**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





FORM
      10-Q




[X]QUARTERLY
        REPORT PURSUANT TO SECTION 13 or 15(d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
  For
        the
        quarterly period ended June 30, 2007
 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:   333-114041





**PLY
      GEM HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            3089
            20-0645710(State
                or other jurisdiction of incorporation or organization)
            (Primary
                Standard Industrial Classification Code Number)
            (I.R.S.
                Employer Identification No.)





185
      Platte Clay Way


Kearney,
      Missouri 64060





Registrant's
      telephone number, including area code: 800-800-2244





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 [  ]  No [X ]
      *





Indicate
      by check mark whether registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of  “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


Large
      accelerated filer
  [  ]   Accelerated filer
 [  ]     Non-accelerated filer  [X]






Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange
      Act).  Yes [  ]  No [X ]





As
      of
      August 13, 2007, there were 100 shares of common stock, $0.01 par value,
      outstanding.





*****
      The
      registrant is not required to file this Quarterly Report on Form 10-Q pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing is
      required, however, pursuant to the terms of the indenture governing Ply Gem
      Industries, Inc.’s 9% senior subordinated notes due 2012.





**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**FORM
      10-Q**


**QUARTERLY
      PERIOD ENDED JUNE 30, 2007**





**CONTENTS**








**PART
      I – FINANCIAL INFORMATION**




Item
                  1.
              Condensed
                  Consolidated Financial StatementsCondensed
                  Consolidated Statements of Operations –Three
                  months ended June 30, 2007 and July 1,
                  2006
              2Condensed
                  Consolidated Statements of Operations –Six
                  months ended June 30, 2007 and July 1,
                  2006
              3Condensed
                  Consolidated Balance Sheets –June
                  30, 2007 and December 31,
                  2006
              4Condensed
                  Consolidated Statements of Cash Flows –Six
                  months ended June 30, 2007 and July 1,
                  2006
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              6Item
                  2.
              Management’s
                  Discussion and Analysis of Financial ConditionAnd
                  Results of
                  Operations
              26Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              38Item
                  4.
              Controls
                  and
                  Procedures
              38
 PART II – OTHER INFORMATION
 Item
                  1A.
              Risk
                  Factors
              39Item
                  6.
              Exhibits
              39Signatures
              40


1





**PART
      I - FINANCIAL INFORMATION**





**Item
      1.   FINANCIAL STATEMENTS**














**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**








**For
                the three months ended****June
                30,**
            
            
            **July
                1,****2007**
            
            
            **2006**(Amounts
                in thousands)Net
                Sales
            
            $
            390,695
            
            
            $
            288,111Costs
                and Expenses:Cost
                of products sold
            
            
            292,896
            
            
            
            219,251Selling,
                general and administrative expense
            
            
            41,897
            
            
            
            31,835Amortization
                of intangible assets
            
            
            4,302
            
            
            
            2,971Total
                Costs and Expenses
            
            
            339,095
            
            
            
            254,057Operating
                earnings
            
            
            51,600
            
            
            
            34,054Foreign
                currency gain
            
            
            1,992
            
            
            
            1,164Interest
                expense
            
            
            (24,680
            )
            
            
            (17,198
            )Investment
                income
            
            
            245
            
            
            
            257Other
                expense
            
            
            (1,143
            )
            
            
            (441
            )Income
                before provision for income taxes
            
            
            28,014
            
            
            
            17,836Provision
                for income taxes
            
            
            10,744
            
            
            
            6,958Net
                Income
            
            $
            17,270
            
            
            $
            10,878

















See
      accompanying notes to condensed consolidated financial
      statements.


2





**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**








**For
                the six months ended****June
                30,**
            
            
            **July
                1,****2007**
            
            
            **2006**(Amounts
                in thousands)Net
                Sales
            
            $
            675,969
            
            
            $
            504,422Costs
                and Expenses:Cost
                of products sold
            
            
            530,980
            
            
            
            392,299Selling,
                general and administrative expense
            
            
            79,294
            
            
            
            58,316Amortization
                of intangible assets
            
            
            8,936
            
            
            
            5,524Total
                Costs and Expenses
            
            
            619,210
            
            
            
            456,139Operating
                earnings
            
            
            56,759
            
            
            
            48,283Foreign
                currency gain
            
            
            2,208
            
            
            
            1,093Interest
                expense
            
            
            (49,946
            )
            
            
            (32,524
            )Investment
                income
            
            
            822
            
            
            
            413Other
                expense
            
            
            (1,143
            )
            
            
            (2,497
            )Income
                before income taxes andcumulative
                effect of accounting change
            
            
            8,700
            
            
            
            14,768Provision
                for income taxes
            
            
            2,294
            
            
            
            5,720Income
                before cumulative effectof
                accounting change
            
            
            6,406
            
            
            
            9,048Cumulative
                effect of accounting change,net
                of income tax benefit of $57
            
            
            -
            
            
            
            (86
            )Net
                income
            
            $
            6,406
            
            
            $
            8,962








See
      accompanying notes to condensed consolidated financial
      statements.


3


**PLY
      GEM HOLDINGS,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(UNAUDITED)**





**June
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006**(Amounts
                in thousands, exceptshare
                amounts)**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            44,265
            
            
            $
            53,274Accounts
                receivable, less allowances of $6,466 and $6,802,
                respectively
            
            
            180,764
            
            
            
            130,795Inventories:Raw
                materials
            
            
            54,784
            
            
            
            50,936Work
                in process
            
            
            22,480
            
            
            
            25,339Finished
                goods
            
            
            43,008
            
            
            
            51,881Total
                inventory
            
            
            120,272
            
            
            
            128,156Prepaid
                expenses and other current assets
            
            
            13,955
            
            
            
            20,873Deferred
                income taxes
            
            
            18,615
            
            
            
            18,770Total
                current assets
            
            
            377,871
            
            
            
            351,868**Property
                and Equipment, at cost:**Land
            
            
            4,004
            
            
            
            3,990Buildings
                and improvements
            
            
            38,829
            
            
            
            34,889Machinery
                and equipment
            
            
            217,120
            
            
            
            215,555Total
                property and equipment
            
            
            259,953
            
            
            
            254,434Less
                accumulated depreciation
            
            
            (64,264
            )
            
            
            (47,597
            )Total
                property and equipment, net
            
            
            195,689
            
            
            
            206,837**Other
                Assets:**Goodwill
            
            
            821,475
            
            
            
            811,285Intangible
                assets, less accumulated amortization of $36,386 and
                $27,450,respectively
            
            
            220,836
            
            
            
            232,833Other
            
            
            43,406
            
            
            
            46,898Total
                other assets
            
            
            1,085,717
            
            
            
            1,091,016$
            1,659,277
            
            
            $
            1,649,721**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Current
                maturities of long-term debt
            
            $
            6,873
            
            
            $
            5,870Accounts
                payable
            
            
            98,439
            
            
            
            95,568Accrued
                expenses and taxes
            
            
            100,327
            
            
            
            113,527Total
                current liabilities
            
            
            205,639
            
            
            
            214,965Deferred
                income taxes
            
            
            104,014
            
            
            
            107,854Other
                long term liabilities
            
            
            55,497
            
            
            
            56,292Long-term
                debt, less current maturities
            
            
            1,058,681
            
            
            
            1,042,894**Stockholders'
                Equity:**Preferred
                stock $0.01 par, 100 shares authorized, none issued and
                outstanding
            
            
            -
            
            
            
            -Common
                stock $0.01 par, 100 shares authorized, issued and
                outstanding
            
            
            -
            
            
            
            -Additional
                paid-in-capital
            
            
            179,820
            
            
            
            181,792Retained
                earnings
            
            
            50,034
            
            
            
            43,628Accumulated
                other comprehensive income
            
            
            5,592
            
            
            
            2,296Total
                stockholders' equity
            
            
            235,446
            
            
            
            227,716$
            1,659,277
            
            
            $
            1,649,721











See
      accompanying notes to condensed consolidated financial
      statements.


4


**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**









**For
                the six months ended****June
                30,**
            
            
            **July
                1,****2007**
            
            
            **2006**(Amounts
                in thousands)**Cash
                flows from operating activities:**Net
                income
            
            $
            6,406
            
            
            $
            8,962**Adjustments
                to reconcile net income to****cash
                provided by operating activities:**Depreciation
                and amortization expense
            
            
            25,552
            
            
            
            14,544Fair
                value premium on purchased inventory
            
            
            -
            
            
            
            304Non-cash
                interest expense, net
            
            
            3,442
            
            
            
            2,662Gain
                on foreign currency transactions.
            
            
            (2,208
            )
            
            
            (1,093
            )Loss
                on sale of assets
            
            
            57
            
            
            
            572Other
                non-cash items
            
            
            -
            
            
            
            2,482Deferred
                income taxes
            
            
            (240
            )
            
            
            2,792**Changes
                in operating assets and****liabilities,
                net of effects from acquisitions:**Accounts
                receivable, net
            
            
            (48,019
            )
            
            
            (32,711
            )Inventories
            
            
            5,184
            
            
            
            (7,002
            )Prepaid
                expenses and other current assets
            
            
            8,736
            
            
            
            2,136Accounts
                payable
            
            
            2,448
            
            
            
            11,502Accrued
                expenses and taxes
            
            
            (15,043
            )
            
            
            7,632Other
            
            
            257
            
            
            
            (177
            )**Net
                cash provided by (used in) operating activities**
            
            
            (13,428
            )
            
            
            12,605**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (7,201
            )
            
            
            (10,875
            )Proceeds
                from sale of assets
            
            
            15
            
            
            
            497Acquisition
                of business, net of cash acquired
            
            
            (223
            )
            
            
            (120,710
            )**Net
                cash used in investing activities**
            
            
            (7,409
            )
            
            
            (131,088
            )**Cash
                flows from financing activities:**Proceeds
                from long-term debt
            
            
            -
            
            
            
            122,808Proceeds
                from revolver borrowings
            
            
            30,000
            
            
            
            15,000Payments
                on long-term debt
            
            
            (3,187
            )
            
            
            (1,000
            )Payments
                on revolver borrowings
            
            
            (10,000
            )
            
            
            (15,000
            )Debt
                issuance costs
            
            
            (2,100
            )
            
            
            (2,249
            )Equity
                contribution (distribution)
            
            
            (3,175
            )
            
            
            1,725**Net
                cash provided by financing activities**
            
            
            11,538
            
            
            
            121,284Impact
                of exchange rate movements on cash
            
            
            290
            
            
            
            157Net
                increase in cash and cash equivalents
            
            
            (9,009
            )
            
            
            2,958Cash
                and cash equivalents at the beginning of the period
            
            
            53,274
            
            
            
            22,173Cash
                and cash equivalents at the end of the period
            
            $
            44,265
            
            
            $
            25,131












See
      accompanying notes to condensed consolidated financial
      statements.


5


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**








**1.  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
      of Presentation**





The
      accompanying unaudited condensed consolidated financial statements of Ply Gem
      Holdings, Inc. (referred to herein as “Ply Gem”, the “Company”, “we”, “us”, or
“our”) have been prepared in accordance with U.S. generally accepted accounting
      principles as described in the consolidated financial statements and related
      notes included in our 2006 Annual Report on Form 10-K filed with the Securities
      and Exchange Commission on March 23, 2007.  These statements do not
      include all of the information and footnotes required by U.S. generally accepted
      accounting principles and should be read in conjunction with our 2006 Annual
      Report on Form 10-K.  In the opinion of management, all adjustments
      (consisting of normal recurring accruals) considered necessary for a fair
      presentation have been included.  Operating results for the period
      from January 1, 2007 through June 30, 2007 are not necessarily indicative of
      the
      results that may be expected for the year ended December 31, 2007.





The
      condensed consolidated balance sheet at December 31, 2006 has been derived
      from
      the audited consolidated financial statements of Ply Gem Holdings, Inc. at
      that
      date but does not include all of the information and footnotes required by
      U.S.
      generally accepted accounting principles for complete financial
      statements.





The
      Company’s fiscal quarters are based on periods ending on the last Saturday of
      the last week in the quarter.  Therefore the financial results of
      certain fiscal quarters will not be exactly comparable to the prior and
      subsequent fiscal quarters.





The
      accompanying financial statements include the consolidated results of operations
      for the Company for the three month and six month periods ended June 30, 2007
      and July 1, 2006, and consolidated financial position for the Company as of
      June
      30, 2007 and December 31, 2006.





Ply
      Gem
      is a diversified manufacturer of residential and commercial building products,
      which are sold primarily in the United States and Canada, and include a wide
      variety of products for the residential and commercial construction, the
      do-it-yourself and the professional remodeling and renovation markets. The
      demand for our products is seasonal, particularly in the Northeast and Midwest
      regions of the United States and Western Canada where inclement weather during
      the winter months usually reduces the level of building and remodeling activity
      in both the home repair and remodeling and new home construction
      sectors.  Our sales are usually lower during the first and fourth
      quarters.




Since
      our
      building products are intended for exterior use, our sales and operating
      earnings tend to be lower during periods of inclement
      weather.  Weather conditions in the first quarter of each calendar
      year historically result in that quarter producing significantly less sales
      revenue than in any other period of the year.  As a result, we have
      historically had lower profits or losses in the first quarter, and reduced
      profits in the fourth quarter of each calendar year due to the
      weather.  Our results of operations for individual quarters in the
      future may be impacted by adverse weather conditions. Since a portion of our
      manufacturing overhead and operating expenses are relatively fixed throughout
      the year, operating income and net earnings tend to be lower in quarters with
      lower sales levels.  In addition, the demand for cash to fund our
      working capital is greater from late in the fourth quarter through the first
      quarter.




Our
      performance is dependent to a significant extent upon the levels of home repair
      and remodeling and new home construction spending, all of which are affected
      by
      such factors as interest rates, inflation, consumer confidence, unemployment,
      and availability of consumer credit.







**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of Ply Gem Holdings,
      Inc.
      and its subsidiaries, all of which are wholly owned.  All intercompany
      accounts and transactions have been eliminated.








6





**Accounting
      Policies and Use of Estimates**





The
      preparation of these consolidated financial statements in conformity with
      generally accepted accounting principles in the United States involves estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities as of the date of the financial
      statements and the reported amounts of income and expense during the reporting
      periods.  Certain of the Company’s accounting policies require the
      application of judgment in selecting the appropriate assumptions for calculating
      financial estimates.  By their nature, these judgments are subject to
      an inherent degree of uncertainty.  The Company periodically evaluates
      the judgments and estimates used in their critical accounting policies to ensure
      that such judgments and estimates are reasonable for their interim and year-end
      reporting requirements.  These judgments are based on the Company’s
      historical experience, current trends and information available from other
      sources, as appropriate.  If different conditions result from those
      assumptions used in the Company’s judgments, the results could be materially
      different from the Company’s estimates.





**Inventories**





Inventories
      in the accompanying
      consolidated balance sheets are valued at the lower of cost or market. At June
      30, 2007 and December 31, 2006, approximately $12.0 million and $9.6 million
      of
      total inventories, respectively, were valued on the last-in, first-out method
      (“LIFO”).  Under the first-in, first-out method (“FIFO”) of
      accounting, such inventories would have been approximately $4.7 million higher
      at each of June 30, 2007 and December 31, 2006.  All other inventories
      were valued under the FIFO method.The Company records
      provisions, as
      appropriate, to write-down obsolete and excess inventory to estimated net
      realizable value.  The process for evaluating obsolete and excess
      inventory often requires the Company to make subjective judgments and estimates
      concerning future sales levels, quantities and prices at which such inventory
      will be able to be sold in the normal course of
      business.  Accelerating the disposal process or incorrect estimates of
      future sales potential may cause the actual results to differ from the estimates
      at the time such inventory is disposed or sold.





