EXHIBIT 13.1


Selected Financial Data

(Unaudited)

For the years ended December 31
(In $ thousands, except earnings per share amounts)

<TABLE>
<CAPTION>
                                                               1996              1995             1994             1993*
                 <S>                                         <C>              <C>               <C>            <C>
                 Net Sales                                   $ 157,068        $ 124,848         $ 94,186       $   20,548
                 Operating Income                               10,989            6,795            2,951          (1,179)
                 Net Income                                      6,815            3,735            1,995          (1,179)
                 Net Income per Share                             0.88             0.60             0.22           (0.12)

                 At year end:
                 Working Capital (Deficit)                      22,490          (4,814)          (8,324)               42
                 Total Assets                                   58,793           30,143           29,275            4,837
                 Debt                                            1,662            6,216           15,553            1,187
                 Stockholders' Equity                           36,236            4,833              936             (979)

                 Number of Sales Associates                        678              631              496              260
                 Number of Independent Installers                1,300            1,315            1,003              389
                 Number of Employees                             1,260            1,109              857              458
                 Number of Jobs Sold                            64,338           55,261           37,510            7,294
                 Net Sales per Employee                      $ 124,657       $  112,577        $ 109,902        $  44,865

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

</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Unaudited)

Overview

The Company has achieved record net sales and earnings in each of the past
three years.  Net sales increased $62.9 million, from $94.2 million in 1994
to $157.1 million in 1996.  Operating income increased $8.0 million, from
$3.0 million in 1994 to $11.0 million in 1996.  Net income increased
$4.8 million, from $2.0 million in 1994 to $6.8 million in 1996.  The
growth in net sales and income was attributable to increases in sales lead
generation, number of sales associates, number of independent installers and,
new in 1996, credit participation fee income negotiated with third-party finance
companies and finance interest income from the Company's recently-formed
consumer 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.

Stockholders' equity has increased $35.3 million, from $936 thousand at December
31, 1994, to $36.2 million at December 31, 1996.  During this three-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
September 1994,  42.2% of its common stock and, 3) launched and funded its
own consumer finance subsidiary.  Cash flow from operating activities during the
period aggregated $19.9 million.

Results of Operations
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 were 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) increased 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 relates primarily to goodwill
incurred in connection with the September 1994 stock repurchase from
management.

Interest Income, 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.

Fiscal 1995 Compared to Fiscal 1994


Net Sales

     Net sales increased $30.6 million, or 32.6%, from $94.2 million in 1994 to
$124.8 million in 1995. Approximately 42.5% of the increase in net sales was
attributable to roofing and gutter products and services, net sales of which
increased $13.0 million to $87.1 million in 1995. The remaining increase in net
sales was due to garage door and entry door products and services, net sales of
which increased $7.1 million to $19.3 million in 1995 as well as fencing and
other products and services, net sales of which increased $10.5 million to $18.4
million in 1995. These increases in net sales were due primarily to an increase
in the number of installations which resulted from the first full-year impact of
the Company's 55 sales offices and the opening of 15 new sales offices, an
increase in Sales Associates from 496 to 631 and the addition of fencing in
certain markets. Net sales also increased due to increased selling prices.

Gross Profit

     Gross profit increased $14.6 million, or 38.3%, from $38.0 million or 40.4%
of net sales, in 1994 to $52.6 million, or 42.1% of net sales, in 1995. The
increase in gross profit resulted from an increased number of installations and
increased selling prices, partially offset by the increase in the Sears license
fee. The license fee incurred to Sears increased $5.6 million, or 75.7%, from
$7.4 million, or 7.9% of net sales, in 1994 to $13.0 million, or 10.4% of net
sales in 1995. The increase in the license fee incurred to Sears in 1995 was due
to the increase in sales volume and an increase in the license fee rates. 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 rate, to be charged during the term
of the license agreement. Gross profit before the Sears license fee increased
$20.2 million, or 44.4%, from $45.4 million, or 48.3% of net sales, in 1994 to
$65.6 million, or 52.5% of net sales, in 1995. 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 $10.5 million, or
30.1%, from $34.8 million in 1994 to $45.3 million in 1995 and as a percentage
of net sales remained relatively constant at 37.0% in 1994 as compared to 36.3%
in 1995. The increase in selling, general and administrative expenses resulted
primarily from expenses associated with increased sales volume and the increased
number of Sales Associates and, to a lesser extent, expenses related to the
hiring of personnel to support the expansion of the infrastructure of the
Company. Direct advertising expense increased from $6.1 million in 1994 to $6.3
million in 1995; as a percentage of net sales, however, direct advertising
expense decreased from 6.5% in 1994 to 5.0% in 1995. Selling commission expense
increased $2.5 million, or 30%, from $8.5 million in 1994 to $11.0 million in
1995; as a percentage of net sales however, selling commission expense decreased
from 9.0% in 1994 to 8.8% in 1995. Sales representatives are compensated on a
variable commission basis depending upon the type of product sold.
Performance-based compensation paid to officers and regional, sales and
production managers increased from $3.0 million in 1994 to $3.9 million in 1995
primarily due to the increase in operating income. Management fees incurred to
Globe increased, commensurate with the gross sales increase, from $464,000 in
1994 to $558,000 in 1995. The balance of selling, general and administrative
expenses, primarily sales lead-generation activities, administrative and
field operation payrolls and related costs and general expenses, increased
$6.8 million, or 40.7%, from $16.7 million, or 17.8% of net sales, in 1994
to $23.5 million, or 18.9% of net sales, in 1995. This increase was primarily
due to the additional number of sales offices and expenses relating to support
personnel and services required to manage the Company's expanding
infrastructure.

