<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


(Mark One)

\x\ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the fiscal year ended  June 30, 1999
                           ----------------------------------------------------
                                       OR

\ \ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the transition period from                 to
                                ---------------    -----------------
                        Commission File Number 000-25423
                                               ---------


                            EAGLE SUPPLY GROUP, INC.
-------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

               Delaware                                  13-3889248
-------------------------------------------------------------------------------
         (State of Other Jurisdiction of                 (I.R.S. Employer
          Incorporation or Organization)                  Identification No.)

122 East 42nd Street, Suite 1116, New York, New York        10168
-------------------------------------------------------------------------------
    (Address of Principal Executive Offices)                    (Zip Code)

Registrant's telephone number, including area code   212-986-6190
                                                     --------------------------

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

     Title of Each Class          Name of Each Exchange on Which Registered
---------------------------       ---------------------------------------------

     Common Stock                 Boston Stock Exchange
---------------------------       ---------------------------------------------

     Redeemable Common Stock      Boston Stock Exchange
----------------------------      ---------------------------------------------

     Purchase Warrants
----------------------------

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

-------------------------------------------------------------------------------
                                (Title of Class)

-------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark  whether  the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X   No
                                             ----    ------


<PAGE>


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of the common equity held by non-affiliates of the
registrant at September 21, 1999, was approximately $10,800,000 based upon the
last sale price ($4.00 per share) as reported by NASDAQ on that date.

             (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:)

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes        No
    ------    ------


                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)


The number of shares outstanding of the Registrant's common stock, as of
September 21, 1999, was 8,450,000 shares.


<PAGE>


        This document includes statements that may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company would like to caution readers
regarding certain forward-looking statements in this document and in all of its
communications to shareholders and others, press releases, securities filings,
and all other communications. Statements that are based on management's
projections, estimates and assumptions are forward-looking statements. The words
"believe," "expect," "anticipate," "intend," and similar expressions generally
identify forward-looking statements. While the Company believes in the veracity
of all statements made herein, forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
the Company, are inherently subject to significant business, economic and
competitive uncertainties and contingencies and known and unknown risks. Many of
the uncertainties and contingencies can affect events and the Company's actual
results and could cause its actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Some of the factors that could cause actual results or future events to
differ materially include the Company's inability to find suitable acquisition
candidates or financing on terms commercially reasonable to the Company,
inability to find suitable facilities or personnel to open or maintain new
branch locations, interruptions or cancellation of existing sources of supply,
the pricing of and demand for distributed products, the presence of competitors
with greater financial resources, economic and market factors, and other
factors. Please see the "Risk Factors" in the Company's filings with the
Securities and Exchange Commission for a description of some, but not all,
risks, uncertainties and contingencies.

ITEM 1.  BUSINESS

INTRODUCTION

         The Registrant Eagle Supply Group, Inc. ("Group" or the "Company")
was organized to acquire, integrate and operate seasoned, privately-held
companies which distribute products to or manufacture products for the
building supplies/construction industry. Group maintains a website at
www.eaglesupplygroup.com.

         On March 17, 1999, Group completed the sale of 2,500,000 shares of
Common Stock at $5.00 per share and 2,875,000 Redeemable Common Stock Purchase
Warrants ("Warrants") at $.125 per Warrant in connection with its initial public
offering. The net proceeds to Group aggregated approximately $10,206,000.

         Simultaneously, Group acquired all of the issued and outstanding common
shares of Eagle Supply, Inc. ("Eagle"), JEH/Eagle Supply, Inc. ("JEH Eagle") and
MSI/Eagle Supply, Inc. ("MSI Eagle") (collectively the "Subsidiaries") from TDA
Industries, Inc. ("TDA" or the "Parent") for consideration including 3,000,000
of Group's common shares. Upon the consummation of the acquisitions, each of
Eagle, JEH Eagle and MSI Eagle became wholly-owned subsidiaries of Group and
currently Group's business operations. Where permitted by the context of this
Report, references to Group or the Company means Group or the Company and the
Subsidiaries taken as a whole.


<PAGE>


         Background information concerning the Subsidiaries:

         - Eagle was founded in Florida in 1905 and was acquired by TDA in
1973. Eagle is a wholesale distributor of a complete line of roofing supplies
and related products through its own sales force and distribution facilities
to roofing supply and related products contractors and sub-contractors. Such
contractors and sub-contractors are engaged in commercial and residential
roofing repair and the construction of new residential and commercial
properties.

         - JEH Co. was founded in 1982 and its business and substantially all
of its assets were purchased by JEH Eagle in July of 1997. Similar to Eagle,
JEH Eagle is a wholesale distributor of roofing supplies and related products
using similar sales methods. JEH Eagle also distributes drywall, plywood,
vinyl siding and similar products to contractors, builders, and developers
primarily engaged in the construction industry.

         - MSI Co. was founded in 1979, and its business and substantially
all of its assets were purchased by MSI Eagle in October of 1998. MSI Eagle
is a wholesale distributor of cement, masonry supplies and related products
to building contractors and subcontractors through its own sales force and
distribution centers. Such contractors and subcontractors are engaged in
residential and commercial construction.

-        The operations of JEH Eagle and MSI Eagle are currently being merged.

POTENTIAL EXPANSION BY ACQUISITION

         Group plans to seek acquisition candidates primarily in the roofing
supplies and related products industry throughout the United States, with
greater emphasis on the Southeastern, Midwestern and Western regions and less
emphasis on the Northeastern region of the United States. However, Group may
consider acquisition candidates in any of the foregoing regions of the United
States if an exceptional opportunity arises.

         Group intends to seek out prospective acquisition candidates in
businesses that complement or are otherwise related to the business of the
Subsidiaries. Group anticipates that it will finance future acquisitions, if
any, through a combination of cash, issuances of shares of capital stock of
Group and additional equity or debt financing.

EXPANSION BY INTERNAL GROWTH

         Management intends to continue to pursue expansion of the operations of
the Acquisitions by adding new distribution centers with the proceeds of its
public offering and by internal growth. During the fiscal year ended June 30,
1999, the Subsidiaries have opened five new distribution centers, with three
additional new distribution centers planned by the end of the fiscal year ending
June 30, 2000. Additionally, MSI Eagle and JEH Eagle have combined two
distribution centers into one distribution center.


<PAGE>


BUSINESS

         Eagle and JEH Eagle are wholesale distributors of a complete line of
roofing supplies and related products through their own sales forces to roofing
supply and related products contractors and sub-contractors in the geographic
areas where they have distribution centers. Such contractors and sub-contractors
are engaged in commercial and residential roofing repair and the construction of
new residential and commercial properties.

         Eagle also distributes sheet metal products used in the roofing repair
and construction industries. JEH Eagle also distributes drywall, plywood and
related products and, solely in Colorado, vinyl siding to the construction
industry. In general, products distributed by Eagle and JEH Eagle include
equipment, tools and accessory products for the removal of old roofing,
re-roofing and roof construction, and related materials such as shingles, tiles,
insulation, liquid roofing materials, fasteners, ventilation materials, sheet
metal of the type used in the roofing industry, drywall and plywood.

         The following chart indicates the approximate percentage of the
indicated product categories sold by Eagle and JEH Eagle for the periods
indicated:


<TABLE>
<CAPTION>
                                   RESIDENTIAL     COMMERCIAL                         DRYWALL AND
                                   ROOFING         ROOFING          SHEET METAL       PLYWOOD
                                   -----------     ----------       -----------       -----------
<S>                                <C>             <C>              <C>               <C>
                                              EAGLE
Fiscal Year Ended June 30,
1998                                  60%             27%               12%            1%
1999                                  62%             26%               12%            N/A

                                            JEH EAGLE
Fiscal Year Ended June 30,
1998                                  85%              5%               N/A            10%
1999                                  77%              5%                2%            16%

</TABLE>



         MSI Eagle is a wholesale distributor of a complete line of cements and
masonry supplies and related products through its own direct sales force to
building and masonry contractors and sub-contractors in the Dallas/Fort Worth
metropolitan area. In general, products distributed by MSI Eagle include cement,
cement mixtures and similar "bag" products (lime, sand, etc.), angle iron,
cinder blocks, cultured stones and bricks, fireplace and pool construction
materials, and equipment, tools and accessory products for use in residential
and commercial construction.

         The following chart indicates the approximate percentage of total
revenues that were provided by the indicated product categories sold by MSI Co.
for the periods indicated.


<PAGE>

<TABLE>
<CAPTION>
                                                    MSI EAGLE

                                                  BLOCKS/STONE                                     SWIMMING POOL AND
                                BAGGED/BULK       AND                               FIREPLACE      ALL OTHER
                                PRODUCTS          BRICKS           ANGLE IRON       PRODUCTS       PRODUCTS
                                --------          ------           ----------       ---------      -----------------
<S>                             <C>               <C>              <C>              <C>            <C>
Fiscal Year Ended June 30,
1998                             65%               12%              9%               1%             13%
1999                             65%               15%              7%               3%             10%

</TABLE>

GROWTH

         - Eagle has grown from nine distribution centers at June 30, 1991,
including locations in Florida (seven) and Alabama (two), to its current
level of sixteen distribution centers including locations in Florida
(eleven), Alabama (four) and Mississippi (one).

         - JEH Eagle grew from six distribution centers in 1990, including
locations in Texas (five) and Colorado (one) to seventeen distribution
centers, including locations in Texas (five), Colorado (five), Kansas (one),
Indiana (two), Nebraska (one), Minnesota (one) and Virginia (two).

         - MSI Eagle grew from its sole distribution center in 1979 to four
distribution centers, including two distribution centers now merged with JEH
Eagle.

         Eagle has pursued its expansion activities by opening new centers. JEH
Co. in the past and JEH Eagle now, occasionally, establish temporary
distribution centers in response to storms which have created temporary markets.
After opening a new distribution center, the initial focus is to develop a
customer base, to develop and improve the distribution center's market position
and operational efficiency and then to expand its customer base.

OPERATING STRATEGY

PURCHASING ECONOMIES

         Eagle, JEH Eagle and MSI Eagle negotiate with suppliers to obtain
volume discounts and other favorable terms.

PRINCIPAL PRODUCTS

EAGLE AND JEH EAGLE

         Eagle and JEH Eagle distribute a variety of roofing supplies and
related products and accessories foruse in the commercial and residential
roofing repair and construction industries.


<PAGE>


         RESIDENTIAL ROOFING PRODUCTS. Shingles (asphalt, ceramic, slate,
concrete, fiberglass and fiberglass combined with asphalt), tiles, felt,
insulation, waterproof underlaying, ventilation systems and skylights.

         COMMERCIAL ROOFING PRODUCTS. Asphalt, cements, tar, other coatings,
modified bitumen and roll roofings.

         SHEET  METAL  PRODUCTS.  These  products  are sold  principally  by
Eagle and include aluminum, copper, galvanized and stainless sheet metal.

         DRYWALL/PLYWOOD PRODUCTS. These products are sold principally by JEH
Eagle and include sheetrock and plywood.

         Eagle and JEH Eagle also sell accessory products related to each of the
foregoing, including, but not limited to, roofing equipment, power and hand
tools and fasteners.

MSI EAGLE

         MSI Eagle distributes a variety of cement and masonry supplies and
related products and accessories for use in the residential and commercial
building and masonry industries.

         CONCRETE AND MASONRY PRODUCTS. Portland cement for use in housing
foundations, laying pavements, walkways and other similar uses. Masonry cement
for use in brick and stone masonry. Cement is principally sold by bags of
varying weight (approximately 10 pounds to 95 pounds) and is sold in a variety
of mixtures such as concrete mixes (portland cement, sand and gravel), sand
mixes (portland cement and sand), mortar mixes (masonry mortar cement and
masonry sand) and grout (cement and sand). Also sold are sand, gravel,
underwater cement, concrete and asphalt "patching" compounds.

         ANGLE IRON.  Iron forged at a ninety  degree  angle which is cut to
customer's specification for use as support above windows and doorways.

         BRICKS AND STONES. Bricks, used bricks, firewall bricks, "cultured"
(man-made) stones in a variety of colors and shapes, cinder blocks, glass
blocks.

         FIREPLACE PRODUCTS. Fireboxes, dampers, flues, facings, insulations,
fireplace tools and accessories.

         SWIMMING POOL PRODUCTS. Cements and molds used in pool construction.

         MSI Eagle also sells a variety of products related to the foregoing,
including cement mixers, rulers, levels, trowels, and other tools, cleaning
solvents, patching compounds, supports and fasteners.

VENDORS


<PAGE>

        Each of the Subsidiaries distribute products manufactured by a number of
major vendors.

         EAGLE. GAF Corporation ("GAF") is its largest supplier, accounting for
approximately 23%, and 21% of Eagle's product lines during its fiscal years
ended June 30, 1998 and 1999, respectively. During the same periods, three other
vendors' products accounted for an aggregate of approximately 22%, and 20%,
respectively, of its product lines.

         JEH EAGLE. Atlas Roofing Corp., a supplier of residential and
commercial roofing materials, is its largest supplier, accounting for
approximately 15% and 15% of JEH Eagle's product lines during its fiscal years
ended June 30, 1998 and 1999, respectively. During the foregoing periods, three
other vendors' products accounted for an aggregate of approximately 35% and 38%,
respectively, of JEH Eagle's product lines. Included within the foregoing three
vendors were GAF which accounted for approximately, 17% and 16% of JEH Eagle's
product lines during its fiscal years ended June 30, 1998 and 1999,
respectively.

         MSI EAGLE. Texas Industries, Inc. ("TII") is its largest supplier,
accounting for approximately 27% and 28% of MSI Eagle's (including its
predecessor company, MSI Co.) product lines during its fiscal years ended June
30, 1998 and 1999, respectively. During the foregoing periods, Lehigh Portland
Cement ("Lehigh") accounted for approximately 17% and 18%, respectively, of MSI
Eagle's (including its predecessor company, MSI Co.)
product lines.

         There are no written long-term supply agreements with any vendors.
Management believes that in the event of any interruption of product deliveries
from any suppliers, Group will be able to secure suitable replacement suppliers
on acceptable terms.

CUSTOMERS, SALES AND MARKETING

         Practically all customers purchase products pursuant to short-term
credit arrangements. Sales efforts are directed primarily through Group's
salespersons including "inside" counter persons who serve walk-in and call-in
customers and "outside" salespersons calling upon past, current and potential
customers with MSI Eagle placing a greater emphasis on its outside sales force,
viewing selling inside its distribution centers as only incidental to the
"inside" personnel's other job responsibilities.

         Group has no written long-term supply agreements with any customers. No
Group customer accounted for 5% or greater of sales during fiscal 1999.



COMPETITION

         Group faces substantial competition in the wholesale distribution of
roofing, cement and masonry supplies from relatively smaller distributors,
retail distribution centers and, as to Eagle and JEH Eagle, from a number of
multi-regional and national wholesale distributors of building


<PAGE>


products, including suppliers of roofing products which have greater financial
resources and are larger than Group, including:

-        American Builders & Contractors Supply Co., Inc.,
-        Cameron Ashley Building Products, Inc.,
-        Allied Building Products, and
-        Bradco Supply Corporation.

         Group currently competes in its customer business on the basis of:

-        competitive pricing,
-       breadth of product line,
-       prompt delivery,
-       customer service,
-       providing discounts for prompt payment,
-       credit extension, and
-       the abilities of its personnel.

To a substantially lesser degree, Group also competes with larger high volume
discount general building supply stores selling standardized lower priced
products, sometimes at lower prices, but not carrying the breadth of product
lines or offering the same service as provided by full service wholesale
distributors such as they are.

         Group anticipates that it may experience competition from entities and
individuals (including venture capital partnerships and corporations, equity
funds, blind pool companies, competing wholesale roofing supply distribution
centers, large industrial and financial institutions, small business investment
companies and wealthy individuals) which are well-established and have greater
financial resources and more extensive experience than Group in connection with
identifying and effecting acquisitions of the type sought by Group. Group's
financial resources will be limited in comparison to those of many of such
competitors.

BACKLOG

        Group's business is conducted on the basis of short-term orders and
prompt delivery schedules precluding any substantial backlog.

EMPLOYEES

         At June 30, 1999, the Subsidiaries employed approximately 477 full-time
employees, including seven executives, 49 managerial employees, 108 salespersons
(including 53 "inside" salespersons), 228 warehouse persons, drivers and
helpers, and 85 clerical and administrative persons. Difficulties have been
experienced in retaining drivers and helpers because of the tight job market in
Group's market areas and the need for drivers to be certified by the departments
of motor vehicles and pass other testing standards, but suitable replacements
have been readily available


<PAGE>


without material adverse economic impact. Group is not subject to any collective
bargaining agreement, and each believes that its relationship with its employees
is good.

         Group (excluding the Subsidiaries) has no employees other than its
officers. Group's management currently consists of five officers, including two
officers, Douglas P. Fields and Frederick M. Friedman, neither of whom are
required to commit a specific amount of their time to the affairs of Group.

ITEM 2. PROPERTIES

         EAGLE

         Eagle leases  approximately  15,000  square feet of executive  office
space  located at 1451  Channelside  Drive,  Tampa,  Florida  33629 from 39 Acre
Corp.,  a  wholly-owned  subsidiary of TDA, at an  approximate  annual rental of
$120,000. Approximately 7,500 square feet of such space is subleased by Eagle to
an unrelated third party tenant. See Item 13. "Certain Relationships and Related
Transactions."

         The following tables list the locations of Eagle's showroom and
 distribution centers.
<TABLE>
<CAPTION>
          LOCATIONS OWNED BY AND LEASED FROM A WHOLLY-OWNED TDA SUBSIDIARY
<S>                                                                  <C>                   <C>
                                                                     APPROXIMATE           APPROXIMATE BASE
CITY AND STATE                                                       SQUARE FOOTAGE        ANNUAL RENTAL

Birmingham, Alabama......................................            39,000                 $117,000(1)
Mobile, Alabama..........................................            24,000                  $77,000
Tampa, Florida...........................................            69,000                 $149,000
St. Petersburg, Florida..................................            25,000                  $73,000
Holiday, Florida.........................................            16,000                  $47,000
Fort Myers, Florida......................................            16,000                  $47,000
Lakeland, Florida........................................            20,000                  $80,000
Pensacola, Florida.......................................            26,000                  $80,000
</TABLE>


---------------------
(1)      See Item 13. "Certain Relationships and Related Transactions."

         As part of the foregoing leasing arrangements between Eagle and 39 Acre
Corp., additional undeveloped land is leased to Eagle from the TDA subsidiary.
That undeveloped land is used for storage or reserved for future use. The
locations and approximate acreage of the undeveloped land are as follows:
Birmingham (one), Tampa (one), St. Petersburg (two), Holiday (three), Ft. Myers
(one and a third) and Pensacola (two and a half).


<PAGE>


         In March 1999, Eagle entered into written ten-year leases with 39 Acre
Corp. providing for base annual rentals as set forth above for the first five
years of such leases with provisions for increases in rent based upon the
consumer price index at the beginning of the sixth year of such ten-year leases
and with provisions for five-year renewal options, increases in rent based upon
the consumer price index, and lease terms, additional rental and other charges
customarily included in such leases, including provisions requiring Eagle to
insure and maintain and pay real estate taxes on the premises as is currently
required. Group believes that the rent and other terms of the lease agreements
between 39 Acre Corp. and Eagle are on at least as favorable terms as Eagle
would expect to negotiate with unaffiliated third parties. Neither Eagle nor 39
Acre Corp. will be permitted to terminate the leases before the end of their
term without a breach or default by the other party. See Item 13.
"Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>

                             LOCATIONS LEASED FROM THIRD PARTIES

                                                                       APPROXIMATE           APPROXIMATE BASE
CITY AND STATE                                                         SQUARE FOOTAGE        ANNUAL RENTAL
<S>                                                                    <C>                   <C>
Decatur, Alabama...............................................        12,300                $43,000(1)
Montgomery, Alabama............................................        24,000                $90,000(2)
Clearwater, Florida............................................         6,000                $23,000(3)
Panama City, Florida...........................................        21,600                $63,000(4)
Fort Walton Beach, Florida.....................................         8,000                $36,000(5)
Crystal River, Florida.........................................        12,600                $42,000(6)
Tallahassee, Florida...........................................        15,000                $45,000(7)
Gulfport, Mississippi..........................................        13,000                $32,000(8)
</TABLE>


------------------------
(1)      The lease for the Decatur, Alabama, premises expires on August 31,
         2000. This lease requires Eagle to maintain liability insurance on the
         premises.

