UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the thirteen week period ended May 29, 1999

                                       OR

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

              For the transition period from _________ to _________

                       Commission File Number 333-44969-01

                            DESA HOLDINGS CORPORATION
             (Exact name of registrant as specified in its charter)


             Delaware                                 22-2940760
  (State or other jurisdiction of         (IRS Employer Identification No.)
   incorporation or organization)

                 2701 Industrial Drive, Bowling Green, KY 42101
               (Address of principal executive offices) (Zip Code)

                                 (270) 781-9600
              (Registrant's telephone number, including area code)

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

As of July 9, 1999, there were 15,552,509  shares of Registrant's  Common Stock,
$.01 par value per share, and 90,604 shares of the Registrant's Nonvoting Common
Stock, $.01 par value per share, outstanding.


<PAGE>





<TABLE>
<CAPTION>
                                            DESA HOLDINGS CORPORATION

                                                     FORM 10-Q

                                                    May 29, 199

                                                       INDEX


PART I          Financial Information                                                                        Page
<S>                                                                                                          <C>
Item 1.         Consolidated Financial Statements (Unaudited)                                                 3
                Consolidated Balance Sheets - May 29, 1999 and February 27, 1999                              3
                Consolidated Statements of Operations - Thirteen Weeks ended May
                29, 1999 and May 30, 1998                                                                     4

                Consolidated Statements of Stockholders' Equity (Deficit)                                     5

                Consolidated Statements of Cash Flows - Thirteen Weeks ended May
                29, 1999 and May 30, 1998                                                                     6
                Notes to Consolidated Financial Statements                                                    7
Item 2.         Management's Discussion and Analysis of Financial Condition and
                Results of Operations                                                                        15
Item 3.         Quantitative and Qualitative Disclosures About Market Risk                                   20
PART II         Other Information                                                                            22
Item 3.         Defaults Upon Senior Securities                                                              22
Item 6.         Exhibits and Reports on Form 8-K                                                             22
                Signatures                                                                                   23
</TABLE>



                                        2

<PAGE>
<TABLE>
<CAPTION>
                    DESA HOLDINGS CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                                            May 29            February 27
                                                             1999                1999
                                                           --------            --------
ASSETS                                                        (unaudited)
<S>                                                      <C>                 <C>
Current assets:

    Cash and cash equivalents                            $     763           $     888
    Accounts receivable, net                                34,216              30,390
    Inventories:
       Raw materials                                           782                 986
       Work-in-process                                       8,428               6,376
       Finished goods                                       52,153              37,891
                                                           --------            --------
                                                            61,363              45,253
    Deferred tax assets                                      2,137               2,137
    Other current assets                                     1,295               1,321
                                                           --------            --------
Total current assets                                        99,774              79,989

Property, plant and equipment:
    Land                                                       390                 390
    Buildings and improvements                               6,137               6,173
    Machinery and equipment                                 36,207              34,527
    Furniture and fixtures                                     685                 725
                                                           --------            --------
                                                            43,419              41,815
    Less accumulated depreciation                           27,141              26,182
                                                           --------            --------
                                                            16,278              15,633

Goodwill                                                    81,364              81,882

Deferred tax assets                                            598                 598

Other assets                                                24,970              25,250

                                                           ========            ========
Total assets                                             $ 222,984           $ 203,352
                                                           ========            ========

Liabilities and stockholders' equity (deficit)
Current liabilities:
    Accounts payable                                     $  37,986           $  25,232
    Accrued interest                                         6,348               3,075
    Other accrued liabilities                                6,924              10,732
    Current portion of long-term debt                       12,698              13,307
                                                           --------            --------
Total current liabilities                                   63,956              52,346

Long-term debt                                             297,388             285,138
Other liabilities                                              550                 599
                                                           --------            --------
Total liabilities                                          361,894             338,083

Commitments

Series C redeemable preferred stock, $.01 par value;
    authorized-- 40,000 shares; issued and outstanding--
    19,990 shares at May 29, 1999 and February 27, 1999
    (liquidation preference - $20,969,000 at May 29, 1999
    and $20,371,000 at February 27, 1999)                   17,272              17,207

Stockholders' equity (deficit):
    Common stock, $.01 par value; authorized-- 50,000,000
    shares; issued and outstanding-- 15,552,509 shares at
    May 29, 1999 and 15,548,692 shares at                      155                 155
    February 28, 1999

    Nonvoting common stock, $.01 par value; authorized--
    2,000,000 shares; issued and outstanding-- 90,604
    shares at May 29, 1999 and February 27, 1999                 1                   1

    Capital in excess of par value                          98,009              97,984
    Carryover predecessor basis adjustment                 (32,309)            (32,309)
    Retained earnings (deficit)                            (220,793)          (216,742)
    Accumulated other comprehensive loss                    (1,245)             (1,027)
                                                           --------            --------
Total stockholders' equity (deficit)                       (156,182)          (151,938)
                                                           --------            --------
Total liabilities and stockholders' equity (deficit)     $ 222,984           $ 203,352
                                                           ========            ========
</TABLE>

                             See accompanying notes

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                          DESA HOLDINGS CORPORATION

                                    Consolidated Statements of Operations
                                               (in thousands)

                                                 (Unaudited)
                                            Thirteen Weeks Ended

                                                                        May 29                          May 30
                                                                         1999                            1998
                                                                       ----------                      ----------

<S>                                                                  <C>                             <C>
       Net Sales                                                     $    62,793                     $    40,754
       Cost of Sales                                                      44,451                          29,609
                                                                       ----------                      ----------
       Gross Profit                                                       18,342                          11,145

       Operating costs and expenses:
            Selling                                                       12,635                           8,783
            General and Administrative                                     3,602                           2,868
            Other                                                          1,524                             866
                                                                       ----------                      ----------
                                                                          17,761                          12,517
                                                                       ----------                      ----------