**Income
      taxes**





On
      January 1, 2007, the Company adopted the Financial Accounting Standards
      Board (FASB) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
      Income Taxes,” an interpretation of the Statement of Financial Accounting
      Standards (SFAS) No. 109, “Accounting for Income Taxes”. This
      interpretation clarifies how companies calculate and disclose uncertain tax
      positions. The effect of adopting this interpretation did not impact any
      previously recorded amounts for unrecognized tax benefits.





As
      of
      January 1, 2007, the Company had approximately $0.1 million of accrued
      interest recorded related to uncertain tax positions. The Company has elected
      to
      treat interest and penalties on uncertain tax positions as income tax expense
      in
      its consolidated statement of earnings. No accrual for tax penalties was
      recorded upon adoption of FIN 48.





The
      total
      amount of unrecognized tax benefits was approximately $6.8 million as of
      January 1, 2007. Of this amount, approximately $0.1 million, if recognized,
      would have an impact on the Company’s effective tax rate.  The Company
      currently has no ongoing income tax examinations with the Internal Revenue
      Service or other tax authorities.  The Company’s federal and state
      income tax filings for the years 2004 and 2005 remain subject to examination
      by
      taxing authorities.  Additionally, the Company has net operating loss
      carry-forwards from years 1999 through 2003 that could be subject to
      examination.





**Related
      Party Transactions**




The
      Company has entered into two advisory agreements with an affiliate of
      Caxton-Iseman Capital or related parties, (the “Caxton-Iseman Party”), which we
      refer to as the “Debt Financing Advisory Agreement” and the “General Advisory
      Agreement”.  Under the General Advisory Agreement, the Company
      expensed management fees to the Caxton-Iseman Party of approximately $1.3
      million and $0.8 million for the three month periods ended June 30, 2007 and
      July 1, 2006, respectively, and approximately $1.7 million and $1.2 million
      for
      the six month periods ended June 30, 2007 and July 1, 2006,
      respectively.









7






**Foreign
      Currency**




The
      Company’s Canadian subsidiary utilizes the Canadian dollar as its functional
      currency.  For reporting purposes, the Company translates the assets
      and liabilities of its foreign entity at the exchange rates in effect at the
      end
      of the reporting periods.  Net sales and expenses are translated using
      average exchange rates in effect during the periods.  Gains and losses
      from foreign currency translation are credited or charged to accumulated other
      comprehensive income in the accompanying consolidated balance
      sheets.  A gain or loss resulting from fluctuations in the exchange
      rate may be recognized due to debt, denominated in US dollars, recorded by
      the
      Company’s Canadian subsidiary.





For
      the
      three month periods ending June 30, 2007 and July 1, 2006, the Company recorded
      a gain from foreign currency transactions of approximately $2.0 million and
      $1.2
      million, respectively. For the six month periods ending June 30, 2007 and July
      1, 2006, the Company recorded a gain from foreign currency transactions of
      approximately $2.2 million and $1.1 million, respectively.  As of June
      30, 2007, and December 31, 2006 accumulated other comprehensive income included
      a currency translation adjustment of approximately $6.5 million and $3.3
      million, respectively.




**Concentration
      of Credit Risk**




The
      accounts receivable balance related to one customer of our siding, fencing,
      railing and decking segment was approximately $16.0 million and $11.1 million
      at
      June 30, 2007 and December 31, 2006, respectively.  This customer
      accounted for approximately 11.1% of net sales for the six month period ended
      June 30, 2007 and approximately 16.5% of net sales for the year ended December
      31, 2006.




**Fair
      Value of Financial Instruments**




The
      carrying value of the Company’s senior subordinated notes was approximately
      $360.2 million and $360.2 million at June 30, 2007 and December 31, 2006,
      respectively.  The fair value of the Company’s senior subordinated
      notes at June 30, 2007 and December 31, 2006 was estimated to be approximately
      $323.6 million and $306.0 million, respectively, based on available market
      information. The carrying value of the Company’s other financial instruments
      approximates their fair value.







**New
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting
      pronouncements.  Accordingly, this statement does not require any new
      fair value measurements. However, for some entities, the application of this
      statement will change current practice. SFAS No. 157 is effective for the
      Company beginning January 1, 2008. The Company is currently evaluating the
      impact of this standard.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans an amendment of FASB
      Statements No. 87, 88, 106, and 132(R)”. This standard requires employers
      to recognize the underfunded or overfunded status of each pension and
      postretirement benefit plan as an asset or liability in its statement of
      financial position and to recognize changes in the funded status in the year
      in
      which the changes occur through accumulated other comprehensive income, which
      is
      a component of stockholders’ equity.  SFAS No. 158 does not change the
      amount of actuarially determined expense that is recorded in the consolidated
      statement of income. The new reporting requirements and related new footnote
      disclosure rules of SFAS No. 158 are effective for our December 31, 2007
      financial statements.  Additionally, SFAS No. 158 requires employers
      to measure the funded status of a plan as of the date of its year-end statement
      of financial position.  For our financial statements as of December
      31, 2008 we will change our September 30 measurement date for our plans’ assets
      and obligations to comply with this requirement. The Company is currently
      evaluating the impact that the implementation of SFAS No. 158 will have on
      its
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”.  SFAS No. 159
      permits entities to choose to measure certain financial assets and financial
      liabilities at fair value. Unrealized gains and losses on items for which the
      fair value option has been elected are reported in earnings. SFAS No. 159
      is effective for our fiscal year beginning January 1, 2008. The Company is
      currently evaluating the impact of this standard.








8





**2.  PURCHASE
      ACCOUNTING**





**Alenco
      Acquisition**





On
      February 24, 2006, Ply Gem completed its acquisition of AWC Holding Company
      and
      its subsidiaries (together with its subsidiaries, “Alenco”) (the “Alenco
      Acquisition”). The Company accounted for the transaction as a purchase in
      accordance with the provisions of SFAS No. 141, which results in a new valuation
      for the assets and liabilities of Alenco based upon fair values as of the date
      of the purchase.  Alenco is a leading regional manufacturer of
      aluminum and vinyl windows and doors for the new home construction market in
      the
      fast-growing southern regions of the United States.  The addition of
      Alenco expanded the Company’s geographical reach into the southern regions and
      expands our window products offering with aluminum.





The
      purchase price, including approximately $6.0 million of value attributed to
      Ply
      Gem Prime Holdings, Inc. common stock issued to replace AWC Holding Company
      employee’s forfeited AWC Holding Company stock, was allocated to the assets and
      liabilities based on their fair values.  The following is the
      allocation of the purchase price.





*(in
                thousands)*Other
                current assets, net of cash
            
            $
            17,324Inventories
            
            
            7,312Property,
                plant and equipment
            
            
            10,580Trademarks
            
            
            7,000Customer
                relationships
            
            
            21,950Goodwill
            
            
            90,116Other
                assets
            
            
            198Current
                liabilities
            
            
            (11,929
            )Other
                liabilities
            
            
            (15,762
            )Purchase
                price, net of cash acquired
            
            $
            126,789





Based
      on
      appraisals received for the purchased intangible assets, $7.0 million was
      assigned to Trademarks and Tradenames with weighted average lives of 15 years,
      and approximately $22.0 million was assigned to customer relationships with
      weighted average lives of 15 years.  As a result of this transaction,
      debt issue costs in the amount of approximately $3.6 million were incurred,
      of
      which approximately $2.2 were deferred and approximately $1.4 million were
      expensed as third-party financing costs. Approximately $90.1 million of goodwill
      was assigned to the windows and doors segment as a result of the Alenco
      Acquisition.  None of the goodwill is expected to be deductible for
      tax purposes.











**AHE
      Acquisition**





On
      October 31, 2006, Ply Gem completed its acquisition of Alcoa Home Exteriors,
      Inc. (“AHE”) (the “AHE Acquisition”). The Company accounted for the transaction
      as a purchase in accordance with the provisions of SFAS No. 141, which results
      in a new valuation for the assets and liabilities of AHE based upon fair values
      as of the date of the purchase.  AHE is a leading manufacturer of
      vinyl siding, aluminum siding, injection molded shutters and vinyl, aluminum
      and
      injection molded accessories.  The addition of AHE to Ply Gem’s
      portfolio will enable the Company to capitalize on attractive market
      opportunities and provide the Company with a strong sustainable platform to
      fully serve all channels of the vinyl siding market.





The
      purchase price was allocated to the assets and liabilities based on their fair
      values.  The following is a preliminary allocation of the purchase
      price.














9











*(in
                thousands)*Other
                current assets, net of cash
            
            $
            82,752Inventories
            
            
            73,660Property,
                plant and equipment
            
            
            91,954Trademarks
            
            
            23,950Patents
            
            
            770Customer
                relationships
            
            
            35,600Goodwill
            
            
            150,482Other
                assets
            
            
            6,634Current
                liabilities
            
            
            (115,400
            )Other
                liabilities
            
            
            (54,547
            )Purchase
                price, net of cash acquired
            
            $
            295,855




The
        allocation of the purchase price reported in our 2006 Annual Report on 10K
        was
        based on preliminary information.  The above table reflects
        adjustments for updated information for asset valuations and pre-acquisition
        contingencies as further information has become available.  Other
        current assets increased by approximately $2.1 million due to updates to
        current
        deferred taxes and a subsequent adjustment to the purchase
        price.  Inventories decreased by approximately $5.4 million primarily
        as a result of additional information obtained regarding the fair value of
        certain inventory items.  Property, plant and equipment decreased by
        approximately $2.1 million primarily due to an updated preliminary appraisal
        report received from a third-party valuation specialist.  Trademarks
        and Customer Relationships decreased by a net $3.3 million due to an updated
        preliminary appraisal report received from a third-party valuation
        specialist.  Current liabilities increased by approximately $0.5
        million primarily due to an increase to the reserve for exit costs for the
        shutdown of our Atlanta facility in accordance with EITF 95-3.  Other
        liabilities decreased by approximately $2.9 million due to an update to the
        long-term deferred tax liability.
 
 Based
        on
        preliminary appraisals received for the purchased intangible assets,
        approximately $24.0 million was assigned to Trademarks and Tradenames with
        weighted average lives of 15 years, approximately $0.8 million was assigned
        to
        Patents with weighted average lives of 20 years, and approximately $35.6
        million
        was assigned to customer relationships with weighted average lives of 10
        years.
 
 Management
        is continuing to assess the asset valuations and certain liabilities assumed
        in
        the transaction and tax-related assets and liabilities.  The appraisal
        reports from the third-party valuation specialist are expected to be finalized
        in the third quarter.  To the extent that any amounts change in these
        reports, the company will make further adjustments to the amounts recorded
        for
        Property, plant and equipment, Trademarks, Patents and Customer
        relationships.  Management is also continuing to evaluate the fair
        value of certain components of inventory, the ultimate cost of closing the
        Atlanta facility discussed below, and certain legal contingencies.
 
 Approximately
        $150.5 million of goodwill was assigned to the siding, fencing, railing and
        decking segment as a result of the AHE Acquisition.  None of the
        goodwill is expected to be deductible for tax purposes.  Goodwill
        increased by approximately $10.2 million from December 31, 2006 to June 30,
        2007.  An increase of approximately $6.3 million was due to the
        changes in allocation of the AHE purchase price discussed above and an increase
        of approximately $4.0 million was due to currency translation
        changes.
 
 As
        of
        December 31, 2006, the Company had recorded an obligation of $3.5 million
        in
        current liabilities for the shut down of AHE’s Atlanta facility in accordance
        with EITF 95-3.  This accrual included estimates for lease payments
        and associated costs of the facility through the remaining lease term, severance
        costs and costs related to the removal of equipment and other costs required
        to
        return the facility to a state required by the lessor.  In the first
        six months of 2007, cash payments of approximately $1.9 million have reduced
        the
        accrual.  In addition, during 2007 the accrual was increased to
        account for additional exit costs identified of approximately $0.8 million
        and
        recorded as an adjustment of the cost of acquiring AHE.  As a result,
        the accrual at June 30, 2007 is approximately $2.3 million.  This
        accrual could change in the third quarter to the extent that costs of returning
        the facility to a state required by the lessor are different than currently
        estimated.  This accrual could also change in the future to the extent
        that the company is successful in reducing its costs associated with leasing
        the
        facility through the end of the lease term in August
        2008.


Unaudited
      pro forma results of operations for the three month and six month periods ended
      July 1, 2006, as if all acquisitions had occurred at the beginning of each
      of
      the respective periods is as follows:  *(in
      thousands)*





For
                the three
            
            
            For
                the sixMonths
                ended
            
            
            Months
                endedJuly
                1, 2006
            
            
            July
                1, 2006(Unaudited)
            
            
            (Unaudited)Net
                Sales
            
            $
            471,429
            
            
            $
            820,666Net
                income
            
            $
            13,951
            
            
            $
            10,020








Pro
      forma
      net income includes adjustments for increases or decreases to depreciation
      and
      amortization expense, interest expense, management fees, tax expense, and LIFO,
      pension and OPEB expenses (in the case of the AHE acquisition).





10








**3.  INTANGIBLE
      ASSETS**





The
      table
      that follows presents the components of intangible assets as of June 30, 2007
      and December 31, 2006:





AverageAmortizationPeriod
            
            
            
            
            
            Accumulated
            
            
            Net
                Carrying(in
                Years)
            
            
            Cost
            
            
            Amortization
            
            
            Value*(Amounts
                in thousands)***As
                of June 30, 2007**Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (3,121
            )
            
            $
            9,649Trademarks/Tradenames
            
            
            15
            
            
            
            56,096
            
            
            
            (7,524
            )
            
            
            48,572Customer
                relationships/Other
            
            
            13
            
            
            
            155,860
            
            
            
            (25,745
            )
            
            
            130,115Total
                intangible assets
            
            
            
            
            
            $
            224,726
            
            
            $
            (36,390
            )
            
            $
            188,336Intangible
                with indefinite lives:Trademarks
            
            
            
            
            
            $
            32,500
            
            
            
            
            
            
            $
            32,500**As
                of December 31, 2006**Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (2,648
            )
            
            $
            10,122Trademarks/Tradenames
            
            
            15
            
            
            
            32,145
            
            
            
            (5,394
            )
            
            
            26,751Customer
                relationships/Other
            
            
            13
            
            
            
            155,538
            
            
            
            (19,408
            )
            
            
            136,130Total
                intangible assets
            
            
            
            
            
            $
            200,453
            
            
            $
            (27,450
            )
            
            $
            173,003Intangible
                with indefinite lives:Trademarks
            
            
            
            
            
            $
            59,830
            
            
            
            
            
            
            $
            59,830





Amortization
      expense for the six month periods ended June 30, 2007 and July 1, 2006 was
      approximately $8.9 million and $5.5 million,
      respectively.  Amortization expense for the remainder of 2007 and for
      fiscal years 2008, 2009, 2010, and 2011 is estimated to be approximately $8.4
      million, $16.9 million, $16.8 million, $16.8 million, and $16.6 million,
      respectively.





During
      the period ended June 30, 2007 the Company reevaluated the preliminary
      appraisals for purchased intangible assets referred to in Note 2, and determined
      that approximately $27.3 million of AHE Trademarks previously treated as
      indefinite lived assets should have useful lives of 15 years with a value of
      approximately $24.0 million.  As such, those assets were reclassified
      in the above table as of June 30, 2007.

