(2)      The lease for the Montgomery, Alabama, premises expires on June 1,
         2003. This lease provides for a three-year renewal option and grants
         Eagle a purchase option. Pursuant to this lease, Eagle is required to
         maintain liability, fire, casualty and other types of insurance
         coverage on the premises.

(3)      The lease for the Clearwater, Florida, premises expires on or about
         June 30, 2003. Pursuant to this lease, Eagle is required to pay all
         municipal, county and state taxes, maintain and carry comprehensive
         public liability insurance on the premises.

(4)      The lease for the Panama City, Florida, premises expires on or about
         February 15, 2003 and provides for a five-year renewal option at an
         increased rental based upon the CPI. Pursuant to this lease, Eagle is
         required to maintain the premises and provide fire,


<PAGE>


         windstorm and other insurance. Additionally, Eagle is required to pay
         all sales and use  taxes  imposed  upon the  rental  payments  for the
         premises.  Eagle  has the right of first  refusal  to  purchase  these
         premises in certain events.

(5)      The lease for the Fort Walton Beach, Florida, premises is on a
         month-to-month basis. Eagle is also required to maintain liability
         insurance on the premises.

(6)      The lease for the Crystal River, Florida, premises expires on February
         29, 2000. Eagle is also required to maintain the premises, pay certain
         taxes (sales, use, rent, receipts) and pay public liability insurance
         premiums.

(7)      The lease for the Tallahassee, Florida, premises expires on January 31,
         2001 and provides for two five-year renewal options with the base
         rental escalating at the rate of three percent per year during option
         years and a right of first refusal to purchase the premises. This lease
         requires Eagle to pay any real estate and sales taxes, maintain the
         premises and provide liability insurance.

(8)      The lease for the Gulfport, Mississippi, premises expires on May 08,
         2003. This lease requires Eagle to maintain liability insurance on the
         premises, maintain the premises and pay any real estate and personal
         property taxes.

JEH EAGLE

         JEH Eagle leases approximately 8,000 and 10,000 square feet of
executive office and showroom space located at 2500 U.S. Highway 287, Mansfield,
Texas 76063 and 8221 E. 96th Avenue, Henderson, Colorado 80640, respectively,
from James E. Helzer, the President of the Group, Eagle and JEH Eagle. The
annual aggregate rental for the foregoing premises is combined with the rentals
of relevant distribution centers discussed below. See Item 13. "Certain
Relationships and Related Transactions." JEH Eagle owns the distribution center
in Littleton, Colorado (approximately 6,100 square feet and 2.5 acres of land
used for storage).


         The following tables list the locations of JEH Eagle's distribution
centers.
<TABLE>
<CAPTION>

                          LOCATIONS OWNED BY AND LEASED FROM JAMES E. HELZER

                                                                                            APPROXIMATE BASE
                                                                      APPROXIMATE           ANNUAL RENTAL
CITY AND STATE                                                        SQUARE FOOTAGE
<S>                                                                   <C>                   <C>
Colorado Springs, Colorado......................................        4,000                $19,000
Henderson, Colorado.............................................      110,000               $108,000
Colleyville, Texas..............................................        7,000                $42,000
Frisco, Texas...................................................       17,000                $60,000
Mansfield, Texas................................................       57,700               $225,000
Mesquite, Texas.................................................       10,000                $43,000
</TABLE>


<PAGE>


         The foregoing premises are leased to JEH Eagle from James E. Helzer
pursuant to five-year leases expiring in June 2002 providing the indicated base
annual rentals with provisions for five percent increases effective July 2000.
Except for the Frisco, Texas, premises, said leases grant JEH Eagle two
five-year renewal options providing for five percent increases in the base
annual rent during certain renewal years. Additional rental and other charges
for the foregoing leases include provision for JEH Eagle to insure and maintain
and pay all taxes on the premises. JEH Eagle also has a right of first refusal
to purchase the foregoing premises. Group believes that such leases are on terms
no less favorable than JEH Eagle could have obtained from independent third
parties.

         As part of the foregoing leases, additional undeveloped land is leased
to JEH Eagle from James E. Helzer. That undeveloped land is used for storage or
reserved for future use. The locations and approximate acreage of the
undeveloped land is as follows: Colorado Springs (three), Henderson (six),
Colleyville (one and a half), Frisco (two and a half), Mansfield (twelve and a
half) and Mesquite (two).
<TABLE>
<CAPTION>

                                    LOCATIONS LEASED FROM THIRD PARTIES

                                                                       APPROXIMATE           APPROXIMATE BASE
                 CITY AND STATE                                        SQUARE FOOTAGE        ANNUAL RENTAL
<S>                                                                    <C>                   <C>
Eagle, Colorado.............................................           10,000                 $72,000(1)
Fort Collins, Colorado......................................            9,000                 $32,000(2)
Indianapolis, Indiana.......................................           15,000                 $66,000(3)
Burns Harbor, Indiana    ...................................            6,000                 $32,000(4)
Garden City, Kansas.........................................            5,200                 $24,000(5)
Scotts Bluff, Nebraska   ...................................            3,000                 $18,000(6)
Eagan, Minnesota............................................           31,200                $110,000(7)
Austin, Texas...............................................           56,000                 $96,000(8)
Lorton, Virginia............................................           30,000                $195,000(9)
Norfolk, Virginia...........................................           19,000                 $55,000(10)
Addison, Texas..............................................           30,000                $144,000(11)


         As part of the foregoing leases, additional undeveloped land is leased
to JEH Eagle from third parties. That undeveloped land is used for storage or
reserved for future use. The location and approximate acreage of the undeveloped
land is as follows: Eagle (two), Fort Collins (one and a half), Indianapolis
(two) and Austin (six).

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


<PAGE>


(1)      The lease for the Eagle, Colorado, premises expires on June 30, 2001
         but may be terminated by JEH Eagle on thirty days notice and provides
         for a two-year renewal options. Pursuant to this lease, JEH Eagle is
         required to pay all utility bills and assessments and maintain and
         carry comprehensive public liability insurance on the premises.

(2)      The lease for the Fort Collins, Colorado, premises expires on March 31,
         2000. JEH Eagle is required to pay its proportionate share of taxes,
         insurance and maintenance charges for these premises and maintain the
         portion of the premises it occupies.

(3)      The lease for the Indianapolis, Indiana, premises expires in March 2002
         and requires JEH Eagle to pay real estate taxes and carry comprehensive
         public liability insurance on the premises.

(4)      The lease for the Burns Harbor, Indiana, premises expires in May 2001,
         with a 12 month renewal option and requires JEH Eagle to carry
         comprehensive public liability and other insurance on the premises.

(5)      The lease for the Garden City, Kansas, premises expires on January 31,
         2000 and provides for a month-to-month renewal option and requires JEH
         Eagle to carry comprehensive public liability and other insurance on
         the premises.

(6)      The lease for the Scotts Bluff, Nebraska, premises is on a
         month-to-month basis and requires JEH Eagle to maintain public
         liability insurance on the premises.

(7)      The lease for the Eagan, Minnesota, premises expires in June 2000 and
         requires JEH Eagle to pay real estate taxes, maintenance charges and
         carry comprehensive public liability and other insurance on the
         premises.

(8)      The lease for the Austin, Texas, premises expired and continues on a
         month-to-month basis and requires JEH Eagle to pay all real estate
         taxes and carry comprehensive public liability insurance on the
         premises.

(9)      The lease for the Lorton, Virginia, premises expires on July 31, 2000
         and provides for one three-year renewal option and requires JEH Eagle
         to carry comprehensive public liability and other insurance.

(10)     The lease for the Norfolk, Virginia, premises expires on April 1, 2002.
         JEH Eagle is also required to pay all real estate taxes and assessments
         and maintain and carry comprehensive public liability insurance on the
         premises.

(11)     The lease for the Addison, Texas, premises expires in March 2002 and
         provides for a month-to-month renewal option. JEH Eagle is also
         required to pay all real and personal property taxes and to maintain
         and carry property and comprehensive public liability insurance on the
         premises. Adjacent to the Addison premises is an undeveloped parcel of
         land of approximately two acres which is presently used for storage.
         The lease on this


<PAGE>



parcel  expires  on  May 1,  2002.  JEH  Eagle  is  also  required  to  pay  its
proportionate share of real estate taxes.

MSI EAGLE

         MSI Eagle leases approximately 30,000 square feet of executive office,
showroom and warehouse space, and approximately four acres of outdoor storage
space in Mansfield, Texas from Gary L. Howard and his spouse at an annual base
rental of approximately $107,000 pursuant to a lease expiring in October 2001.
MSI Eagle has the right to two, three-year renewals at a base annual rental five
percent over the prior term. Additional rental and other charges for the
foregoing lease include provisions for MSI Eagle to insure and maintain and pay
taxes on the premises. MSI Eagle has a right of first refusal to purchase the
foregoing premises. Group believes that the foregoing lease is on terms no less
favorable than MSI Eagle could have obtained from an independent third party.
See Item 13. "Certain Relationships and Related Transactions."

         The following table lists the locations of MSI Eagle's other
distribution centers, all of which are leased from independent third parties and
are located in the Dallas/Fort Worth metropolitan area of Texas.
                                                                                           APPROXIMATE
                                                                     APPROXIMATE SQUARE    BASE
CITY                                                                 FOOTAGE               ANNUAL RENTAL
<S>                                                                  <C>                   <C>
Mesquite.......................................................      10,000                $30,000(1)
Southlake......................................................       9,000                $42,000(2)
</TABLE>

---------------------
(1)      The lease for the Mesquite premises expires in May 2000. The lease for
         the Mesquite premises provides for successive three-year renewal
         options. Pursuant to this lease, MSI Eagle is required to pay taxes on
         the property, maintain and carry comprehensive public liability
         insurance, pay all utility charges and maintain the premises.

(2)      The lease for the Southlake premises expires in December 2001. Pursuant
         to this lease, MSI Eagle is required to pay taxes on the property and
         maintain and carry comprehensive public liability insurance and
         maintain the premises.

GROUP

         TDA provides  office space and  administrative  services to Group at
its  offices in New York City  pursuant to a  month-to-month,  $3,000 per month,
administrative  services  agreement.  See Item 13.  "Certain  Relationships  and
Related Transactions."

ITEM 3.  LEGAL PROCEEDINGS

         Group is not subject to any material legal proceedings.


<PAGE>


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

         During the fourth quarter of the fiscal year covered by this Report, no
matters were submitted to a vote of security holders.


<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS

(a)      MARKET INFORMATION

Group has two classes of securities presently registered: Common Stock and
Redeemable Common Stock Purchase Warrants (the "Warrants"). These securities are
presently traded on the NASDAQ SmallCap Market under the trading symbols
"EEGL" and "EEGLW," respectively, and, on the Boston Stock Exchange under
the trading symbols "EGL" and "EGLW" and have been since Group's initial
public offering in March 1999.

The high and low bid price quotations for Group's Common Stock, as reported by
NASDAQ, are as follows for the periods indicated:
<TABLE>
<CAPTION>

                                                    HIGH             LOW
<S>                                                <C>              <C>
From March 12 through
   March 31, 1999..................................$5.03125         $4.40625
From April 1 through June 30, 1999.................$5.28125         $4.125
From July 1, 1999 through
    September 23, 1999.............................$4.75            $3.50
</TABLE>


The Common Stock was held by approximately 22 holders of record as of September
21, 1999. Based upon information received from its transfer agent, following a
"broker" search, Group believes that it has approximately 900 beneficial holders
of its Common Stock.

         The high and low bid price quotations for the Warrants, as reported by
NASDAQ are as follows for the periods indicated:
<TABLE>
<CAPTION>

                                                      HIGH             LOW
<S>                                                   <C>              <C>
From March 12 through
    March 31, 1999..................................  $1.25            $0.75
From April 1 through June 30, 1999..................  $1.875           $0.875
From July 1, 1999 through
    September 23, 1999..............................  $1.625           $0.875
</TABLE>


         The Warrants were held by approximately 2 holders of record, as of
September 21, 1999. Based upon information received from its transfer agent,
following a "broker" search, Group believes that it has approximately 700
beneficial holders of its Warrants.

         Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessary represent
actual transactions.


<PAGE>


         Group believes that NASDAQ SmallCap is the principal market for its
Common Stock and Warrants.

         Dividend Policy. Group has not paid dividends to date. The payment of
dividends, if any, in the future is within the discretion of the Board of
Directors. The payment of dividends, if any, in the future will depend upon
Group's earnings, capital requirements and financial conditions and other
relevant factors. Group's Board of Directors does not presently intend to
declare any dividends in the foreseeable future but instead intends to retain
all earnings, if any, for use in Group's, Eagle's, JEH Eagle's and MSI Eagle's
business operations.

(b)      USE OF PROCEEDS

         On March 12, 1999, Group's Registration Statement filed with the
Securities and Exchange Commission (the "Commission") became effective under the
Securities Act of 1933 for an offering of 2,500,000 Shares and 2,500,000
Warrants exclusive of an additional 375,000 Shares and 375,000 Warrants
registered to cover an overallotment option granted to Barron Chase Securities,
Inc. ("Barron"). The offering was commenced by Barron on the date of the
effectiveness and a closing of the offering of 2,500,000 Shares and 2,875,000
Warrants was held on March 17, 1999. The initial offering price was $5.00 per
Share and $.125 per Warrant, resulting in gross proceeds of approximately
$12,859,000. Barron received a 9% commission and a 3% non-accountable expense
allowance of the gross proceeds, or an aggregate of approximately $1,543,000.
Additional offering expenses were approximately $1,110,000 resulting in net
proceeds to Group of $10,206,000. The following expenditures have been made from
the net proceeds.

-        $534,907 to repay principal and interest on borrowings of $500,000
         made by Group pursuant to promissory notes issued to stockholders
         of Group, including $369,755 to TDA.

-        $1,474,478 in principal and interest to Gary L. Howard, designee
         and owner of Masonry Supply, Inc. ("MSI Co.") and a senior vice
         president of the Group, pursuant to a five-year promissory note
         issued by one of the Subsidiaries in connection with the acquisition
         of the business and substantially all of the assets of MSI Co.

-        $2,624,000 to reduce outstanding balances of credit facilities of two
         of the Subsidiaries.

-        The balance has been invested in high grade, short-term interest
         bearing investments.

         Except for the foregoing payments to TDA and Gary L. Howard, no part of
the offering expenses or net proceeds was directly paid to (a) directors or
officers of Group, or their associates; (b) persons owning 10% or more of
Group's shares; or (c) any affiliate of Group.



<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         Prior to the initial public offering and the acquisitions described in
Note 2 of the consolidated financial statements, the Company has had limited
operations. The historical selected financial information included in the
statement of operations has been prepared on a basis which combines the Company
(organized on May 1, 1996), Eagle Supply, Inc. ("Eagle"), JEH/Eagle Supply, Inc.
("JEH Eagle") (acquired on July 1, 1997) and MSI/Eagle Supply, Inc. ("MSI
Eagle") (acquired on October 22, 1998) as four entities controlled by TDA
Industries, Inc. ("TDA"). Information with respect to the Company is included
from May 1, 1996 (inception), information for Eagle is included for all periods
presented, information with respect to JEH Eagle is included from July 1, 1997
and information with respect to MSI Eagle is included from October 22, 1998.

         The selected financial information presented below should be read in
conjunction with the consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>

                                          SELECTED FINANCIAL INFORMATION
                                                YEAR ENDED JUNE 30,
                                                    COMBINED(1)

                         1995              1996             1997(3)           1998             1999
                         ----              ----             ------            ----             ----

Statement of Operations Data:
<S>                     <C>           <C>               <C>               <C>               <C>
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
REVENUE                 $50,483,469    $59,262,226       $57,575,712       $129,502,812      $159,844,520
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
GROSS PROFIT                            12,576,870        11,471,124         27,975,391        37,706,722
                          9,739,568
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
Income From Operations                   2,689,290           907,970          3,016,155         6,743,995
                            833,114
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
Net Income (Loss)                        1,315,035          (179,252)           756,884         2,703,352
                            352,589
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

Other Financial Data:
<TABLE>
<CAPTION>
<S>                     <C>           <C>               <C>               <C>               <C>
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
EBITDA (2)              $ 1,355,082   $  3,151,388      $  1,133,554       $  4,171,186      $  8,195,013
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
Net Cash Provided by                     2,538,838          (766,978)          (258,827)          938,846
(Used In) Operating         165,963
Activities
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
Net Cash Used In           (240,755)      (863,448)         (215,640)        (3,704,624)       (3,431,929)
Investing Activities
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
Net Cash (Used In)                      (1,931,121)        1,575,357          4,614,314         9,326,486
Provided By Financing       315,284
Activities
----------------------- ------------- ----------------- ----------------- ----------------- -----------------
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                      June 30
                                                    COMBINED(1)

                         1995              1996             1997              1998             1999
                         ----              ----             ----              ----             ----
<S>                     <C>               <C>              <C>              <C>               <C>
Balance Sheet Data:
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Working Capital     $  5,450,306      $  4,527,568       $ 6,232,891       $17,081,190       $   26,593,105
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total Assets          14,709,463        15,778,742        15,853,837        49,471,412           75,692,955
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Long Term Debt         6,290,453         5,678,243         7,195,163        25,294,523           30,139,072
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total Liabilities     14,552,647        15,586,657        15,832,712        49,611,968           60,305,160
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Shareholders'            156,816           192,085            21,125          (140,556)          15,387,795
Equity
(Deficiency)
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

--------------------------------------------------------------------------------
1. The historical financial data included in the statement of operations data
has been prepared on a basis which combines the Company (organized May 1, 1996),
Eagle Supply, Inc.("Eagle"), JEH/Eagle Supply, Inc. ("JEH Eagle") (acquired on
July 1, 1997) and MSI/Eagle Supply, Inc. ("MSI Eagle") (acquired on October 22,
1998) as four entities controlled by TDA Industries, Inc. ("TDA"), because the
separate financial data of the Company would not be meaningful. Information with
respect to the Company is included from May 1, 1996 (inception), information for
Eagle in included for all periods presented, information with respect to JEH
Eagle is included from July 1, 1997 and information for MSI Eagle is included
from October 22, 1998.

2. As used herein, EBITDA reflects net income (loss) increased by the effects of
interest expense, federal income tax provisions, depreciation and amortization
expense. EBITDA is used by management, along with other measures of performance,
to assess the Company's financial performance. EBITDA should not be considered
in isolation or as an alternative to measures of operating performance of cash
flows pursuant to generally accepted accounting principles. In addition, the
measure of EBITDA may not be comparable to similar measures reported by other
companies.

3. The loss for the year ended June 30, 1997 includes a write-off of
registration costs of $370,353 for an offering which was not consummated.