       Operating Profit (loss)                                               581                          (1,372)

       Interest expense                                                    6,628                           6,492
                                                                       ----------                      ----------
       Loss before benefit for income taxes                               (6,047)                         (7,864)

       Benefit for Income Taxes                                           (2,659)                         (3,498)
                                                                       ----------                      ----------

       Net Loss                                                           (3,388)                         (4,366)

       Less dividends and accretion on preferred stock                       663                             590
                                                                       ----------                      ----------
       Loss applicable to common stockholders                        $    (4,051)                    $    (4,956)
                                                                       ==========                      ==========

</TABLE>

                             See accompanying notes

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                      DESA Holdings Corporation
                                          Consolidated Statements of Stockholders' Deficit
                                                              ($000's)
                                                                                                       Cumulative
                                          Nonvoting    Capital in    Carryover                           Other           Total
                               Common       Common     Excess of    Predecssor       Accumulated      Comprehensive  Stockholders'
                                Stock       Stock      Par Value    Adjustment         Deficit            Loss          Deficit
                             -------------------------------------------------------------------------------------------------------

<S>                                 <C>            <C>     <C>          <C>              <C>               <C>            <C>
Balance at
February 27, 1999                   $155           $1      $97,984      ($32,309)        ($216,742)        ($1,027)       ($151,938)

Comprehensive loss:

   Net Loss                                                                                 (3,388)                          (3,388)

   Foreign currency
     translation adjustment                                                                                   (218)            (218)
                                                                                                                     ---------------

Comprehensive loss                                                                                                           (3,606)
                                                                                                                     ---------------


Accretion of preferred stock                                                                   (65)                             (65)

Dividends on preferred stock                                                                  (598)                            (598)

Issuance of common stock                                        25                                                               25


                             --------------------------------------------------------------------------------------  ---------------
Balance at
May 29, 1999                        $155           $1      $98,009      ($32,309)        ($220,793)        ($1,245)       ($156,182)

                             ======================================================================================  ===============

</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>
                    DESA HOLDINGS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                   (Unaudited)

                                                                                  Thirteen Weeks Ended

                                                                                 May 29              May 30
                                                                                  1999                1998
                                                                                 --------           ---------
<S>                                                                            <C>                <C>
Cash Flows from Operating Activities
Net loss                                                                       $  (3,388)         $   (4,366)

Adjustments to reconcile net loss to net cash used in operating activities:

     Depreciation                                                                    959                 427
     Amortization                                                                  1,481                 785
     Deferred income taxes                                                             0                 (15)
     Equity in undistributed earnings of joint venture                               (39)                (39)
     (Increase) decrease in operating assets:
         Accounts receivable, net                                                 (3,826)              1,530
         Inventories                                                             (16,110)             (3,742)
         Other current assets                                                         26                (336)
     Increase (decrease) in operating liabilities:
         Accounts payable                                                         12,754               4,509
         Accrued interest                                                          3,273               1,572
         Other accrued liabilities                                                (1,155)             (8,126)
         Income taxes payable                                                     (3,251)             (4,265)
         Other liabilities                                                           (49)                 57
                                                                                 --------           ---------
Net cash used in operating activities                                          $  (9,325)         $  (12,009)
                                                                                 --------           ---------


Investing activities
Capital expenditures                                                              (1,604)             (1,398)
Dividends received from joint venture                                                 52                  32
Other                                                                               (224)                (39)
                                                                                 --------           ---------
Net cash used in investing activities                                          $  (1,776)         $   (1,405)
                                                                                 --------           ---------


Financing activities

Increase in Working Capital Loan                                                  13,516              15,179
Principal payments of Term Loans                                                  (1,875)             (1,125)
Issuance of common stock                                                              25                   0
Payment of debt financing costs                                                     (688)               (765)
                                                                                 --------           ---------
Net cash provided by financing activities                                         10,978              13,289

Effect of exchange rate changes on cash                                               (2)                  3
                                                                                 --------           ---------
Decrease in cash and cash equivalents for the period                                (125)               (122)
Cash and cash equivalents at beginning of period                                     888                 794
                                                                                 ========           =========
Cash and cash equivalents at end of period                                     $    $763          $      672
                                                                                 ========           =========

</TABLE>

                             See accompanying notes

                                       6
<PAGE>


                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1.       Basis of Presentation

The interim  consolidated  financial statements for the periods presented herein
have not been  audited by  independent  public  accountants.  In the  opinion of
management of DESA  Holdings  Corporation  (the  "Company" or  "Holdings"),  all
adjustments  (consisting only of normal recurring accruals) considered necessary
to present  fairly the results of operations for the periods have been included.
Interim results are not necessarily indicative of results for a full year. Sales
of the Company's zone heating products follow seasonal  patterns that affect the
Company's results of operations.

The  unaudited  consolidated  financial  statements  have been  prepared  by the
Company in accordance with generally accepted accounting  principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote  disclosures  normally included
in the financial  statements  prepared in  accordance  with  generally  accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.

The  consolidated  balance  sheet  presented as of February  27, 1999,  has been
derived from the consolidated financial statements that have been audited by the
Company's independent auditors.  The consolidated financial statements and notes
thereto  included  herein should be read in  conjunction  with the  consolidated
financial  statements and notes thereto  included in the Company's Annual Report
on Form 10-K.



2.       Summary of Significant Accounting Policies

         Consolidation

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly-owned subsidiary,  DESA International,  Inc. ("DESA") and
all of its wholly-owned subsidiaries, including DESA Industries of Canada, Inc.,
DESA Europe B.V., DESA Industries of V.I., Inc., and Heath Company Limited.  All
significant intercompany accounts and transactions have been eliminated.  DESA's
50% interest in a joint venture is accounted for using the equity method.