Amortization of Intangibles

     Amortization of intangibles increased $228,000 from $275,000 in 1994 to
$503,000 in 1995, reflecting the full-year impact of goodwill related to the
September 1994 stock repurchase from management.

Net Interest Expense

     Net interest expense increased $371,000, from $39,000 in 1994 to $410,000
in 1995, primarily as a result of increased borrowings under the Company's bank
line of credit required to fund the September 1994 stock repurchase and interest
payments on the notes issued to certain of the Company's senior managers in
connection therewith.

Income Tax Provision

     The Company's income tax provision increased from $917,000, or an effective
rate of 31.5%, in 1994, to $2.7 million, or an effective tax rate of 41.5%, in
1995. The increase in the effective income tax rate was primarily due to the
utilization in 1994 of the 1993 net operating loss carryforward.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary capital needs have been to fund the growth of the Company,
the September 1994 stock repurchase from management, and, more recently, funding
the start-up operations of the Company's captive finance subsidiary, Marquise
Financial.  The Company's primary sources of liquidity have been cash flow from
operations, borrowings under its bank line of credit, and, in June 1996, from
the net proceeds of its initial public offering.  The Company's core sales and
installation business is not capital intensive other than the need to
periodically upgrade and maintain its information technology systems.  Capital
expenditures for 1996, 1995 and 1994 were approximately $ 461 thousand, $888
thousand and $ 573 thousand, respectively.  Capital expenditures for 1997 are
expected to approximate $3 million and, $2 million in each of 1998 and 1999,
primarily related to the planned upgrading and maintenance of the Company's
information technology systems.  Future requirements for capital expenditures
are expected to be funded by cash flow from operations.  The Company believes
that it has sufficient operating cash flow, working capital base, available bank
line of credit as well as additional financing alternatives for Marquise
Financial, to meet all of its reasonable obligations for the foreseeable future,
including the ongoing funding for Marquise Financial and for the development and
expansion of complementary new products and markets.

In November 1995, the Company commenced the operations of Marquise Financial,
its consumer finance subsidiary.  Marquise's current 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's customers.  The Company is continually mindful of the attendant
risk in 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 of line
of credit, which were subsequently paid down with a portion of the proceeds
from the Company's June 1996 initial public offering.  At December 31, 1996,
Marquise Financial had approximately $5.3 million in net finance receivables.
During 1996 Marquise Financial loaned approximately $23.6 million in unsecured
finance receivables and received approximately $5.3 million in finance
receivables repayment and, in December 1996, sold approximately $12.7 million
of the unsecured portfolio, at a modest premium to par value, to a third-party
finance company. During the fourth quarter 1996, Marquise Financial introduced
a new finance product -- fixed rate loan secured by real estate -- to a
segment of its creditworthy customers that cannot obtain unsecured consumer
loans.  At December 31, 1996, Marquise had approximately $2.1 million in
outstanding commitments of the fixed rate, secured loans.  The Company
anticipates that its existing cash balances, the bank line of credit, the
sale of Marquise Financial's consumer 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 late 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.  The primary objective of this
captive insurance business is to provide the means for offering workmen's
compensation and general liability insurance coverage, solely for Company
installations, to qualified independent installers as the Company seeks to
maintain and expand its core complement of independent installers.   Premiums
are immediately collected through deductions to 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 allowance 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.  The first insurance policies were written in January 1997.