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

This document includes statements that may constitute forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company would like to caution readers regarding certain
forward-looking statements in this document and in all of its communications to
shareholders and others, press releases, securities filings, and all other
communications. Statements that are based on management's projections,


<PAGE>


estimates and assumptions are forward-looking  statements.  The words "believe,"
"expect,"  "anticipate,"  "intend," and similar  expressions  generally identify
forward-looking  statements.  While the Company  believes in the veracity of all
statements made herein,  forward-looking statements are necessarily based upon a
number of estimates and assumptions  that,  while  considered  reasonable by the
Company,   are  inherently  subject  to  significant   business,   economic  and
competitive uncertainties and contingencies and known and unknown risks. Many of
the  uncertainties  and contingencies can affect events and the Company's actual
results  and could  cause its  actual  results to differ  materially  from those
expressed  in any  forward-looking  statements  made by,  or on behalf  of,  the
Company. Some of the factors that could cause actual results or future events to
differ materially include the Company's  inability to find suitable  acquisition
candidates  or  financing  on  terms  commercially  reasonable  to the  Company,
inability  to find  suitable  facilities  or  personnel  to open or maintain new
branch  locations,  interruptions or cancellation of existing sources of supply,
the pricing of and demand for distributed products,  the presence of competitors
with  greater  financial  resources,  economic  and  market  factors,  and other
factors.  Please  see the  "Risk  Factors"  in the  Company's  filings  with the
Securities  and Exchange  Commission  for a  description  of some,  but not all,
risks, uncertainties and contingencies.

The following discussion and analysis should be read in conjunction with the
financial statements and related notes thereto which are included elsewhere
herein.

Eagle Supply Group, Inc. (the "Company") is a majority-owned subsidiary of TDA
Industries, Inc. ("TDA" or the "Parent") and was organized to acquire, integrate
and operate seasoned,  privately-held  companies which distribute products to or
manufacture products for the building supplies/construction industry.

On March 17, 1999, the Company completed the sale of 2,500,000 shares of Common
Stock at $5.00 per share and 2,875,000 Redeemable Common Stock Purchase Warrants
at $.125 per warrant in connection with it's initial public offering (the
"Offering). The net proceeds to the Company aggregated approximately
$10,206,000.

Upon consummation of the Offering, the Company acquired all of the issued and
outstanding common shares of Eagle Supply, Inc. ("Eagle"), JEH/Eagle Supply,
Inc. ("JEH Eagle") and MSI/Eagle Supply, Inc. ("MSI Eagle") (the "Acquisitions")
from TDA for consideration consisting of 3,000,000 of the Company's common
shares. The Acquisitions have been accounted for as the combining of four
entities under common control, similar to a pooling of interests, with the net
assets of Eagle, JEH Eagle and MSI Eagle recorded at historical carryover
values. The 3,000,000 common shares of the Company issued to TDA were recorded
at Eagle's, JEH Eagle's and MSI Eagle's historical net book values at the date
of the Acquisitions. Accordingly, this transaction did not result in any
revaluation of Eagle's, JEH Eagle's or MSI Eagle's assets or the creation of any
goodwill. Upon the consummation of the Acquisitions, Eagle, JEH Eagle and MSI
Eagle became wholly-owned subsidiaries of the Company and currently constitute
the sole business operations of the Company.

As a result of the Acquisitions, the consolidated financial statements of the
Company, Eagle, JEH Eagle and MSI Eagle have been prepared as if all of the
entities had operated as a single


<PAGE>


consolidated group for all periods  subsequent to each entity's  respective date
of  acquisition  by  TDA.  Eagle  is  included  in  the  consolidated  financial
statements for all periods presented.  JEH Eagle is included in the consolidated
financial  statements  from  July 1,  1997  and MSI  Eagle  is  included  in the
consolidated  financial  statements  from October 22,  1998,  the dates that JEH
Eagle and MSI Eagle,  respectively,  were acquired by TDA. Eagle,  JEH Eagle and
MSI Eagle  operate in a single  industry  segment and all of their  revenues are
derived from sales to third party customers in the United States.

Results of Operations

Fiscal Year Ended June 30, 1999 Compared to the Fiscal Year Ended June 30, 1998

Revenues of the Company during the fiscal year ended June 30, 1999 increased by
approximately $30,342,000 (23.4%) compared to the 1998 fiscal year.
Approximately $9,018,000 of this increase is due to the acquisition on October
22, 1998 of MSI Co. by MSI Eagle. The remaining increase may be attributed to
additional revenues generated from 4 new distribution centers ($16,077,000) and
a general improvement in market conditions.

Cost of goods sold increased between the 1999 and 1998 fiscal years at a lesser
rate than the increase in revenues between these fiscal years. Accordingly, cost
of goods sold as a percentage of revenues decreased to 77.6% in the fiscal year
ended June 30, 1999 from 78.4% in the fiscal year ended June 30, 1998, and gross
profit as a percentage of revenues increased to 22.4% in the fiscal year ended
June 30, 1999 from 21.6% in the fiscal year ended June 30, 1998. The cost of
goods sold and gross profit of MSI Eagle have not been included in calculating
the percentages for the 1999 fiscal year. If MSI Eagle's cost of goods sold and
gross profit were included, cost of goods sold as a percentage of revenues would
have been 76.4% and gross profit as a percentage of revenues would have been
23.6%.

Operating expenses of the Company increased by approximately $6,004,000 (24.1%)
between the 1999 and 1998 fiscal years. Approximately $2,506,000 of this
increase may be attributed to the acquisition of MSI Co. by MSI Eagle and
includes approximately $113,000 of amortization of excess cost of investments
over net assets acquired (goodwill) and approximately $15,000 of amortization of
deferred financing costs attributable to the acquisition. Excluding the
operating expenses of MSI Eagle, operating expenses of the Company would have
increased by approximately $3,498,000 (14%) between the 1999 and 1998 fiscal
years. This increase may be attributed to new distribution center operating
expenses of approximately $2,040,000, an increase in the allowance for doubtful
accounts of approximately $135,000, an increase in payroll costs of
approximately $829,000, an increase in depreciation of $170,000, an increase in
warehouse and delivery expenses of approximately $125,000, an increase in office
expenses of approximately $146,000 primarily related to the implementation and
relocation of the administrative functions of the Company to Texas and an
increase in amortization of goodwill of approximately $53,000, offset by
reductions in other expense areas. Operating expenses as a percentage of
revenues were 18.9% in the 1999 fiscal year compared to 19.3% in the 1998 fiscal
year. If MSI Eagle's operating expenses were included, operating expenses as a
percentage of revenues would have changed only minimally in the 1999 fiscal
year.


<PAGE>


Interest expense increased by approximately $639,000 (34.3%) between the 1999
and 1998 fiscal years. This increase is due to the interest expense incurred by
MSI Eagle (approximately $322,000) on its credit facility and other indebtedness
used primarily to fund its acquisition of MSI Co., the increase in interest
expense on borrowings under revolving credit loans (approximately $300,000), and
short-term borrowings by the Company (approximately $17,000).

Net income and EBITDA (earnings before interest, taxes, depreciation and
amortization) for the fiscal year ended June 30, 1999 were approximately
$2,703,000 and $8,195,000, respectively, compared to net income and EBITDA of
approximately $757,000 and $4,171,000, respectively, for fiscal 1998,
representing a 257.2% increase in net income and a 96.5% increase in EBITDA.

Earnings per share for the fiscal year ended June 30, 1999 were $.43 compared to
$.14 for fiscal 1998, an increase of 207.1%. EBITDA per share for the fiscal
year ended June 30, 1999 was $1.30 compared to $.77 for fiscal 1998, an increase
of 68.8%.

Fiscal Year Ended June 30, 1998 Compared to the Fiscal Year Ended June 30, 1997

Revenues of the Company during the fiscal year ended June 30, 1998 increased by
approximately $71,927,000 (124.9%) compared to the 1997 fiscal year. This
increase was due almost entirely to the acquisition of JEH Co. in July 1997 by
JEH Eagle. Sales of JEH Eagle during the fiscal year ended June 30, 1998 were
approximately $71,006,000. Excluding the sales of JEH Eagle, revenues of the
Company would have been approximately $58,497,000 in the fiscal year ended June
30, 1998, an increase of approximately $921,000 (1.6%) from the comparable 1997
fiscal year. This increase was comprised of an increase of approximately
$3,195,000 in sales to customers out of warehouse inventory offset by a decrease
in direct sales shipments to customers from vendors of approximately $2,274,000.
Sales of both Eagle and JEH Eagle during the fiscal year ended June 30, 1998
were adversely effected by the "El Nino" weather patterns. Unusually heavy and
record rainfall in the southeast and the paucity of hail storms in the southwest
negatively impacted sales of Eagle and JEH Eagle, respectively, whereas
hurricanes and intense rainstorms accompanied by strong winds, which can cause
significant roof damage, did not occur in any significant amount in the
Company's market areas.



Cost of goods sold increased between the fiscal years 1998 and 1997 at a lesser
rate than the increase in revenues between these fiscal years. Accordingly, cost
of goods sold as a percentage of revenues decreased to 78.4% in the fiscal year
1998 from 80.1% in the fiscal year 1997, and gross profit as a percentage of
revenues increased to 21.6% in the fiscal year 1998 from 19.9% in the fiscal
year 1997. This increase in gross profit margin may be attributed primarily to
the relative increase in fiscal year 1998 sales to customers out of warehouse
inventory which carry a higher gross profit margin than direct sales shipments
to customers from vendors. Whereas a significant amount of the sales to Eagle's
customers are direct shipments from vendors, almost all of the sales to
customers of JEH Eagle are out of warehouse inventory.


<PAGE>


Operating expenses of the Company increased by approximately $14,396,000
(136.3%) between the fiscal years 1998 and 1997. This increase was due almost
entirely to the acquisition of JEH Co. by JEH Eagle. Operating expenses of JEH
Eagle during the fiscal year 1998 were approximately $13,720,000, including
approximately $172,000 of amortization of excess cost of investments over net
assets acquired (goodwill) and approximately $58,000 of amortization of deferred
financing costs attributable to the acquisition. During the fiscal year 1998,
management of JEH Eagle evaluated its accounts receivable and determined that no
further deterioration of the customer accounts specifically reserved in 1997 had
occurred, and, accordingly, no specific increase in the provision for doubtful
accounts was required beyond the normal level which has ranged between .8% and
1.4% of sales. During fiscal 1998, collections of customer accounts receivable
specifically reserved in fiscal 1997 were not material. Excluding the operating
expenses of JEH Eagle, operating expenses of the Company would have been
approximately $11,239,000 in the fiscal year 1998, an increase of approximately
$676,000 (6.4%) from the fiscal year 1997. This increase was due primarily to
the increase in data processing expenses of approximately $251,000 due to an
upgrading, in March 1997, of Eagle's data processing hardware and software, and
an increase in payroll costs of approximately $441,000 due primarily to the
additional manpower needed to service the increased sales out of warehouse
inventory. Operating expenses as a percentage of revenues were 19.3% in the
fiscal year 1998 compared to 18.3% in the fiscal year 1997.

Interest expense increased by approximately $1,262,000 (210.7%) between the
fiscal years 1998 and 1997. This increase was due principally to the interest
expense incurred by JEH Eagle (approximately $1,250,000) on its credit facility
used primarily to fund its acquisition of JEH Co. Excluding the interest expense
of JEH Eagle, interest expense of the Company would have been approximately
$612,000 in fiscal 1998, an increase of approximately $13,000 (2.2%) from fiscal
1997. This increase was due to the increase in interest expense on short-term
borrowings by the Company (approximately $18,000), offset by the reduction in
interest expense on borrowings under Eagle's credit facility (approximately
$5,000).

Net income for the fiscal year ended June 30, 1998 was approximately $757,000
compared to a net loss of approximately $(179,000) for fiscal 1997. EBITDA
(earnings before interest, taxes, depreciation and amortization) for the fiscal
year ended June 30, 1998 was approximately $4,171,000 compared to approximately
$1,134,000 for fiscal 1997, a 268% increase in EBITDA.

Earnings per share for the fiscal year ended June 30, 1998 were $.14 compared to
a loss of $(.03) for fiscal 1997. EBITDA per share for the fiscal year ended
June 30, 1998 was $.77 compared to $.21 for fiscal 1997 a 266.7% increase in
EBITDA per share.

FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1996

Revenues of the Company during the fiscal year ended June 30, 1997 decreased by
approximately $1,687,000 (2.8%) compared to the 1996 fiscal year. This decrease
was primarily due to the decrease in revenues derived from storm related
business in fiscal 1996 from Hurricane Opal (approximately $6,495,000) and a
decrease in revenues from distribution centers that did not benefit from
Hurricane Opal (approximately $578,000). That decrease in revenues was the
result


<PAGE>


of a decline in general  business  conditions.  This  decrease in  revenues  was
partially  offset  by  additional   revenues   generated  in  fiscal  1997  from
distribution centers opened in fiscal 1996 (approximately $5,386,000).

Cost of goods sold decreased between the fiscal years 1997 and 1996 at a lesser
rate than the decrease in revenues between these fiscal years. Accordingly, cost
of goods sold as a percentage of revenues increased to 80.1% in the fiscal year
1997 from 78.8% in the fiscal year 1996, and gross profit as a percentage of
revenues decreased to 19.9% in the fiscal year 1997 from 21.2% in the fiscal
year 1996. This decrease in gross profit margin may be attributed primarily to
the decrease in fiscal 1997 in sales generated at distribution centers which
benefited from storm related business and sales to customers out of warehouse
inventory which carry a higher gross profit margin than direct sales shipments
to customers from vendors.

Operating expenses increased by approximately $675,000 (6.8%) between the fiscal
years 1997 and 1996. Operating expenses in fiscal 1997 includes approximately
$546,000 of operating expenses attributable to distribution centers opened in
fiscal 1996. Operating expenses as a percentage of revenues were 18.3% in the
fiscal year 1997 compared to 16.7% in the fiscal year 1996.

Other expenses of approximately $370,000 in fiscal 1997 represents registration
costs and expenses incurred by the Company in connection with the filing in 1996
of its registration statement for an initial public offering of its securities.

LIQUIDITY AND CAPITAL RESOURCES

The Company initially funded itself since inception by raising $300,000 in a
private placement; issuing an aggregate of $500,000 of notes to TDA and other
shareholders; incidental other borrowings from TDA or affiliates of TDA; and, on
March 17, 1999, by issuing 2,500,000 shares of its Common Stock and 2,875,000
Redeemable Stock Purchase Warrants for net proceeds of approximately $10,206,000
in the Offering.

The Company's working capital was approximately $26,593,000 at June 30, 1999
compared to approximately $17,081,000 at June 30, 1998. At June 30, 1999, the
Company's current ratio was 1.88 to 1 compared to 1.71 to 1 at June 30, 1998.

Cash provided by operating activities for the fiscal year ended June 30, 1999
was approximately $939,000. Such amount consisted primarily of net income of
$2,703,000, depreciation and amortization of $1,622,000, allowance for doubtful
accounts of $623,000, increased levels of accounts payable of $930,000, accrued
expenses and other current liabilities of $488,000, federal and state income
taxes due to TDA of $118,000,federal and state income taxes of $608,000, offset
by increased levels of accounts and notes receivable of $3,258,000, inventories
of $2,394,000 other current assets of $239,000, and deferred income taxes of
$261,000.


<PAGE>


Cash used in investing activities for the fiscal year ended June 30, 1999 was
approximately $3,432,000. Such amount consisted primarily of capital
expenditures of $1,983,000 and payment for the purchase of the business and
substantially all of the net assets of MSI Co. of $1,520,000.

Capital expenditures were approximately $1,983,000 for the fiscal year ended
June 30, 1999. Management of the Company presently anticipates such expenditures
in the next twelve months of not less than $750,000, of which approximately
$500,000 will be financed and used for the purchase of trucks and forklifts for
the Company's currently existing operations in anticipation of increased
business and to upgrade its vehicles to compete better in its market areas.
Management's anticipation of increased business is based on sales to be
generated by the opening of new distribution centers, the location of some of
which have not yet been decided.

Cash provided by financing activities for the fiscal year ended June 30, 1999
was approximately $9,326,000. Such amount consisted primarily of principal
borrowings on long-term debt of $170,481,000, issuance of notes
payable-shareholder of $200,000, the sale of 2,500,000 shares of Common Stock
and 2,875,000 Redeemable Common Stock Purchase Warrants in the Offering for net
proceeds of approximately $10,206,000, a capital contribution from TDA of
$1,000,000, and a change in the intercompany account of $70,000, offset by
principal reductions of long-term debt of $170,931,000, repayment of notes
payable-shareholders of $500,000 and cash dividends paid to TDA of $1,200,000.

During the fiscal year ended June 30, 1999, TDA and a subsidiary of TDA made
loans to Eagle in the amount of $1,400,000 as short-term working capital
advances. These loans were repaid in full prior to the consummation of the
Offering and they were non-interest bearing.

During the fiscal year ended June 30, 1999, through the date of the Offering,
Eagle and JEH Eagle made cash dividend payments to TDA of $450,000 and
$750,000,respectively, and, in connection with the Offering, Eagle cancelled, in
the form of a non-cash dividend of $3,067,002, all of TDA's indebtedness to
Eagle, except for $487,205 relating to and offsetting a mortgage in the same
amount on property previously owned by Eagle and for which Eagle had been the
primary obligor.

ACQUISITIONS

In July 1997, JEH Eagle acquired the business and substantially all of the
assets of JEH Co., a Texas corporation, wholly-owned by James E. Helzer, now the
President of the Company. The purchase price, as adjusted, including transaction
expenses, was approximately $14,768,000, consisting of $13,878,000 in cash, net
of $250,000 due from JEH Co., and a five-year note bearing interest at the rate
of 6% per annum in the principal amount of $864,652. The purchase price and the
note are subject to further adjustments under certain conditions. Certain,
potentially substantial, contingent payments, as additional future consideration
to JEH Co., or its designee, are to be paid by JEH Eagle. Upon consummation of
the Offering, the Company issued 300,000 of its common shares to James E.
Helzer, the designee of JEH Co., in fulfillment of certain of such future
consideration (see Note 2 to the consolidated financial statements). For the
fiscal year ended June 30, 1999, approximately $1,773,000 of additional
consideration is payable to JEH Co. All of


<PAGE>


such additional consideration increased goodwill and is being amortized over the
remaining life of the goodwill.  No additional  consideration was payable to JEH
Co. for fiscal 1998.

In October 1998, MSI Eagle acquired the business and substantially all of the
assets of MSI Co., a Texas corporation, wholly-owned by Gary L. Howard, now a
Vice President of the Company. The purchase price, as adjusted, including
transaction expenses, was approximately $8,538,000, consisting of $6,492,000 in
cash and a five-year note bearing interest at the rate of 8% per annum in the
principal amount of $2,045,972. The purchase price and the note are subject to
further adjustments under certain conditions. Upon the consummation of the
Offering, the Company issued 50,000 of its common shares to Gary L. Howard, the
designee of MSI Co., in payment of $250,000 principal amount of the note. The
balance of the note was paid in full in March 1999 out of the proceeds of the
Offering. Certain, potentially substantial, contingent payments, as additional
future consideration to MSI Co., or its designee, are to be paid by MSI Eagle.
Upon consummation of the Offering, the Company issued 200,000 of its common
shares to Gary L. Howard in fulfillment of certain of such future consideration
(see Note 2 to the consolidated financial statements). Such consideration
increased goodwill and is being amortized over the remaining life of the
goodwill. No additional consideration is payable to MSI Co. for fiscal 1999.

CREDIT FACILITIES

Eagle is a party to a loan agreement (last amended December 11, 1998) which
provides for a credit facility in the aggregate amount of $10,900,000. The
credit facility consists of a $10 million revolving credit loan and a $900,000
equipment loan. The initial term of the credit facility matures on October 22,
2003. Certain current assets and automotive equipment of Eagle (aggregating
approximately $16,968,000 at June 30, 1999) collateralize the obligations under
the credit facility. The revolving credit and equipment loans bear interest at
the lender's prime rate, plus one-half percent, or at the London inter-bank
offered rate, plus two and one-half percent, at the option of Eagle. The
equipment loan is payable in equal monthly installments, based on a seventy-five
month amortization schedule, each in the amount of $11,000, with a balloon
payment due on the earlier of August 1, 2004 or at the end of the loan
agreement's initial or renewal term. This credit facility is guaranteed by the
Company and TDA.