                                       7
<PAGE>
                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



2.       Summary of Significant Accounting Policies  (continued)


         Use of Estimates

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

         Summarized   Financial   Information   of  DESA   International,   Inc.
(Unaudited)

DESA International,  Inc. is the issuer of the 9 7/8% Senior Subordinated Notes.
The  Company  has  not  presented  separate   financial   statements  and  other
disclosures   concerning  DESA   International,   Inc.  because  management  has
determined  that such  information  is not  material  to  holders  of the Senior
Subordinated Notes.

The following summarized  consolidated  financial  information is being provided
for DESA  International,  Inc. as of May 29, 1999 and  February 27, 1999 and for
the thirteen weeks ended May 29, 1999, and May 30, 1998.

Summarized consolidated balance sheet information (in thousands):

                                                     May 29,        February 27,
                                                      1999             1999
                                                   ----------        ---------

Assets
Current assets                                     $207,652          $ 187,892
Net fixed assets                                     16,278             15,633
Goodwill, net                                        80,234             80,744
Deferred tax assets                                     598                598
Other assets                                         24,970             25,250
                                                   --------          ---------
                                                   $329,732          $ 310,117
                                                   ========          =========

Liabilities and stockholders' equity (deficit)
Current liabilities                                $ 62,911          $  51,939
Long-term debt                                      165,250            153,000
9 7/8% Senior Subordinated Notes                    130,000            130,000
Other liabilities                                       550                599
Stockholders' equity (deficit)                      (28,979)           (25,421)
                                                   --------          ---------
                                                   $329,732          $ 310,117
                                                   ========          =========


                                       8
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


2.       Summary of Significant Accounting Policies  (continued)


Summarized consolidated statements of operations information (in thousands):

                                                         Thirteen Weeks Ended
                                                      May 29,            May 30,
                                                       1999               1998
                                                     --------           --------

Net Sales                                             62,793             40,754
Loss before income taxes                              (5,999)            (7,856)
Net loss                                              (3,340)            (4,358)


         Impact of Recently Issued Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities" ("FAS 133"). FAS 133 must first be applied in the first
quarter of fiscal  years that begin after June 15,  2000.  FAS 133 will  require
Holdings to recognize all derivatives on the consolidated balance sheets at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
income.  If the  derivative  is a hedge,  depending  on the nature of the hedge,
changes in the fair  value of  derivatives  will  either be offset  against  the
change in fair  value of the  hedged  assets,  liabilities  or firm  commitments
through  earnings or recognized in other  comprehensive  income until the hedged
item is recognized in earnings.  The ineffective portion of a derivatives change
in fair value  will  immediately  be  recognized  in  earnings.  Management  has
determined  that FAS 133 will not have a significant  effect on the earnings and
financial position of the Company.

                                       9
<PAGE>




                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


3.       Financing Arrangements

On May 25, 1999,  Holdings  entered into  Amendment and Waiver No. 4 to the Loan
Documents (the "Amendment"), an amendment to their Credit Facility, which waives
Holdings'  failure to comply with the Clean-Up Period occurring  between January
1, 1999 and May 30, 1999 and their  failure to comply with the  requirements  of
the Total Leverage Ratio at February 27, 1999.

As part of the Amendment,  Holdings' interest rates on all existing  outstanding
borrowings  were  increased  by  .75%  under  the  Term  A and  Working  Capital
facilities  and by  .625%  under  the  Term B,  Acquisition  and  Acquisition  B
facilities.  In  addition,  the  Amendment  modified  the  financial  covenants,
including the total  leverage  ratio,  the fixed charge  coverage  ratio and the
interest  coverage  ratio.  The  Amendment  also  modified the  Clean-Up  Period
requirement  to provide  that  during the  Clean-Up  Period,  the sum of Working
Capital  advances,  Letter  of Credit  advances  and  Swing  Line loan  advances
outstanding shall not exceed  $30,000,000 (an increase from $15,000,000) for any
Clean-Up Period.  The Amendment  further provides for an additional  $15,000,000
unsecured  line of credit to DESA  International,  Inc. (the "Childs  Guaranteed
Line  of  Credit")  from  NationsBank,   N.A.,  which  is  unconditionally   and
irrevocably  guaranteed by J.W. Childs Equity Partners,  L.P., as evidenced by a
promissory note issued by DESA to NationsBank,  N.A. The Childs  Guaranteed Line
of Credit has a maturity  date of May 31, 2001 and bears  interest at the end of
each  interest  period.  In  connection  with the  Amendment,  Holdings  paid an
amendment  fee of  approximately  $550,000,  which has been deferred and will be
amortized over the remaining life of the Credit Facility.

In  conjunction  with the  Amendment,  the  sponsors  have  agreed  to defer any
obligation of Holdings to pay management fees under their respective  management
agreements  until  Holdings'  fiscal year 2000  financial  statements  have been
delivered to the lenders.  At such time,  Holdings will be obligated to pay such
management fees only if the  Consolidated  EBITDA,  as defined,  of Holdings for
fiscal year 2000 is greater than  $51,600,000  and no Default,  as defined,  has
occurred under the Credit Agreement, as amended.