**4.  COMPREHENSIVE
      INCOME**





Comprehensive
      income is comprised of the following:





**Three
                Months Ended**
            
            
            **Six
                Months Ended**June
                30, 2007
            
            
            July
                1, 2006
            
            
            June
                30, 2007
            
            
            July
                1, 2006*(Amounts
                in thousands)*Net
                income
            
            $
            17,270
            
            
            $
            10,878
            
            
            $
            6,406
            
            
            $
            8,962Foreign
                currency translation adjustment
            
            
            2,760
            
            
            
            1,404
            
            
            
            3,296
            
            
            
            1,061Comprehensive
                income
            
            $
            20,030
            
            
            $
            12,282
            
            
            $
            9,702
            
            
            $
            10,023








11


**5.  LONG-TERM
      DEBT**





Long-term
      debt in the accompanying consolidated balance sheets at June 30, 2007 and
      December 31, 2006 consists of the following:




June
                30, 2007
            
            
            December
                31, 2006*(Amounts
                in thousands)*Senior
                term loan facility
            
            $
            685,346
            
            
            $
            688,533Senior
                revolving credit facility
            
            
            20,000
            
            
            
            -Senior
                subordinated notes
            
            
            360,208
            
            
            
            360,2311,065,554
            
            
            
            1,048,764Less
                current maturities
            
            
            6,873
            
            
            
            5,870$
            1,058,681
            
            
            $
            1,042,894







On
      April
      5, 2007, the Company entered into the fifth amendment to its credit
      facility.  The Company’s senior credit facilities with a syndicate of
      financial institutions and institutional lenders provide for senior secured
      financing of up to approximately $762.1 million, consisting of
      approximately $687.1 million of term loan facilities maturing in August
      2011 and a $75.0 million revolving loan facility, including a letter of
      credit subfacility, maturing in February 2009. The term loan facility was drawn
      in full and has two tranches, originally consisting of: 1) an approximate $662.3
      million tranche under which Ply Gem Industries, Inc. is the borrower (the
“U.S. Borrower”), and 2) an approximate $24.8 million tranche under which
      our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower (the
      “Canadian Borrower).  As of June 30, 2007 the balances of the two
      tranches were approximately $660.7 million and $24.7 million,
      respectively.




As
        a
        result of the refinancing that occurred on April 5, 2007, the Company has
        evaluated its financing costs in accordance with EITF 96-19 “Debtor’s Accounting
        for a Modification or Exchange of Debt Instruments”, and accordingly has
        expensed approximately $0.8 million of fees in the second quarter, and deferred
        $2.1 million to be amortized over the remaining life of the
        loan.
  Under
      the
      terms of the credit agreement, the Company will be permitted to use its excess
      cash flow and/or a portion of its revolving credit facility to repurchase up
      to
      $40.0 million aggregate principal amount of the Company’s 9% senior subordinated
      notes due 2012.  Subject to market conditions, its capital needs and
      other factors, the Company may from time to time purchase up to $40.0 million
      aggregate principal amount of its 9% senior subordinated notes due 2012 in
      market transactions, privately negotiated sales or other
      transactions.  As of June 30, 2007 the Company has not purchased any
      of its Senior Subordinated Notes.





As
      of
      June 30, 2007, we had $51.7 million of availability under our revolving credit
      facility, due to the $20.0 million borrowed under the revolver in the first
      quarter of 2007 and approximately $3.3 million of letters of credit issued
      under
      the facility.





The
      interest rates applicable to loans under our senior credit facilities are,
      at
      our option, equal to either a base rate plus an applicable interest margin,
      or
      an adjusted LIBOR rate plus an applicable interest margin, as defined in the
      senior credit facility agreement.  Our rates at June 30, 2007 ranged
      from 8.1% to 8.4%.





Our
      senior credit facilities require scheduled quarterly principal payments on
      the
      term loan facilities of approximately $1.7 million through March 31, 2011,
      and a
      payment of approximately $659.6 million on August 15, 2011, allocated pro rata
      between the U.S. term loan and the Canadian term loan.





The
      indebtedness of the U.S. Borrower under our senior credit facilities is
      guaranteed by the Company, and all of our existing and future direct and
      indirect subsidiaries, subject to exceptions for foreign subsidiary guarantees
      of the U.S. Borrower’s obligations to the extent such guarantees are prohibited
      by applicable law or would result in materially adverse tax consequences and
      other exceptions.  The indebtedness of the Canadian Borrower under our
      senior credit facilities is guaranteed by the Company, the U.S. Borrower and
      all
      of the Canadian Borrower’s future direct and indirect subsidiaries and is
      effectively guaranteed by all subsidiaries guaranteeing the U.S. borrower’s
      obligations under our senior credit facilities.  All indebtedness
      under our senior credit facilities is secured, subject to certain exceptions,
      by
      a perfected first priority pledge of all of our equity interests and those
      of
      our direct and indirect subsidiaries, and, subject to certain exceptions,
      perfected first priority security interests in, and mortgages on, all tangible
      and intangible assets; provided that all tangible and intangible assets of
      the
      Canadian Borrower and its subsidiaries are pledged to secure debt only of the
      Canadian Borrower.





Our
      senior credit facilities require that we comply on a quarterly basis with
      financial covenants consisting of a maximum leverage ratio test.  Our
      covenants also restrict the payment of dividends, with certain exceptions,
      without the lenders consent in writing.  The Company is also required
      at each year end, commencing December 31, 2008, to calculate and submit within
      90 days a payment of excess cash, as defined in the Company’s credit agreement.
      This payment will reduce the outstanding balance on the Company’s term
      loans.





12


Concurrently
      with the acquisition of Ply Gem Industries, Inc. on February 12, 2004 (the
“Ply
      Gem Acquisition”) Ply Gem Industries, Inc. issued $225.0 million aggregate
      principal amount of our 9% senior subordinated notes due 2012, which are
      guaranteed by Ply Gem Holdings Inc. and the domestic subsidiaries of Ply Gem
      Industries, Inc.  Subsequently, in August of 2004 in connection with
      the acquisition of MWM Holding, Inc. (the “MW Acquisition”), Ply Gem Industries,
      Inc. issued an additional $135.0 million of our 9% senior subordinated notes
      due
      2012, which are guaranteed by Ply Gem Holdings Inc. and the domestic
      subsidiaries of Ply Gem Industries, Inc., including MWM Holding, Inc. and its
      subsidiaries.





Ply
      Gem
      Holdings, Inc. is a holding company and has no operations.  Under the
      terms of the indenture governing the senior subordinated notes, there are
      restrictions on the ability of Ply Gem Industries, Inc. to dividend or
      distribute cash or property to Ply Gem Holdings, Inc.





The
      table
      that follows is a summary of maturities of all of the Company’s long-term debt
      obligations due in each twelve month period after June 30,
      2007:  *(Amounts in thousands)*








**Twelve
                month period ending:**June
                28, 2008
            
            $
            6,873July
                4, 2009
            
            
            26,873July
                3, 2010
            
            
            6,873July
                2, 2011
            
            
            5,155June
                30, 2012
            
            
            1,019,780Thereafter
            
            
            -$
            1,065,554





As
      of
      June 30, 2007, the Company had $51.7 million of availability under our revolving
      credit facility.  Approximately $3.3 million of letters of credit have
      been issued under our senior credit facility.  Further, approximately
      $3.2 million of letters of credit have been issued apart from the senior credit
      facility to secure certain environmental obligations.






















**6.  PENSION
      PLANS**





The
      Company has two separate pension plans, the Ply Gem Group Pension Plan (the
“Ply
      Gem Plan”) and the MW Manufacturers, Inc. Retirement Plan (the “MW
      Plan”).




The
      Company’s net periodic expense for the combined pension plans for the periods
      indicated consists of the following components:






For
                the six
              months
                ended
              June
                30, 2007
            
            
            For
                the six
              months
                ended
              July
                1, 2006*(Amounts
                in thousands)*Service
                cost
            
            $
            157
            
            
            $
            165Interest
                cost
            
            
            981
            
            
            
            937Expected
                return on plan assets
            
            
            (1,009
            )
            
            
            (916
            )Net
                periodic expense
            
            $
            129
            
            
            $
            186











13





**7.  COMMITMENTS
      AND CONTINGENCIES**







In
      connection with the Ply Gem Acquisition, in which Ply Gem Industries, Inc.
      was
      acquired from Nortek, Inc. (“Nortek”) in February 2004, Nortek has agreed to
      indemnify the Company for certain liabilities as set forth in the stock purchase
      agreement governing the Ply Gem Acquisition.  In the event Nortek is
      unable to satisfy amounts due under these indemnifications then the Company
      would be liable.  The Company believes that Nortek has the financial
      capacity to honor its indemnification obligations and therefore does not
      anticipate incurring any losses related to liabilities indemnified by Nortek
      under the Purchase Agreement.  A receivable related to this
      indemnification has been recorded in other long-term assets in the approximate
      amount of $8.3 million. The Company has indemnified third parties in certain
      transactions involving dispositions of former subsidiaries.  As of
      June 30, 2007 and December 31, 2006, the Company has recorded liabilities in
      relation to these indemnifications of approximately $8.3 million and $8.9
      million, respectively, consisting of the following:








(Amounts
                in thousands)**June
                30, 2007**
            
            
            **December
                31, 2006**Product
                claim liabilities
            
            $
            3,781
            
            
            $
            3,795Multiemployer
                pension plan withdrawal liability
            
            
            3,771
            
            
            
            3,860Other
            
            
            731
            
            
            
            1,219$
            8,283
            
            
            $
            8,874








The
      Company sells a number of products and offers a number of
      warranties.  The specific terms and conditions of these warranties
      vary depending on the product sold and country in which the product is
      sold.  The Company estimates the costs that may be incurred under
      their warranties and records a liability for such costs at the time of sale,
      which is recorded in Accrued expenses and Other long term
      liabilities.  Factors that affect the Company’s warranty liabilities
      include the number of units sold, historical and anticipated rates of warranty
      claims, cost per claim and new product introduction.  The Company
      periodically assesses the adequacy of the recorded warranty claims and adjusts
      the amounts as necessary.  As of June 30, 2007, warranty liabilities
      of approximately $12.3 million have been recorded in current liabilities and
      approximately $24.8 million have been recorded in long term
      liabilities.








Changes
      in the Company’s warranty liabilities are as follows:





For
                the six
              months
                ended
              June
                30, 2007
            
            
            For
                the six
              months
                ended
              July
                1, 2006*(Amounts
                in thousands)***Balance,
                beginning of period**
            
            $
            36,947
            
            
            $
            10,790Warranty
                expense provided during period
            
            
            911
            
            
            
            832Settlements
                made during period
            
            
            (824
            )
            
            
            (601
            )Liability
                assumed with Alenco Acquisition
            
            
            0
            
            
            
            1,461**Balance,
                end of period**
            
            $
            37,034
            
            
            $
            12,482






The
      Company is subject to other contingencies, including legal proceedings and
      claims arising out of its businesses that cover a wide range of matters,
      including, among others, environmental matters, contract and employment claims,
      product liability, warranty and modification, adjustment or replacement of
      component parts of units sold, which may include product
      recalls.  Product liability, environmental and other legal proceedings
      also include matters with respect to businesses previously owned.  The
      Company has used various substances in their products and manufacturing
      operations, which have been or may be deemed to be hazardous or dangerous,
      and
      the extent of its potential liability, if any, under environmental, product
      liability and workers’ compensation statutes, rules, regulations and case law is
      unclear. Further, due to the lack of adequate information and the potential
      impact of present regulations and any future regulations, there are certain
      circumstances in which no range of potential exposure may be reasonably
      estimated.  It is impossible to ascertain the ultimate legal and
      financial liability with respect to contingent liabilities, including lawsuits,
      and therefore no such estimate has been made.








14


**8.  ACCRUED
      EXPENSES, TAXES, AND OTHER LONG-TERM LIABILITIES**





Accrued
      expenses and taxes consist of the following at June 30, 2007 and December 31,
      2006:




June
                30, 2007
            
            
            December
                31, 2006*(Amounts
                in thousands)*Insurance
            
            $
            8,113
            
            
            $
            8,551Employee
                compensation and benefits
            
            
            15,747
            
            
            
            23,701Sales
                and marketing
            
            
            24,233
            
            
            
            30,833Product
                warranty
            
            
            12,262
            
            
            
            12,310Short-term
                product claim liability
            
            
            2,321
            
            
            
            2,321Accrued
                freight
            
            
            5,550
            
            
            
            3,959Interest
            
            
            12,825
            
            
            
            12,789Accrued
                severance
            
            
            659
            
            
            
            3,808Accrued
                taxes
            
            
            4,353
            
            
            
            2,650Other,
                net
            
            
            14,264
            
            
            
            12,605$
            100,327
            
            
            $
            113,527







The
      accrued severance amounts in the above table are a result of the purchase of
      AHE
      during the fourth quarter of 2006.  During the first six months of
      2007 cash severance payments were paid out for approximately $3.4 million and
      the severance accrual estimate was increased by approximately $0.3
      million.  No severance costs have been expensed.









Other
      long-term liabilities consist of the following at June 30, 2007 and December
      31,
      2006:




June
                30, 2007
            
            
            December
                31, 2006*(Amounts
                in thousands)*Insurance
            
            $
            3,896
            
            
            $
            4,097Pension
                liabilities
            
            
            11,192
            
            
            
            11,909Product
                warranty
            
            
            24,772
            
            
            
            24,637Long-term
                product claim liability
            
            
            1,460
            
            
            
            1,474Long-term
                deferred compensation
            
            
            4,581
            
            
            
            4,363Contingent
                tax liability
            
            
            6,788
            
            
            
            6,788Other
            
            
            2,808
            
            
            
            3,024$
            55,497
            
            
            $
            56,292














15


**9.**   **STOCK-BASED
      COMPENSATION**





*Stock
      Option Plan*





A
      summary
      of changes in stock options outstanding as of June 30, 2007 is presented
      below:





Stock
                Options
            
            
            Weighted-Average
                Exercise
              Price
            
            
            Weighted-Average
                Remaining Contractual Term (Years)Balance
                at January 1, 2007
            
            
            146,194
            
            
            $
            10.00
            
            
            
            7.88Granted
            
            
            8,900
            
            
            $
            60.11
            
            
            
            -Forfeited
                or expired
            
            
            -
            
            
            $
            10.00
            
            
            
            -Balance
                at June 30, 2007
            
            
            155,094
            
            
            $
            12.88
            
            
            
            7.52





As
      of
      June 30, 2007, no options have vested.  At June 30, 2007, the Company
      had approximately $0.1 million of total unrecognized compensation expense that
      will be recognized over the weighted average period of 2.52 years.





*Other
      Share-Based compensation*





Upon
      completion of each of the Ply Gem Acquisition, MW Acquisition and Alenco
      Acquisition, certain members of management made a cash contribution to Ply
      Gem
      Prime Holdings, Inc. in exchange for shares of Ply Gem Prime Holdings, Inc.’s
      common stock.





A
      summary
      of the changes in common stock shares as of June 30, 2007 is presented
      below.





Common
                Stock
              Shares
                Owned by
              ManagementBalance
                at January 1, 2007
            
            
            765,008Shares
                issued
            
            
            -Shares
                repurchased
            
            
            (93,500
            )Balance
                at June 30, 2007
            
            
            671,508








16










**10.  SEGMENT
      INFORMATION**





Statement
      of Financial Accounting Standards No. 131, “*Disclosures about Segments of an
      Enterprise and Related Information*” (SFAS 131) requires companies to report
      certain information about operating segments in their financial statements
      and
      established standards for related disclosures about products and services,
      geographic areas and major customers.  SFAS 131 defines operating
      segments as components of an enterprise about which separate financial
      information is available that is evaluated regularly by management in deciding
      how to allocate resources and in assessing performance.  Operating
      segments meeting certain aggregation criteria may be combined into one
      reportable segment for disclosure purposes. Comparative information for prior
      years is presented to conform to our current organizational
      structure.





The
      Company has two reportable segments: 1) siding, fencing, railing, and decking
      and 2) windows and doors.





The
      income before provision for income taxes of each segment includes the revenue
      generated on transactions involving products within that segment less
      identifiable expenses.  Unallocated income and expenses include items
      which are not directly attributed to or allocated to either of our reporting
      segments.  Such items include interest, legal costs, corporate
      payroll, and unallocated finance and accounting expenses. Unallocated corporate
      assets include deferred financing costs, cash and certain non-operating
      receivables.





Following
      is a summary of the Company’s segment information.