In order to finance the purchase of substantially all of the assets and business
of JEH Co. and to provide for working capital needs, JEH Eagle entered into a
loan agreement (last amended on December 11, 1998) for a credit facility in the
aggregate amount of $20 million which is collateralized by substantially all of
the tangible and intangible assets of JEH Eagle. The initial term of the credit
facility matures on October 22, 2003 and consists of a $3,000,000 term loan, a
$2,475,000 equipment loan, and the balance in the form of a revolving credit
loan. The term loan is payable in 48 equal monthly installments, each in the
amount of $62,500; the equipment loan is payable in equal monthly installments,
based on a seventy-six month amortization schedule, each in the amount of
$26,000, with a balloon payment due on the earlier of August 1, 2004 or the end
of the loan agreement's initial or renewal term. The equipment and revolving
credit loans bear interest at the lender's prime rate, plus one-half percent, or
at the London inter-bank offered rate, plus



<PAGE>


two and  one-half  percent,  at the  option of JEH  Eagle.  The term loan  bears
interest at the lender's prime rate,  plus one and one-half  percent,  or at the
London  inter-bank  offered rate,  plus three and  one-quarter  percent,  at the
option of JEH Eagle. This credit facility is guaranteed by the Company and TDA.

In order to finance the purchase of substantially all of the assets and business
of MSI Co. and to provide for working capital needs, MSI Eagle entered into a
loan agreement for a credit facility in the aggregate amount of $9,075,000,
which is collateralized by substantially all of the tangible and intangible
assets of MSI. The credit facility has an initial maturity of October 22, 2003
and consists of a $3,075,000 term loan and the balance in the form of a
revolving credit loan. The term loan is payable in equal monthly installments,
based on an eighty-three month amortization schedule, each in the amount of
$37,000, and a final payment of the then outstanding principal amount. The
revolving credit loan bears interest at the lender's prime rate, plus one-half
percent, or at the London inter-bank offered rate, plus two and one-half
percent, at the option of MSI Eagle. The term loan bears interest at the
lender's prime rate, plus one and one-half percent, or at the London inter-bank
offered rate, plus three and one-quarter percent, at the option of MSI Eagle.
This credit facility is guaranteed by the Company and TDA.

In October 1998, in connection with the purchase of substantially all of the
assets and business of MSI Co. by MSI Eagle, TDA lent MSI Eagle $1,000,000
pursuant to a 6% two-year note. The note is payable in full in October 2000, and
TDA has agreed to defer the interest payable on the note until its maturity.

IMPACT OF INFLATION

General inflation in the economy has driven the operating expenses of many
businesses higher, and, accordingly, the Company has experienced increased
salaries and bears higher prices for supplies, goods and services. The Company
continuously seeks methods of reducing costs and streamlining operations while
maximizing efficiency through improved internal operating procedures and
controls. While the Company is subject to inflation as described above, the
Company's management believes that inflation currently does not have a material
effect on its operating results, but there can be no assurance that this will
continue to be so in the future.

YEAR 2000 COMPLIANCE

The Year 2000 ("Y2K") compliance issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900, rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

In 1997, systems were identified and purchased that would meet, at that time,
Eagle's requirements and be Y2K compliant in regard to the maintenance and
management of its operating system and distribution software package. Eagle then
commenced the upgrade of its hardware and the conversion to new software
programs that are Y2K compliant. Additionally, the Company's management has
started to integrate and centralize certain of Eagle's, JEH Eagle's and MSI


<PAGE>


Eagle's administrative functions, including data processing. As their hardware
and software vendors have certified that their products are Y2K compliant,
management of the Company has determined that the Y2K compliance issue will not
pose significant operational problems for its computer systems. The Company's
desktop systems are running products which management believes are compliant
except for minor issues.

The Company has initiated formal communications with all of their significant
suppliers and large customers to determine the extent to which the Company may
be vulnerable to those third parties' failure to remediate their own Y2K
compliance issues. There can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted and will not have
an adverse effect on the Company's systems.

Management of the Company believes that all significant testing for all
potential Y2K issues will be completed in the third quarter of calendar 1999,
all other testing will be completed in October 1999. However, there can be no
assurances that customers, suppliers and/or service providers on whom the
Company relies will resolve their Y2K issues accurately, thoroughly and/or on
time. Contingency plans were considered and will be in place by the end of Y2K
testing, which will be completed in October 1999, in the event that the Company
is at risk in regard to suppliers, customers or their own internal hardware and
software.

Based on management's assessment of the cost of addressing Y2K compliance
issues, such cost is not currently expected to have a material adverse impact on
the Company's financial position. The total cost of the project is estimated at
$300,000 and is being expensed over the three-year term of the operating lease
for the equipment and software. The estimated cost of the project and the date
on which the Company believes it will complete the Year 2000 modifications and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors.

However, there can be no assurance that these estimates will be achieved, and
actual results could differ materially from those anticipated. Failure to
complete the Y2K project by the year 2000 could have a material adverse affect
on future operating results and the financial condition of the Company.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and measurement of those instruments at fair
value. The accounting for changes in the fair value of a derivative is dependent
upon the intended use of the derivative. SFAS No. 133 will be effective in the
Company's first quarter of the fiscal year ending June 30, 2001 and retroactive
application is not permitted. Management does not believe that this Statement
will have a significant impact on the Company.


<PAGE>


In April 1998, the American Institute of Certified Public Accountants' ("AICPA")
Accounting Standards Executive Committee issued Statement of Position No. 98-5
("SOP 98-5"), REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5 requires
that costs of start-up activities, including organization costs, be expensed as
incurred. SOP 98-5 will be effective in the Company's first quarter of the
fiscal year ending June 30, 2000. Management does not believe that this
Statement will have a significant impact on the Company.


<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

          Not Applicable

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See the financial statements annexed to this Report.

ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

         Not Applicable


<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The directors and executive officers of Group are as follows:
<TABLE>
<CAPTION>

NAME                              AGE       POSITION
<S>                               <C>       <C>
Douglas P. Fields(1)               57       Chairman of the Board and Chief Executive Officer
James E. Helzer(1)                 59       President, Vice Chairman of the Board of Directors
Frederick M. Friedman(1)           59       Executive Vice President, Treasurer, Secretary and a Director
E.G. Helzer                        48       Senior Vice President-Operations
Gary L. Howard                     44       Senior Vice President-Operations
Steven R. Andrews(2)               44       Vice President-Legal and a Director
Paul D. Finkelstein(2)(3)          57       Director
George Skakel III(2)(3)            48       Director
John E. Smircina(1)(3)             66       Director
</TABLE>

         Group's Management believes that Messrs. Andrews, Finkelstein, Smircina
and Skakel may be considered to be independent directors.


-----------------------
(1)      Members of the Executive Committee of Group's Board of Directors.

(2)      Members of the Audit  Committee of Group's Board of Directors.  Mr.
Finkelstein is Chairman of the Audit Committee.

(3)      Members of the Compensation Committee of Group's Board of Directors.


         Set forth below is a brief background of the foregoing executive
officers and directors, based on information supplied by them.

         Douglas P. Fields has been the Chairman of the Board of Directors,
Chief Executive Officer and a Director of Group since inception. From Group's
inception until July 1996, Mr. Fields also served as its President. For more
than the past five years, Mr. Fields has been the Chairman of the Board of
Directors, President and Chief Executive Officer of TDA and Chief Executive
Officer and a Director of each of its subsidiaries, including Eagle, Cooper
Flooring International, Inc. ("CFI") (which was a subsidiary of TDA until it was
sold by TDA on June 12,


<PAGE>


1998) and  Northeastern  Plastics,  Inc.  ("NPI") (which was a subsidiary of TDA
until  August 1996 when it was acquired by  Acqueren,  Inc.  ("AI") of which Mr.
Fields was Chief  Executive  Officer until TDA sold its interest in AI in August
1998).  Since July 1997 and October  1998,  Mr. Fields has held the positions of
Chairman  of the Board and Chief  Executive  Officer of JEH Eagle and MSI Eagle,
respectively.  TDA is a holding  company  that is the  majority  stockholder  of
Registrant and whose operating  subsidiaries  are engaged in the operation of an
indoor tennis facility and the management of real estate.  Mr. Fields devotes no
less time to Group's affairs than he deems reasonably necessary to discharge his
duties to Group. Mr. Fields received a Masters degree in Business Administration
from the Harvard University  Graduate School of Business  Administration in 1966
and a B.S. degree from Fordham University in 1964.

         Frederick M. Friedman has been Executive Vice President, Chief
Financial Officer, Treasurer, Secretary and a Director of Group since inception.
For more than the past five years, Mr. Friedman has been Executive Vice
President, Chief Financial Officer, Treasurer, Secretary and a Director of TDA
and Vice President, Chief Financial Officer, Treasurer, Secretary and a Director
of each of its subsidiaries, including Eagle, CFI (which was a subsidiary of TDA
until it was sold by TDA on June 12, 1998) and NPI (which was a subsidiary of
TDA until August 1996 when it was acquired by AI in which Mr. Friedman held
similar positions until TDA's interest in AI was sold in August 1998). Since
July 1997 and October 1998, Mr. Friedman has held the same positions with JEH
Eagle and MSI Eagle, respectively. Mr. Friedman devotes no less time to Group's
affairs than he deems reasonably necessary to discharge his duties to Group. Mr.
Friedman received a B.S. degree in Economics from The Wharton School of the
University of Pennsylvania in 1962.

         James E. Helzer has been the President of JEH Eagle since July 1997,
President of Group and Eagle since December 1997 and Vice Chairman of Group's
Board of Directors since March 1999. From 1982 until July 1997, Mr. James E.
Helzer was the owner and Chief Executive Officer of JEH Co.

         E.G. Helzer has been the Senior Vice  President-Operations  of JEH
Eagle,  Eagle and Group  since  July  1997,  December  1997 and  December  1997,
respectively.  From 1994 until July 1997, Mr. E.G. Helzer was the Vice President
of Operations  and Colorado  Manager of JEH Co. From 1982 until 1994, he was JEH
Co.'s  Manager-Production  and Service.  E.G.  Helzer is the brother of James E.
Helzer.

         Gary L. Howard has been the Senior Vice President-Operations of Group
and JEH Eagle since July 1999, had been Vice President-Masonry Products of Group
from December 1998 to July 1999 and has been President of MSI Eagle since
October 1998. From at least 1994 until October 1998, Gary L. Howard was the
owner and chief executive officer of MSI Co.

         Steven R. Andrews, Esq. has been a Director of Group since May 1996 and
Vice President-Legal of Group since March 1999. For more than the past five
years, Mr. Andrews has been engaged in the private practice of law. Mr. Andrews
received a Juris Doctor degree and an L.L.M. degree in 1977 and 1978 from
Stetson University and New York University, respectively. In his capacity as
Group's Vice President-Legal, Mr. Andrews has entered into an agreement with
Group


<PAGE>


requiring him to review Group's and its officers' and directors' compliance with
their  obligations  under  federal and state  securities  laws.  Mr.  Andrews is
required  to report his  findings  to the Audit  Committee  of Group's  Board of
Directors. Group's agreement with Mr. Andrews does not require him to devote any
minimum  amount  of time to the  foregoing  obligations  and  provides  him with
compensation of $1,000 per month.

         Paul D. Finkelstein has been the President and Director of the Regis
Corporation, an operator of beauty salons and a cosmetic sales company, for more
than the past five years and that corporation's Chief Executive Officer since
July 1996. Mr. Finkelstein became a Director of Group in February 1999. Mr.
Finkelstein received a Masters degree in Business Administration from the
Harvard University Graduate School of Business Administration in 1966 and a B.S.
degree in Economics from The Wharton School of the University of Pennsylvania in
1964.

         George Skakel III has been a private investor for more than the past
five years. Mr. Skakel became a Director of Group in February 1999. Mr. Skakel
received a B.S. degree in Economics from the University of Delaware in 1973 and
a Masters degree in Business Administration from the Harvard University Graduate
School of Business Administration in 1978.

         John E.  Smircina,  Esq.  had been a partner  in the law firm of Wade,
Hughes and Smircina,  P.C. from April 1993 until July 1996. Since July 1996, Mr.
Smircina has been a sole  practitioner.  For more than the past five years,  Mr.
Smircina has been a Director of TDA,  and he was a director of AI from  February
1996 until TDA sold its interest in AI in August  1998.  Mr.  Smircina  became a
Director  of Group in March  1999.  Mr.  Smircina  received a Masters  degree in
Industrial  Management  from  Ohio  University  in  1954  and a B.A.  degree  in
Political Science from Ohio University in 1953.

         Group's Directors serve until the next annual meeting of stockholders
of Group and until their successors are elected and duly qualified. Officers of
Group are elected annually by the Board of Directors and serve at the discretion
of the Board of Directors. Group's independent directors are responsible for
reviewing and approving all material related party transactions including
potential conflicts of interest and ensuring stockholder approval is obtained
when they believe it is necessary.

         The Board of Directors  has  established  an Executive  Committee
which is composed of Douglas P. Fields,  Frederick M. Friedman,  James E. Helzer
and John E.  Smircina,  Esq. The Board of Directors of Group can delegate to the
Executive  Committee all of the powers and authority  (other than those reserved
by statute to the full Board of Directors) of the full Board of Directors in the
management of the business and affairs of Group.

         In connection with certain transactions which occurred in 1971 and
1973, Messrs. Fields and Friedman and TDA, then a public company, without
admitting or denying the allegations set forth in a civil action commenced by
the Commission in 1976, consented to a final judgment of permanent injunction
which, in summary, provided that Messrs. Fields and Friedman and TDA were
permanently enjoined from violating the registration, reporting, proxy and the
anti-fraud provisions of the federal securities laws and rules. Additionally,
Messrs. Fields and Friedman


<PAGE>


agreed to certain ancillary relief which included their agreements, for a period
of two years,  to resign as directors of TDA and a publicly  held  subsidiary of
TDA and not to vote any securities of TDA and the subsidiary owned or controlled
by them. The Commission's  complaint alleged,  among other things,  that in 1973
TDA and Messrs.  Fields and Friedman,  in connection  with TDA's  acquisition of
Eagle,  caused  an  improper  finder's  fee to be paid to  Messrs.  Fields'  and
Friedman's  designee  with a portion of such finder's fee being paid back to Mr.
Friedman.  Based upon facts related to the injunctive  action, in 1979,  Messrs.
Fields and  Friedman  were found  guilty of  conspiring  to violate  the federal
securities laws and making false statements in filings made with the Commission.
Messrs.   Fields  and   Friedman   were   sentenced  to  six  and  three  months
incarceration,  respectively, and both were fined. Also, on facts related to the
injunctive  action,  Mr. Friedman was found guilty of mail and wire frauds.  Mr.
Friedman was sentenced to one month incarceration on each of three counts.

         In order to secure the NASDAQ listing of Group's securities, Group
agreed with NASDAQ:

-        to establish Audit and Compensation Committees, each with a majority of
         independent directors;

-        to have independent director oversight of materially related party
         transactions including potential conflicts of interest and to have
         independent directors determine when stockholder approval is to be
         obtained for any such transactions;

-        that neither Messrs. Fields, Friedman nor TDA will (a) receive
         finders fees in connection with any acquisition by Group or (b)
         dispose of any of Group's shares of Common Stock for a two-year
         period from NASDAQ listing;

-        to create the position of "Vice President-Legal" who will report to
         Group's Audit  Committee and who will be removed or re-elected only by
         the vote of Group's stockholders;

-        that purchasers of shares of Group's Common Stock in Group's IPO
         would be entitled, but not required, to purchase an equal number
         of warrants;

-        to repeat the information set forth in the  immediately  preceding
         paragraph in Group's first five annual reports; and

-        that two years after Group's securities are listed on NASDAQ, the
         Audit Committee is to certify that the foregoing requirements have
         been complied with.

KEY PERSON LIFE INSURANCE

         JEH Eagle maintains a "key person" life insurance policy in the amount
of $2,000,000 on the life of James E. Helzer, naming JEH Eagle beneficiary of
such policy. MSI Eagle has "key person" life insurance on the life of Gary L.
Howard, in the amount of $2,000,000 naming MSI


<PAGE>


Eagle  beneficiary of such policy.  Group  maintains "key person" life insurance
policies in the amount of  $1,000,000  on each of the lives of Douglas P. Fields
and Frederick M. Friedman.

ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth certain summary information with respect
to the compensation paid by Group or the Subsidiaries for services rendered in
all capacities during each of the Subsidiaries last two fiscal years by those
persons indicated. Neither Group, Eagle, nor any of the Subsidiaries have had
any other executive officer whose total annual salary and bonus exceeded
$100,000 for either of said fiscal years:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                                    FISCAL YEAR
                                                                                    ENDED
NAME AND PRINCIPAL POSITION                                                         JUNE 30,        SALARY       BONUS
<S>                                                                                 <C>             <C>          <C>
Douglas P. Fields                                                                   1999            $75,833      $0
 Chief Executive Officer of Group, Eagle, JEH Eagle and MSI Eagle                   1998            $     0      $0

James E. Helzer                                                                     1999            $300,000     $0
      President of Group, Eagle and JEH Eagle                                       1998            $275,000     $0

E.G. Helzer                                                                         1999            $150,000     $0
      Senior Vice President of Group, Eagle and JEH Eagle                           1998            $137,500     $0

Gary  L. Howard                                                                     1999            $226,200     $0
       Vice President-Masonry Products                                              1998             N/A          N/A
       and President of MSI Eagle
</TABLE>


    Employment Agreements and Arrangements

         Group, Eagle, JEH Eagle and MSI Eagle have entered into agreements with
five executive officers who are anticipated to receive cash compensation in
excess of $100,000 per year.

         Group and Eagle have entered into employment agreements with Messrs.
Fields and Friedman pursuant to which they act as Chairman of the Board and
Chief Executive Officer, and Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and a Director of Group and Eagle, respectively, for a
five-year period commencing in March 1999, at annual salaries of $200,000 each,
subject to annual increases or bonuses as may be determined by the Board of
Directors.


<PAGE>


         JEH Eagle has entered into agreements with Messrs. Fields and Friedman
pursuant to which they act as Chairman of the Board of Directors and Chief
Executive Officer, and Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and a Director of JEH Eagle, respectively, for a five-year
period which commenced in July 1997, at annual salaries of $60,000 each, subject
to annual increases and bonuses as may be determined by JEH Eagle's Board of
Directors. The compensation payable to Messrs. Fields and Friedman under these
employment agreements commenced in March 1999.

         Pursuant to the foregoing employment agreements, Messrs. Fields' and
Friedman's written consent is required if they are to be employed other than in
proximity to their residences. Messrs. Fields and Friedman reside in Connecticut
and New York, respectively. The agreements require Eagle and JEH Eagle to
provide their beneficiaries and each of them, respectively, with twelve months
salary in the event of death or disability and indemnify Messrs. Fields and
Friedman to the full extent permitted under the Delaware General Corporation
Law. Their agreements do not require either Messrs. Fields or Friedman to commit
a specific amount of their time to the affairs of Group, Eagle or JEH Eagle.
Messrs. Fields and Friedman will devote no less time than they deem reasonably
necessary to carry out their duties to Group, Eagle, JEH Eagle and MSI Eagle.

         Group's and JEH Eagle's agreements with Messrs. Fields and Friedman
contain provisions for payments of salary and benefits following a change of
control (as defined) of Group or JEH Eagle, the failure to reappoint either of
them to his position, a salary reduction or Group's or JEH Eagle's failure to
perform its obligations under their respective agreements. In general, under
such circumstances, each of Messrs. Fields and Friedman would be entitled to a
cash payment equivalent to his salary for the remaining term of his agreement,
and continued life, health and disability insurance benefits for a period of two
years.