                                       10
<PAGE>





                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


3.       Financing Arrangements (continued)

Outstanding  borrowings consist of the following (interest rates noted are as of
May 29, 1999) (in thousands):

<TABLE>
<CAPTION>
                                                                                May 29,         February 27,
                                                                                 1999              1999
                                                                                --------         ----------

<S>                                                                             <C>               <C>
9 7/8% Senior Subordinated Notes due 2007 (A)                                   $130,000          $ 130,000
NationsBank and various banks Term A Loan (B)                                     43,250             44,875
NationsBank and various banks Term B Loan (C)                                     48,500             48,750
NationsBank and various banks Working Capital Loan Commitment (D)                 36,198             22,682
NationsBank and various banks Acquisition Loan (E)                                20,000             20,000
NationsBank and various banks Acquisition B Loan (F)                              30,000             30,000
Note payable related to acquisition of Heath (G)                                   2,138              2,138
                                                                                --------          ---------
Total outstanding borrowings                                                     310,086            298,445
Less current portion of long-term debt                                            12,698             13,307
                                                                                --------          ---------
Total long-term debt                                                            $297,388          $ 285,138
                                                                                ========          =========
</TABLE>

(A)      The Senior  Subordinated  Notes are  payable on  December  15, 2007 and
         accrue  interest  at a rate of 9.875%  per annum.  Interest  is payable
         semi-annually on June 15 and December 15,  commencing on June 15, 1998.
         The Senior Notes can be redeemed prior to the mandatory redemption date
         based upon the occurrence of certain  events,  as defined.  DESA is the
         issuer  of  the  Senior   Subordinated   Notes,  which  are  fully  and
         unconditionally guaranteed by Holdings.

(B)      The Term A Loan is payable in quarterly  installments  through November
         26,  2003,  and accrues  interest at the prime rate plus 2.25% or LIBOR
         plus  3.25% at the  option of the  Holdings.  Interest  is payable on a
         quarterly basis under the prime rate option or at the end of each LIBOR
         period. Once repaid, the Term A Loan may not be reborrowed.

(C)      The Term B Loan is payable in quarterly  installments  through November
         26,  2004,  and accrues  interest at the prime rate plus 2.50% or LIBOR
         plus  3.50%  at the  option  of  Holdings.  Interest  is  payable  on a
         quarterly basis under the prime rate option or at the end of each LIBOR
         period. Once repaid, the Term B Loan may not be reborrowed.

(D)      The  Working  Capital  Loan  Commitment  is  payable at any time at the
         option of Holdings prior to November 26, 2003, and accrues  interest at
         the  prime  rate  plus  2.25% or LIBOR  plus  3.25%,  at the  option of
         Holdings. Interest is payable on a quarterly basis under the prime rate
         option or at the end of each LIBOR period. Holdings can utilize letters
         of credit under the Working  Capital Loan Commitment up to $10 million.
         As of May 29, 1999,  letters of credit of  $1,920,000  are  outstanding
         under the Working  Capital Loan  Commitment.  Borrowings  are generally
         limited to specific  percentages  of  eligible  trade  receivables  and
         inventory.  Holdings pays  commitment  fees of1/2of 1% per annum on the
         daily unutilized Working Capital Loan Commitment.

                                       11
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


3.       Financing Arrangements (continued)

(E)      The Acquisition Loan is payable in quarterly installments commencing in
         February  2000 and  extending  through  November 26, 2003,  and accrues
         interest,  which is payable quarterly,  at the prime rate plus 2.50% or
         LIBOR  plus  3.50%  at  the  option  of  Holdings.   Once  repaid,  the
         Acquisition Loan may not be reborrowed.

(F)      The Acquisition B Loan is payable in quarterly installments  commencing
         in February  2000 and extending  through  November 26, 2003 and accrues
         interest,  which is payable quarterly,  at the prime rate plus 2.50% or
         LIBOR  plus  3.50%  at  the  option  of  Holdings.   Once  repaid,  the
         Acquisition B Loan may not be reborrowed.

(G)      The note  payable is due on December  31,  2008 and  accrues  interest,
         which is payable  semi-annually  beginning  June 30, 1998, at a rate of
         7.5% per annum.  Holdings may elect,  upon written notice, to defer any
         interest  payments,   in  which  event  such  interest  payments  shall
         effectively  convert to principal and accrue interest at a rate of 7.5%
         per annum. In fiscal 1999,  $138,000 of interest payments were deferred
         and were converted into principal.

         In  accordance  with the terms of the Credit  Facility,  the ability of
         DESA to incur additional  indebtedness is limited,  as defined.  At May
         29, 1999, DESA can incur additional indebtedness of $26.4 million.

                                       12
<PAGE>





                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


4.       Comprehensive Income

As of March 2, 1997,  the Company  adopted  Statement  of  Financial  Accounting
Standards  No. 130,  ""Reporting  Comprehensive  Income"  ("FAS  130").  FAS 130
established new rules for the reporting and display of comprehensive  income and
its  components;  however,  the  adoption  of FAS 130 has had no  effect  on the
Company's net income or  stockholders'  deficit.  FAS 130 requires the Company's
foreign currency  translation  adjustment,  which prior to adoption was reported
separately  in  stockholders'  deficit,  to be included  in other  comprehensive
income.   Amounts  reported  in  prior  year  financial   statements  have  been
reclassified to conform with the requirements of FAS 130. As of May 29, 1999 and
February 27, 1999 the cumulative  other  comprehensive  loss consisted solely of
the Company's foreign currency translation adjustment.

Comprehensive loss consisted of the following (in thousands):


                                                      Thirteen Weeks Ended
                                                     May 29,           May 30,
                                                      1999              1998
                                                    --------          --------

Net Loss                                            $(3,318)          $(4,366)
Net change in foreign currency
         translation adjustment                        (218)             (133)
                                                    --------          --------

Comprehensive Loss                                  $(3,606)          $(4,499)
                                                    ========          ========



5.       Segment Information

The Company is organized into two primary product  categories:  (a) zone heating
products,  which  include  indoor  room  heaters,  hearth  products  and outdoor
heaters,  and (b) specialty  products,  which include  specialty  tools and home
security products.

Corporate expenses include corporate headquarters staff, a modest portion of the
cost of certain support functions, including accounting,  management information
systems, human resources and treasury and the amortization of deferred financing
costs.

Identifiable assets are those assets of the Company that are identified with the
operations in each product  segment.  Corporate  assets include  primarily cash,
deferred income taxes and deferred financing costs.