**Three
                months ended**
            
            
            **Six
                months ended****June
                30, 2007**
            
            
            **July
                1, 2006**
            
            
            **June
                30, 2007**
            
            
            **July
                1, 2006****Net
                Sales**Siding,
                Fencing, Railing and Decking
            
            $
            246,972
            
            
            $
            128,652
            
            
            $
            416,486
            
            
            $
            229,206Windows
                and Doors
            
            
            143,723
            
            
            
            159,459
            
            
            
            259,483
            
            
            
            275,216$
            390,695
            
            
            $
            288,111
            
            
            $
            675,969
            
            
            $
            504,422**Operating
                earnings**Siding,
                Fencing, Railing and Decking
            
            $
            37,123
            
            
            $
            20,365
            
            
            $
            36,708
            
            
            $
            29,755Windows
                and Doors
            
            
            16,265
            
            
            
            14,765
            
            
            
            23,792
            
            
            
            20,989Unallocated
            
            
            (1,788
            )
            
            
            (1,076
            )
            
            
            (3,741
            )
            
            
            (2,461
            )$
            51,600
            
            
            $
            34,054
            
            
            $
            56,759
            
            
            $
            48,283**As
                of**
            
            
            **As
                of****June
                30, 2007**
            
            
            **December
                31, 2006****Total
                Assets**Siding,
                Fencing, Railing and Decking
            
            $
            902,026
            
            
            $
            885,423Windows
                and Doors
            
            
            684,877
            
            
            
            664,808Unallocated
            
            
            72,374
            
            
            
            99,490$
            1,659,277
            
            
            $
            1,649,721










17


**11.  GUARANTOR
      / NON-GUARANTOR FINANCIAL INFORMATION**





The
      senior subordinated notes due in 2012 are issued by our direct subsidiary,
      Ply
      Gem Industries, Inc. and are secured by full and unconditional guarantees on
      a
      joint and several basis from certain of the Company’s 100% owned
      subsidiaries.  Accordingly, the following guarantor and non-guarantor
      information is presented as of June 30, 2007 and for the three and six month
      periods ended June 30, 2007 and July 1, 2006.  The non-guarantor
      information presented represents our Canadian subsidiary.




















**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the three months ended June 30, 2007**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            370,127
            
            
            $
            20,568
            
            
            $
            -
            
            
            $
            390,695Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            
            -
            
            
            
            279,385
            
            
            
            13,511
            
            
            
            -
            
            
            
            292,896Selling,
                general andadministrative
                expense
            
            
            -
            
            
            
            1,788
            
            
            
            36,627
            
            
            
            3,482
            
            
            
            -
            
            
            
            41,897Intercompany
                administrativecharges
            
            
            -
            
            
            
            (3,705
            )
            
            
            3,705
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            4,302
            
            
            
            -
            
            
            
            -
            
            
            
            4,302Total
                Costs and Expenses
            
            
            -
            
            
            
            (1,917
            )
            
            
            324,019
            
            
            
            16,993
            
            
            
            -
            
            
            
            339,095Operating
                earnings
            
            
            -
            
            
            
            1,917
            
            
            
            46,108
            
            
            
            3,575
            
            
            
            -
            
            
            
            51,600Foreign
                currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,992
            
            
            
            -
            
            
            
            1,992Intercompany
                interest
            
            
            -
            
            
            
            22,497
            
            
            
            (22,399
            )
            
            
            (98
            )
            
            
            -
            
            
            
            -Interest
                expense
            
            
            -
            
            
            
            (24,149
            )
            
            
            -
            
            
            
            (531
            )
            
            
            -
            
            
            
            (24,680
            )Investment
                income
            
            
            -
            
            
            
            153
            
            
            
            69
            
            
            
            23
            
            
            
            -
            
            
            
            245Other
                expense
            
            
            -
            
            
            
            (1,143
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,143
            )Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            
            (725
            )
            
            
            23,778
            
            
            
            4,961
            
            
            
            -
            
            
            
            28,014Equity
                in subsidiaries' income
            
            
            17,270
            
            
            
            18,268
            
            
            
            -
            
            
            
            -
            
            
            
            (35,538
            )
            
            
            -Income
                before income taxprovision
            
            
            17,270
            
            
            
            17,543
            
            
            
            23,778
            
            
            
            4,961
            
            
            
            (35,538
            )
            
            
            28,014Provision
                for income taxes
            
            
            -
            
            
            
            273
            
            
            
            8,834
            
            
            
            1,637
            
            
            
            -
            
            
            
            10,744Net
                income
            
            $
            17,270
            
            
            $
            17,270
            
            
            $
            14,944
            
            
            $
            3,324
            
            
            $
            (35,538
            )
            
            $
            17,270








18





**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the three months ended July 1, 2006**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            270,757
            
            
            $
            17,354
            
            
            $
            -
            
            
            $
            288,111Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            
            -
            
            
            
            207,256
            
            
            
            11,995
            
            
            
            -
            
            
            
            219,251Selling,
                general andadministrative
                expense
            
            
            -
            
            
            
            1,076
            
            
            
            27,548
            
            
            
            3,211
            
            
            
            -
            
            
            
            31,835Intercompany
                administrativecharges
            
            
            -
            
            
            
            (2,709
            )
            
            
            2,709
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            2,971
            
            
            
            -
            
            
            
            -
            
            
            
            2,971Total
                Costs and Expenses
            
            
            -
            
            
            
            (1,633
            )
            
            
            240,484
            
            
            
            15,206
            
            
            
            -
            
            
            
            254,057Operating
                earnings
            
            
            -
            
            
            
            1,633
            
            
            
            30,273
            
            
            
            2,148
            
            
            
            -
            
            
            
            34,054Foreign
                currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,164
            
            
            
            -
            
            
            
            1,164Intercompany
                interest
            
            
            -
            
            
            
            15,727
            
            
            
            (15,516
            )
            
            
            (211
            )
            
            
            -
            
            
            
            -Interest
                expense
            
            
            -
            
            
            
            (16,713
            )
            
            
            (42
            )
            
            
            (443
            )
            
            
            -
            
            
            
            (17,198
            )Investment
                income
            
            
            -
            
            
            
            125
            
            
            
            87
            
            
            
            45
            
            
            
            -
            
            
            
            257Other
                expense
            
            
            -
            
            
            
            (441
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (441
            )Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            
            331
            
            
            
            14,802
            
            
            
            2,703
            
            
            
            -
            
            
            
            17,836Equity
                in subsidiaries' income
            
            
            10,878
            
            
            
            10,679
            
            
            
            -
            
            
            
            -
            
            
            
            (21,557
            )
            
            
            -Income
                before provisionfor
                income taxes
            
            
            10,878
            
            
            
            11,010
            
            
            
            14,802
            
            
            
            2,703
            
            
            
            (21,557
            )
            
            
            17,836Provision
                for income taxes
            
            
            -
            
            
            
            132
            
            
            
            5,907
            
            
            
            919
            
            
            
            -
            
            
            
            6,958Net
                income
            
            $
            10,878
            
            
            $
            10,878
            
            
            $
            8,895
            
            
            $
            1,784
            
            
            $
            (21,557
            )
            
            $
            10,878





19








**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the six months ended June 30, 2007**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            639,319
            
            
            $
            36,650
            
            
            $
            -
            
            
            $
            675,969Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            
            -
            
            
            
            506,147
            
            
            
            24,833
            
            
            
            -
            
            
            
            530,980Selling,
                general andadministrative
                expense
            
            
            -
            
            
            
            3,741
            
            
            
            68,834
            
            
            
            6,719
            
            
            
            -
            
            
            
            79,294Intercompany
                administrativecharges
            
            
            -
            
            
            
            (6,397
            )
            
            
            6,397
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            8,936
            
            
            
            -
            
            
            
            -
            
            
            
            8,936Total
                Costs and Expenses
            
            
            -
            
            
            
            (2,656
            )
            
            
            590,314
            
            
            
            31,552
            
            
            
            -
            
            
            
            619,210Operating
                earnings
            
            
            -
            
            
            
            2,656
            
            
            
            49,005
            
            
            
            5,098
            
            
            
            -
            
            
            
            56,759Foreign
                currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,208
            
            
            
            -
            
            
            
            2,208Intercompany
                interest
            
            
            -
            
            
            
            46,198
            
            
            
            (46,001
            )
            
            
            (197
            )
            
            
            -
            
            
            
            -Interest
                expense
            
            
            -
            
            
            
            (48,894
            )
            
            
            (1
            )
            
            
            (1,051
            )
            
            
            -
            
            
            
            (49,946
            )Investment
                income
            
            
            -
            
            
            
            448
            
            
            
            328
            
            
            
            46
            
            
            
            -
            
            
            
            822Other
                expense
            
            
            -
            
            
            
            (1,143
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,143
            )Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            
            (735
            )
            
            
            3,331
            
            
            
            6,104
            
            
            
            -
            
            
            
            8,700Equity
                in subsidiaries' income
            
            
            6,406
            
            
            
            7,418
            
            
            
            -
            
            
            
            -
            
            
            
            (13,824
            )
            
            
            -Income
                before income taxesprovision
            
            
            6,406
            
            
            
            6,683
            
            
            
            3,331
            
            
            
            6,104
            
            
            
            (13,824
            )
            
            
            8,700Provision
                for income taxes
            
            
            -
            
            
            
            277
            
            
            
            3
            
            
            
            2,014
            
            
            
            -
            
            
            
            2,294Net
                income
            
            $
            6,406
            
            
            $
            6,406
            
            
            $
            3,328
            
            
            $
            4,090
            
            
            $
            (13,824
            )
            
            $
            6,406





20











**PLY
                GEM HOLDINGS, INC. AND
                SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the six months ended July 1, 2006**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            473,457
            
            
            $
            30,965
            
            
            $
            -
            
            
            $
            504,422Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            
            -
            
            
            
            370,618
            
            
            
            21,681
            
            
            
            -
            
            
            
            392,299Selling,
                general andadministrative
                expense
            
            
            -
            
            
            
            2,461
            
            
            
            49,814
            
            
            
            6,041
            
            
            
            -
            
            
            
            58,316Intercompany
                administrativecharges
            
            
            -
            
            
            
            (4,733
            )
            
            
            4,733
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            5,524
            
            
            
            -
            
            
            
            -
            
            
            
            5,524Total
                Costs and Expenses
            
            
            -
            
            
            
            (2,272
            )
            
            
            430,689
            
            
            
            27,722
            
            
            
            -
            
            
            
            456,139Operating
                earnings
            
            
            -
            
            
            
            2,272
            
            
            
            42,768
            
            
            
            3,243
            
            
            
            -
            
            
            
            48,283Foreign
                currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,093
            
            
            
            -
            
            
            
            1,093Intercompany
                interest
            
            
            -
            
            
            
            29,993
            
            
            
            (29,572
            )
            
            
            (421
            )
            
            
            -
            
            
            
            -Interest
                expense
            
            
            -
            
            
            
            (31,644
            )
            
            
            -
            
            
            
            (880
            )
            
            
            -
            
            
            
            (32,524
            )Investment
                income
            
            
            -
            
            
            
            201
            
            
            
            146
            
            
            
            66
            
            
            
            -
            
            
            
            413Other
                expense
            
            
            -
            
            
            
            (2,497
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,497
            )Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            
            (1,675
            )
            
            
            13,342
            
            
            
            3,101
            
            
            
            -
            
            
            
            14,768Equity
                in subsidiaries' income
            
            
            8,962
            
            
            
            10,053
            
            
            
            -
            
            
            
            -
            
            
            
            (19,015
            )
            
            
            -Income
                before income taxesand
                cumulative effect of accounting change
            
            
            8,962
            
            
            
            8,378
            
            
            
            13,342
            
            
            
            3,101
            
            
            
            (19,015
            )
            
            
            14,768Provision
                (benefit) for income taxes
            
            
            -
            
            
            
            (670
            )
            
            
            5,336
            
            
            
            1,054
            
            
            
            -
            
            
            
            5,720Income
                before cumulativeeffect
                of accounting change
            
            
            8,962
            
            
            
            9,048
            
            
            
            8,006
            
            
            
            2,047
            
            
            
            (19,015
            )
            
            
            9,048Cumulative
                effect of accounting change
            
            
            -
            
            
            
            (86
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (86
            )Net
                income
            
            $
            8,962
            
            
            $
            8,962
            
            
            $
            8,006
            
            
            $
            2,047
            
            
            $
            (19,015
            )
            
            $
            8,962














21





**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING BALANCE SHEET****As
                of June 30, 2007**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            -
            
            
            $
            23,402
            
            
            $
            17,503
            
            
            $
            3,360
            
            
            $
            -
            
            
            $
            44,265Accounts
                receivable, net
            
            
            -
            
            
            
            -
            
            
            
            169,476
            
            
            
            11,288
            
            
            
            -
            
            
            
            180,764Inventories:Raw
                materials
            
            
            -
            
            
            
            -
            
            
            
            50,433
            
            
            
            4,351
            
            
            
            -
            
            
            
            54,784Work
                in process
            
            
            -
            
            
            
            -
            
            
            
            21,203
            
            
            
            1,277
            
            
            
            -
            
            
            
            22,480Finished
                goods
            
            
            -
            
            
            
            -
            
            
            
            39,109
            
            
            
            3,899
            
            
            
            -
            
            
            
            43,008Total
                inventory
            
            
            -
            
            
            
            -
            
            
            
            110,745
            
            
            
            9,527
            
            
            
            -
            
            
            
            120,272Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            
            3,705
            
            
            
            9,638
            
            
            
            612
            
            
            
            -
            
            
            
            13,955Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            18,615
            
            
            
            -
            
            
            
            -
            
            
            
            18,615Total
                current assets
            
            
            -
            
            
            
            27,107
            
            
            
            325,977
            
            
            
            24,787
            
            
            
            -
            
            
            
            377,871Investments
                in subsidiaries
            
            
            235,446
            
            
            
            178,235
            
            
            
            -
            
            
            
            -
            
            
            
            (413,681
            )
            
            
            -**Property
                and Equipment, at cost:**Land
            
            
            -
            
            
            
            -
            
            
            
            3,840
            
            
            
            164
            
            
            
            -
            
            
            
            4,004Buildings
                and improvements
            
            
            -
            
            
            
            106
            
            
            
            37,894
            
            
            
            829
            
            
            
            -
            
            
            
            38,829Machinery
                and equipment
            
            
            -
            
            
            
            49
            
            
            
            211,548
            
            
            
            5,523
            
            
            
            -
            
            
            
            217,120-
            
            
            
            155
            
            
            
            253,282
            
            
            
            6,516
            
            
            
            -
            
            
            
            259,953Less
                accumulated depreciation
            
            
            -
            
            
            
            (105
            )
            
            
            (62,349
            )
            
            
            (1,810
            )
            
            
            -
            
            
            
            (64,264
            )Total
                property and equipment,net
            
            
            -
            
            
            
            50
            
            
            
            190,933
            
            
            
            4,706
            
            
            
            -
            
            
            
            195,689**Other
                Assets:**Goodwill
            
            
            -
            
            
            
            -
            
            
            
            778,274
            
            
            
            43,201
            
            
            
            -
            
            
            
            821,475Intangible
                assets, net
            
            
            -
            
            
            
            -
            
            
            
            220,836
            
            
            
            -
            
            
            
            -
            
            
            
            220,836Intercompany
                note receivable
            
            
            -
            
            
            
            1,058,345
            
            
            
            -
            
            
            
            -
            
            
            
            (1,058,345
            )
            
            
            -Other
            
            
            -
            
            
            
            43,129
            
            
            
            277
            
            
            
            -
            
            
            
            -
            
            
            
            43,406Total
                other assets
            
            
            -
            
            
            
            1,101,474
            
            
            
            999,387
            
            
            
            43,201
            
            
            
            (1,058,345
            )
            
            
            1,085,717$
            235,446
            
            
            $
            1,306,866
            
            
            $
            1,516,297
            
            
            $
            72,694
            
            
            $
            (1,472,026
            )
            