         JEH Eagle has also entered into agreements with Messrs. James E. Helzer
and E.G. Helzer pursuant to which they serve as President and Senior Vice
President-Operations, respectively, of JEH Eagle for terms of five and three
years, respectively, which commenced in July 1997, at compensation rates of
$250,000 and $125,000 per year, respectively, subject to annual review by JEH
Eagle's Board of Directors. Additionally, in December 1997, James E. Helzer
accepted the positions of President of Group and Eagle, and E.G. Helzer accepted
the positions of Senior Vice President-Operations of Group and Eagle. As a
result, James E. Helzer's rate of compensation was increased by $50,000 to
$300,000 per year and he is required to devote approximately 80% of his working
time to Group, Eagle and JEH Eagle; and E.G. Helzer's rate of compensation was
increased by $25,000 to $150,000 per year and, in 1999, his compensation was
further increased by $25,000 to $175,000 per year. Additionally, James E. Helzer
and E.G. Helzer are entitled to receive 20% and 6%, respectively, of Eagle's
earnings before taxes in excess of $600,000 per year. James E. Helzer and E.G.
Helzer are employed as President and Senior Vice President-Operations,
respectively, of Group and Eagle pursuant to oral agreements that can be
terminated by either party without notice or penalty.

         MSI Eagle has entered into an agreement with Gary L. Howard pursuant to
which he serves as an executive officer of MSI Eagle, currently President, for a
term ending on June 30, 2003, at an annual salary of $260,000, subject to annual
review by MSI Eagle's Board of Directors.


<PAGE>


Additionally,  as of November 1998,  Gary L. Howard has accepted the position of
Vice  President-Masonry  Products  of Group and as of July  1999 as Senior  Vice
President-Operations  of  Group  and JEH  Eagle.  Gary L.  Howard,  as the  sole
shareholder and chief executive officer of MSI Co.,  received  compensation from
MSI Co. of approximately $725,000 for MSI Co.'s fiscal year ended June 30, 1998.

         Steven R. Andrews,  Esq.  serves as Group's Vice  President-Legal,  and
he is  compensated at the rate of $1,000 per month.  Group's  agreement with Mr.
Andrews is oral and can be terminated by either party without notice or penalty.

         Group has granted to each of Messrs. James H. Helzer, E.G. Helzer,
Steven R. Andrews and Gary L. Howard options exercisable to purchase 120,000,
60,000, 100,000, and 100,000 shares of Common Stock, respectively. Such options
have a term of ten years and are exercisable at $5.00 per share. Such options
vest as to 20% of the underlying shares of Common Stock on each successive
anniversary of the date of grant commencing one year from March 17, 1999,
provided that they are employees of Group on such dates.

         Messrs.  Fields,  Friedman,  Helzer,  Howard and Andrews hold the
positions set forth opposite their names for the corporations indicated below:
<TABLE>
<CAPTION>

NAME                      GROUP                      EAGLE                      JEH EAGLE                  MSI EAGLE
<S>                       <C>                        <C>                        <C>                        <C>
Douglas P. Fields         Chairman of the            Chairman of the            Chairman of the            Chairman of the
                          Board and Chief            Board and Chief            Board and Chief            Board and Chief
                          Executive Officer          Executive Officer          Executive Officer          Executive Officer

James E. Helzer           President and Vice         President and              President and              Director
                          Chairman of the            Director                   Director
                          Board of Directors

Frederick M.              Executive Vice             Executive Vice             Executive Vice             Executive Vice
 Friedman                 President, Treasurer,      President, Treasurer,      President, Treasurer,      President,Treasurer,
                          Secretary and              Secretary and              Secretary and              Secretary and
                          Director                   Director                   Director                   Director

E.G. Helzer               Senior Vice                Senior Vice                Senior Vice
                          President-Operations        President-Operations      President-Operations


Gary L. Howard            Senior Vice                                           Senior Vice                President
                          President-Operations                                  President-Operations

Steven R. Andrews         Vice President-
                          Legal and Director

</TABLE>

<PAGE>


AGREEMENT  WITH MR. SKAKEL

                  Group and Mr. Skakel have entered in to an agreement for a
term of six months pursuant to which Mr. Skakel has agreed to introduce Group to
potential financing sources and, in the event Group successfully concludes
certain financing arrangements, with sources introduced by Mr. Skakel, Mr.
Skakel will be entitled to receive a fee of 7% or 4% of any equity or certain
debt financing, respectively.

COMPENSATION OF DIRECTORS

         Group's Directors not receive compensation for their services as
directors; however, the Board of Directors may authorize the payment of
compensation to directors for their attendance at regular and special meetings
of the Board and for attendance at meetings of committees of the Board as is
customary for similar companies. Directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with their duties to Group.

LIMITATION ON LIABILITY OF DIRECTORS

         The Delaware General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation or to its stockholders for monetary damages for breach of
fiduciary duty of care as a director, with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. Group's Certificate of Incorporation
exonerates its directors from monetary liability to the extent permitted by this
statutory provision. Group has been advised that it is the position of the
Commission that, insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, that provision is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

STOCK OPTION PLAN

         In December 1998, the Board of Directors and the stockholders adopted
and approved, as the case may be, Group's 1998 Stock Option Plan (the "Stock
Option Plan"). The Stock Option Plan provides for the grant of (i) options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422A of the Internal Revenue Code, as amended (the
"Code"), to certain employees, directors and consultants, and (ii) options not
intended to so qualify ("Non-Qualified Stock Options") to employees (including
directors and officers who are employees of Group), directors and consultants.
The total number of shares of Common Stock for which options may be granted
under the Stock Option Plan is 1,000,000 shares. Options exercisable into
878,300 shares of Common Stock to various of Group's employees, including
options to purchase an aggregate of 380,000 shares issued to Messrs. James E.
Helzer, E.G. Helzer, Gary L. Howard and Steven R. Andrews, Esq. have been
granted at a $5.00 per share exercise price.


<PAGE>


         Messrs. Finkelstein and Skakel have each been granted options to
purchase 10,000 shares of Common Stock pursuant to Group's Stock Option Plan.
Such options have a term of ten years and will be exercisable at $5.00 per share
and vest on March 17, 2000.

         The Stock Option Plan is administered by the Board of Directors and can
be administered by a committee appointed by the Board of Directors which will
determine the terms of options granted, including the exercise price, the number
of shares subject to the option and the terms and conditions of exercise. No
option granted under the Stock Option Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.

         The exercise price of all stock options granted under the Stock Option
Plan must be at least equal to the fair market value of such shares on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting rights of all classes of Group's outstanding capital stock,
the exercise price of any Incentive Stock Option must be not less than 110% of
the fair market value on the date of grant. The term of each option granted
pursuant to the Stock Option Plan may be established by the Board of Directors
or a committee of the Board of Directors, in its sole discretion; provided,
however, that the maximum term of each Incentive Stock Option granted pursuant
to the Stock Option Plan is ten years. With respect to any Incentive Stock
Option granted to a participant who owns stock possessing more than 10% of the
voting rights of all classes of Group's outstanding capital stock, the maximum
term is five years. Options shall become exercisable at such times and in such
installments as the Board of Directors or a committee of the Board of Directors
shall provide in the terms of each individual option.

OPTIONS GRANTED PURSUANT TO THE STOCK OPTION PLAN TO EXECUTIVE OFFICERS AND
DIRECTORS OF GROUP

         The table below shows, as to each of the executive officers and
directors of Group and as to all executive officers and directors of Group as a
whole, the following information with respect to stock options granted under the
Stock Option Plan: (i) the aggregate amounts of shares of Common Stock subject
to options to be granted; and (ii) the price or range per share option exercise
price for options granted.


<PAGE>


<TABLE>
<CAPTION>
NAMES OF EXECUTIVE OFFICERS,                                              SHARES SUBJECT       PER SHARE
DIRECTORS AND DIRECTOR NOMINEES                                               TO OPTIONS       EXERCISE PRICE
<S>                                                                       <C>                  <C>
James E. Helzer(1)                                                        120,000               $5.00

E.G. Helzer(1)                                                             60,000               $5.00

Gary L. Howard                                                             10,000               $5.00

Steven R. Andrews(1)                                                      100,000               $5.00

Paul D. Finkelstein(2)                                                     10,000               $5.00

George Skakel III(2)                                                       10,000               $5.00

All Executive Officers and Directors as a group (9 persons)               400,000               $5.00
</TABLE>



------------------
(1) All of the options granted to Messrs. James E. Helzer, E.G. Helzer, Gary L.
Howard and Steven R. Andrews vest at a rate of 20% per year from March 17, 1999
with the initial 20% vesting on March 17, 2000, limited, however, such that the
total amount of all options granted to each of them and vesting in any single
year does not exceed $100,000 at the exercise price.

(2) The options granted to Messrs. Finkelstein and Skakel will vest on March 17,
2000.

OTHER COMPENSATION

         Eagle, JEH Eagle and MSI Eagle provide basic health, major medical and
life insurance for its employees, including its executive officers. Eagle and
JEH Eagle have also adopted 401(k) Retirement Savings Plans for eligible
employees, as described below. No other retirement, pension or similar program
has been adopted by Group, Eagle, JEH Eagle or MSI Eagle. These and other
benefits may be adopted by Group for its employees or the employees of its
subsidiaries in the future.

         In July 1992 and January 1998, Eagle and JEH Eagle adopted 401(k)
Retirement Savings Plans for employees of Eagle and JEH Eagle, respectively (the
"401(k) Plan"). Eligible employees include all employees of Eagle and JEH Eagle
who have completed one year of employment and have attained the age of 21. The
401(k) Plan permits employees to make voluntary contributions to the 401(k) Plan
up to a dollar limit set by law. Eagle and JEH Eagle may contribute
discretionary matching contributions equal to a determined percentage of the
employees' contributions. Benefits under the 401(k) Plan are distributable upon
retirement, disability, termination of employment or certain financial hardship,
subject to regulatory


<PAGE>


requirements.  Each participant's share of Eagle's and JEH Eagle's contributions
vests at the rate of 20% per year  until  after six years of  service,  at which
time the participant becomes fully vested.

         No contributions were made to the 401(k) Plan by Eagle or JEH Eagle
during the fiscal years ended June 30, 1998 and 1999. Amounts to be contributed
in the future are at the discretion of Eagle's and JEH Eagle's Boards of
Directors. Accordingly, it is not possible to estimate the amount of benefits
that will be payable to participants in the 401(k) Plan upon their retirement.
The trustees under the 401(k) Plan are Robert L. Noojin and Steven R. Skrotsky.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of June 30, 1999, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to Group to own 5% or more of the outstanding
shares of Common Stock, (ii) each executive officer and director of Group, and
(iii) all officers and directors of Group as a whole:
<TABLE>
<CAPTION>

                                                             AMOUNT AND                  APPROXIMATE
                                                             NATURE                      PERCENTAGE OF
                                                             OF BENEFICIAL               COMMON STOCK
IDENTITY                                                     OWNERSHIP                       OWNED
<S>                                                          <C>                         <C>
TDA Industries, Inc.(1)                                       5,100,000(2)                   60.3%
Douglas P. Fields(1)                                          5,100,000(2)                   60.3%
Frederick M. Friedman(1)                                      5,100,000(2)                   60.3%
James E. Helzer(1)                                              300,000(3)                    3.6%
Gary L. Howard (1)                                              250,000(3)                    3.0%
E.G. Helzer(1)                                                        0(3)                      0%
Steven R. Andrews(1)                                            100,000(3)                    1.2%
Paul D. Finkelstein(1)                                                0(3)                      0%
John E. Smircina(1)                                           5,100,000(2)                   60.3%
George Skakel III(1)                                                  0(3)                      0%
All executive officers and directors                          5,750,000(2)(3)                68.1%
as a group (9 persons)
</TABLE>

-------------------
The addresses for the foregoing entity and persons are:
-     TDA Industries, Inc., 122 East 42nd Street, New York, New York 10168.
-     Messrs.  Fields and  Friedman,  c/o Eagle Supply Group,  Inc.,  122 East
      42nd Street,  New York,  New York 10168.
-     Mr. Helzer, 2500 U.S. Highway 287, Mansfield, Texas 76063.
-     Mr. Howard, 2090 Highway 157 N., Mansfield, Texas 76063.
-     Mr. Andrews, 822 North Monroe Street, Tallahassee, Florida 32303.
-     Mr. Finkelstein, c/o Regis Corp., 7201 Metro Boulevard, Minneapolis, MN
      55439-2130.


<PAGE>


-     Mr. Smircina, 616 N. Washington Street, Alexandria, Virginia 22314.
-     Mr. Skakel, 333 Ludlow Street, Stamford, Connecticut 06902.
(2)   Messrs. Fields  and Friedman are officers and directors and principal
      stockholders  of TDA. Mr.  Smircina is a director of TDA.  Each of
      Messrs. Fields,  Friedman and  Smircina  may be deemed to exercise  voting
      control  over  securities  of Group  owned by TDA.  See Item 10.
      "Directors  and  Executive  Officers  of Registrant" and Item 13. "Certain
      Relationships and Related Transactions."

(3)   Does not include options granted under Group's Stock Option Plan. See Item
      10. "Directors and Executive Officers of Registrant."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

JEH EAGLE

         In July 1997, JEH Eagle acquired the business and substantially all of
the assets of JEH Co., which is wholly-owned by James E. Helzer, now the
President of Group, Eagle and JEH Eagle. See "- The Subsidiaries - The 1997
Acquisition of JEH Co."

         In order to pay a substantial portion of the purchase price for the
acquisition of JEH Co.'s business and to provide working capital to JEH Eagle,
JEH Eagle in July 1997 entered into a loan agreement for a credit facility of up
to $20,000,000 (the "JEH Facility") guaranteed by Group and TDA and
collateralized by substantially all of the assets of JEH Eagle. Of the
$13,878,000 initial cash payment portion of the $14,768,000 JEH Co. tentative
purchase price, including transaction expenses, approximately $12,500,000 was
supplied pursuant to the JEH Facility and approximately $1,350,000 was
contributed to JEH Eagle by TDA as equity capital. In connection with the
acquisition of JEH Co., JEH Eagle paid TDA a financing fee of $150,000. See
Item. 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

         James E. Helzer had rented to JEH Co. and continues to rent to JEH
Eagle, pursuant to five-year written leases, the premises for several of JEH
Eagle's distribution centers and JEH Eagle's executive offices. Rental payments
to Mr. Helzer for the several distribution facilities he leases to JEH Eagle
aggregated $498,000 during Fiscal 1999. See Item. 2. "Properties."

         JEH Co. had substantial indebtedness to James E. Helzer for funds
advanced by him to JEH Co. As part of JEH Eagle's purchase of the business and
substantially all of the assets of JEH Co., JEH Eagle did not assume this
liability to Mr. Helzer.

         During its fiscal year ended June 30, 1999 JEH Eagle made sales
aggregating approximately $546,000, respectively, to Classic Roofs and Indy
Roofing, respectively, two entities owned by Jay James Helzer, the son of James
E. Helzer.

         Pursuant to an agreement, TDA provides JEH Eagle with certain services
including: (i) managerial, (ii) strategic planning, (iii) banking negotiation,
(iv) investor relations, and (v)


<PAGE>


advisory  services relating to acquisitions for a five-year term which commenced
in July 1997. A $3,000 monthly fee commenced in March 1999.

MSI EAGLE

         In October 1998, MSI Eagle acquired the business and substantially all
of the assets of MSI Co., which is wholly-owned by Gary L. Howard, now a Senior
Vice President-Operations of Group and JEH Eagle and President of MSI Eagle. See
" - The Subsidiaries - The 1998 Acquisition of MSI Co."

         In order to pay a substantial portion of the purchase price for the
acquisition of MSI Co.'s business and assets and to provide working capital to
MSI Eagle, MSI Eagle in October 1998 entered into a loan agreement for a credit
facility of up to $9,075,000 (the "MSI Facility") guaranteed by Group and TDA
and collateralized by substantially all of the assets of MSI Eagle. Of the
$6,492,000 cash payment portion of the approximate $8,538,000 tentative purchase
price for the business and substantially all of the assets of MSI Co., including
transaction expenses, approximately $4,250,000 was supplied pursuant to the MSI
Facility, $1,000,000 was invested by TDA into MSI Eagle as an equity investment
and $1,000,000 was lent to MSI Eagle by TDA pursuant to a six percent two-year
note in that principal amount payable in full in October 2000. TDA has agreed
with MSI Eagle's credit facility lending institution to defer the interest
payable on such note until its maturity.

TDA-EAGLE

         TDA is a holding company which operated several business enterprises
that included Eagle, JEH Eagle and MSI Eagle until their acquisition by Group in
March 1999. For TDA's fiscal year ended June 30, 1999, the revenues of the
Subsidiaries constituted a majority of TDA's revenues. During its fiscal year
ended June 30, 1999, Eagle and JEH Eagle made cash dividend payments to TDA of
$450,000 and $750,000, respectively. See " - The Subsidiaries - In General" for
a discussion of a non-cash dividend paid by Eagle to TDA. Since the acquisition
of the Subsidiaries, all dividends ceased and accounting and auditing fees have
been incurred directly by Eagle. See the Financial Statements and the Notes
thereto.

         Eagle is party to a loan agreement which provides for a credit facility
in the amount of $10,900,000 (the "Eagle Facility") and is due in October 2003
and is guaranteed by Group and TDA. Eagle's obligations under the Eagle Facility
are collateralized by certain tangible and intangible current assets and certain
automotive equipment of Eagle with borrowings under the revolving credit loan of
the Eagle Facility based on a formula relating to certain levels of receivables
and inventory, as defined therein. During Eagle's fiscal year ended June 30,
1995, Eagle had used its borrowings under the Eagle Facility to repay $2,325,533
of its indebtedness to TDA and to advance $3,308,681 to TDA. At June 30, 1999,
Eagle's borrowings under the Eagle Facility were $9,425,117. See Item. 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."


<PAGE>


         In October 1998, Eagle Holding, Inc. ("Holding") lent Eagle $400,000
repayable on demand but without interest. Also in October 1998, TDA lent Eagle
$1,000,000 repayable on demand without interest. The loans were made to enhance
Eagle's working capital. These loans were paid in full prior to the closing of
Group's initial public offering and the acquisition of the Subsidiaries.

         See "- The Subsidiaries - Eagle Related Party Transactions" for further
information concerning transactions among Eagle and its affiliates.

         In February of 1998, Group sold an aggregate of $300,000 in principal
amount of its promissory notes to three of its stockholders, including $150,000
in principal to TDA, for aggregate gross proceeds of $300,000. The notes bore
15% interest per year through June 30, 1998 and 6% per year after that date. In
August 1998 and January 1999, TDA lent Group an aggregate of $200,000 pursuant
to two-year 6% notes. Group paid the notes in full from the net proceeds of
Group's initial public offering by the payment of $534,907 in principal and
interest in March 1999.

         TDA provides office space and administrative services to Group at TDA's
offices in New York City pursuant to a month-to-month administrative services
agreement requiring a $3,000 monthly payment to TDA. Prior to March 1999, Group
utilized office space and administrative services provided by TDA without
charge. At June 30, 1999, TDA had been paid $10,500 pursuant to this agreement.

         The foregoing transactions that Eagle, JEH Eagle and MSI Eagle have
engaged in with TDA have benefited or may be deemed to have benefited TDA,
directly or indirectly. Messrs. Fields and Friedman, Group's Chief Executive
Officer and Chairman of its Board of Directors and Executive Vice President,
Chief Financial Officer, Treasurer, Secretary, and a Director of Group,
respectively, are also executive officers, directors and principal stockholders
of TDA and have benefited or may be deemed to have benefited, directly or
indirectly, from Group's, Eagle's, JEH Eagle's and MSI Eagle's transactions with
TDA. TDA and/or certain of its subsidiaries derive funds from the operation of
an indoor tennis facility, commercial realty and lease payments from Eagle.
These sources pay TDA's operating expenses, including the payment of salaries
and benefits to Messrs. Fields and Friedman. See Item. 11. "Executive
Compensation."