                                       13
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


5.       Segment Information (continued)

Operational  results and other financial data for the two business  segments for
the  periods  ended  May 29,  1999 and May 30,  1998  are  presented  below  (in
thousands):

<TABLE>
<CAPTION>
                                                     Zone
                                                     Heating     Specialty     General
                                                     Products    Products      Corporate        Total
Thirteen weeks ended May 29, 1999
<S>                                                  <C>          <C>            <C>         <C>
Net sales                                            $20,664      $42,129          ---       $ 62,793
Operating profit (loss)                               (2,304)       3,964        (1,079)          581
Depreciation and amortization                          1,105          935           400         2,440
Identifiable assets                                  113,307       95,941        13,736       222,984
Capital expenditures                                     974          602            28         1,604

Thirteen weeks ended May 30, 1998
Net sales                                            $ 9,669      $31,085          ---       $ 40,754
Operating profit (loss)                               (3,605)       3,246        (1,013)       (1,372)
Depreciation and amortization                            383          461           368         1,212
Identifiable assets                                   68,475       73,816        16,783       159,074
Capital expenditures                                   1,263          117            18         1,398
</TABLE>


                                       14
<PAGE>



                            DESA HOLDINGS CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION

         This quarterly  report on Form 10-Q of Desa Holdings  Corporation  (the
"Company,"  which  includes  its  consolidated  subsidiaries  unless the context
indicates   otherwise  contains  statements  which  constitute  forward  looking
statements  within the meaning of Section 21E of the Securities  Exchange Act of
1934, as amended.  Those statements  appear in a number of places in this report
and include  statements  regarding  the  strategies,  plans,  beliefs or current
expectations of the Company and its management and other statements that are not
historical facts. Readers are cautioned that any such forward looking statements
are not guaranties of future  performance  and involve risks and  uncertainties,
and that  actual  results  may  differ  materially  from those set forth in such
forward looking statements as a result of various factors. Such factors include,
but are not limited to, the Company's  vulnerability to adverse general economic
and industry conditions because of its leverage, the Company's ability to obtain
future  financing  on  acceptable  terms,  the  Company's  ability to  integrate
acquired  companies and to complete  acquisitions  on  satisfactory  terms,  the
demand and price for the Company's  products  relative to production  costs, the
seasonality of the Company's business and uncertainties regarding the resolution
of Year 2000 problems.  The Company undertakes no obligation to release publicly
the results of any revisions to these  forward  looking  statements  that may be
made to reflect errors or circumstances that occur after the date hereof.

         The following  discussion of the  Company's  results of operations  and
financial  condition for the thirteen week periods  ending May 29, 1999, and May
30,  1998,  should  be read  in  conjunction  with  the  consolidated  financial
statements of the Company and the notes thereto contained herein, as well as for
the fiscal year ended February 27, 1999, included in the Company's Annual Report
on Form 10-K.

Overview

         The Company is organized into two primary product categories:  (a) zone
heating products, which include indoor room heaters, hearth products and outdoor
heaters,  and (b) specialty  products,  which include  specialty  tools and home
security  products.  The Company  records sales upon shipment of products to its
customers.  Net sales  constitute  gross sales net of an accrual for returns and
allowances and cash discounts.

         Sales of the Company's zone heating  products follow seasonal  patterns
that affect the Company's  results of operations.  Demand for the Company's zone
heating  products  has  been  historically  highest  in the  third  quarter,  as
consumers  prepare  for  winter.  Consequently,  the  Company's  net  sales  and
Company's fiscal operating profit have also been historically highest during the
Company's fiscal third quarter.  Management  believes that the Company's results
of operations  will continue to follow this pattern;  there can be no assurance,
however,  that third quarter  results will always surpass those of the first and
second quarters, or that any improvement shown will be as great as that shown in
previous  years.  In  particular,  unusually warm weather in the fall may reduce
demand for zone heating products.

         The Company's net sales and operating  profit of zone heating  products
in its current fiscal year may be adversely  affected by warm weather during the
preceding  winter,  which  can  result  in  higher  inventory  carryover  by the
Company's customers. Last winter was unusually warm and, consequently, net sales
and operating profit of zone heating products were below normal

                                       15
<PAGE>

levels;  however net sales and operating  profits of zone heating  products were
above the prior year results.

         Sales of the Company's  specialty  products do not follow a significant
seasonal pattern and are not affected by weather patterns.  Historically,  these
sales have followed a relatively level quarterly pattern.

Results of Operations

Thirteen  Week Period Ended May 29, 1999,  Compared to the Thirteen  Week Period
Ended May 30, 1998

         Net sales. Net sales in the thirteen weeks ended May 29, 1999,  ("first
quarter 2000") were $62.8 million,  an increase of 54% or $22.0 million compared
to the thirteen weeks ended May 30, 1998 ("first  quarter  1999").  Zone heating
products had net sales of $20.7  million in the first  quarter 2000, an increase
of 114% or $11.0 million from the first quarter 1999. This increase is primarily
in hearth product sales due to the acquisition of Fireplace  Manufacturers  Inc.
and  increased   fireplace  product  demand  in  the  propane   marketer/utility
distribution channel.

         Specialty  products had net sales of $42.1 million in the first quarter
2000, an increase of 36% or $11.0  million over first  quarter  1999,  due to an
increased market demand for generators related to the fear of year 2000 problems
and new product sales for the electric pole saw.

         Cost of Sales. For first quarter 2000, cost of sales was $44.5 million,
an increase of $14.8 million or 50% from first quarter 1999, attributable to the
higher  net  sales for the  period.  Cost of sales was 71% of net sales in first
quarter 2000 compared to 73% for first quarter 1999. This decrease is because of
(i) product mix with  proportionately  higher  sales of zone  heating  products,
which are sold at higher margins, and (ii) lower manufacturing overhead per unit
of zone heating products,  as a result of higher first quarter production levels
in this year compared to a year ago.