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 fund Marquise Financial receivables) and repay $3.2
million of notes to senior managers related to the September 1994 stock
purchase.

From its inception in June 1993, the Company has generated cash flow from
operations of approximately $19.5 million.  The Company used $12.5 million of
cash in connection with the repurchase of 42.2% of its Common Stock in September
1994, $2.2 million for capital expenditures and approximately $5.0 million for
the initial funding of Marquise Financial's consumer financing receivables and
start-up operations.  At December 31, 1996, the Company had approximately $27.6
million in cash, cash equivalents and trade receivables; and, net working
capital of $22.5 million and a current ratio of 2.6 : 1.  At December 31, 1996,
the Company had available $15 million in unused bank line of credit and $1.7
million total debt.

The Company's results of operations may fluctuate from year to year or quarter
to quarter due to a variety of factors.  The Company historically has
experienced  lower levels of sales and profitability during the period from mid-
November through mid-March, impacting the first and fourth quarters 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 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.

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-Q, which identify
specific factors which could cause results or events to differ materially
from those described in the forward-looking statements.


                  Diamond Home Services, Inc. and Subsidiaries

                                   Consolidated Balance Sheets


<TABLE>                                                DECEMBER 31
<CAPTION>

                                                    1996        1995
                                                     (In Thousands)
<S>                                             <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents                     $  18,982    $  4,715
  Accounts receivable                               8,621       3,389
  Finance receivables                               5,312         542
  Refundable income taxes                           1,725          --
  Prepaids and other current assets                 1,377         567
  Deferred income taxes                               794         404
Total current assets                               36,811       9,617

Property and equipment                              2,193       1,732
Less:  Accumulated depreciation                      (586)       (295)
Net property and equipment                          1,607       1,437

Intangible assets, net                             16,961      17,395
Deferred income taxes                               1,313       1,051
Other                                               2,101         643

Total assets                                      $58,793     $30,143


</TABLE>

<TABLE>
<CAPTION>
                                                                                DECEMBER 31
                                                                           1996
                                                                                            1995
                                                                              (In Thousands)
<S>                                                                      <C>              <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                       $  8,995         $  7,643
  Accrued liabilities                                                       4,772            5,434
  Due to stockholders                                                         554            1,354
Total current liabilities                                                  14,321           14,431

Long-term liabilities:
  Warranty                                                                  5,702            3,652
  Retention                                                                 1,426              965
  Due to stockholders                                                       1,108            4,862
Total long-term liabilities                                                 8,236            9,479

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

Preferred stock, at redemption price                                           --            1,400

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                6
    9,075,425 and 6,249,950 shares issued and outstanding
  Additional paid-in capital                                               33,971              983
  Officer notes receivable                                                   (510)            (707)

  Retained earnings                                                         2,766            4,551
Total common stockholders' equity                                          36,236            4,833
Total liabilities and common stockholders' equity                         $58,793          $30,143

See accompanying notes.

</TABLE>
                      Diamond Home Services, Inc. and Subsidiaries

                              Consolidated Statements of Operations



<TABLE>
<CAPTION>

                                                                  YEARS ENDED DECEMBER 31
                                                          1996
                                                                           1995
                                                                                            1994
                                                             (In Thousands, except per share)




<S>                                                     <C>               <C>              <C>
Net sales                                               $157,068         $124,848          $94,186
Cost of sales                                             87,739           72,245           56,139
Gross profit                                              69,329           52,603           38,047
Operating expenses:
Selling, general, and administrative expenses
                                                          57,806           45,305           34,821
Amortization expense                                         534              503              275
Operating profit                                          10,989            6,795            2,951
Interest income (expense), net                               183             (410)             (39)
Income before income taxes                                11,172            6,385            2,912
Income tax provision                                       4,357            2,650              917
Net income
                                                      $    6,815       $    3,735         $  1,995

Net income per share                                        $.88             $.60             $.32
Weighted average number of common
   shares outstanding                                        7,778          6,250            6,250

See accompanying notes.

</TABLE>

                      Diamond Home Services, Inc. and Subsidiaries

            Consolidated Statements of Changes in Common Stockholders' Equity

                      Years ended December 31, 1996, 1995 and 1994

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

<S>                                        <C>        <C>           <C>      <C>        <C>          <C>
December 31, 1993                          $10        $190          $-        $-        $(1,179)     $(979)
Purchase and retire Common Stock            (4)        (71)          -         -             -         (75)
Purchase of Common Stock for treasury        -           -           -        (5)            -          (5)
Net income - 1994                            -           -           -         -          1,995      1,995
December 31, 1994                            6         119           -        (5)           816        936
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


   See accompanying notes.