         Messrs. Fields and Friedman are also officers, directors and principal
stockholders of TDA, and Mr. Smircina is a director of TDA, and, consequently,
they will be able, through TDA, to direct the election of Group's directors,
effect significant corporate events and generally direct the affairs of Group.
Group does not intend to enter into any material transactions, loans or
forgiveness of loans with any affiliates, except as contemplated or disclosed in
this Report, unless such transaction is fair and reasonable to Group and is on
terms no less favorable than could be obtained from unaffiliated third parties.
Additionally, any such event must be approved by a majority of Group's directors
who do not have an interest in such a transaction and who have had access, at
Group's expense, to independent legal counsel.


<PAGE>


FAIRNESS

         The foregoing transactions that Eagle and JEH Eagle have engaged in
with James E. Helzer have benefited or may be deemed to have benefited Mr.
Helzer, directly or indirectly. James E. Helzer is the President of Group, Eagle
and JEH Eagle.

         The foregoing transactions that MSI Eagle have engaged in with Gary L.
Howard have benefited or may be deemed to have benefited Mr. Howard. Mr. Howard
is a Senior Vice President-Operations of Group and JEH Eagle and the President
of MSI Eagle.

         Group's management believes that the foregoing transactions are fair
and reasonable to Group and were made on terms no less favorable to Group,
Eagle, JEH Eagle and MSI Eagle, as the case may be, than on terms and conditions
that could have been entered into with independent third parties.

         Each of TDA and Messrs. Fields and Friedman may be deemed to be a
"promoter" of Group as such term is defined under the federal securities laws.

THE SUBSIDIARIES

IN GENERAL

         Simultaneously with the closing of Group's IPO, Group acquired Eagle,
JEH Eagle and MSI Eagle from TDA, and TDA received 3,000,000 shares of Group's
Common Stock. TDA also purchased 100,000 shares of Group's Common Stock offered
in the IPO at $5.00 per share.

         Additionally, as part of the acquisition of the Subsidiaries, TDA had
guaranteed that the Subsidiaries would have a book value of no less than
$1,000,000 after Eagle cancelled, in the form of a non-cash dividend, all
indebtedness of TDA to Eagle, except for an approximately $486,000 receivable
from TDA relating to and offsetting a mortgage in the same amount on property
previously owned by Eagle. At March 17, 1999, the combined book value of the
Subsidiaries was approximately $2,180,000, which exceeded the required
$1,000,000 combined book value by approximately $1,180,000 after assuming
cancellation by Eagle, in the form of a non-cash dividend, of all indebtedness
of TDA to Eagle, at that date, excluding the foregoing receivable offsetting
such mortgage. At June 30, 1999, TDA's indebtedness to Eagle, excluding the
foregoing receivable offsetting such mortgage, was approximately $3,070,000.

         As a result of the IPO, 300,000 and 200,000 shares of Group's Common
Stock were issued to Messrs. Helzer and Howard, respectively, as additional
consideration in connection with JEH Eagle's acquisition of JEH Co. and MSI
Eagle's acquisition of MSI Co..

EAGLE RELATED PARTY TRANSACTIONS

         TDA, through a wholly-owned subsidiary, 39 Acre Corp., had rented to
Eagle on a month-to-month basis without formal written leases the premises for
several of Eagle's distribution


<PAGE>


facilities  and  Eagle's  executive  offices  at  aggregate  annual  rentals  of
approximately  $790,000  during  its  fiscal  year  ended  June 30,  1998.  Upon
completion of Group's IPO,  Eagle and TDA entered into ten-year  leases for said
premises on economic terms substantially similar to prior arrangements.

         Eagle had purchased the premises for a former distribution center from
an unrelated third party several years ago, with the purchase price financed
with a purchase money mortgage and a promissory note in the principal amount of
$550,000 to be paid in fifty-nine equal monthly installments of approximately
$4,700 and a "balloon" payment of approximately $440,000 that was paid on
September 2, 1999. Eagle's rental payments to 39 Acre Corp. for the property
have exceeded the mortgage payments for this property and Eagle has not been
required to pay any sums in excess of its rental payments.

         Eagle was responsible to Holding under a lease, for a former Eagle
distribution cemter, that expired on May 1, 1999. The annual rental payments,
approximately $240,000, included a ratable share of a $580,000 "balloon" payment
due under an industrial revenue bond for the premises. Eagle has no further
material obligations with respect to these premises.

THE 1997 ACQUISITION OF JEH CO.

         In July 1997, JEH Eagle acquired the business and substantially all of
the assets of JEH Co., a Texas corporation, wholly-owned by James E. Helzer, now
the President of Group. The purchase price, as adjusted, including transaction
expenses, was approximately $14,768,000, consisting of $13,878,000 in cash, net
of $250,000 due from JEH Co., and a five-year note bearing interest at the rate
of 6% per annum in the principal amount of $864,652. The purchase price and the
note are subject to further adjustments under certain conditions. Certain,
potentially substantial, contingent payments, as additional future consideration
to JEH Co., or its designee, are to be paid by JEH Eagle. Upon consummation of
the IPO, Group issued 300,000 of its common shares to James E. Helzer, the
designee of JEH Co., in fulfillment of certain of such future consideration.
(See Note 2 to the consolidated financial statements.) For the fiscal year ended
June 30, 1999, approximately $1,773,000 of additional consideration is payable
to JEH Co. All of such additional consideration increased goodwill and is being
amortized over the remaining life of the goodwill. No additional consideration
was payable to JEH Co. for fiscal 1998.

THE 1998 ACQUISITION OF MSI CO

         In October 1998, MSI Eagle acquired the business and substantially all
of the assets of MSI Co., a Texas corporation, wholly-owned by Gary L. Howard,
now a Vice President of Group. The purchase price, as adjusted, including
transaction expenses, was approximately $8,538,000, consisting of $6,492,000 in
cash and a five-year note bearing interest at the rate of 8% per annum in the
principal amount of $2,045,972. The purchase price and the note are subject to
further adjustments under certain conditions. Upon the consummation of the IPO,
Group issued 50,000 of its common shares to Gary L. Howard, the designee of MSI
Co., in payment of $250,000 principal amount of the note. The balance of the
note was paid in full in


<PAGE>

March 1999 out of the  proceeds of the IPO.  Certain,  potentially  substantial,
contingent  payments,  as  additional  future  consideration  to MSI Co., or its
designee,  are to be paid by MSI  Eagle.  Upon  consummation  of the IPO,  Group
issued  200,000 of its common shares to Gary L. Howard in fulfillment of certain
of  such  future  consideration.  (See  Note  2 to  the  consolidated  financial
statements.) Such consideration increased goodwill and is being amortized
over the remaining life of the goodwill. No additional consideration is payable
to MSI Co. for fiscal 1999.

OTHER RELATED PARTY TRANSACTIONS

         For details  concerning  the  employment  agreements  and  arrangements
with Messrs.  Fields,  Friedman,  Helzers,  and Howard,  see Item. 11 "Executive
Compensation."

         For details  concerning the rental of facilities  from Messrs.  Helzer
and Howard,  and from TDA. See Item 2. "Properties."


<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



       (a) Exhibits
10.35  Letter Amendment to Asset Purchase Agreement among MSI/Eagle Supply,
       Inc., Masonry Supply, Inc., Gary L. Howard and others.(1)

10.36  Letter Agreement between Registrant and George Skakel III.(1)

27.    Financial Data Schedule


      (b)

         All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.

----------------
(1)      Filed herewith.


<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York, on the 28th day of September, 1999.

                                                  By:   /S/ Douglas P. Fields
                                                        -----------------------
                                                        Douglas P. Fields,
                                                        Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated:

<TABLE>
<CAPTION>

SIGNATURE                                   TITLE                               DATE
---------                                   -----                               ----
<S>                                <C>                                  <C>
/S/ Douglas P. Fields              Chairman of the Board                September 28, 1999
---------------------
Douglas P. Fields                  of Directors and Chief
                                   Executive Officer
                                   (Principal Executive Officer)

/S/ Frederick M. Friedman          Executive Vice President,            September 28, 1999
-------------------------
Frederick M. Friedman              Treasurer, Secretary and Director
                                   (Principal Financial and
                                   Accounting Officer)


/S/ James E. Helzer                Vice Chairman of the Board           September 28,1999
-------------------------
James E. Helzer                    of Directors


/S/ Paul D. Finkelstein            Director                             September 28, 1999
------------------------
Paul D. Finkelstein

/S/ George Skakel III
------------------------           Director                             September 28, 1999
George Skakel III


/S/ John E. Smircina               Director                             September 28, 1999
--------------------
John E. Smircina
</TABLE>
<PAGE>

--------------------------------------------------------------------------------
    EAGLE SUPPLY GROUP, INC.
    CONSOLIDATED FINANCIAL STATEMENTS FOR THE
    YEARS ENDED JUNE 30, 1999, 1998 AND 1997,
     AND INDEPENDENT AUDITORS' REPORT
<PAGE>

EAGLE SUPPLY GROUP, INC.

TABLE OF CONTENTS
--------------------------------------------------------------------------------
                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                  1

CONSOLIDATED FINANCIAL STATEMENTS FOR THE
   YEARS ENDED JUNE 30, 1999, 1998 AND 1997:

   Balance Sheets                                                             2

   Statements of Operations                                                   3

   Statements of Shareholders' Equity                                         4

   Statements of Cash Flows                                                  5-6

   Notes to Consolidated Financial Statements                               7-20
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Eagle Supply Group, Inc.

We have audited the accompanying consolidated balance sheets of Eagle Supply
Group, Inc. (the "Company") and subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended June 30, 1999, 1998 and 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 audits 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Eagle Supply Group, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for the years ended June 30, 1999, 1998 and 1997 in
conformity with generally accepted accounting principles.


Deloitte & Touche LLP

Fort Worth, Texas
September 22, 1999
<PAGE>

EAGLE SUPPLY GROUP, INC.

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                    1999            1998
<S>                                                                   <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                           $  8,519,406    $  1,686,003
  Accounts and notes receivable - trade (net of allowance
    for doubtful accounts of $1,600,000 and $977,000, respectively)
    (Notes 5 and 10)                                                    27,172,426      23,023,389
  Inventories (Note 5)                                                  18,972,548      15,176,215
  Deferred tax asset (Note 4)                                              654,474         401,434
  Due from related party (Note 2)                                          250,000         250,000
  Other current assets                                                   1,092,827         756,482
                                                                      ------------    ------------
           Total current assets                                         56,661,681      41,293,523

PROPERTY AND EQUIPMENT, Net (Note 3)                                     6,617,261       5,240,338

EXCESS COST OF INVESTMENTS OVER NET ASSETS
  ACQUIRED (net of accumulated amortization of $508,957 and
  $171,829, respectively) (Note 2)                                      12,147,824       2,705,305

DEFERRED FINANCING COSTS                                                   266,189         232,246
                                                                      ------------    ------------
                                                                      $ 75,692,955    $ 49,471,412
                                                                      ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
  Current portion of long-term debt (Note 5)                          $  2,523,843    $  1,750,098
  Accounts payable                                                      20,138,146      18,481,620
  Notes payable - shareholders                                                --           300,000
  Due to related party (Note 2)                                          1,923,658         143,197
  Accrued expenses and other current liabilities                         3,731,232       2,745,118
  Income taxes due to TDA Industries, Inc.                               1,143,537         792,300
  Federal and state income taxes payable                                   608,160            --
                                                                      ------------    ------------
           Total current liabilities                                    30,068,576      24,212,333

LONG-TERM DEBT (Note 5)                                                 30,139,072      25,294,523

DEFERRED TAX LIABILITY (Note 4)                                             97,512         105,112
                                                                      ------------    ------------
           Total liabilities                                            60,305,160      49,611,968
                                                                      ------------    ------------

COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 8)

SHAREHOLDERS' EQUITY (DEFICIENCY) (Notes 2 and 8):
  Preferred shares, $.0001 par value per share
    2,500,000 shares authorized - none issued and outstanding                 --              --
  Common shares, $.0001 par value per share
    25,000,000 shares authorized - issued and outstanding -
    1999 - 8,450,000 shares; 1998 - 5,400,000 shares                           845             540
  Additional paid-in capital                                            16,658,147       2,702,865
  Retained (deficit) earnings                                             (783,992)        779,658
                                                                      ------------    ------------
                                                                        15,875,000       3,483,063
  Less: Due from TDA Industries, Inc. and affiliated companies            (487,205)     (3,623,619)
                                                                      ------------    ------------
           Total shareholders' equity (deficiency)                      15,387,795        (140,556)
                                                                      ------------    ------------
                                                                      $ 75,692,955    $ 49,471,412
                                                                      ============    ============
</TABLE>

See notes to consolidated financial statements.


                                      - 2 -
<PAGE>

EAGLE SUPPLY GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         1999             1998             1997
<S>                                                 <C>              <C>              <C>
REVENUES                                            $ 159,844,520    $ 129,502,812    $  57,575,712

COST OF SALES                                         122,137,798      101,527,421       46,104,588
                                                    -------------    -------------    -------------
                                                       37,706,722       27,975,391       11,471,124
                                                    -------------    -------------    -------------

OPERATING EXPENSES (including a provision
  for doubtful accounts of $1,348,860, $1,212,112
  and $299,433, respectively)                          29,340,721       23,770,419        9,969,434

DEPRECIATION                                            1,212,046          958,926          593,720

AMORTIZATION OF EXCESS COST OF
  INVESTMENTS OVER NET ASSETS
  ACQUIRED                                                337,128          171,829             --

AMORTIZATION OF DEFERRED
  FINANCING COSTS                                          72,832           58,062             --
                                                    -------------    -------------    -------------
                                                       30,962,727       24,959,236       10,563,154
                                                    -------------    -------------    -------------

INCOME FROM OPERATIONS                                  6,743,995        3,016,155          907,970
                                                    -------------    -------------    -------------

OTHER INCOME (EXPENSE):
  Investment and other income                             125,012           51,214           22,217
  Registration expenses                                      --               --           (370,353)
  Interest expense                                     (2,500,655)      (1,861,485)        (599,086)
                                                    -------------    -------------    -------------
                                                       (2,375,643)      (1,810,271)        (947,222)
                                                    -------------    -------------    -------------

INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES                                          4,368,352        1,205,884          (39,252)

PROVISION FOR INCOME TAXES                              1,665,000          449,000          140,000
                                                    -------------    -------------    -------------
NET INCOME (LOSS)                                   $   2,703,352    $     756,884    $    (179,252)
                                                    =============    =============    =============

BASIC AND DILUTED NET INCOME (LOSS)
  PER SHARE                                         $         .43    $         .14    $        (.03)
                                                    =============    =============    =============

COMMON SHARES USED IN BASIC AND
  DILUTED NET INCOME (LOSS) PER SHARE                   6,285,753        5,400,000        5,400,000
                                                    =============    =============    =============
</TABLE>

See notes to consolidated financial statements.


                                      - 3 -
<PAGE>

EAGLE SUPPLY GROUP, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS'  EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                    Additional
                                                   Preferred Shares         Common Shares            Paid-In
                                                    Shares  Amount       Shares       Amount         Capital
<S>                                                 <C>     <C>        <C>         <C>            <C>
BALANCE, JULY 1, 1996                                  -    $ --       5,400,000   $        540   $  1,352,865

  Net loss                                             -      --            --             --             --

  Cash dividends paid to TDA Industries, Inc.          -      --            --             --             --

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                           -      --            --             --             --
                                                       -    -----   ------------   ------------   ------------
BALANCE, JUNE 30, 1997                                 -      --       5,400,000            540      1,352,865

  Net income                                           -      --            --             --             --

  Cash dividends paid to TDA Industries, Inc.          -      --            --             --             --

  Capital contribution from TDA Industries, Inc.       -      --            --             --        1,350,000

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                           -      --            --             --             --
                                                       -    -----   ------------   ------------   ------------
BALANCE, JUNE 30, 1998                                 -      --       5,400,000            540      2,702,865

  Net income                                           -      --            --             --             --

  Proceeds from initial public offering of
    Common Shares and Warrants - net                   -      --       2,500,000            250     10,205,337

  Shares issued in connection with the acquisition
    of JEH Co.                                         -      --         300,000             30      1,499,970

  Shares issued in connection with the acquisition
    of MSI Co.                                         -      --         200,000             20        999,980

  Shares issued as a principal payment of a note
    payable                                            -      --          50,000              5        249,995

  Cash dividends paid to TDA Industries, Inc.          -      --            --             --             --

  Capital contribution from TDA Industries, Inc.       -      --            --             --        1,000,000

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                           -      --            --             --             --

  Non-cash dividend to TDA Industries, Inc. - net      -      --            --             --             --
                                                       -    -----   ------------   ------------   ------------
BALANCE, JUNE 30, 1999                                 -    $ --       8,450,000   $        845   $ 16,658,147
                                                       =    =====   ============   ============   ============

<CAPTION>
                                                                     Due from TDA
                                                       Retained      & Affiliated
                                                       Earnings        Companies         Total
<S>                                                  <C>             <C>             <C>
BALANCE, JULY 1, 1996                                $  2,652,026    $ (3,813,346)   $    192,085

  Net loss                                               (179,252)           --          (179,252)

  Cash dividends paid to TDA Industries, Inc.          (1,250,000)           --        (1,250,000)

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                                 --         1,258,292       1,258,292
                                                     ------------    ------------    ------------
BALANCE, JUNE 30, 1997                                  1,222,774      (2,555,054)         21,125

  Net income                                              756,884            --           756,884

  Cash dividends paid to TDA Industries, Inc.          (1,200,000)           --        (1,200,000)

  Capital contribution from TDA Industries, Inc.             --              --         1,350,000

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                                 --        (1,068,565)     (1,068,565)
                                                     ------------    ------------    ------------
BALANCE, JUNE 30, 1998                                    779,658      (3,623,619)       (140,556)

  Net income                                            2,703,352            --         2,703,352

  Proceeds from initial public offering of
    Common Shares and Warrants - net                         --              --        10,205,587

  Shares issued in connection with the acquisition
    of JEH Co.                                               --              --         1,500,000

  Shares issued in connection with the acquisition
    of MSI Co.                                               --              --         1,000,000

  Shares issued as a principal payment of a note
    payable                                                  --              --           250,000

  Cash dividends paid to TDA Industries, Inc.          (1,200,000)           --        (1,200,000)

  Capital contribution from TDA Industries, Inc.             --              --         1,000,000

  Net change in Due from TDA Industries, Inc.
    and affiliated companies                                 --            69,412          69,412

  Non-cash dividend to TDA Industries, Inc. - net      (3,067,002)      3,067,002            --
                                                     ------------    ------------    ------------
BALANCE, JUNE 30, 1999                               $   (783,992)   $   (487,205)   $ 15,387,795
                                                     ============    ============    ============
</TABLE>

See notes to consolidated financial statements.