         Selling,  General and Administrative  Expenses. For first quarter 2000,
selling,  general and administrative expenses were $17.8 million, an increase of
$5.2 million or 42% from first quarter 1999,  primarily  attributable to the net
sales   increase.   As  a  percentage  of  net  sales,   selling,   general  and
administrative expenses were 28% for first quarter 2000 compared to 31% in first
quarter 1999. This lower level is associated with increased sales which absorbed
more of the fixed expenses in the engineering and administration areas.

         Operating  Profit.  Operating  profit was $.6 million for first quarter
2000  compared to an operating  loss of $1.4 million for first  quarter 1999, an
improvement  of $2.0  million.  Operating  loss  attributable  to  zone  heating
products was $2.3 million for first quarter 2000, favorable by $1.3 million from
first quarter 1999.  This is a result of the increased  sales and higher factory
overhead  absorption  offset by higher selling costs  associated  with the sales
increase.  Specialty  products  operating  profit was $4.0 million for the first
quarter 2000, an increase of $.7 million over first quarter 1999.  This increase
is  attributable  to  increased  sales of specialty  products and their  related
contribution margins.

         EBITDA for the first quarter 2000 was $3.0 million, an increase of $3.2
million over the first  quarter  1999 loss of $.2 million.  EBITDA is defined as
income  before income taxes plus interest  expense and  depreciation  as well as
amortization expense associated with intangibles and deferred charges. EBITDA is
presented  because it is a widely  accepted  financial  indicator of a

                                       16
<PAGE>

leveraged  company's  ability to service and/or incur  indebtedness  and because
management  believes that EBITDA is a relevant measure of the Company's  ability
to generate cash without  regard to the Company's  capital  structure or working
capital needs. However, EBITDA should not be considered as an alternative to net
income as a measure  of a  company's  operating  results  or to cash  flows from
operating  activities as a measure of liquidity as defined by generally accepted
accounting principles.

         Interest  Expense.  Interest  expense for first  quarter  2000 was $6.6
million, an increase of $.1 million or 2%.

         Income Tax. The income tax rate was 44% for first quarter  2000,  equal
to the rate for first quarter 1999.

         Net Income.  Net loss was $3.4 million for first  quarter 2000 compared
to net loss of $4.4  million for first  quarter  1999,  an  improvement  of $1.0
million.  This  improvement is  attributable to higher sales volume in both Zone
heating and Specialty products.



Liquidity and Capital Resources

         The Company's primary cash needs have been for working capital, capital
expenditures and debt service  requirements.  The Company's sources of liquidity
have been cash flows from operations and borrowings  under its revolving  credit
facilities.  The  Company's  business  is  subject  to  a  pattern  of  seasonal
fluctuation.  The Company's needs for working capital and the corresponding debt
levels tend to peak in the second and third fiscal quarters. The amount of sales
generated during the second and third fiscal quarters  generally  depends upon a
number of factors,  including  the level of retail  sales for  heating  products
during the prior winter and current fall weather conditions  affecting the level
of sales of heating  products,  general economic  conditions,  and other factors
beyond the Company's control.

         Net cash  used in  operating  activities  for the year to date 2000 was
$9.3  million  compared  to net cash used of $12.0  million for the year to date
1999.  This  positive  reduction  of $2.7 million  reflects the higher  accounts
payable balance of $38.0 million.

         Net cash used in investing  activities was $1.8 million for the year to
date 2000,  compared to $1.4 million for the year to date 1999. This higher cash
used for investing  activities reflects the higher capital  expenditures of $1.6
million for the year to date 2000  compared to $1.4 million for the year to date
1999.  Net cash provided by financing  activities  for the year to date 2000 was
$11.0  million,  compared to $13.3  million for the year to date 1999 due to the
increase in the working capital loan.

         The Credit Facility  provides for commitments in an aggregate amount of
up to $216.8  million.  Borrowings  outstanding  under the Credit  Facility were
$177.9  million on May 29,  1999.  Outstanding  letters  of credit  and  foreign
currency  contracts  established to facilitate  merchandise  purchases were $1.9
million and $4.0  million,  respectively,  on May 29, 1999.  The Company had the
ability to incur additional  indebtedness of $26.4 million at May 29, 1999 under
the Credit Facility.

         On May 25, 1999,  Holdings  entered into  Amendment and Waiver No. 4 to
the Loan Documents  (the  "Amendment"),  an amendment to their Credit  Facility,
which  waives  Holdings'

                                       17
<PAGE>

failure to comply with the Clean-Up Period occurring between January 1, 1999 and
May 30,  1999 and their  failure to comply  with the  requirements  of the Total
Leverage Ratio at February 27, 1999.  The Company is now in compliance  with all
its covenants under the Credit Facility

         As part of the  Amendment,  Holdings'  interest  rates on all  existing
outstanding  borrowings  were  increased  by .75%  under the Term A and  Working
Capital  facilities and by .625% under the Term B, Acquisition and Acquisition B
facilities.  In  addition,  the  Amendment  modified  the  financial  covenants,
including the total  leverage  ratio,  the fixed charge  coverage  ratio and the
interest  coverage  ratio.  The  Amendment  also  modified the  Clean-Up  Period
requirement  to provide  that  during the  Clean-Up  Period,  the sum of Working
Capital  advances,  Letter  of Credit  advances  and  Swing  Line loan  advances
outstanding shall not exceed  $30,000,000 (an increase from $15,000,000) for any
Clean-Up Period.  The Amendment  further provides for an additional  $15,000,000
unsecured  line of credit to DESA  International,  Inc. (the "Childs  Guaranteed
Line  of  Credit")  from  NationsBank,   N.A.,  which  is  unconditionally   and
irrevocably  guaranteed by J.W. Childs Equity Partners,  L.P., as evidenced by a
promissory note issued by DESA to NationsBank,  N.A. The Childs  Guaranteed Line
of Credit has a maturity  date of May 31, 2001 and bears  interest at the end of
each  interest  period.  In  connection  with the  Amendment,  Holdings  paid an
amendment  fee of  approximately  $550,000,  which has been deferred and will be
amortized over the remaining life of the Credit Facility.