            $
            1,659,277**LIABILITIES
                AND STOCKHOLDER'S EQUITY****Current
                Liabilities:**Current
                maturities of long-termdebt
            
            $
            -
            
            
            $
            6,623
            
            
            $
            -
            
            
            $
            250
            
            
            $
            -
            
            
            $
            6,873Accounts
                payable
            
            
            -
            
            
            
            416
            
            
            
            93,085
            
            
            
            4,938
            
            
            
            -
            
            
            
            98,439Accrued
                expenses and taxes
            
            
            -
            
            
            
            16,975
            
            
            
            79,145
            
            
            
            4,207
            
            
            
            -
            
            
            
            100,327Total
                current liabilities
            
            
            -
            
            
            
            24,014
            
            
            
            172,230
            
            
            
            9,395
            
            
            
            -
            
            
            
            205,639Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            100,381
            
            
            
            3,633
            
            
            
            -
            
            
            
            104,014Intercompany
                note payable
            
            
            -
            
            
            
            -
            
            
            
            1,053,999
            
            
            
            4,346
            
            
            
            (1,058,345
            )
            
            
            -Other
                long term liabilities
            
            
            -
            
            
            
            13,162
            
            
            
            41,314
            
            
            
            1,021
            
            
            
            -
            
            
            
            55,497Long-term
                debt, less currentmaturities
            
            
            -
            
            
            
            1,034,244
            
            
            
            -
            
            
            
            24,437
            
            
            
            -
            
            
            
            1,058,681**Stockholder's
                Equity:**Preferred
                stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
                stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
                paid-in-capital
            
            
            179,820
            
            
            
            179,820
            
            
            
            95,959
            
            
            
            5,360
            
            
            
            (281,139
            )
            
            
            179,820Retained
                earnings
            
            
            50,034
            
            
            
            50,034
            
            
            
            52,414
            
            
            
            17,985
            
            
            
            (120,433
            )
            
            
            50,034Accumulated
                othercomprehensive
                income (loss)
            
            
            5,592
            
            
            
            5,592
            
            
            
            -
            
            
            
            6,517
            
            
            
            (12,109
            )
            
            
            5,592$
            235,446
            
            
            $
            1,306,866
            
            
            $
            1,516,297
            
            
            $
            72,694
            
            
            $
            (1,472,026
            )
            
            $
            1,659,277








22








**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING BALANCE SHEET****As
                of December 31, 2006**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            -
            
            
            $
            36,532
            
            
            $
            13,419
            
            
            $
            3,323
            
            
            $
            -
            
            
            $
            53,274Accounts
                receivable, net
            
            
            -
            
            
            
            -
            
            
            
            122,051
            
            
            
            8,744
            
            
            
            -
            
            
            
            130,795Inventories:Raw
                materials
            
            
            -
            
            
            
            -
            
            
            
            46,465
            
            
            
            4,471
            
            
            
            -
            
            
            
            50,936Work
                in process
            
            
            -
            
            
            
            -
            
            
            
            24,400
            
            
            
            939
            
            
            
            -
            
            
            
            25,339Finished
                goods
            
            
            -
            
            
            
            -
            
            
            
            49,832
            
            
            
            2,049
            
            
            
            -
            
            
            
            51,881Total
                inventory
            
            
            -
            
            
            
            -
            
            
            
            120,697
            
            
            
            7,459
            
            
            
            -
            
            
            
            128,156Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            
            11,157
            
            
            
            9,291
            
            
            
            425
            
            
            
            -
            
            
            
            20,873Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            18,770
            
            
            
            -
            
            
            
            -
            
            
            
            18,770Total
                current assets
            
            
            -
            
            
            
            47,689
            
            
            
            284,228
            
            
            
            19,951
            
            
            
            -
            
            
            
            351,868Investments
                in subsidiaries
            
            
            227,716
            
            
            
            139,930
            
            
            
            -
            
            
            
            -
            
            
            
            (367,646
            )
            
            
            -**Property
                and Equipment, at cost:**Land
            
            
            -
            
            
            
            -
            
            
            
            3,840
            
            
            
            150
            
            
            
            -
            
            
            
            3,990Buildings
                and improvements
            
            
            -
            
            
            
            106
            
            
            
            34,062
            
            
            
            721
            
            
            
            -
            
            
            
            34,889Machinery
                and equipment
            
            
            -
            
            
            
            49
            
            
            
            211,115
            
            
            
            4,391
            
            
            
            -
            
            
            
            215,555-
            
            
            
            155
            
            
            
            249,017
            
            
            
            5,262
            
            
            
            -
            
            
            
            254,434Less
                accumulated depreciation
            
            
            -
            
            
            
            (85
            )
            
            
            (46,153
            )
            
            
            (1,359
            )
            
            
            -
            
            
            
            (47,597
            )Total
                property and equipment, net
            
            
            -
            
            
            
            70
            
            
            
            202,864
            
            
            
            3,903
            
            
            
            -
            
            
            
            206,837**Other
                Assets:**Goodwill
            
            
            -
            
            
            
            -
            
            
            
            770,940
            
            
            
            40,345
            
            
            
            -
            
            
            
            811,285Intangible
                assets, net
            
            
            -
            
            
            
            -
            
            
            
            232,833
            
            
            
            -
            
            
            
            -
            
            
            
            232,833Intercompany
                note receivable
            
            
            -
            
            
            
            1,058,346
            
            
            
            -
            
            
            
            -
            
            
            
            (1,058,346
            )
            
            
            -Other
            
            
            -
            
            
            
            40,358
            
            
            
            6,540
            
            
            
            -
            
            
            
            -
            
            
            
            46,898Total
                other assets
            
            
            -
            
            
            
            1,098,704
            
            
            
            1,010,313
            
            
            
            40,345
            
            
            
            (1,058,346
            )
            
            
            1,091,016$
            227,716
            
            
            $
            1,286,393
            
            
            $
            1,497,405
            
            
            $
            64,199
            
            
            $
            (1,425,992
            )
            
            $
            1,649,721**LIABILITIES
                AND STOCKHOLDER'S EQUITY****Current
                Liabilities:**Current
                maturities of long-term debt
            
            $
            -
            
            
            $
            5,620
            
            
            $
            -
            
            
            $
            250
            
            
            $
            -
            
            
            $
            5,870Accounts
                payable
            
            
            -
            
            
            
            484
            
            
            
            90,356
            
            
            
            4,728
            
            
            
            -
            
            
            
            95,568Accrued
                expenses and taxes
            
            
            -
            
            
            
            19,545
            
            
            
            90,319
            
            
            
            3,663
            
            
            
            -
            
            
            
            113,527Total
                current liabilities
            
            
            -
            
            
            
            25,649
            
            
            
            180,675
            
            
            
            8,641
            
            
            
            -
            
            
            
            214,965Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            105,729
            
            
            
            2,125
            
            
            
            -
            
            
            
            107,854Intercompany
                note payable
            
            
            -
            
            
            
            -
            
            
            
            1,054,000
            
            
            
            4,346
            
            
            
            (1,058,346
            )
            
            
            -Other
                long term liabilities
            
            
            -
            
            
            
            14,697
            
            
            
            40,661
            
            
            
            934
            
            
            
            -
            
            
            
            56,292Long-term
                debt, less currentmaturities
            
            
            -
            
            
            
            1,018,331
            
            
            
            -
            
            
            
            24,563
            
            
            
            -
            
            
            
            1,042,894**Stockholder's
                Equity:**Preferred
                stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
                stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
                paid-in-capital
            
            
            181,792
            
            
            
            181,792
            
            
            
            66,689
            
            
            
            6,440
            
            
            
            (254,921
            )
            
            
            181,792Retained
                earnings
            
            
            43, 628
            
            
            
            43,628
            
            
            
            49,651
            
            
            
            13,895
            
            
            
            (107,174
            )
            
            
            43,628Accumulated
                othercomprehensive
                income (loss)
            
            
            2,296
            
            
            
            2,296
            
            
            
            -
            
            
            
            3,255
            
            
            
            (5,551
            )
            
            
            2,296$
            227,716
            
            
            $
            1,286,393
            
            
            $
            1,497,405
            
            
            $
            64,199
            
            
            $
            (1,425,992
            )
            
            $
            1,649,721





23


**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                STATEMENT OF CASH FLOWS****For
                the six months ended June 30, 2007**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)**Cash
                flows from operating activities:**Net
                income
            
            $
            6,406
            
            
            $
            6,406
            
            
            $
            3,328
            
            
            $
            4,090
            
            
            $
            (13,824
            )
            
            $
            6,406**Adjustments
                to reconcile net****income
                to cash provided by****operating
                activities:**Depreciation
                and amortizationexpense
            
            
            -
            
            
            
            20
            
            
            
            25,211
            
            
            
            321
            
            
            
            -
            
            
            
            25,552Non-cash
                interest expense, net
            
            
            -
            
            
            
            3,442
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,442Gain
                on foreign currency transactions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,208
            )
            
            
            -
            
            
            
            (2,208
            )Loss
                on sale of asset
            
            
            -
            
            
            
            -
            
            
            
            57
            
            
            
            -
            
            
            
            -
            
            
            
            57Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            (1,445
            )
            
            
            1,205
            
            
            
            -
            
            
            
            (240
            )Equity
                in subsidiaries' net income
            
            
            (6,406
            )
            
            
            (7,418
            )
            
            
            -
            
            
            
            -
            
            
            
            13,824
            
            
            
            -**Changes
                in operating assets and****liabilities:**Accounts
                receivable, net
            
            
            -
            
            
            
            -
            
            
            
            (46,432
            )
            
            
            (1,587
            )
            
            
            -
            
            
            
            (48,019
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            6,445
            
            
            
            (1,261
            )
            
            
            -
            
            
            
            5,184Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            
            3,314
            
            
            
            5,540
            
            
            
            (118
            )
            
            
            -
            
            
            
            8,736Accounts
                payable
            
            
            -
            
            
            
            (68
            )
            
            
            2,734
            
            
            
            (218
            )
            
            
            -
            
            
            
            2,448Accrued
                expenses and taxes
            
            
            -
            
            
            
            (3,514
            )
            
            
            (11,711
            )
            
            
            182
            
            
            
            -
            
            
            
            (15,043
            )Other
            
            
            -
            
            
            
            -
            
            
            
            48
            
            
            
            209
            
            
            
            -
            
            
            
            257**Net
                cash provided by (used in)****operating
                activities**
            
            
            -
            
            
            
            2,182
            
            
            
            (16,225
            )
            
            
            615
            
            
            
            -
            
            
            
            (13,428
            )**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            -
            
            
            
            -
            
            
            
            (6,459
            )
            
            
            (742
            )
            
            
            -
            
            
            
            (7,201
            )Proceeds
                from sale of building
            
            
            -
            
            
            
            -
            
            
            
            15
            
            
            
            -
            
            
            
            -
            
            
            
            15Acquisitions,
                net of cash acquired
            
            
            -
            
            
            
            (223
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (223
            )Other
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -**Net
                cash used in investing****activities**
            
            
            -
            
            
            
            (223
            )
            
            
            (6,444
            )
            
            
            (742
            )
            
            
            -
            
            
            
            (7,409
            )**Cash
                flows from financing activities:**Proceeds
                from long-term debt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Proceeds
                from revolver borrowings
            
            
            -
            
            
            
            30,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            30,000Proceeds
                from intercompanyinvestment,
                net
            
            
            -
            
            
            
            (25,853
            )
            
            
            25,853
            
            
            
            -
            
            
            
            -
            
            
            
            -Payments
                on long-term debt
            
            
            -
            
            
            
            (3,061
            )
            
            
            -
            
            
            
            (126
            )
            
            
            -
            
            
            
            (3,187
            )Payment
                on revolver borrowings
            
            
            -
            
            
            
            (10,000
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,000
            )Debt
                issuance costs
            
            
            -
            
            
            
            (2,100
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,100
            )Equity
                contribution (distribution)
            
            
            -
            
            
            
            (3,175
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,175
            )**Net
                cash provided by (used in)****financing
                activities**
            
            
            -
            
            
            
            (14,189
            )
            
            
            25,853
            
            
            
            (126
            )
            
            
            -
            
            
            
            11,538Impact
                of exchange rate movementon
                cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            290
            
            
            
            -
            
            
            
            290Net
                increase (decrease) in cashand
                cash equivalents
            
            
            -
            
            
            
            (12,230
            )
            
            
            3,184
            
            
            
            37
            
            
            
            -
            
            
            
            (9,009
            )Cash
                and cash equivalents at thebeginning
                of the period
            
            
            -
            
            
            
            35,632
            
            
            
            14,319
            
            
            
            3,323
            
            
            
            -
            
            
            
            53,274Cash
                and cash equivalents at the endof
                the period
            
            $
            -
            
            
            $
            23,402
            
            
            $
            17,503
            
            
            $
            3,360
            
            
            $
            -
            
            
            $
            44,265





24





**PLY
                GEM HOLDINGS, INC. AND
                SUBSIDIARIES****CONSOLIDATING
                STATEMENT OF CASH FLOWS****For
                the six months ended July 1, 2006**Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
                Gem
            
            
            Ply
                Gem
            
            
            Guarantor
            
            
            GuarantorHoldings,
                Inc.
            
            
            Industries,
                Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Eliminations
            
            
            Consolidated(Amounts
                in thousands)**Cash
                flows from operating activities:**Net
                income
            
            $
            8,962
            
            
            $
            8,962
            
            
            $
            8,006
            
            
            $
            2,047
            
            
            $
            (19,015
            )
            
            $
            8,962**Adjustments
                to reconcile net****income
                to cash provided by****operating
                activities:**Depreciation
                and amortizationexpense
            
            
            -
            
            
            
            20
            
            
            
            14,253
            
            
            
            271
            
            
            
            -
            
            
            
            14,544Fair
                value premium on purchasedinventory
            
            
            -
            
            
            
            -
            
            
            
            304
            
            
            
            -
            
            
            
            -
            
            
            
            304Non-cash
                interest expense, net
            
            
            -
            
            
            
            2,662
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,662Gain
                on foreign currency transactions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,093
            )
            
            
            -
            
            
            
            (1,093
            )Loss
                on sale of asset
            
            
            -
            
            
            
            -
            
            
            
            572
            
            
            
            -
            
            
            
            -
            
            
            
            572Other
                non-cash items
            
            
            -
            
            
            
            1,094
            
            
            
            1,388
            
            
            
            -
            
            
            
            -
            
            
            
            2,482Deferred
                income taxes
            
            
            -
            
            
            
            -
            
            
            
            1,535
            
            
            
            1,257
            
            
            
            -
            
            
            
            2,792Equity
                in subsidiaries' net income
            
            
            (8,962
            )
            
            
            (10,053
            )
            
            
            -
            
            
            
            -
            
            
            
            19,015
            
            
            
            -**Changes
                in operating assets and****liabilities:**Accounts
                receivable, net
            
            
            -
            
            
            
            -
            
            
            
            (30,280
            )
            
            
            (2,431
            )
            
            
            -
            
            
            
            (32,711
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            (5,934
            )
            
            
            (1,068
            )
            
            
            -
            
            
            
            (7,002
            )Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            
            (1,303
            )
            
            
            3,718
            
            
            
            (279
            )
            
            
            -
            
            
            
            2,136Accounts
                payable
            
            
            -
            
            
            
            (66
            )
            
            
            10,308
            
            
            
            1,260
            
            
            
            -
            
            
            
            11,502Accrued
                expenses and taxes
            
            
            -
            
            
            
            (744
            )
            
            
            7,094
            
            
            
            1,282
            
            
            
            -
            
            
            
            7,632Other
            
            
            -
            
            
            
            -
            
            
            
            (2
            )
            
            
            (175
            )
            
            
            -
            
            
            
            (177
            )**Net
                cash provided by (used in)****operating
                activities**
            
            
            -
            
            
            
            572
            
            
            
            10,962
            
            
            
            1,071
            
            
            
            -
            
            
            
            12,605**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            -
            
            
            
