The earnings per common share
             computation for the year is a separate, annual calculation.
             Accordingly, the sum of the quarterly earnings per common
             share amounts do not necessarily equal the earnings per
             common share amounts for the year.

             The Board of Directors
             Diamond Home Services, Inc. and Subsidiaries


             We have audited the accompanying consolidated balance sheets
             of Diamond Home Services, Inc. and Subsidiaries as of
             December 31, 1997 and 1996, and the related consolidated
             statements of operations, changes in common stockholders'
             equity, and cash flows for each of the three years in the
             period ended December 31, 1997.  These financial statements
             are the responsibility of the Company's management.  Our
             responsibility is to express an opinion on these financial
             statements based on our audits.

             We conducted our audits in accordance with generally
             accepted auditing standards.  Those standards require that
             we plan and perform the audit to obtain reasonable assurance
             about whether the 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 consolidated financial statements
             referred to above present fairly, in all material respects,
             the consolidated financial position of Diamond Home
             Services, Inc. and Subsidiaries at December 31, 1997 and
             1996, and the consolidated results of their operations and
             their cash flows for each of the three years in the period
             ended December 31, 1997, in conformity with generally
             accepted accounting principles.



             Chicago, Illinois
             February 20, 1998



<TABLE>
<CAPTION>
                     <S>                                <C>                                <C>

                                                        OTHER KEY EMPLOYEES                SUBSIDIARIES
                                                                                           Diamond Exteriors, Inc.
                     CORPORATE INFORMATION              Stuart Davidson                    Marquise Financial Services,
                                                        Vice President-MIS                 Inc.
                     EXECUTIVE OFFICERS                                                    Solitaire Heating and Cooling,
                                                        Marvin Lerman                      Inc.
                     C. Stephen Clegg                   Vice President-Purchasing
                     President and Chief Executive                                         FORM 10-K AND INVESTOR CONTACT
                     Officer                            Ian F. Ostergaard                  The Form 10-K Annual Report of
                                                        Vice President-Human Resources     Diamond Home Services, Inc., as
                     Richard G. Reece                                                      filed with the Securities and
                     Vice President and Chief           Ann Crowley Patterson              Exchange Commission, is
                     Financial Officer                  Vice President                     available without charge to
                                                                                           stockholders upon written
                     Joseph U. Schorer                  Kenneth H. Smith                   request.  Requests for this
                     Vice President, Secretary and      Vice President-Marketing           material and other investor
                     General Counsel                                                       contacts should be directed to
                                                        Thomas A. Jackson                  Richard Reece, Chief Financial
                     James "Milt" Gillespie             Vice President-Region (1)          Officer, at the corporate
                     Vice President-Business                                               address.
                     Development                        David "Tim" Jones
                                                        Vice President-Region (2)          NASDAQ SYMBOL
                     Jerome E. Cooper                                                      The Company's common stock is
                     Vice President-Installations       R.Q. Whitmire                      traded on the Nasdaq Stock
                                                        Vice President-Region (3)          Market (National Market) under
                     Ronald D. Greene                                                      the symbol DHMS.
                     Vice President-Sales               S. Austin Sawyer
                                                        President-Marquise Financial       MARKET PRICES AND DIVIDEND
                     Eugene J. O'Hern, Jr.                                                 INFORMATION
                     Controller                         SHAREHOLDER INFORMATION            The table below sets forth the
                                                                                           high and low stock prices from
                     BOARD OF DIRECTORS                 EXECUTIVE AND ADMINISTRATIVE       the date trading commenced
                                                        Offices                            through December 31, 1997.
                     C. Stephen Clegg, Chairman (1)     Diamond Home Services, Inc.
                                                        222 Church Street                  Quarter Ended       High    Low
                     James F. Bere, Jr. (2)(3)          Woodstock, Illinois 60098          June 30, 1996       $18.25  $13.00
                     Chairman and Chief Executive       Telephone (815) 334-1414           September 30, 1996  $34.50  $14.75
                     Officer                            Facsimile (815) 334-1421           December 31, 1996   $30.25  $21.75
                     Ameritel Corporation                                                  March 31, 1997      $28.75  $25.75
                                                        STOCK TRANSFER AGENT               June 30, 1997       $18.00  $8.375
                     William R. Griffin                 Harris Trust and Savings Bank      September 30, 1997  $10.00   $6.75
                     Consultant                         111 West Monroe                    December 31, 1997   $10.00  $6.625
                                                        Chicago, Illinois 60690
                     James "Milt" Gillespie (1)         Inquiries regarding stock          No cash dividends have been
                                                        transfers, lost certificates or    declared or paid since the
                     Jacob Pollock                      address changes should be          initial public offering.  As of
                     Chairman, Chief Executive          directed to Harris Trust at the    December 31, 1997, Diamond Home
                     Officer and Treasurer              above address.                     Services had approximately 2000
                     Ravens Metal, Inc.                                                    stockholders based on the number
                     Chief Executive Officer and        DISTRICT OFFICES                   of holders of record and an
                     Chief Operating Officer            Chicago, Illinois                  estimate of the number of
                     J. Pollock & Co.                   Chattanooga, Tennessee             individual participants
                                                        Cincinnati, Ohio                   represented by security position
                     George A. Stinson (1)(2)(3)        Columbus, Ohio                     listings.
                     Retired                            Dallas, Texas
                                                        Greensboro, North Carolina         Annual Meeting
                                                        Hartford, Connecticut              The 1998 Annual Meeting of
                                                        Los Angeles, California            Stockholders will begin at 9:00
                                                        San Francisco, California          a.m. local time on May 14, 1998,
                                                        Tampa, Florida                     at the Woodstock Opera House,
                                                        Washington, D.C.                   121 Van Buren, Woodstock,
                                                                                           Illinois.



(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee

</TABLE>