         In conjunction  with the  Amendment,  the sponsors have agreed to defer
any  obligation  of  Holdings  to pay  management  fees under  their  respective
management agreements until Holdings' fiscal year 2000 financial statements have
been delivered to the lenders.  At such time,  Holdings will be obligated to pay
such management fees only if the Consolidated  EBITDA,  as defined,  of Holdings
for fiscal year 2000 is greater than $51,600,000 and no Default, as defined, has
occurred under the Credit Agreement, as amended.

         The Company expects that capital  expenditures  during fiscal 2000 will
be approximately  $5.0 million.  Capital  expenditures are expected to be funded
from  internally  generated  cash  flows  and by  borrowings  under  the  Credit
Facility.

         Management  believes that cash flow from  operations  and  availability
under  the  Credit  Facility  will  provide  adequate  funds  for the  Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations.  The Credit Facility requires a Clean-Up Period, as defined,  under
the  Working  Capital  Loan  Commitment,  for a period  of 30  consecutive  days
occurring between January 1 and May 30 in each calendar year commencing  January
1, 1998. During the Clean-Up Period, the sum of Working Capital advances, Letter
of Credit  advances and Swing Line loan  advances  outstanding  shall not exceed
$30,000,000  for any Clean-Up  Period.  As of May 29, 1999,  approximately  $6.2
million of  working  capital  borrowings  have been  classified  as current as a
result  of  the  Clean-Up  requirement.  Such  amount  may be  reborrowed  after
compliance  with  the  Clean-Up  Period.  The  Company's  ability  to  fund  its
operations,  make planned  capital  expenditures,  make scheduled debt payments,
finance  indebtedness  and  remain  in  compliance  with  all of  the  financial
covenants under its debt agreements depends on its future operating  performance
and cash flow, which in turn, are subject to prevailing  economic conditions and
to financial, business and other factors, some of which are beyond its control.

Year 2000

                                       18
<PAGE>

         The Company has  completed  the process of  reviewing  its computer and
operational  systems  to  identify  and  determine  the extent to which any such
systems  were  vulnerable  to  potential  errors and failures as a result of the
"Year 2000"  problem.  The Year 2000  problem is a result of  computer  programs
being written using two digits,  rather than four digits, to identify years. The
Year  2000  presented  several  potential  risks  to the  Company  (i)  that the
Company's  internal  systems  may not  function  properly,  (ii) that  suppliers
computer  systems may not function  properly  and,  consequently,  deliveries of
required parts may be delayed,  (iii) that customers'  computer  systems may not
function  properly  and,  consequently,  orders or  payments  for the  Company's
products may be delayed,  and (iv) that the Company's  bank's  computer  systems
could malfunction,  disrupting the Company's orderly posting of deposits,  funds
transfers and payments.  The occurrence of any one or more of these events could
have a material adverse effect on the Company's  financial condition and results
of operations.  The Company does not have any  contingency  plans to address the
Year 2000  problem if the efforts  described  below have not fully  resolved the
problem.

         The  Company has written  all of its  internal  management  information
systems ("MIS") applications,  rather than buying applications from vendors, and
chose to modify those applications  internally to appropriately address the Year
2000  problem.  Management  believes that the  Company's'  MIS staff was able to
modify all such applications  prior to March 1, 1999, and the appropriate system
testing has been performed.  No embedded systems used in manufacturing  required
any modification  for Year 2000 compliance.  Review of embedded systems used for
quality  control was completed in January 1999.  The expenses of the  Company's'
efforts to  identify  and  address any Year 2000  problems  are not  expected to
exceed  $100,000,  of which  $37,000 has already been spent,  exclusive of staff
time.

         The Company has identified  critical parts and materials  suppliers and
is beginning a program to contact  such  suppliers to evaluate the extent of the
Year 2000 risk to the Company's' continued timely receipt of parts and materials
deliveries.  Management  believes  that such  efforts  will allow the Company to
identify any risk of parts or materials shortages and either to find alternative
suppliers or to order  sufficient  quantities  of critical  parts and  materials
prior  to the  Year  2000  so as to  avoid  adverse  effects  on the  Company's'
financial  condition  and  results  of  operations,  although  there  can  be no
assurances that such efforts will be successful.

         The Company is also engaged in discussions with certain major customers
to ensure that electronic data  interchange  ("EDI") formats  function  properly
notwithstanding  the advent of the Year 2000. EDI is the primary method by which
customers  place  orders  for the  Company's'  products.  Such  discussions  are
completed,  in the case of the Company's' major home center  customers,  and are
well advanced with other major customers using EDI, and management believes that
transmission  of orders from these  major  customers  will not be  significantly
affected by the advent of the Year 2000,  although there can be no assurances in
this regard. Management does not, however, have sufficient information regarding
the  internal  systems of all of its  customers to form an opinion as to whether
such  customers  will be able to timely  place such  orders or to timely pay for
products.  The  purchasing  patterns of existing and potential  customers may be
affected by Year 2000 problems that could cause  unexpected  fluctuations in the
Company's sales volume.