            -
            
            
            
            (9,616
            )
            
            
            (1,259
            )
            
            
            -
            
            
            
            (10,875
            )Proceeds
                from sale of building
            
            
            -
            
            
            
            -
            
            
            
            497
            
            
            
            -
            
            
            
            -
            
            
            
            497Acquisitions,
                net of cash acquired
            
            
            -
            
            
            
            (120,710
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (120,710
            )**Net
                cash used in investing****activities**
            
            
            -
            
            
            
            (120,710
            )
            
            
            (9,119
            )
            
            
            (1,259
            )
            
            
            -
            
            
            
            (131,088
            )**Cash
                flows from financing activities:**Proceeds
                from long-term debt
            
            
            -
            
            
            
            122,320
            
            
            
            -
            
            
            
            488
            
            
            
            -
            
            
            
            122,808Proceeds
                from revolver borrowings
            
            
            -
            
            
            
            15,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            15,000Proceeds
                from intercompanyinvestment,
                net
            
            
            -
            
            
            
            1,798
            
            
            
            (1,798
            )
            
            
            -
            
            
            
            -
            
            
            
            -Payments
                on long-term debt
            
            
            -
            
            
            
            (936
            )
            
            
            -
            
            
            
            (64
            )
            
            
            -
            
            
            
            (1,000
            )Payment
                on revolver borrowings
            
            
            -
            
            
            
            (15,000
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (15,000
            )Debt
                issuance costs
            
            
            -
            
            
            
            (2,249
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,249
            )Equity
                contribution (distribution)
            
            
            -
            
            
            
            1,725
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,725**Net
                cash provided by (used in)****financing
                activities**
            
            
            -
            
            
            
            122,658
            
            
            
            (1,798
            )
            
            
            424
            
            
            
            -
            
            
            
            121,284Impact
                of exchange rate movementon
                cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            157
            
            
            
            -
            
            
            
            157Net
                increase (decrease) in cashand
                cash equivalents
            
            
            -
            
            
            
            2,520
            
            
            
            45
            
            
            
            393
            
            
            
            -
            
            
            
            2,958Cash
                and cash equivalents at thebeginning
                of the period
            
            
            -
            
            
            
            9,501
            
            
            
            9,130
            
            
            
            3,542
            
            
            
            -
            
            
            
            22,173Cash
                and cash equivalents at the endof
                the period
            
            $
            -
            
            
            $
            12,021
            
            
            $
            9,175
            
            
            $
            3,935
            
            
            $
            -
            
            
            $
            25,131








25


**Item
      2.   MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**





The
      information contained in this discussion and in the unaudited Condensed
      Consolidated Financial Statements and Accompanying Notes presented in this
      Form
      10-Q should be read in conjunction with information set forth in Ply Gem
      Holdings, Inc.’s Annual Report on Form 10-K.  Certain statements in
      this “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” are “forward-looking statements”.  See “Special Note
      Regarding Forward-Looking Statements.”  As used in this Quarterly
      Report on Form 10-Q, the “Company”, “we”, “us”, and “our” refer to Ply Gem
      Holdings, Inc. and its subsidiaries, except where the context otherwise requires
      or as otherwise indicated.





***General***





We
      are a
      leading manufacturer of residential exterior building products in North
      America.  We offer a comprehensive product line of vinyl siding and
      skirting, vinyl windows and doors, aluminum windows, and vinyl and composite
      fencing, railing and decking that serves both the home repair and remodeling
      and
      new home construction sectors in all 50 states and Western Canada.  We
      also manufacture vinyl and aluminum soffit and siding accessories, aluminum
      trim
      coil, wood windows and steel and fiberglass doors, enabling us to bundle
      complementary and color-matched products and accessories with our core vinyl
      products.   We have two reportable segments: (i) siding, fencing,
      railing and decking, and (ii) windows and doors.





We
      are a
      holding company with no operations or assets of our own other than the capital
      stock of our subsidiaries. The terms of Ply Gem Industries’ credit facility
      place restrictions on its ability to pay dividends and otherwise transfer assets
      to us.  Further, the terms of the indenture governing Ply Gem
      Industries' 9% senior subordinated notes due 2012 place restrictions on the
      ability of Ply Gem Industries and our other subsidiaries to pay dividends and
      otherwise transfer assets to us.





***Financial
      statement presentation***





*Net
      Sales.*  Net sales represent the selling price of our products
      plus certain shipping charges less applicable provisions for discounts and
      allowances.  Allowances include cash discounts, volume rebates and
      gross returns among others.





*Cost
      of products
      sold.*  Cost of products sold includes direct material and
      manufacturing costs, manufacturing depreciation, third-party and in-house
      delivery costs and product warranty expense.





*Selling,
      general and administrative
      expense.*  Selling, general and administrative expense, or
“SG&A expense,” includes all non-product related operating expenses,
      including selling, marketing, research and development costs, information
      technology and other general and administrative expenses.





*Operating
      earnings.*  Operating earnings represents net sales less cost of
      products sold, SG&A expense and amortization of intangible
      assets.





*Comparability.*  The
      data presented for the six month period ended July 1, 2006 includes the addition
      of Alenco for the period February 25, 2006 through July 1, 2006.  As a
      result, the 2006 period will not be directly comparable to the 2007
      period.  In addition, because of the AHE Acquisition during the fourth
      quarter of 2006, 2007 and future periods will not be comparable to the periods
      in 2006 prior to the AHE Acquisition.





***Impact
      of commodity pricing***





Our
      principal raw materials, PVC resin and aluminum, have historically been subject
      to rapid price changes.  We have in the past been able to
      substantially pass on significant cost increases through price increases to
      our
      customers.  Our results of operations for individual quarters can and
      have been impacted by a delay between the time of PVC resin and aluminum cost
      increases and decreases and related price changes that we implement in our
      products.








26








***Impact
      of weather***





Since
      our
      building products are intended for exterior use, our sales and operating
      earnings tend to be lower during periods of inclement
      weather.  Weather conditions in the first quarter of each calendar
      year historically result in that quarter producing significantly less sales
      revenue than in any other period of the year.  As a result, we have
      historically had lower profits or losses in the first quarter, and reduced
      profits in the fourth quarter of each calendar year due to the
      weather.  Our results of operations for individual quarters in the
      future may be impacted by adverse weather conditions.





***Critical
      Accounting Policies***





The
      following discussion and analysis of our financial condition and results of
      operations are based upon our consolidated financial statements, which have
      been
      prepared in accordance with U.S. generally accepted accounting
      principles.  Certain of our accounting policies require the
      application of judgments in selecting the appropriate assumptions for
      calculating financial estimates.  By their nature, these judgments are
      subject to an inherent degree of uncertainty.  We periodically
      evaluate the judgments and estimates used for our critical accounting policies
      to ensure that such judgments and estimates are reasonable for our interim
      and
      year-end reporting requirements.  These judgments and estimates are
      based upon our historical experience, current trends and information available
      from other sources, as appropriate.  If different conditions result
      than those assumptions used in our judgments, the results could be materially
      different from our estimates.  Management believes that the two areas
      where different assumptions could result in materially different reported
      results are accounts receivable related to estimation of allowances for doubtful
      accounts and inventories in estimating reserves for obsolete and excess
      inventory.  Although we believe the likelihood of a material
      difference in either of these two areas is very low based upon our historical
      experience, a 10% change in our allowance for doubtful accounts and our
      inventory reserve estimates at June 30, 2007 would result in a $0.6 million
      and
      $1.0 million impact upon SG&A expense and cost of products sold,
      respectively.  Additionally, we have included in the discussion that
      follows our estimation methodology for both accounts receivable and
      inventories.  While all significant policies are important to our
      combined and consolidated financial statements, some of these policies may
      be
      viewed as being critical.  Our critical accounting policies
      include:





*Revenue
      Recognition.*  We recognize sales based upon shipment of products
      to our customers net of applicable provisions for discounts and
      allowances.  Generally, the customer takes title upon shipment and
      assumes the risks and rewards of ownership of the product.  For
      certain products, our customers take title upon delivery, at which time revenue
      is then recognized.  Revenue includes selling price of the product and
      all shipping costs paid by the customer.  Revenue is reduced at the
      time of sale for estimated sales returns and all applicable allowances and
      discounts based on historical experience.  We also provide for
      estimates of warranty, bad debts, shipping costs and certain sales-related
      customer programs at the time of sale.  Shipping and warranty costs
      are included in cost of products sold.  Bad debt expense and
      sales-related marketing programs are included in selling, general and
      administrative expense.  We believe that our procedures for estimating
      such amounts are reasonable and historically have not resulted in material
      adjustments in subsequent periods when the estimates are reconciled to the
      actual amounts.





*Accounts
      Receivable.*  We maintain an allowance for doubtful accounts for
      estimated losses from the inability of our customers to make required payments,
      which is provided for in bad debt expense.  We determine the adequacy
      of this allowance by regularly reviewing our accounts receivable aging and
      evaluating individual customers’ receivables, considering customers’ financial
      condition, credit history and other current economic conditions.  If a
      customer’s financial condition were to deteriorate which might impact its
      ability to make payment, then additional allowances may be
      required.





*Inventories.*  Inventories
      in
      the accompanying consolidated balance sheets are valued at the lower of cost
      or
      market.  At June 30, 2007, and December 31, 2006 approximately $12.0
      million and $9.6 million of total inventories, respectively, were valued on
      the
      last-in, first-out method, or “LIFO.”  Under the first-in, first-out
      method, or “FIFO,” of accounting, such inventories would have been approximately
      $4.7 million higher at each of June 30, 2007 and December 31,
      2006.  All other inventories were valued under the FIFO
      method.  We record provisions, as appropriate, to write-down obsolete
      and excess inventory to estimated net realizable value.  The process
      for evaluating obsolete and excess inventory often requires subjective judgments
      and estimates concerning future sales levels, quantities and prices at which
      such inventory will be sold in the normal course of
      business.  Accelerating the disposal process or incorrect estimates of
      future sales potential may cause the actual results to differ from the estimates
      at the time such inventory is disposed or sold.





27


*Asset
      Impairment.*  In
      accordance with SFAS No. 144, if a triggering event occurs, we would evaluate
      the realizability of certain long-lived assets, which primarily consist of
      property and equipment and purchased intangible assets subject to amortization,
      based on expectations of non-discounted future cash flows for each asset group
      having a material amount of long-lived assets. If circumstances indicate a
      potential impairment, and if the sum of the expected non-discounted future
      cash
      flow is less than the carrying amount of all assets including SFAS No. 144
      long-lived assets, we would recognize an impairment loss.





*Goodwill
      and Indefinite Lived
      Intangibles Impairment*.  In accordance with SFAS No. 142, we
      perform annual tests for goodwill and indefinite lived intangibles
      impairment.  We assess goodwill and indefinite lived intangibles which
      are not subject to amortization for impairment during the fourth quarter of
      each
      year and also at any other date when events or changes in circumstances indicate
      that the carrying value of these assets may exceed their fair
      value.  Based upon our most recent analysis and the fact that no
      adverse events have been identified, we believe that no impairment of goodwill
      or indefinite lived intangibles existed at June 30, 2007 or December 31,
      2006.





*Insurance
      Liabilities.*  We record insurance liabilities and related
      expenses for health, workers’ compensation, product and general liability losses
      and other insurance expenses in accordance with either the contractual terms
      of
      their policies or, if self-insured, the total liabilities that are estimable
      and
      probable as of the reporting date.  Insurance liabilities are recorded
      as current liabilities to the extent they are expected to be paid in the
      succeeding year with the remaining requirements classified as long-term
      liabilities.  The accounting for self-insured plans requires that
      significant judgments and estimates be made both with respect to the future
      liabilities to be paid for known claims and incurred but not reported claims
      as
      of the reporting date.  The Company relies on historical trends when
      determining the appropriate health insurance reserves to record in our
      consolidated balance sheets. The Company relies heavily on the advice and
      calculations of third-party actuarial consultants when determining the
      appropriate insurance reserves to record in our consolidated balance sheets
      for
      a substantial portion of our workers’ compensation and general and product
      liability losses.  In certain cases where partial insurance coverage
      exists, the Company must estimate the portion of the liability that will be
      covered by existing insurance policies.





*Income
      Taxes.*   We account for deferred income taxes using the
      liability method in accordance with SFAS No. 109 “*Accounting for Income
      Taxes,*” or “SFAS No. 109,” which requires that the deferred tax
      consequences of temporary differences between the amounts recorded in our
      financial statements and the amount included in our federal and state income
      tax
      returns be recognized in the balance sheet.  Effective January 1,
      2007, the Company adopted FASB Interpretation No. 48, (FIN 48), *“Accounting
      for Uncertainties in Income Taxes”*, an interpretation of SFAS No.
      109.  FIN 48 interprets and clarifies SFAS No. 109 regarding the
      required accounting of and establishes specific disclosures for uncertain tax
      positions taken or expected to be taken within an entity’s income tax returns
      and recognized in an entity’s financial statements.  FIN 48 prescribes
      the minimum financial statement recognition threshold for tax benefits generated
      by deductions, non-filing of tax returns or other tax positions taken or
      expected to be taken in an entities tax returns. The amount recorded in our
      financial statements reflects estimates of final amounts due to timing of
      completion and filing of actual income tax returns.  Estimates are
      required with respect to, among other things, the appropriate state income
      tax
      rates to use in the various states that we and our subsidiaries are required
      to
      file, the potential utilization of operating and capital loss carry-forwards
      for
      both federal and state income tax purposes and valuation allowances required,
      if
      any, for tax assets that may not be realized in the future.  We
      establish reserves when, despite our belief that our tax return positions are
      fully supportable, certain positions could be challenged, and the positions
      may
      not be fully sustained.  We have executed a tax sharing agreement with
      Ply Gem Holdings, Inc. and Ply Gem Investment Holdings, Inc. pursuant to which
      tax liabilities for each respective party are computed on a stand-alone
      basis.  Our U.S. subsidiaries file unitary, combined and separate
      state income tax returns.  CWD Windows and Doors files separate
      Canadian income tax returns.





*Purchase
      accounting.*Business acquisitions are accounted for using the
      purchase method of accounting. The cost of the acquired company is allocated
      to
      identifiable tangible and intangible assets based on estimated fair value
      generally determined by third party valuation specialists, with the excess
      allocated to goodwill.







28




***Results
      of Operations***





The
      following table summarizes net sales and operating earnings by segment and
      is
      derived from the accompanying condensed consolidated statements of operations
      included in this report.









**Three
                months ended**
            
            
            **Six
                months ended**June
                30,
            
            
            July
                1,
            
            
            June
                30,
            
            
            July
                1,2007
            
            
            2006
            
            
            2007
            
            
            2006**Net
                Sales**Siding,
                Fencing, Railing and Decking
            
            $
            246,972
            
            
            $
            128,652
            
            
            $
            416,486
            
            
            $
            229,206Windows
                and Doors
            
            
            143,723
            
            
            
            159,459
            
            
            
            259,483
            
            
            
            275,216**Operating
                earnings**Siding,
                Fencing, Railing and Decking
            
            
            37,123
            
            
            
            20,365
            
            
            
            36,708
            
            
            
            29,755Windows
                and Doors
            
            
            16,265
            
            
            
            14,765
            
            
            
            23,792
            
            
            
            20,989Unallocated
            
            
            (1,788
            )
            
            
            (1,076
            )
            
            
            (3,741
            )
            
            
            (2,461
            )**Foreign
                currency gain**Windows
                and Doors
            
            
            1,992
            
            
            
            1,164
            
            
            
            2,208
            
            
            
            1,093**Interest
                expense, net of investment income**Siding,
                Fencing, Railing and Decking
            
            
            49
            
            
            
            59
            
            
            
            75
            
            
            
            101Windows
                and Doors
            
            
            (488
            )
            
            
            (370
            )
            
            
            (753
            )
            
            
            (769
            )Unallocated
            
            
            (23,996
            )
            
            
            (16,630
            )
            
            
            (48,446
            )
            
            
            (31,443
            )**Other
                expense**Unallocated
            
            
            (1,143
            )
            
            
            (441
            )
            
            
            (1,143
            )
            
            
            (2,497
            )**Income
                tax expense**Unallocated
            
            
            10,744
            
            
            
            6,958
            
            
            
            2,294
            
            
            
            5,720**Net
                income before cumulative effect****of
                accounting change**
            
            
            17,270
            
            
            
            10,878
            
            
            
            6,406
            
            
            
            9,048**Cumulative
                effect of accounting change**
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (86
            )**Net
                income before cumulative effect**
            
            $
            17,270
            
            
            $
            10,878
            
            
            $
            6,406
            
            
            $
            8,962







In
      view
      of the seasonality of our business, it must be emphasized that the results
      of
      operations for the periods presented are not necessarily indicative of the
      results for a full fiscal year.