</TABLE>

                  Diamond Home Services, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                1996          1995           1994
                                                                          (In Thousands)
<S>                                                            <C>         <C>           <C>
OPERATING ACTIVITIES
Net income                                                   $  6,815      $  3,735      $  1,995
Adjustments to reconcile net income to net cash provided
  by (used in) operating activities:
    Depreciation and amortization                                 825           706           393
    Deferred income taxes                                        (652)         (468)         (987)
    Provision for credit losses                                   767             4            --
    Other                                                         (78)           37          (225)
    Changes in operating assets and liabilities:
      Accounts receivable                                      (5,232)          163        (1,718)
      Refundable income taxes                                  (1,725)           --            --
      Prepaids and other assets                                (1,762)          (37)         (335)
      Accounts payable                                          1,352         2,746         2,832
      Accrued expenses                                           (853)        2,120         2,035
      Income taxes payable                                         --          (904)          904
      Warranty                                                  2,241         1,957         1,893
      Retention                                                   461           389           463
Net cash provided by operating activities                       2,159        10,448         7,250

INVESTING ACTIVITIES
Capital expenditures                                             (461)         (888)         (573)
Loans originated                                              (23,606)         (550)
Loans repaid                                                    5,362            --            --
Proceeds from sale of finance receivables                      12,707            --            --
Organizational costs                                              (22)         (107)
Advances to  captive  insurance company                          (448)           --            --
Acquisition spending and other                                    (58)          (61)         (257)
Net cash used in investing activities                          (6,526)       (1,606)         (830)

FINANCING ACTIVITIES
Issuance of Common Stock, net of offering expenses             32,951            --            --


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


Borrowings (repayment) of bank line of credit                      --        (7,283)        6,096
Borrowings from (payments to) stockholders                     (4,554)       (2,054)        8,270
Preferred Stock redemption                                     (1,400)            -             -
Payments for purchase of common stock                               -             -       (17,711)
Net cash provided by (used in) financing activities            18,634        (9,175)       (3,345)
Net increase (decrease) in cash and cash equivalents           14,267          (333)        3,075
Cash and cash equivalents at beginning of period                4,715         5,048         1,973
Cash and cash equivalents at end of period                  $  18,982      $  4,715      $  5,048
Supplemental cash flow disclosure:
  Interest paid                                             $     377     $     233    $       78
  Income taxes paid                                          $  6,734      $  4,082      $  1,000


See accompanying notes.

</TABLE>



1.  BUSINESS AND ORGANIZATION

Diamond Home Services, Inc., formerly Diamond Exteriors, Inc., (Diamond 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, 1993.  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 has negotiated a new three-year license agreement with Sears effective
January 1, 1996.  License fees are based on gross sales and vary by product.
License fees approximated $16,400,000, $13,000,000, and $7,400,000 in 1996,
1995, and 1994.

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, 1996 and 1995, approximately 37.7% and 80%, 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 intercompany
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.

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 year 1996, the Company earned $2,268,000 in credit
participation fee income.  At December 31, 1996, $543 thousand and $795 thousand
of credit participation fee income is included in the balance sheet under the
captions prepaids and other current assets and other assets, respectively.

Interest income from finance receivables is recognized using the interest
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 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, 1996 and December 31, 1995, was $ 16,706,000 and
$17,157,000, respectivley, net of accumulated amortization of $1,125,000 and
$674,000, 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 and proper
maintenance.  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.

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.

3.  PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                   1996             1995

                          <S>                                                    <C>               <C>

                          Equipment                                              $1,548,000       $1,182,000
                          Leasehold improvements                                    379,000          341,000
                          Furniture and fixtures                                    266,000          209,000

                                                                                 $2,193,000       $1,732,000
</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-
response 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, 1996 and 1995, $839,000 and $500,000, respectively, of deferred
direct-response advertising costs was reported as noncurrent assets.  Net
advertising expense was $7,772,000, $6,239,000, and $6,132,000 in 1996, 1995,
and 1994, respectively.