                                       19
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         Market risks relating to the Company's operations result primarily from
changes in interest rates.  The Company also has limited  foreign  currency risk
associated with its Canadian,  European, and Hong Kong operations.  A portion of
the Company's  operations consists of purchasing and sales activities in foreign
jurisdictions.  The Company  manufactures  it's  products in the United  States,
purchases products in Europe,  China, and Japan and sells the products primarily
in the United States,  Canada, and Europe. As a result, the Company's  financial
results  could be  affected  by factors  such as  changes  in  foreign  currency
exchange rates or weak economic  conditions in the foreign  markets in which the
Company  operates.  The Company employs  established  policies and procedures to
manage its  exposure  to  fluctuations  in  interest  rates and the value of the
foreign  currencies.  Interest rate and foreign  currency  transactions are used
only to the extent considered  necessary to meet the Company's  objectives.  The
Company does not utilize derivative  financial  instruments for trading or other
speculative purposes.  There have been no material changes in the market risk to
which the Company is exposed  since the end of the  Company's  preceding  fiscal
year.

Interest Rate Risk

         The Company's  interest rate risk management  objective is to limit the
impact of interest  rate  changes on its earnings and cash flow and to lower its
overall  borrowing  cost.  To achieve  its  objectives,  the  Company  regularly
evaluates  the amount of its variable rate debt as a percentage of its aggregate
debt.  The Company  manages its exposure to interest  rate  fluctuations  in its
variable  rate debt through  interest  rate swap  agreements.  These  agreements
effectively convert interest rate exposure from variable rates to fixed rates of
interest  without the exchange of the underlying  principal  amounts.  In fiscal
1999, the Company  entered into interest rate swap  agreements with Nations Bank
to manage its exposure to interest  rate  fluctuations.  The interest  rate swap
agreements  provide for payment by the Company of fixed rates of interest  based
on three month LIBOR (4.75% at February 27, 1999). Notional principal amounts of
these agreements total $125 million, of which $75 million terminates in November
1999 and $50 million  terminates in August 2001. The  agreements  terminating in
August 2001 may be canceled at the option of Nations Bank in February  2000. The
notional  amounts are used to measure the interest to be paid or received and do
not represent the amount of exposure to credit loss. Net proceeds to the Company
of $100,000 were recorded as adjustments to interest expense in fiscal 1999.

         The following table  summarizes the carrying amounts and estimated fair
values the Company's  remaining  financial  instruments at February 27, 1999 and
February 28, 1998 (bracketed amount represents an asset):


<TABLE>
<CAPTION>
                                                            February 27, 1999                  February 28, 1998
                                                            ------------------                 -----------------
                                                        Carrying            Fair           Carrying           Fair
                                                         Amount            Value            Amount           Value
                                                                               (in thousands)
<S>                                                   <C>              <C>              <C>              <C>
Bank debt                                             $  166,307       $  166,307       $  134,355       $  134,355
Senior subordinated notes                                130,000          102,700          130,000          135,525
Note payable                                               2,138            2,138            2,000            2,000
Interest rate swap agreements                                  -            (438)                -                -
</TABLE>


                                       20
<PAGE>




         Based on the average  outstanding  amount of variable rate indebtedness
of the Company in FY 1999 a one  percentage  point change in the interest  rates
for the  Company's  variable rate debt would have impacted the Company's FY 1999
interest  expense by an aggregate of  approximately  $1.6 million,  after giving
effect to the Company's interest rate swap agreements.

Foreign Currency Exchange Rate Risk

         The Company does not conduct a significant portion of its manufacturing
or sales activity in foreign markets.  The Company's  reported financial results
could be  affected,  however,  by factors  such as  changes in foreign  currency
exchange  rates  in  the  markets  where  it  operates.  When  the  U.S.  dollar
strengthens against such foreign  currencies,  the reported U.S. dollar value of
local currency  operating  profits  generally  decreases;  when the U.S.  dollar
weakens against such foreign currencies, the reported U.S. dollar value of local
currency  operating  profits generally  increases.  The Company utilizes foreign
exchange  forward  contracts to mitigate the  short-term  effect of movements in
currency  exchange  rates on the  Company's  foreign  currency  based  inventory
purchases.  The Company  regularly  hedges by  entering  into  foreign  exchange
forward contracts, approximately 85% to 95% of its budgeted (future) net foreign
currency  purchase  transactions  over a period of 4 quarters.  Gains and losses
related to qualifying hedges of foreign currency risk exposure are recorded when
the  related  inventory  is  purchased.   Because  the  Company  does  not  have
significant foreign operations,  the Company does not believe it is necessary to
enter into any other derivative financial  instruments to reduce its exposure to
foreign currency exchange rate risk.



                                       21
<PAGE>




PART II           Other Information

Item 3.  Defaults Upon Senior Securities

         (a) On February 28, 1999, the Company failed to meet the total leverage
ratio  financial  covenant  under  the  Credit  Facility,  an event  of  default
thereunder.  Said  event of default  continued  until the  Credit  Facility  was
amended on May 25, 1999.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  10.1     Amendment  and  Waiver  No. 4 to the  Loan  Documents
                           dated as of May 25,  1999 by and among  the  Company,
                           DESA  International,  Inc.,  NationsBank,  N.A.,  UBS
                           Securities LLC, Banc of America Securities LLC et al

                  27.1     Financial Data Schedule

         (b)      Reports on Form 8-K

                  The  Company  filed a report on Form 8-K  dated  April 1, 1999
reporting  under Item 5 the  resignation  of the  Company's  Chairman  and Chief
Executive  Officer and the  election  of  replacements  therefor  and of a Chief
Operating Officer,  all on March 30, 1999. The Company filed no other reports on
Form 8-K during the period for which this report is made.



                                       22
<PAGE>




                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                       DESA HOLDINGS CORPORATION

                                       By:

Dated:  July 13, 1999                  /s/ Terry G. Scariot
                                       Terry G. Scariot
                                       Chief Executive Officer and President

Dated:  July 13, 1999                  /s/ Edward G. Patrick
                                       Edward G. Patrick
                                       Vice President of Finance and Treasurer
                                       (Principal Financial Officer)

Dated:  July 13, 1999                  /s/ Scott M. Nehm
                                       Scott M. Nehm
                                       Vice President and Controller
                                       (Chief Accounting Officer)









                                       23