                                      - 4 -
<PAGE>

EAGLE SUPPLY GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        1999             1998             1997
<S>                                                                <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                $   2,703,352    $     756,884    $    (179,252)

  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                    1,622,006        1,188,817          593,720
      Deferred income taxes                                             (260,640)        (178,676)         (14,457)
      Increase (decrease) in allowance for doubtful accounts             622,595          527,794          (15,550)
      (Gain) loss on sale of equipment                                    (9,472)         (26,161)             710
      Changes in operating assets and liabilities:
        Increase in accounts and notes receivable                     (3,257,580)      (6,754,467)        (223,219)
        (Increase) decrease in inventories                            (2,393,992)      (1,261,379)         320,368
        (Increase) decrease in other current assets                     (238,908)         842,645           (3,965)
        Increase (decrease) in accounts payable                          929,926        3,241,273         (430,033)
        Increase (decrease) in accrued expenses and
          other current liabilities                                      488,231          608,946         (162,300)
        Increase in due from related party                                 7,249          143,197             --
        Increase (decrease) in income taxes due to
          TDA Industries, Inc.                                           117,919          652,300         (653,000)
        Increase in federal and state income taxes payable               608,160             --               --
                                                                   -------------    -------------    -------------
        Net cash provided by (used in) operating activities              938,846         (258,827)        (766,978)
                                                                   -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                (1,982,860)      (2,122,397)        (296,071)
  Proceeds from sale of equipment                                         70,771           76,786           80,431
  Payment for purchase of net assets of JEH Co.                             --         (1,659,013)            --
  Payment for purchase of net assets of MSI Co.                       (1,519,840)            --               --
                                                                   -------------    -------------    -------------
        Net cash used in investing activities                         (3,431,929)      (3,704,624)        (215,640)
                                                                   -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from initial public offering, net of related expenses      10,205,587         (223,488)            --
  Principal borrowings on long-term debt                             170,481,066      139,493,028       64,165,367
  Principal reductions on long-term debt                            (170,930,422)    (134,036,661)     (62,648,447)
  Proceeds from issuance of notes payable - shareholders                 200,000          300,000             --
  Repayments of notes payable - shareholders                            (500,000)            --             (6,105)
  Capital contributions from TDA Industries, Inc.                      1,000,000        1,350,000             --
  Decrease in stock subscriptions receivable                                --               --             56,250
  Cash dividends to TDA Industries, Inc.                              (1,200,000)      (1,200,000)      (1,250,000)
  Increase (decrease) in amounts due to TDA Industries, Inc.
    and affiliated companies                                              70,255       (1,068,565)       1,258,292
                                                                   -------------    -------------    -------------
        Net cash provided by financing activities                      9,326,486        4,614,314        1,575,357
                                                                   -------------    -------------    -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                              6,833,403          650,863          592,739

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           1,686,003        1,035,140          442,401
                                                                   -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                             $   8,519,406    $   1,686,003    $   1,035,140
                                                                   =============    =============    =============
</TABLE>

See notes to consolidated financial statements.


                                      - 5 -
<PAGE>

EAGLE SUPPLY GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              1999            1998            1997
<S>                                                       <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
    Cash paid during the period for interest              $  2,500,655    $  1,861,485    $    599,086
                                                          ============    ============    ============
    Cash paid during the period for income taxes          $    966,243    $       --      $       --
                                                          ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES:
    Non-cash dividend to TDA Industries, Inc. - net       $  3,067,002    $       --      $       --
                                                          ============    ============    ============
    300,000 Common Shares issued in connection with the
      acquisition of JEH Co.                              $  1,500,000    $       --      $       --
                                                          ============    ============    ============
    200,000 Common Shares issued in connection with the
      acquisition of MSI Co.                              $  1,000,000    $       --      $       --
                                                          ============    ============    ============
    50,000 Common Shares issued as a principal payment
      of a note payable                                   $    250,000    $       --      $       --
                                                          ============    ============    ============
   Additional consideration pursuant to the acquisition
     of JEH Co.                                           $  1,773,212    $       --      $       --
                                                          ============    ============    ============

<CAPTION>
   Acquisitions of MSI Co. and JEH Co.:
                                                              MSI Co.        JEH Co.
<S>                                                       <C>             <C>
     Fair value of assets acquired                        $  9,284,007    $ 23,734,747
     Liabilities assumed                                    (1,359,698)     (8,960,882)
     Notes issued to sellers                                (2,045,972)       (864,852)
     Due to related party                                     (250,000)           --
     Due from related party                                       --           250,000
     Bank debt incurred                                     (4,108,497)    (12,500,000)
                                                          ------------    ------------
          Cash paid                                       $  1,519,840    $  1,659,013
                                                          ============    ============
</TABLE>


See notes to consolidated financial statements.


                                     - 6 -
<PAGE>

EAGLE SUPPLY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

1.    SIGNIFICANT ACCOUNTING POLICIES

      BUSINESS DESCRIPTION -- Eagle Supply Group, Inc. (the "Company") is a
      majority-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent")
      and was organized to acquire, integrate and operate seasoned,
      privately-held companies which distribute products to or manufacture
      products for the building supplies/construction industry.

      INITIAL PUBLIC OFFERING -- On March 17, 1999, the Company completed the
      sale of 2,500,000 shares of Common Stock at $5.00 per share and 2,875,000
      Redeemable Common Stock Purchase Warrants at $.125 per warrant in
      connection with its initial public offering (the "Offering"). The net
      proceeds to the Company aggregated approximately $10,206,000.

      ACQUISITIONS AND BASIS OF PRESENTATION -- Upon consummation of the
      Offering, the Company acquired all of the issued and outstanding common
      shares of Eagle Supply, Inc. ("Eagle"), JEH/Eagle Supply, Inc. ("JEH
      Eagle") and MSI/Eagle Supply, Inc. ("MSI Eagle") (the "Acquisitions") from
      TDA for consideration consisting of 3,000,000 of the Company's common
      shares. The Acquisitions have been accounted for as the combining of four
      entities under common control, similar to a pooling of interests, with the
      net assets of Eagle, JEH Eagle and MSI Eagle recorded at historical
      carryover values. The 3,000,000 common shares of the Company issued to TDA
      were recorded at Eagle's, JEH Eagle's and MSI Eagle's historical net book
      values at the date of acquisition. Accordingly, this transaction did not
      result in any revaluation of Eagle's, JEH Eagle's or MSI Eagle's assets or
      the creation of any goodwill. Upon the consummation of the Acquisitions,
      Eagle, JEH Eagle and MSI Eagle became wholly-owned subsidiaries of the
      Company and currently constitute the sole business operations of the
      Company.

      As a result of the Acquisitions, the consolidated financial statements of
      the Company, Eagle, JEH Eagle and MSI Eagle have been prepared as if all
      of the entities had operated as a single consolidated group for all
      periods subsequent to each entity's respective date of acquisition by TDA.
      Eagle is included in the consolidated financial statements for all periods
      presented. JEH Eagle is included in the consolidated financial statements
      from July 1, 1997 and MSI Eagle is included in the consolidated financial
      statements from October 22, 1998, the dates that JEH Eagle and MSI Eagle,
      respectively, were acquired by TDA. Eagle, JEH Eagle and MSI Eagle operate
      in a single industry segment and all of their revenues are derived from
      sales to third party customers in the United States.

      INVENTORIES -- Inventories are valued at the lower of cost or market. Cost
      is determined by using the first-in, first-out ("FIFO"), last-in,
      first-out ("LIFO"), or average cost methods. If LIFO inventories
      (approximately $6,033,000, $6,210,000 and $4,506,000 at June 30, 1999,
      1998 and 1997, respectively) had been valued at the lower of FIFO cost or
      market, inventories would be higher by approximately $530,000, $520,000
      and $511,000 for fiscal 1999, 1998 and 1997, respectively, and income
      before provision for income taxes would have increased by approximately
      $10,000, $9,000 and $1,000 in fiscal 1999, 1998 and 1997, respectively.


                                     - 7 -
<PAGE>

      DEPRECIATION AND AMORTIZATION -- Depreciation and amortization of property
      and equipment are provided principally by straight-line methods at various
      rates calculated to extinguish the carrying values of the respective
      assets over their estimated useful lives.

      EXCESS COST OF INVESTMENTS OVER NET ASSETS ACQUIRED -- Excess cost of
      investments over net assets acquired ("goodwill") is being amortized on a
      straight-line method over 15 to 40 years. Management of the Company
      routinely evaluates the recoverability of goodwill based upon expectations
      of future non-discounted cash flows. Should management determine that
      impairment has occurred, goodwill would be reduced by the excess, if any,
      of the carrying value of goodwill over management's estimate of the
      anticipated non-discounted future net cash flows.

      DEFERRED FINANCING COSTS -- Deferred financing costs are related to the
      acquisition financing obtained in connection with the Acquisitions
      described in Note 2 and are being amortized on a straight-line method over
      the term of the related debt obligations.

      INCOME TAXES -- Prior to the completion of the Offering, the Company was
      included in the consolidated federal and state income tax returns of its
      Parent. Income taxes were calculated on a separate return filing basis.
      Subsequent to March 17, 1999, the Company will file a consolidated federal
      income tax return with its subsidiaries.

      NET INCOME (LOSS) PER SHARE -- Basic net income (loss) per share was
      calculated by dividing net income (loss) by the weighted average number of
      shares outstanding during the periods presented and excluded any potential
      dilution. Diluted net income (loss) per share was calculated similarly and
      would generally include potential dilution from the exercise of stock
      options and warrants. There were no dilutive options or warrants for any
      of the periods presented. Both basic and diluted net income (loss) per
      share includes, for all periods presented, the 3,000,000 shares issued to
      TDA in connection with the Acquisitions.

      LONG-LIVED ASSETS -- Financial Accounting Standards Board Statement Number
      121, "ACCOUNTING FOR THe IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
      LONG-LIVED ASSETS TO BE DISPOSED OF" requires that they be stated at the
      lower of the expected net realizable value or cost. The carrying value of
      long-lived assets is periodically reviewed to determine whether impairment
      exists. The review is based on comparing the carrying amount of the asset
      to the undiscounted estimated cash flows over the remaining useful lives.
      No impairment is indicated as of June 30, 1999.

      FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following disclosure of the
      estimated fair value of financial instruments is made in accordance with
      the requirements of Statement of Financial Accounting Standards No. 107,
      "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS." The estimated
      fair value amounts have been determined by the Company using available
      market information and appropriate valuation methodologies. However,
      considerable judgment is required in interpreting market data to develop
      the estimates of fair value. Accordingly, the estimates presented herein
      are not necessarily indicative of the amounts that the Company could
      realize in a current market exchange. The use of different market
      assumptions and/or estimation methodologies may have a material effect on
      the estimated fair value amounts.


                                     - 8 -
<PAGE>

      CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, ACCOUNTS PAYABLE
      AND ACCRUED EXPENSES -- The carrying amounts of these items are a
      reasonable estimate of their fair value.

      LONG-TERM DEBT -- Interest rates that are currently available to the
      Company for issuance of debt with similar terms and remaining maturities
      are used to estimate fair value for bank debt. The carrying amounts
      comprising this item are reasonable estimates of fair value, except for a
      6% note due in October 2000 and a 6% note due in July 2002. Such notes
      have carrying values of $1,000,000 and $864,852, respectively, and
      estimated fair market values of $950,000 and $775,000, respectively.

      The fair value estimates are based on pertinent information available to
      management as of June 30, 1999. Although management is not aware of any
      factors that would significantly affect the estimated fair value amounts,
      such amounts have not been comprehensively revalued for purposes of these
      financial statements since that date and current estimates of fair value
      may differ significantly from the amounts presented.

      CONCENTRATION OF CREDIT RISK -- The financial instruments, which
      potentially subject the Company to concentration of credit risk, consist
      principally of commercial paper which is included in cash and cash
      equivalents and accounts receivable. The Company grants credit to
      customers based on an evaluation of the customer's financial condition and
      in certain instances obtains collateral in the form of liens on both
      business and personal assets of its customers. Exposure to losses on
      receivables is principally dependent on each customer's financial
      condition. The Company controls its exposure to credit risks through
      credit approvals, credit limits and monitoring procedures and establishes
      allowances for anticipated losses.

      USE OF ESTIMATES -- The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      SIGNIFICANT VENDOR -- During the fiscal years ended June 30, 1999 and
      1998, Eagle and JEH Eagle purchased approximately 19% and 18%,
      respectively of their product lines from one supplier. Since similar
      products are available to the subsidiaries from other suppliers, the loss
      of this supplier would not have a material adverse effect on the business
      of these subsidiaries. During the fiscal year ended June 30, 1997, Eagle
      purchased approximately 23% of its product line from the same supplier.

      STATEMENTS OF CASH FLOWS -- The Company considers money market accounts
      and commercial paper to be cash equivalents for the purpose of these
      financial statements. Cash equivalents amounted to $5,699,953 at June 30,
      1999.

      RECENTLY ISSUED PRONOUNCEMENTS -- In June 1998, the FASB issued SFAS No.
      133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
      Statement establishes accounting and reporting standards for derivative
      instruments and hedging activities. It requires the recognition of all
      derivatives as either assets or liabilities in the statement of financial
      position and measurement of those instruments at fair value. The
      accounting for changes in the fair value of a derivative is dependent upon
      the intended use of the derivative. SFAS No. 133 will be effective in the
      Company's first quarter of the fiscal year ending June 30, 2001 and
      retroactive application is not


                                     - 9 -
<PAGE>

      permitted. Management does not believe that this Statement will have a
      significant impact on the Company.

      In April 1998, the American Institute of Certified Public Accountants'
      ("AICPA") Accounting Standards Executive Committee issued Statement of
      Position No. 98-5 ("SOP 98-5"), REPORTING ON THE COSTS OF START-UP
      ACTIVITIES. SOP 98-5 requires that costs of start-up activities, including
      organization costs, be expensed as incurred. SOP 98-5 will be effective in
      the Company's first quarter of the fiscal year ending June 30, 2000.
      Management does not believe that this Statement will have a significant
      impact on the Company.

      RECLASSIFICATIONS -- Certain reclassifications have been made in the prior
      years' financial statements in order to conform to the classification used
      in the current year.

2.    ACQUISITIONS

      On July 8, 1997, effective as of July 1, 1997, JEH Eagle acquired the
      business and substantially all of the assets of JEH Company, Inc. ("JEH
      Co."), engaged in the wholesale distribution of roofing supplies and
      related products utilized primarily in the construction industry. The
      purchase price, as adjusted, including transaction expenses, was
      $14,767,852 consisting of $13,878,000 in cash, net of $250,000 due from
      JEH Co., and a five-year, 6% per annum note in the principal amount of
      $864,852. The purchase price and the note are subject to further
      adjustment under certain conditions. Further, JEH Eagle is obligated for
      potentially substantial additional payments if, among other factors, the
      business acquired attains certain levels of income, as defined, during the
      five-year period ending June 30, 2002. More specifically, JEH Co. or its
      designee is to receive a percentage of the EBITDA or the modified EBITDA
      (as defined) of the business acquired (the "JEH EBITDA") on a per year,
      non-cumulative basis for each of JEH Eagle's fiscal years ending during
      the five-year period (the "JEH Applicable Period"). If the JEH EBITDA
      reaches $3,000,000, $4,000,000 and $5,000,000 in the foregoing fiscal
      years, JEH Co. or its designee is to receive 35%, 40% and 50%,
      respectively, of that fiscal year's JEH EBITDA in excess of those levels,
      respectively. If the JEH EBITDA (plus $50,000 attributable to an
      employment agreement) (x) for any fiscal year in the JEH Applicable Period
      is not less than $4,400,000, JEH Eagle is to pay JEH Co. or its designee
      $1,000,000, provided that the aggregate amount of such payments is not to
      exceed $2,000,000; and (y) in the aggregate during the JEH Applicable
      Period is not less than $20,000,000, JEH Eagle is to pay JEH Co. or its
      designee the sum of $1,350,000, plus the amount of the difference, if any,
      between $2,000,000 and the amount paid under (x). Additionally, with
      respect to certain Total Accounts Receivable Reserves, as defined (the
      "JEH Reserves"), which were established at date of acquisition, if JEH
      Eagle reduces the amount of the JEH Reserves in any fiscal year during the
      JEH Applicable Period, JEH Co. or its designee is to be paid 100% of the
      reduction until the JEH Reserves are not less than $2,500,000 and 50% of
      the reduction in the JEH Reserves below $2,300,000 down to $600,000. Both
      of the immediately foregoing percentage payments to JEH Co. or its
      designee are subject to adjustment in certain instances. Additionally, if
      the Offering was consummated prior to June 30, 2002 and in the event
      certain JEH EBITDA levels had been reached during the period July 1, 1997
      through the date of consummation of the Offering, JEH Co. or its designee
      would have been entitled to receive $1,000,000 or $1,350,000 (either in
      cash or in common shares of the Company valued at the public offering
      price) depending upon the JEH EBITDA level. Upon consummation of the
      Offering, the Company issued 300,000 of its common shares to James E.
      Helzer the owner of JEH Co. and president of the Company in fulfillment of
      the obligation set forth in the immediately preceding sentence. For the
      fiscal year ended June 30, 1999, approximately $1,773,000 of additional
      consideration is payable to JEH Co.


                                     - 10 -
<PAGE>

      All of such additional consideration increased goodwill and is being
      amortized over the remaining life of the goodwill. No additional
      consideration was payable to JEH Co. for fiscal 1998.

      The foregoing transaction was accounted for as a purchase and,
      accordingly, the results of the operations acquired from JEH Co. have been
      included in the statements of operations from the effective date of the
      acquisition. This transaction originally gave rise to approximately
      $4,377,000 of goodwill, which is being amortized over a fifteen-year
      period. Any additional payments to which JEH Co. or its designee will be
      entitled will be accounted for as additional goodwill.

      On October 22, 1998, MSI Eagle acquired the business and substantially all
      of the assets of Masonry Supply, Inc. ("MSI Co."), engaged in the
      wholesale distribution of masonry supplies and related products utilized
      primarily in the construction industry. The purchase price, as adjusted,
      including transaction expenses, was $8,537,972 consisting of $6,492,000 in
      cash and a five-year, 8% per annum note in the principal amount of
      $2,045,972. The purchase price and the note are subject to further
      adjustment under certain conditions. The note was paid in full in March
      1999 out of the proceeds of the Offering. Further, MSI Eagle is obligated
      for potentially substantial additional payments if, among other factors,
      the business acquired attains certain levels of income, as defined, during
      the five-year period ending June 30, 2003. More specifically, MSI Co. or
      its designee is to receive a percentage of the EBITA or the modified EBITA
      (as defined) of the business acquired (the "MSI EBITA") on a per year,
      non-cumulative basis for each of the MSI Eagle's fiscal years ending
      during the five-year period (the "MSI Applicable Period"). If the MSI
      EBITA reaches $2,000,000 and $2,750,000 in the foregoing fiscal years, MSI
      Co. or its designee is to receive 25% and 35%, respectively, of that
      fiscal year's MSI EBITA in excess of those levels, respectively.
      Additionally, if the Offering was consummated prior to October 22, 2003
      and certain MSI EBITA levels had been reached for MSI Eagle, MSI Co. or
      its designee would have been entitled to receive (i) $1,000,000 or (ii)
      $750,000 (either in cash or in common shares of the Company valued at the
      public offering price) if the MSI EBITA level was (i) not less than
      $2,000,000 per year or (ii) less than $2,000,000 but not less than
      $1,500,000 per year, respectively. Upon the consummation of the Offering,
      the Company issued 200,000 of its common shares to Gary L. Howard, the
      designee and owner of MSI Co. and a vice president of the Company, in
      fulfillment of the obligation set forth in the immediately preceding
      sentence. Such consideration increased goodwill and is being amortized
      over the remaining life of the goodwill. No additional consideration is
      payable to MSI Co. for fiscal 1999.

      The foregoing transaction was accounted for as a purchase and,
      accordingly, the results of the operations acquired from MSI Co. have been
      included in the statements of operations from the date of the acquisition.
      This transaction gave rise to approximately $6,506,000 of goodwill, which
      is being amortized over a forty-year period. Any additional payments to
      which MSI Co. or its designee will be entitled will be accounted for as
      additional goodwill.

      The following pro forma information represents the consolidated results of
      operations of the Company as if the MSI Co. acquisition had been
      consummated as of July 1, 1997:

<TABLE>
<CAPTION>
                                                     Year Ended June 30,
                                                 1999                   1998
<S>                                          <C>                    <C>
Revenues                                     $163,821,000           $141,463,000
                                             ============           ============

Net income                                   $  2,949,000           $  1,044,000
                                             ============           ============
</TABLE>


                                     - 11 -
<PAGE>

      The pro forma information is not necessarily indicative of the operating
      results that would have occurred if the MSI Co. acquisition had been
      consummated as of July 1 of each respective period, nor is it necessarily
      indicative of future operating results. The actual results of operations
      of MSI Co. are included in the Company's consolidated financial statements
      only from the date of acquisition.