The
      following tables set forth our results of operations based on the amounts and
      the percentage relationship of the items listed to net sales for the periods
      indicated.  However, our results of operations set forth in the tables
      below may not necessarily be representative of our future operating
      results.




This
      review of performance is organized by business segment, reflecting the way
      we
      manage our business.  Each business group leader is responsible for
      operating results down to operating earnings.  We use operating
      earnings as a performance measure as it captures the income and expenses within
      the management control of our business leaders.  Corporate management
      is responsible for making all financing decisions.  Therefore, each
      segment discussion focuses on the factors affecting operating earnings, while
      interest expense and income taxes and certain other unallocated expenses are
      separately discussed at the corporate level.








29







**Siding,
      Fencing, Railing and Decking Segment**






**For
                the three months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            246,972
            
            
            100.0
            %
            
            $
            128,652
            
            
            100.0
            %Cost
                of products sold
            
            
            184,399
            
            
            74.7
            %
            
            
            97,648
            
            
            75.9
            %Gross
                Profit
            
            
            62,573
            
            
            25.3
            %
            
            
            31,044
            
            
            24.1
            %S,G&A
                expense
            
            
            23,244
            
            
            9.4
            %
            
            
            9,833
            
            
            7.6
            %Amortization
                of intangible assets
            
            
            2,206
            
            
            0.9
            %
            
            
            806
            
            
            0.6
            %Operating
                earnings
            
            $
            37,123
            
            
            15.0
            %
            
            $
            20,365
            
            
            15.8
            %





*Net
      Sales*





Net
      sales
      for the three months ended June 30, 2007 increased compared to the same period
      in 2006 by approximately $118.3 million, or 92%.  The increase in net
      sales was driven by AHE’s sales of approximately $140.3 million, partially
      offset by industry wide market declines resulting from lower single family
      housing starts which negatively impacted the new construction sector of the
      market and overall softness in repair and remodeling expenditures which
      negatively impacted demand for our products. According to the National
      Association of Home Builders (“NAHB”), second quarter 2007 single family housing
      starts are estimated to show a decline of approximately 23.7% from actual levels
      achieved in the second quarter of 2006.  Additionally, the new
      construction sector of the market is expected to continue to be negatively
      impacted during the balance of 2007, as single family housing starts are
      projected to remain below levels achieved in 2006 according to the NAHB July
      10,
      2007 forecast.





*Cost
      of Products Sold*





Cost
      of
      products sold for the three months ended June 30, 2007 increased over the same
      period in 2006 by approximately $86.8 million, or 89%.  The increase
      in cost of products sold was primarily due to the addition of
      AHE.  Cost of products sold as a percentage of net sales for the three
      months ended June 30, 2007 decreased over the same period in 2006 from 75.9%
      to
      74.7%.  The decrease in cost of products sold as a percentage of net
      sales resulted from cost savings that are being realized as a result of the
      Company’s acquisition of AHE on October 31, 2006.  These cost savings
      include reduced purchased cost on certain raw materials, reduced fixed overhead
      and other manufacturing efficiency improvements.  Additionally, in
      light of current market conditions for building material products, the Company
      has adjusted the size of its workforce and fixed overhead structure including
      the closure of one of its vinyl siding plants in Atlanta, GA which ceased
      production in April of 2007.





*Selling,
      general and administrative expense*





SG&A
      expense for the three months ended June 30, 2007 increased by approximately
      $13.4 million, or 136%, from the same period in 2006. The increase in SG&A
      expenses was due to the addition of approximately $13.4 million from
      AHE.





*Amortization
      of intangible assets*





Amortization
      expense for the three months ended June 30, 2007 increased by approximately
      $1.4
      million due to the addition of AHE operations.








30










**For
                the six months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            416,486
            
            
            100.0
            %
            
            $
            229,206
            
            
            100.0
            %Cost
                of products sold
            
            
            331,984
            
            
            79.7
            %
            
            
            179,185
            
            
            78.2
            %Gross
                Profit
            
            
            84,502
            
            
            20.3
            %
            
            
            50,021
            
            
            21.8
            %S,G&A
                expense
            
            
            43,056
            
            
            10.3
            %
            
            
            18,655
            
            
            8.1
            %Amortization
                of intangible assets
            
            
            4,738
            
            
            1.1
            %
            
            
            1,611
            
            
            0.7
            %Operating
                earnings
            
            $
            36,708
            
            
            8.8
            %
            
            $
            29,755
            
            
            13.0
            %





*Net
      Sales*





Net
      sales
      for the six months ended June 30, 2007 increased compared to the same period
      in
      2006 by approximately $187.3 million, or 82%.  The increase in net
      sales was driven by AHE’s sales of approximately $236.0 million, but was
      partially offset by industry wide market declines resulting from lower single
      family housing starts which negatively impacted the new construction sector
      of
      the market and overall softness in repair and remodeling expenditures which
      negatively impacted demand for our products. Additionally, the new
      construction sector of the market is expected to continue to be negatively
      impacted during the balance of 2007, as single family housing starts are
      projected to remain below levels achieved in 2006 according to the NAHB’s July
      10, 2007 forecast.





*Cost
      of Products Sold*





Cost
      of
      products sold for the six months ended June 30, 2007 increased over the same
      period in 2006 by approximately $152.8 million, or 85%.  The increase
      in cost of products sold was primarily due to the addition of
      AHE.  The increase in cost of products sold as a percentage of sales
      was also due to the addition of AHE which has a mix of products sold that carry
      lower gross profit margins than in Ply Gem’s other Siding, Fencing, Railing and
      Decking businesses, but were partially offset by cost savings that the Company
      is realizing from its acquisition of AHE which include reduced purchased cost
      on
      certain raw materials, reduced fixed overhead and other manufacturing efficiency
      improvements.  Additionally, in light of current market conditions for
      building material products, the Company has adjusted the size of its workforce
      and fixed overhead structure including the closure of one of its vinyl siding
      plants in Atlanta, GA which ceased production in April of 2007.








*Selling,
      general and administrative expense*





SG&A
      expense for the six months ended June 30, 2007 increased by approximately $24.4
      million, or 131%, from the same period in 2006. The increase in SG&A
      expenses was due to the addition of approximately $24.2 million from
      AHE.





*Amortization
      of intangible assets*





Amortization
      expense for the six months ended June 30, 2007 increased by approximately $3.1
      million due to the addition of AHE operations.





31







**Windows
      and Doors Segment**





**For
                the three months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            143,723
            
            
            
            100.0
            %
            
            $
            159,459
            
            
            
            100.0
            %Cost
                of products sold
            
            
            108,497
            
            
            
            75.5
            %
            
            
            121,603
            
            
            
            76.3
            %Gross
                Profit
            
            
            35,226
            
            
            
            24.5
            %
            
            
            37,856
            
            
            
            23.7
            %S,G&A
                expense
            
            
            16,865
            
            
            
            11.7
            %
            
            
            20,926
            
            
            
            13.1
            %Amortization
                of intangible assets
            
            
            2,096
            
            
            
            1.5
            %
            
            
            2,165
            
            
            
            1.4
            %Operating
                earnings
            
            $
            16,265
            
            
            
            11.3
            %
            
            $
            14,765
            
            
            
            9.3
            %Currency
                transaction gain/(loss)
            
            
            1,992
            
            
            
            1.4
            %
            
            
            1,164
            
            
            
            0.7
            %








*Net
      Sales*





Net
      sales
      for the three months ended June 30, 2007 decreased compared to the same period
      in 2006 by approximately $15.7 million, or 10%.  The decrease was due
      to lower sales of our new construction window products which were negatively
      impacted by market wide decreased demand that resulted from reductions in single
      family housing starts as discussed above and demand for our repair and
      remodeling windows which declined due to a slowdown in the remodeling and
      replacement activity across the U.S. and the discontinuation of an unprofitable
      mechanical window product line that was produced at our Sarver, PA facility
      which was closed in June 2006. The decline in sales of our U.S. windows and
      doors was partially offset by a 19% increase in sales of our Canadian window
      and
      door business.





*Cost
      of Products Sold*





Cost
      of
      products sold for the three months ended June 30, 2007 decreased by
      approximately $13.1 million, or 11%, over the same period in 2006. The
      decrease in cost of products sold was primarily driven by the lower level of
      sales, but partially offset by cost savings initiatives implemented by
      management in response to the decline in demand due to the downturn in the
      U.S.
      housing market.





*Selling,
      general and administrative expense*





SG&A
      expense for the three months ended June 30, 2007 decreased by approximately
      $4.1
      million, or 19%, over the same period in 2006.  The decrease in
      SG&A expense was driven by lower selling and salary expenses of
      approximately $1.9 million during the current period and approximately $1.6
      million of restructuring costs due to the closure of the Sarver, PA facility,
      and approximately $0.6 million due to the loss on the sale of the Sarver
      building incurred during the same period in 2006.





*Amortization
      of intangible assets*





Amortization
      expense for the three months ended June 30, 2007 decreased by less than $0.1
      million.











32











**For
                the six months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            259,483
            
            
            
            100.0
            %
            
            $
            275,216
            
            
            
            100.0
            %Cost
                of products sold
            
            
            198,996
            
            
            
            76.7
            %
            
            
            213,114
            
            
            
            77.4
            %Gross
                Profit
            
            
            60,487
            
            
            
            23.3
            %
            
            
            62,102
            
            
            
            22.6
            %S,G&A
                expense
            
            
            32,497
            
            
            
            12.5
            %
            
            
            37,200
            
            
            
            13.5
            %Amortization
                of intangible assets
            
            
            4,198
            
            
            
            1.6
            %
            
            
            3,913
            
            
            
            1.4
            %Operating
                earnings
            
            $
            23,792
            
            
            
            9.2
            %
            
            $
            20,989
            
            
            
            7.6
            %Currency
                transaction gain/(loss)
            
            
            2,208
            
            
            
            0.9
            %
            
            
            1,093
            
            
            
            0.4
            %





*Net
      Sales*





Net
      sales
      for the six months ended June 30, 2007 decreased compared to the same period
      in
      2006 by approximately $15.7 million, or 6%.  However, Alenco
      contributed sales of approximately $30.7 million for the first quarter of 2007
      as compared to $13.9 million for one month of sales in the first quarter of
      2006, due the acquisition of Alenco at the end of February 2006.  The
      increase in sales due to Alenco was more than offset by lower sales of our
      new
      construction window products which were negatively impacted by market wide
      decreased demand that resulted from reductions in single family housing starts
      as discussed above. In addition, demand for our repair and remodeling windows
      declined due to a slowdown in the remodeling and replacement activity across
      the
      U.S. and the discontinuation of an unprofitable mechanical window product line
      that was produced at our Sarver, PA facility which was closed in June
      2006.





*Cost
      of Products Sold*





Cost
      of
      products sold for the six months ended June 30, 2007 decreased by approximately
      $14.1 million, or 7%, over the same period in 2006. The decrease in cost of
      products sold was primarily driven by the lower level of sales in our new
      construction window products and the discontinued mechanical window product
      line
      discussed above, but was partially offset by higher cost of products sold for
      Alenco.  The cost of products sold associated with Alenco for 2007
      included 6 months as compared to only 4 months in 2006.





*Selling,
      general and administrative expense*





SG&A
      expense for the six months ended June 30, 2007 decreased by approximately $4.7
      million, or 13%, over the same period in 2006.  The decrease in
      SG&A expense was driven by a reduction to the 2007 net expense due to
      approximately $1.2 million of cash received from an accounts receivable that
      had
      been fully reserved in periods prior to 2006.  Other decreases in
      SG&A expense were primarily in our repair and remodeling window business,
      and were largely attributable to lower salary expenses and professional fees
      of
      approximately $2.7 and marketing and other general expenses of approximately
      $1.2 million.  SG&A expenses for the first six months of 2006
      included approximately $1.6 million of restructuring costs due to the closure
      of
      the Sarver, PA facility, and approximately $0.6 million due to the loss on
      the
      sale of the Sarver building.  The decreases were partially offset by
      higher SG&A expenses of approximately $2.6 million due to the addition of
      Alenco for a portion of the first quarter in 2006 as compared to the entire
      quarter in 2007.





*Amortization
      of intangible assets*





Amortization
      expense for the six months ended June 30, 2007 increased by approximately $0.3
      million due to the addition of Alenco operations during the first quarter of
      2006.








33







**Unallocated
      Operating Earnings, Interest, and Provision for Income
      Taxes**





**For
                the three months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            (unaudited)**Statement
                of operations data:**Operating
                earnings (loss)
            
            $
            (1,788
            )
            
            $
            (1,076
            )Interest
                expense, net
            
            
            (23,996
            )
            
            
            (16,630
            )Other
                expense
            
            
            (1,143
            )
            
            
            (441
            )Income
                tax provision
            
            
            10,744
            
            
            
            6,958





*Operating
      earnings (loss**)*  Unallocated operating loss
      for the three months ended June 30, 2007 increased by approximately $0.7 million
      over the same period in 2006.  The increase was driven by a slightly
      larger corporate staff and an increase in professional fees.


*Interest
        expense*  Interest expense for the three months ended June 30,
        2007 increased by approximately $7.4 million over the same period in
        2006.  The increase consists of approximately $5.3 million as a result
        of increased borrowings due to the AHE Acquisition in October 2006,
        approximately $1.0 million due to higher interest rates on our variable rate
        debt, and approximately $1.1 million due to higher revolver borrowings and
        higher amortization of deferred financing costs.
 
 *Other
        expense*   Expenses recognized as ‘other expense’ during
        the three months ended June 30, 2007 of approximately $1.1 million is
        primarily due to third-party charges associated with the cost of refinancing
        the
        Company’s credit agreement on April 5, 2007.
 
 *Income
        taxes*The income tax provision for the three months ended June
        30, 2007 increased approximately $3.8 million over the same period in 2006,
        primarily as a result of the larger pre-tax income for the 2007 period versus
        the 2006 period.  Our effective tax rate for the three months ended
        June 30, 2007 was 38.4%, compared to 39.0% for the same period in
        2006.  The lower effective tax rate for the 2007 period is primarily
        the result of  an anticipated reduction in the effective tax rate that
        was attributable to a higher percentage of earnings in lower tax-rate
        jurisdictions, as compared to the 2006 period.


**For
                the six months ended**(dollars
                in thousands)
            
            June
                30, 2007
            
            
            July
                1, 2006(unaudited)
            
            
            (unaudited)**Statement
                of operations data:**Operating
                earnings (loss)
            
            $
            (3,741
            )
            
            $
            (2,461
            )Interest
                expense, net
            
            
            (48,446
            )
            
            
            (31,443
            )Other
                expense
            
            
            (1,143
            )
            
            
            (2,497
            )Income
                tax provision
            
            
            2,294
            
            
            
            5,720Cumulative
                effect of accounting change
            
            
            -
            
            
            
            (86
            )




*Operating
        earnings (loss)*Unallocated operating loss for the six months
        ended June 30, 2007 increased by approximately $1.3 million over the same
        period
        in 2006.  The increase was driven by a slightly larger corporate staff
        and an increase in professional fees.
 