5.  ACCRUED LIABILITIES

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

<TABLE>
<CAPTION>
                                                                                   1996             1995

                          <S>                                                   <C>                 <C>
                          Payroll and payroll-related                           $3,922,000        $3,979,000
                          Warranty                                                 800,000           609,000
                          Interest payable to stockholders                             -             360,000
                          Other                                                     50,000           486,000
                                                                                $4,772,000        $5,434,000
</TABLE>


6.  DEBT

At December 31, 1996, the Company had a $15,000,000 bank line of credit with no
related borrowings outstanding.  Interest on bank borrowings is payable monthly
at the bank's prime rate or at LIBOR plus 1.35%.  The bank line of credit
requires the Company to maintain defined levels of equity and working capital,
and certain financial ratios, and limits 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.
The Company made payments to stockholders of $554,000 in each of 1996 and 1995
related to the non-interest-bearing agreements.  Also included in amounts due to
stockholders, in 1995, were performance notes totaling $4,000,000 and bearing
interest at 9% per annum effective January 1, 1995 which were repaid in full in
1996 (see Note 1).  All amounts due to stockholders are subordinate to the bank
line of credit.

The Company's debt approximates fair value at December 31, 1996.

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>
                                                          1996           1995            1994

 <S>                                                  <C>              <C>              <C>
 Current:
  Federal                                             $4,324,000       $2,567,000       $1,519,000
  State                                                  685,000          551,000          385,000

 Deferred:
  Federal                                               (567,000)        (385,000)        (813,000)
  State                                                  (85,000)         (83,000)        (174,000)
                                                      $4,357,000       $2,650,000         $917,000

</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>
                                                  1996               1995            1994

<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                                      3.5                4.8              4.8
  Goodwill amortization                          1.1                2.0              2.6
  Utilization of federal tax loss carryfoward      --                 --             (12.9)
  Other, net                                     .4                 0.7              3.0
Effective tax rate                               39.0%              41.5%            31.5%
</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>
                                                                 1996             1995
          <S>                                                  <C>              <C>
          Deferred tax assets:
            Warranty                                          $2,511,000       $1,640,000
            Allowance for loss on finance receivables            155,000               --
            Other                                                504,000          473,000
          Total deferred tax assets
                                                               3,170,000        2,113,000
          Deferred tax liabilities:
            Advertising                                         (397,000)        (235,000)
            Depreciation                                        (153,000)        (120,000)
            Other                                               (513,000)        (303,000)

          Total deferred tax liabilities                      (1,063,000)        (658,000)
            Net deferred tax assets                            $2,107,000       $1,455,000

</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, 1996, 346,950 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 and become fully exercisable at the end of three
years of continued employment.  At December 31, 1996, there were no stock
appreciation rights or awards attached to stock options.  Stock options
outstanding at December 31, 1996, are excercisable over the next 9 1/2 years and
vest over three years.  Also, in 1996, the Company adopted the 1996 Nonemployee
Director Stock Option Plan and has reserved 50,000 shares for future issuance.
At December 31, 1996, 50,000 shares were available for future grant.  The
Nonemployee Stock Option Plan provides for the automatic annual issuance, at the
time of the annual meeting of shareholders following one year of service as a
director, of non-qualified stock options and are exercisable over a 10 year
term.

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

<TABLE>
<CAPTION>
                                                   Weighted-Average
                                  Options          Option Price
<S>                               <C>              <C>
Granted                           275,000           $13.00
Exercised                             525            13.00
Forfeited                           1,950            13.00

Outstanding, end of year           272,525           $13.00
Exercisable, at end of year         68,131           $13.00

</TABLE>

The Company has elected to follow Accounting Principles Board Opinion No. 25,
 Accounting for Stock Options Issued to Employees  (APB 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  (Statement No. 123), requires use of option valuation models that
were not developed for use in valuing employee stock options.  Under APB 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.

Pro forma information regarding net income and earnings per share is required by
Statement 123.  The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions for 1996: 1) risk free interest rate of 6.22%; 2) dividend yield of
0%; 3) volatility factor of the expected market price of the Company's of .588;
and, 5) weighted-average expected life of the option of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions, periods of
restricted trading and are fully transferable.  In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility.  Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, it seems to management of the Company, the existing model
cannot necessarily provide a definitive measure of the fair value of its
employee stock options.

Accordingly, for purposes of pro forma disclosures only, the estimated fair
value of the options is amortized to compensation expense over the options'
vesting period with the following results:
                                                     1996

Pro forma net income                              $6,535,000
Pro forma net income per share                     $.84


9.  CONSUMER FINANCING

Marquise began operations on November 20, 1995.  Marquise provides consumer
financing through direct consumer loans to customers of the Company.  Finance
receivables are payable through monthly installments and may be secured or
unsecured.  Marquise's first billings for monthly installments to consumers
occurred on January 9, 1996. No interest income was recorded during 1995.