3.    PROPERTY AND EQUIPMENT

      The major classes of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                            June 30,              Estimated
                                                     1999             1998       Useful Lives
<S>                                               <C>             <C>            <C>
Land                                              $   100,000     $      --
Buildings and improvements                            292,535            --        25 years
Furniture, fixtures and equipment                   3,000,569       1,976,187       5 years
Automotive equipment                                4,853,812       4,713,209      5-7 years
Leasehold improvements                              1,379,900       1,041,784      10 years
Assets acquired under capitalized leases            1,017,239       1,017,239      2-6 years
                                                  -----------     -----------

                                                   10,644,055       8,748,419

Less: Accumulated depreciation and amortization     4,026,794       3,508,081
                                                  -----------     -----------
                                                  $ 6,617,261     $ 5,240,338
                                                  ===========     ===========
</TABLE>

4.    INCOME TAXES

      Components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                               Year Ended June 30,
                                    1999              1998              1997
<S>                             <C>               <C>               <C>
Current:
  Federal                       $ 1,629,640       $   542,676       $   134,457
  State and local                   296,000            85,000            20,000
Deferred                           (260,640)         (178,676)          (14,457)
                                -----------       -----------       -----------

                                $ 1,665,000       $   449,000       $   140,000
                                ===========       ===========       ===========
</TABLE>


                                     - 12 -
<PAGE>

      A reconciliation of income taxes at the Federal statutory rate and the
      amounts provided, is as follows:

<TABLE>
<CAPTION>
                                                 Year Ended June 30,
                                        1999            1998            1997
<S>                                  <C>             <C>             <C>
Tax using the statutory rate         $ 1,485,000     $   410,000     $   112,804
State and local income taxes             195,000          56,000          13,000
Other                                    (15,000)        (17,000)         14,196
                                     -----------     -----------     -----------

                                     $ 1,665,000     $   449,000     $   140,000
                                     ===========     ===========     ===========
</TABLE>

      Temporary differences which give rise to a net deferred tax asset are as
      follows:

<TABLE>
<CAPTION>
                                                              June 30,
                                                       1999             1998
<S>                                                  <C>              <C>
Deferred tax assets:
  Provision for doubtful accounts                    $ 620,654        $ 371,414
  Inventory capitalization                              33,820           30,020
                                                     ---------        ---------

                                                       654,474          401,434
Deferred tax liability:
  Depreciation                                         (97,512)        (105,112)
                                                     ---------        ---------

Net deferred tax asset                               $ 556,962        $ 296,322
                                                     =========        =========
</TABLE>

      Management believes that no valuation allowance against the net deferred
      tax asset is necessary.


                                     - 13 -
<PAGE>

5.    LONG-TERM DEBT

      Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                          June 30,
                                                                     1999          1998
<S>                                                              <C>           <C>
Variable rate collateralized revolving credit note (A)           $ 8,746,117   $ 9,012,417

Variable rate collateralized equipment note (A)                      679,000       710,000

Variable rate collateralized revolving credit note (B)               829,895          --

Variable rate collateralized term note (B)                         2,816,400          --

Note payable - TDA Industries, Inc. (C)                            1,000,000          --

Variable rate collateralized revolving credit note (D)            13,007,944    10,785,793

Variable rate collateralized equipment note (D)                    1,598,500     1,899,500

Variable rate collateralized term note (D)                         1,562,500     2,312,500

6% promissory note, due July 2002 (Note 2)                           864,852       864,852

Capitalized equipment lease obligations, at various rates, for
  various terms through 2003 (E)                                     780,136       959,494

Variable rate mortgage (7-3/4% at June 30, 1999),
  paid in full on September 2, 1999 (Note 7)                         487,205       500,065

8.50% equipment loan, payable in monthly
  installments through February 13, 2003                             181,195          --

8.50% equipment loan, payable in monthly
  installments through April 23, 2003                                 63,816          --

8.50% equipment loan, payable in monthly
  installments through April 27, 2003                                 31,242          --

7.99% equipment loan, payable in monthly
  installments through August 31, 2000                                14,113          --
                                                                 -----------   -----------
                                                                  32,662,915    27,044,621

Less: Current portion of long-term debt                            2,523,843     1,750,098
                                                                 -----------   -----------
                                                                 $30,139,072   $25,294,523
                                                                 ===========   ===========
</TABLE>

      (A)   Eagle is a party to a loan agreement, last amended December 11,
            1998, which provides for a credit facility in the aggregate amount
            of $10,900,000 and is guaranteed by the Company and TDA. The credit
            facility consists of a $10 million revolving credit loan and a
            $900,000 equipment loan. The credit facility has an initial maturity
            of October 22, 2003. Obligations under the credit facility are
            collateralized by certain current assets and


                                     - 14 -
<PAGE>

            automotive equipment of Eagle aggregating approximately $16,178,000
            and $790,000, respectively, at June 30, 1999.

            The revolving credit loan bears interest at the lender's prime rate,
            plus one-half percent, or at the London interbank offered rate, plus
            two and one-half percent, at the option of the Eagle.

            The equipment loan is payable in equal monthly installments, based
            on a seventy-five month amortization schedule, each in the amount of
            $11,000, with a balloon payment due on the earlier of August 1, 2004
            or at the end of the loan agreement's initial or renewal term. The
            equipment loan bears interest at the lender's prime rate, plus
            one-half percent, or at the London interbank offered rate, plus two
            and one-half percent, at the option of the Eagle.

      (B)   In order to finance the purchase of substantially all of the assets
            and business of MSI Co. and to provide for working capital needs,
            MSI Eagle entered into a loan agreement for a credit facility in the
            aggregate amount of $9,075,000, which is collateralized by
            substantially all of the tangible and intangible assets of MSI. The
            credit facility has an initial maturity of October 22, 2003 and
            consists of a $3,075,000 term loan and the balance in the form of a
            revolving credit loan. The term loan is payable in equal monthly
            installments, based on an eighty-three month amortization schedule,
            each in the amount of $37,000, and a final payment of the then
            outstanding principal amount. The revolving credit loan bears
            interest at the lender's prime rate, plus one-half percent, or at
            the London inter-bank offered rate, plus two and one-half percent,
            at the option of MSI Eagle. The term loan bears interest at the
            lender's prime rate, plus one and one-half percent, or at the London
            inter-bank offered rate, plus three and one-quarter percent, at the
            option of MSI Eagle. This credit facility has been guaranteed by the
            Company and TDA.

      (C)   In October 1998, in connection with the purchase of substantially
            all of the assets and business of MSI Co. by MSI Eagle, TDA lent MSI
            Eagle $1,000,000 pursuant to a 6% two-year note. The note is payable
            in full in October 2000, and TDA has agreed to defer the interest
            payable on the note until its maturity.

      (D)   In order to finance the purchase of substantially all of the assets
            and business of JEH Co. and to provide for working capital needs,
            JEH Eagle entered into a loan agreement, last amended on December
            11, 1998, for a credit facility in the aggregate amount of $20
            million, which is collateralized by substantially all of the
            tangible and intangible assets of JEH Eagle and is guaranteed by the
            Company and TDA. The credit facility has an initial maturity of
            October 22, 2003 and consists of a $3,000,000 term loan, a
            $2,475,000 equipment loan and the balance in the form of a revolving
            credit loan.

            The term loan is payable in 48 equal monthly installments, each in
            the amount of $62,500; the equipment loan is payable in equal
            monthly installments, based on a seventy-six month amortization
            schedule, each in the amount of $26,000, with a balloon payment due
            on the earlier of August 1, 2004 or the end of the loan agreement's
            initial or renewal term.


                                     - 15 -
<PAGE>

            The equipment and revolving credit loans bear interest at the
            lender's prime rate, plus one-half percent, or at the London
            interbank offered rate, plus two and one-half percent, at the option
            of JEH Eagle. The term loan bears interest at the lender's prime
            rate, plus one and one-half percent, or at the London interbank
            offered rate, plus three and one-quarter percent, at the option of
            JEH Eagle.

      E)    Future minimum lease payments for capitalized equipment lease
            obligations at June 30, 1999 are as follows:

<TABLE>
<CAPTION>
             Year Ending
              June 30,                                      Amount
              <S>                                         <C>
                2000                                      $ 359,832
                2001                                        223,418
                2002                                        187,394
                2003                                        131,178
                                                          ---------
                                                            901,822

             Less: Interest                                 121,686
                                                          ---------

             Present value of net minimum payments        $ 780,136
                                                          =========
</TABLE>

            The aggregate future maturities of long-term debt, excluding
            capitalized equipment lease obligations, are as follows:

<TABLE>
<CAPTION>
             Year Ending
              June 30,                                    Amount
              <S>                                       <C>
                2000                                    $ 2,227,205
                2001                                      2,730,113
                2002                                      1,040,500
                2003                                      1,759,105
                2004                                     23,529,456
             Thereafter                                     596,400
                                                        -----------
                                                        $31,882,779
                                                        ===========
</TABLE>

6.    COMMITMENTS AND CONTINGENCIES

      a.    The Company and its subsidiaries have entered into various
            employment agreements which expire at various times through March
            2004. Pursuant to such agreements, the annual base compensation
            payable aggregates approximately $1,155,000. The aggregate base
            compensation incurred in fiscal 1999 aggregated approximately
            $753,000. The Company has no obligation for additional amounts due
            for fiscal 1999.

      b.    Certain of the Company's subsidiaries have defined contribution
            retirement plans covering eligible employees. These plans provide
            for contributions at the discretion of the subsidiaries. No
            contributions were made to these plans in fiscal 1999 or 1998. A
            Company contribution in the amount of $9,000 was made in fiscal
            1997.


                                     - 16 -
<PAGE>

      c.    At June 30, 1999, the Company and its subsidiaries were liable under
            various long-term leases for property and automotive and other
            equipment which expire on various dates through 2009. Certain of the
            leases include options to renew. In addition, real property leases
            generally provide for payment of taxes and other occupancy costs.
            Rent expense charged to operations in 1999, 1998 and 1997 was
            approximately $3,560,000, $2,023,000 and $853,000, respectively,
            which includes taxes and various occupancy costs, as well as rent
            for equipment under short-term leases (less than one year).

            The approximate future minimum rental commitments under all of the
            above leases are as follows:

<TABLE>
<CAPTION>
             Year Ending
              June 30,                                    Amount
              <S>                                       <C>
                2000                                    $ 3,821,000
                2001                                      3,140,000
                2002                                      2,430,000
                2003                                      1,484,000
                2004                                      1,424,000
             Thereafter                                   4,400,000

            Total future minimum rental commitments     $16,699,000
</TABLE>

      d.    The Company is involved in certain litigation arising in the
            ordinary course of business. Management believes that the ultimate
            resolution of such litigation will not be significant to the
            Company.

7.    TRANSACTIONS WITH AND OTHER RELATED PARTIES

      The Chief Executive Officer and Chairman of the Board of Directors of the
      Company is an officer and a director of TDA; the Executive Vice President,
      Secretary, Treasurer and a director of the Company is also an officer and
      a director of TDA; and another director of the Company is also a director
      of TDA.

      The Company and Eagle have entered into five-year employment agreements
      with the Company's Chief Executive Officer and its Executive Vice
      President, Secretary and Treasurer, which commenced effective upon the
      consummation of the Offering and the Acquisitions, at annual salaries of
      $200,000 each, subject to annual increases and bonuses as may be
      determined by the Board of Directors of the Company. Further, in July
      1997, JEH Eagle entered into five-year employment agreements with such
      officers at annual salaries of $60,000 each. The payment of such salaries
      by JEH Eagle commenced upon the consummation of the Offering and the
      Acquisitions. The employment agreements provide for, among other things,
      continued payments of salary and benefits, under certain conditions.

      In July 1997, JEH Eagle paid $150,000 to TDA for arranging the acquisition
      financing to acquire JEH Co.'s business. Such amount is included in
      deferred financing costs and is being amortized over the term of JEH
      Eagle's credit facility.

      The Company has entered into an agreement pursuant to which TDA provides
      the Company with certain services including (i) managerial, (ii) strategic
      planning, (iii) banking negotiations, (iv)


                                     - 17 -
<PAGE>

      investor relations, and (v) advisory services relating to acquisitions for
      a five-year term which commenced in July 1997. The monthly fee, the
      payment of which commenced upon the consummation of the Offering and the
      Acquisitions, for the foregoing services is $3,000.

      The Company also entered into an agreement pursuant to which TDA provides
      the Company with office space and administrative services on a
      month-to-month basis. The monthly fee, the payment of which commenced upon
      the consummation of the Offering and the Acquisitions, for the foregoing
      services is $3,000.

      JEH Eagle leases several of its distribution center facilities and its
      executive offices from the President of the Company pursuant to five-year
      written leases at base annual rentals aggregating approximately $498,000.

      During the fiscal year ended June 30, 1999, JEH Eagle made sales
      aggregating approximately $546,000 to two entities owned by the son of the
      President. Management believes that such sales were made on terms no less
      favorable than sales made to independent third parties.

      Eagle had been liable for certain lease payments to a subsidiary of TDA
      under a lease for a former distribution center in Fort Lauderdale,
      Florida, including a balloon payment which was due May 1, 1999 in the
      approximate amount of $580,000 relating to industrial revenue bonds issued
      to acquire and develop the Fort Lauderdale property. Eagle has no direct
      obligation on the industrial revenue bonds, which obligation is reflected
      in the financial statements of TDA. These premises have been subleased to
      an unrelated third party at an annual rental in excess of Eagle's annual
      lease obligation. The payments by Eagle included a ratable share of the
      balloon payment. The lease expired on May 1, 1999.

      Eagle operates a substantial portion of its business from facilities
      leased from a subsidiary of TDA pursuant to ten-year written leases at
      base annual rentals aggregating approximately $930,000.

      The Due from TDA Industries, Inc. and affiliated companies account
      represented a non-interest bearing advance account with TDA and certain
      other subsidiaries of TDA. In connection with the Offering, Eagle
      cancelled, in the form of a non-cash dividend of $3,067,002, all of TDA's
      indebtedness to Eagle, except for $487,205 relating to and offsetting a
      mortgage in the same amount on property previously owned by Eagle and for
      which Eagle had been the primary obligor. On September 2, 1999, this
      mortgage was paid in full and Eagle was relieved of any and all
      obligations thereunder.

      MSI Eagle leases its corporate offices, showroom and warehouse in
      Mansfield, Texas, from a vice president of the Company pursuant to a
      three-year written lease at a base annual rental aggregating approximately
      $107,000.

8.    SHAREHOLDERS' EQUITY (DEFICIENCY)

      INITIAL CAPITALIZATION -- In May 1996, the Company issued 2,000,000 of its
      common shares to TDA (a founding shareholder) for a subscription price of
      $200 and 100,000 of its common shares to another founding shareholder and
      director for a subscription price of $10. In June 1996, the Company sold
      an aggregate of 300,000 common shares and 300,000 warrants to private
      investors for aggregate gross proceeds of $300,000.


                                     - 18 -
<PAGE>

      PREFERRED SHARES -- The preferred shares may be issued in one or more
      series, the terms of which may be determined at the time of issuance by
      the Board of Directors of the Company, without further action by
      shareholders, and may include voting rights (including the right to vote
      as a series on particular matters), preferences as to dividends and
      liquidation, conversion and redemption rights and sinking fund provisions.

      COMMON SHARES -- Holders of common shares are entitled to one vote for
      each share held of record on each matter submitted to a vote of
      shareholders. There is no cumulative voting for election of directors.
      Subject to the prior rights of any series of preferred shares which may
      from time to time be outstanding, holders of common shares are entitled to
      receive dividends when and if declared by the Board of Directors out of
      funds legally available therefor and, upon the liquidation, dissolution or
      winding up of the Company, are entitled to share ratably in all assets
      remaining after payment of liabilities and payment of accrued dividends
      and liquidation preferences on the preferred shares, if any. Holders of
      common shares have no pre-emptive rights and have no rights to convert
      their common shares into any other securities.

      WARRANTS -- The Company has outstanding 300,000 warrants which entitle the
      registered holder to purchase one common share at an exercise price of
      $5.00 per share (subject to adjustment) for three years commencing on the
      date of the Offering, provided that during such time a current prospectus
      relating to the common shares is then in effect and the common shares are
      qualified for sale or exempt from qualification under applicable state
      securities laws.

      In addition, 2,875,000 warrants were sold in the Offering and are
      outstanding. The warrants that were included in the Offering are
      exercisable at $5.50 per share, are also transferable separately from the
      common shares and are exercisable for five years from the date of the
      Offering, provided that during such time a current prospectus relating to
      the common shares is then in effect and the common shares are qualified
      for sale or exempt from qualification under applicable state securities
      laws.

      In connection with the Offering, the Company granted the underwriters
      warrants entitling the holders thereof to purchase an aggregate of 500,000
      of the Company's common shares at an exercise price of $8.25 per share for
      five years commencing on the date of the Offering.

      STOCK OPTION PLAN -- In August 1996, as amended in 1998, the Board of
      Directors adopted and shareholders approved the Company's Stock Option
      Plan (the "Stock Option Plan"). The Stock Option Plan provides for the
      grant of options that are intended to qualify as incentive stock options
      ("Incentive Stock Options") within the meaning of Section 422A of the
      Internal Revenue Code, as amended (the "Code"), to certain employees,
      officers and directors. The total number of common shares for which
      options may be granted under the Stock Option Plan is 1,000,000 common
      shares. Upon the closing of the Offering, the Company granted options
      exercisable into 878,300 common shares to several of its employees and
      certain of its officers and directors. All of such options have a term of
      ten years. The exercise price of these options is the same price that the
      common shares offered in the Offering were sold to the public, $5.00 per
      share. The options granted to employees and officers (858,300) vest at a
      rate of 20% per year commencing on the first anniversary of the date of
      grant, and the options granted to two directors (20,000) vest one year
      from the date of the grant.

      The Company applies Accounting Principles Board Opinion No. 25,
      "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and related interpretations in
      accounting for its stock option plan. Accordingly, no


                                     - 19 -
<PAGE>

      compensation expense has been recognized for the Company's stock option
      plan, since the exercise price of the Company's stock option grants was
      the fair market value of the underlying stock on the date of the grant.
      Had compensation costs for the stock option plan been determined based on
      the fair value at the grant date consistent with SFAS No. 123, "ACCOUNTING
      FOR STOCK BASED COMPENSATON", the Company's net income for fiscal 1999
      would not have been significantly affected. The Company used the
      Black-Scholes model with the following assumptions: risk-free interest
      rate of 5.5%, expected life of three years and expected volatility and
      dividends of 0%.

9.    PRIVATE PLACEMENTS

      In February 1998, the Company borrowed an aggregate of $300,000 pursuant
      to promissory notes issued to TDA ($150,000) and two other shareholders of
      the Company. The promissory notes provided for interest at the rate of 15%
      per annum through June 30, 1998 and 6% per annum thereafter. The
      promissory notes were repaid on March 19, 1999.

      In August 1998 and January 1999, the Company borrowed $100,000 on each
      occasion pursuant to promissory notes issued to TDA. These promissory
      notes provided for interest at the rate of 6% per annum payable at
      maturity on the earlier of twenty-four months from the date of issue or
      upon the closing of the Offering. These notes were repaid on March 19,
      1999.

10.   ALLOWANCE FOR DOUBTFUL ACCOUNTS

<TABLE>
<CAPTION>
                    Balance at
    Year Ending     Beginning                                    Balance at
      June 30,       of Year       Provision       Writeoffs     End of Year
<S>                 <C>           <C>             <C>            <C>
       1997         $ 465,161     $   299,433     $ (314,983)    $   449,611

       1998         $ 449,611     $ 1,212,112     $ (684,723)    $   977,000

       1999         $ 977,000     $ 1,348,860     $ (725,860)    $ 1,600,000
</TABLE>

                                     ******


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