 *Interest**expense*   Interest expense for the six
        months ended June 30, 2007 increased by approximately $17.0 million over
        the
        same period in 2006. The increase consists of approximately $12.3 million
        as a result of increased borrowings due to the AHE Acquisition in October
        2006,
        approximately $1.6 million as a result of increased borrowings due to the
        Alenco
        Acquisition in February 2006, approximately $2.1 million due to higher interest
        rates on our variable rate debt, and approximately $1.0 million due to higher
        revolver borrowings and higher amortization of deferred financing
        costs.
 
 *Other
        expense*   Expenses recognized as ‘other expense’ during
        the six months ended June 30, 2007 of approximately $1.1 million is
        primarily due to third-party charges associated with the cost of
        refinancing the Company’s credit agreement on April 5, 2007.  Expenses
        recognized during the same period of the prior year were a result of third-party
        charges associated with acquisition financing costs.
 
 *Income
        taxes*The income tax provision for the six months ended June 30,
        2007 decreased approximately $3.4 million over the same period in 2006,
        primarily as a result of the lower pre-tax income for the 2007 period versus
        the
        2006 period. The benefit for the quarter included approximately $1.0
        million of adjustments to our prior year estimated tax provision.  The
        adjustments primarily relate to differences in tax amounts originally recorded
        for income taxes and amounts owed based on the ultimately filed tax
        returns.  Excluding these adjustments, our effective tax rate for the
        six months ended June 30, 2007, was 37.5% compared to 38.7% over the same
        period
        in 2006.   The lowered effective tax rate for the 2007 period was
        primarily the result of a lower anticipated effective tax rate that is
        attributable to an increased percentage of pre-tax earnings in lower tax-rate
        jurisdictions for the 2007 period as compared to the same period in
        2006.


34








**Liquidity
      and Capital Resources**





Our
      primary cash needs are for working capital, capital expenditures and debt
      service.  We have historically financed these cash requirements
      through internally generated cash flow and funds borrowed under our credit
      facilities.





Net
      cash
      provided by (used in) operating activities for the first six months of 2007
      and
      2006 was approximately $(13.4) million and $12.6 million,
      respectively.  The increase in net cash used in operating activities
      for the 2007 period compared to the 2006 period was primarily driven by changes
      in AHE working capital during 2007, including an increase in accounts receivable
      of approximately $22.0 million, a decrease in inventory of approximately $20.7
      million, and a decrease in accounts payable of approximately $17.4
      million.





Net
      cash
      used in investing activities for the first six months of 2007 and 2006 was
      approximately $7.4 million and $131.1 million, respectively.  The
      decrease in cash used in investing activities during the 2007 period was driven
      by the cash used to fund the Alenco Acquisition during 2006.  Our
      capital expenditures for the first six months of 2007 and 2006 were
      approximately $7.2 million and $10.9 million, respectively.





Net
      cash
      provided by financing activities for the first six months of 2007 and 2006
      was
      approximately $11.5 million and $121.3 million, respectively.  The
      cash provided by financing activities for the 2006 period was driven by the
      cash
      provided from our new capital structure that resulted from the consummation
      of
      the Alenco Acquisition.





We
      intend
      to fund our ongoing capital and working capital requirements, including our
      internal growth, through a combination of cash flows from operations and, if
      necessary, from borrowings under the revolving credit portion of our credit
      facilities.  As of June 30, 2007, we had approximately $1,065.6
      million of indebtedness and $51.7 million of availability under the revolving
      credit facility.  The Company’s senior credit facilities with a
      syndicate of financial institutions and institutional lenders provided for
      senior secured financing of up to $762.1 million, consisting of
      $687.1 million of term loan facilities maturing in August 2011 and a
      $75.0 million revolving loan facility, including a letter of credit
      subfacility, maturing in February 2009.  The term loan facility was
      drawn in full in and has two tranches, originally consisting of: 1) a
      $662.3 million tranche under which Ply Gem Industries, Inc. is the
      borrower, and 2) a $24.8 million tranche under which our Canadian
      subsidiary, CWD Windows and Doors, Inc., is the borrower.  As of June
      30, 2007 the balances of the two tranches were approximately $660.7 million
      and
      $24.7 million, respectively.





The
      borrowings under the revolving portion of the credit facilities will be
      available until its maturity to fund our working capital requirements, capital
      expenditures and other general corporate needs.  The revolving portion
      of the credit facilities matures in February 2009 and has no scheduled
      amortization or commitment reductions.  The term loan portion of the
      credit facilities matures in August 2011 and has quarterly scheduled
      amortizations of approximately $1.7 million and a final payment of $659.6
      million on the maturity date.





The
      term
      loans will mature on August 15, 2011, and will amortize in an amount equal
      to 1%
      per annum of the initial principal amount outstanding, payable in equal
      quarterly installments beginning on June 30, 2007 and ending on March 31, 2011,
      with the balance payable on August 15, 2011. The credit agreement contains
      affirmative, negative and financial covenants customary for such financings.
      The
      credit agreement governing the credit facilities requires Ply Gem to maintain
      a
      maximum total leverage ratio of 6.75 to 1.0 until December 31, 2008; thereafter,
      the maximum total leverage ratio that Ply Gem is permitted to have declines
      over
      time, from 6.75 to 1.0 to 6.25 to 1.0.  Certain mandatory prepayments
      under the credit facilities will be required upon the occurrence of certain
      events, including the incurrence of certain additional indebtedness and the
      sale
      of certain assets.




Under
      the
      terms of our credit facilities, we are permitted to use the excess cash flow
      and/or a portion of the revolving credit portion of the credit facilities to
      repurchase up to $40.0 million aggregate principal amount of the Senior
      Subordinated Notes.  Subject to market conditions, our capital needs
      and other factors, we may from time to time purchase up to $40.0 million
      aggregate principal amount of the 9% Senior Subordinated Notes in market
      transactions, privately negotiated sales or other transactions.  As of
      June 30, 2007, we had not yet purchased any of our Senior Subordinated
      Notes.





35


The
      credit facilities and the indenture for the Senior Subordinated Notes impose
      certain restrictions on Ply Gem Industries, Inc., including restrictions on
      its
      ability to incur indebtedness, pay dividends, make investments, grant liens,
      sell assets and engage in certain other activities.  The terms of the
      credit facilities and the Senior Subordinated Notes also significantly restrict
      the ability of Ply Gem Industries, Inc. to pay dividends and otherwise
      distribute assets to Ply Gem Holdings, Inc.  In addition, the credit
      facilities require Ply Gem Industries, Inc. to maintain a maximum total leverage
      ratio.  Indebtedness under the credit facilities is secured by
      substantially all of Ply Gem Industries Inc.’s assets, including its real and
      personal property, inventory, accounts receivable, intellectual property and
      other intangibles.  In addition, borrowings under the credit
      facilities are guaranteed by Ply Gem Holdings, Inc. and secured by its assets
      (including its equity interests).  Borrowings under the credit
      facilities (except for the $24.8 million tranche under which our Canadian
      subsidiary, CWD Windows and Doors, Inc., is the borrower) are also guaranteed
      and secured by the equity interests and substantially all of the assets of
      our
      current and, if any, future domestic subsidiaries, subject to
      exceptions.  The $24.8 million tranche under which CWD Windows and
      Doors, Inc. is the borrower is also guaranteed and secured by the equity
      interests and substantially all of the assets of CWD Windows and Doors, Inc.’s
      current and future (if any) Canadian subsidiaries.





Because
      of the inherent seasonality in our business and the resulting working capital
      requirements, our liquidity position within a given year will
      fluctuate.  The seasonal effect that creates greatest capital needs is
      experienced during the first six months of the year and we anticipate the need
      to borrow funds under the revolving portion of our First Lien Credit Facilities
      to support this requirement.  However, we anticipate that the funds
      generated by operations and funds available under our credit facility will
      be
      adequate to finance our ongoing operational cash flow needs, capital
      expenditures (as described above), debt service obligations, management
      incentive expenses, fees payable under the General Advisory Agreement with
      a
      Caxton-Iseman party, dated February 12, 2004 (the “General Advisory Agreement”),
      and other contractual obligations for the foreseeable future.








**Contractual
      Obligations**





In
      addition to the items listed in the Contractual Obligations table presented
      in
      the Company’s 10K Report,  the Company has a potential obligation
      related to certain tax issues of approximately $6.8 million.  The
      timing of the potential tax payments is unknown.








**Inflation;
      Seasonality**





Our
      performance is dependent to a significant extent upon the levels of home repair
      and remodeling and new home construction spending, all of which are affected
      by
      such factors as interest rates, inflation, consumer confidence and
      unemployment.





The
      demand for our products is seasonal, particularly in the Northeast and Midwest
      regions of the United States and Western Canada where inclement weather during
      the winter months usually reduces the level of building and remodeling activity
      in both the home repair and remodeling and new home construction
      sectors.  Our sales are usually lower during the first and fourth
      quarters.  Since a portion of our manufacturing overhead and operating
      expenses are relatively fixed throughout the year, operating income and net
      earnings tend to be lower in quarters with lower sales levels.  In
      addition, the demand for cash to fund our working capital is greater from late
      in the fourth quarter through the first quarter.








**Recent
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of this statement will change
      current practice. SFAS No. 157 is effective for the Company beginning January
      1,
      2008. The Company is currently evaluating the impact of this
      standard.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans an amendment of FASB
      Statements No. 87, 88, 106, and 132(R)”. This standard requires employers
      to recognize the underfunded or overfunded status of a defined benefit
      postretirement plan as an asset or liability in its statement of financial
      position and to recognize changes in the funded status in the year in which
      the
      changes occur through accumulated other comprehensive income, which is a
      component of stockholders’ equity.  SFAS No. 158 does not change the
      amount of actuarially determined expense that is recorded in the consolidated
      statement of income. The new reporting requirements and related new footnote
      disclosure rules of SFAS No. 158 are effective for our December 31, 2007
      financial statements.  Additionally, SFAS No. 158 requires employers
      to measure the funded status of a plan as of the date of its year-end statement
      of financial position.  For our financial statements as of December
      31, 2008 we will change our September 30 measurement date for our plans’ assets
      and obligations to comply with this requirement. The Company is currently
      evaluating the impact that the implementation of SFAS No. 158 will have on
      its
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”.  SFAS No. 159
      permits entities to choose to measure certain financial assets and financial
      liabilities at fair value. Unrealized gains and losses on items for which the
      fair value option has been elected are reported in earnings. SFAS No. 159
      is effective for our fiscal year beginning January 1, 2008. The Company is
      currently evaluating the impact of this standard.








36





**Special
      Note Regarding Forward-Looking Statements**






This
      Quarterly Report on Form 10-Q contains “forward-looking statements” within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and
      Section 21E of the Securities Exchange Act of 1934, as amended. We based these
      forward-looking statements on our current expectations and projections about
      future events. Our actual results could differ materially from those discussed
      in, or implied by, these forward-looking statements. Forward-looking statements
      are identified by words such as “believe,” “anticipate,” “expect,” “intend,”
“plan,” “will,” “may” and other similar expressions. In addition, any statements
      that refer to expectations, projections or other characterizations of future
      events or circumstances are forward-looking statements. The following factors
      could cause our actual results to differ materially from those implied by the
      forward-looking statements in this Quarterly Report:






·
            our
                high degree of leverage and significant debt service
                obligations;




·
            restrictions
                under the indenture governing the notes and our senior credit
                facilities;




·
            the
                competitive nature of our industry;




·
            changes
                in interest rates, and general economic, home repair and remodeling
                and
                new home construction market
                conditions;




·
            changes
                in the price and availability of raw materials;
                and




·
            changes
                in our relationships with our significant
                customers.






Other
      factors that could cause actual results to differ from those implied by the
      forward-looking statements contained in this Quarterly Report are set forth
      in
      our 2006 Annual Report on Form 10-K.  We undertake no obligation to
      update the forward-looking statements in this filing.







37





**Item
      3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK**







Our
      principal interest rate exposure
      relates to the term loans outstanding under our new senior credit
      facilities.  We have approximately $685.3 million of term loans
      outstanding, bearing interest at a variable rate, based on an adjusted LIBOR
      rate plus an applicable interest margin or the base rate plus an applicable
      interest margin.  Each quarter point increase or decrease in the
      interest rate on the term loans would change our interest expense by
      approximately $1.7 million per year.  We also have a revolving credit
      facility which provides for borrowings of up to $75.0 million, which will also
      bear interest at variable rates in the same manner as the term loan
      facilities.  Assuming the new revolving credit facility is fully
      drawn, each quarter point increase or decrease in the applicable interest rate
      would change our interest expense by approximately $0.2 million per
      year.  In the future we may enter into interest rate swaps, involving
      exchange of floating for fixed rate interest payments, to reduce our exposure
      to
      interest rate volatility.





Our
      results of operations are affected
      by fluctuations in the value of the U.S. dollar as compared to the value of
      the
      Canadian dollar.  For the three and six month periods ended June 30,
      2007, the net impact of foreign currency changes to the Company’s results of
      operations was a gain of $2.0 million and a gain of $2.2 million.  The
      impact of foreign currency changes related to translation resulted in an
      increase in stockholder’s equity of approximately $3.3 million for the six
      months ended June 30, 2007.  The revenue or expense reported by us as
      a result of currency fluctuations will be greater in times of U.S. dollar
      devaluation and less in times of U.S. dollar appreciation. We generally do
      not
      enter into derivative financial instruments to manage foreign currency
      exposure.  For the six months ended June 30, 2007, we did not have any
      outstanding foreign currency hedging contracts.




















**Item
      4.     CONTROLS AND PROCEDURES**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and Chief Financial
      Officer, of the effectiveness of our disclosure controls and procedures, as
      defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
      1934.
      Based on that evaluation, our Chief Executive Officer and Chief Financial
      Officer have concluded that our disclosure controls and procedures as of June
      30, 2007 were effective to ensure that information required to be disclosed
      by
      us in reports that we file or submit under the Securities Exchange Act of 1934
      is recorded, processed, summarized and reported within the time periods
      specified in Securities and Exchange Commission’s rules and forms. There have
      been no changes in our internal controls over financial reporting during the
      three-month period ended June 30, 2007, that have materially affected, or are
      reasonably likely to materially affect, our internal controls over financial
      reporting.















38







**PART
      II - OTHER INFORMATION**








**Item
      1A.     RISK FACTORS**





***Downturns
      in the home repair and remodeling and new home construction sectors or the
      economy could lower the demand for, and pricing of, our products, which in
      turn
      could cause our net sales and net income to decrease.***





Our
      performance is dependent to a significant extent upon the levels of home repair
      and remodeling and new home construction spending, all of which are affected
      by
      such factors as interest rates, inflation, consumer confidence, unemployment,
      and the availability of consumer credit.  Current market forecasts
      indicate that single family housing starts for the new construction market
      will
      decline in 2007 as compared to 2006.  If these market forecasts are
      correct, our net sales and net income may be adversely affected.











**Item
      6.        EXHIBITS**





***(a)                 Exhibits***








Exhibit
      No.                                                                  Description
      of Exhibit





*  31.1
            Certification
                by President and Chief Executive Officer pursuant to Rule 13a-14(a)
                of the
                Securities Exchange Act of 1934**  31.2
            Certification
                by Vice President and Chief Financial Officer pursuant to Rule 13a-14(a)
                of the Securities Exchange Act of 1934*







*  Filed
      herewith.







39





**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.





PLY
      GEM HOLDINGS, INC.


(Registrant)








Date:  August
                  13, 2007
            By:
            /s/ Gary
              E.
              RobinetteName : 
Gary
              E.
              RobinetteTitle :    President
              and Chief Executive Officer




Date:  August
                  13, 2007
            By:
            /s/ Shawn
              K.
              PoeName :  
Shawn
              K. PoeTitle :   
              Vice
              President, Chief Financial Officer,Treasurer
              and Secretary



















40