The following summarized financial information for Marquise is before
elimination of intercompany transactions in consolidation.

Financial position at December 31:

<TABLE>
<CAPTION>
                                                                     1996                  1995
<S>                                                                <C>                    <C>
ASSETS
Cash                                                               $ 50,000                $--

Finance  receivables,  net  of  allowances  of  $404,000  and
  $4,000 in 1996 and 1995                                         5,312,000            542,000
Other assets                                                        349,000            127,000
Total assets                                                     $5,711,000           $669,000

LIABILITIES AND STOCKHOLDER'S EQUITY
Due to Diamond Exteriors, Inc.                                   $5,623,000           $442,000
Other liabilities                                                    50,000              3,000
Total liabilities                                                 5,673,000            445,000
Stockholder's equity                                                 38,000            224,000
Total liabilities and stockholder's equity                       $5,711,000           $669,000

</TABLE>

<TABLE>
<CAPTION>

Operations for the period ended December 31:

                                                                           1996             1995

<S>                                                                      <C>                <C>
Total finance income                                                     $1,811,000          $ -
Interest expense paid to Diamond Exteriors, Inc.                         668,000             --
Provision for credit losses                                              767,000              4,000
Net interest income (loss)                                               376,000             (4,000)

Other income                                                             130,000             --
Other expenses                                                           (807,000)           (39,000)
Loss before income tax benefit                                           (301,000)           (43,000)
Income tax benefit                                                        115,000            17,0000
Net loss                                                               $ (186,000)         $ (26,000)

</TABLE>

<TABLE>
<CAPTION>

Cash flows for the period ended December 31:

                                                                         1996              1995

<S>                                                                      <C>               <C>

Cash, at beginning of year                                              $  --             $  --

Net cash used in operating activities                                   (115,000)         (36,000)
Net cash used in investing activities                                 (5,016,000)        (656,000)
Net cash provided by financing activities                              5,181,000          692,000
Cash, at end of year                                                 $    50,000          $--

</TABLE>

At December 31, 1996, Marquise Financial had approximately $2.1 million in
approved but not funded loan commitments.

10.  COMMITMENTS

The Company leases certain real property and equipment under long-term
noncancelable leases expiring at various dates through 2001.  Future minimum
lease payments under noncancelable operating leases with initial terms of one
year or more consisted of the following at December 31, 1996:

<TABLE>
<CAPTION>
             <S>                                               <C>
             1997                                              $997,000
             1998                                               628,000
             1999                                               287,000
             2000                                               165,000
             2001                                               113,000
             Thereafter                                         -
             Total minimum lease payments                    $2,190,000

</TABLE>

Rent expense was $1,127,000, $850,000, and $685,000 in 1996, 1995, and 1994,
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 1996, payments of $769,000 were made to the related employee
group and $614,000 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 $1,770,000 for such
contingent payments is not reflected in the consolidated financial statements at
December 31, 1996.

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 years 1995 and
1994, 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, $558,000 and $464,000 for the
indicated period in 1996, and for the years 1995 and 1994, respectively.  No
amounts were due to Globe at December 31, 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 1996 approximated $302,000.
The quoted rates for the various activities performed by H I, Inc., 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, 1996, approximately $66,000 was due to H I, Inc.


13.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                          Net Sales        Gross Profit     Net Income       Net Income per Share
                                                                                (In thousands)
<S>                       <C>              <C>              <C>                      <C>
1996
First quarter             $27,093          $11,800          $  349                   $.06
Second quarter             41,389           18,548           1,919                    .30
Third quarter              46,492           20,530           2,591                    .28
Fourth quarter             42,094           18,451           1,956                    .21

1995
First quarter              22,362            9,266          (    1)                   .00
Second quarter             31,134           13,152             894                    .14
Third quarter              36,459           15,412           1,532                    .25
Fourth quarter             34,893           14,773           1,310                    .21

(*)  The total quarterly amounts in 1996 do not add to the year amount due to
rounding.

</TABLE>




                         Report of Independent Auditors

The Board of Directors and Stockholders
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, 1996 and 1995, 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, 1996.  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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of three
years in the period ended  December 31, 1996, in conformity with generally
accepted accounting principles.



/s/ Ernst & Young LLP

Chicago, IL
February 21, 1997