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 August 28, 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 October 12, 1999,  there were  15,552,547  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
                                 August 28, 1999

                                      INDEX


PART I          Financial Information                                                           Page

<S>             <C>                                                                            <C>

Item 1.           Consolidated Financial Statements (Unaudited)
                  Consolidated Balance Sheets - August 28, 1999 and February 27, 1999             3
                  Consolidated Statements of Operations - Thirteen and Twenty-six Weeks
                           ended August 28, 1999 and August 29, 1998                              4
                  Consolidated Statements of Stockholders' Equity (Deficit)                       5
                  Consolidated Statements of Cash Flows - Twenty-six Weeks
                           ended August 28, 1999 and August 29, 1998                              6
                  Notes to Consolidated Financial Statements                                      7

Item 2.           Management's Discussion and Analysis of Financial Condition and
                           Results of Operations                                                 13
Item 3.           Quantitative and Qualitative Disclosures About Market Risk                     18

PART II  Other Information

Item 2.           Changes in Securities and Use of Proceeds                                      19
Item 6.           Exhibits and Reports on Form 8-K                                               19

                  Signatures                                                                     20
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                             DESA HOLDINGS CORPORATION

                                       CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                 August 28,          February 27,
                                                                                   1999                 1999
                                                                                ------------         ------------
                                                                               (in thousands)       (in thousands)
ASSETS                                                                           (Unaudited)
<S>                                                                             <C>                 <C>
Current assets:
     Cash and cash equivalents                                                   $   1,277           $     888
     Accounts receivable, net                                                       64,271              30,390
     Inventories:
        Raw materials                                                                  835                 986
        Work-in-process                                                             11,008               6,376
        Finished goods                                                              60,952              37,891
                                                                                 ---------           ---------
                                                                                    72,795              45,253
     Deferred tax assets                                                             2,137               2,137
     Other current assets                                                            2,132               1,321
                                                                                 ---------           ---------
Total current assets                                                               142,612              79,989

Property, plant and equipment:
     Land                                                                              390                 390
     Buildings and improvements                                                      6,137               6,173
     Machinery and equipment                                                        36,901              34,527
     Furniture and fixtures                                                            685                 725
                                                                                 ---------           ---------
                                                                                    44,113              41,815
     Less accumulated depreciation                                                  27,867              26,182
                                                                                 ---------           ---------
                                                                                    16,246              15,633

Goodwill, net                                                                       80,878              81,882
Deferred tax assets                                                                    598                 598
Other assets                                                                        24,082              25,250
                                                                                 ---------           ---------
Total assets                                                                     $ 264,416           $ 203,352
                                                                                 =========           =========

Liabilities and stockholders' equity (deficit)
Current liabilities:
     Accounts payable                                                            $  46,569           $  25,232
     Accrued interest                                                                3,563               3,075
     Other accrued liabilities                                                      14,443              10,732
     Current portion of long-term debt                                              47,112              13,307
                                                                                 ---------           ---------
Total current liabilities                                                          111,687              52,346

Long-term debt                                                                     288,404             285,138
Other liabilities                                                                      775                 599
                                                                                 ---------           ---------
Total liabilities                                                                  400,866             338,083

Commitments

Series C redeemable preferred stock, $.01 par value; authorized--
     40,000 shares; issued and outstanding-- 21,180 shares at August 28,
     1999 and 19,990 shares at February 27, 1999 (liquidation preference--
     $21,590,000 at August 28, 1999 and $20,371,000 at February 27, 1999)           18,526              17,207

Stockholders' equity (deficit):
     Common stock, $.01 par value; authorized-- 50,000,000 shares; issued and
     outstanding-- 15,552,547 shares at August 28, 1999 and 15,548,692 shares          155                 155
     at February 28, 1999

     Nonvoting  common stock,  $.01 par value;  authorized-- 2,000,000 shares;
     issued and outstanding-- 90,604 shares at August 28, 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)
     Accumulated deficit                                                          (219,503)           (216,742)
     Accumulated other comprehensive loss                                           (1,329)             (1,027)
                                                                                 ---------           ---------
Total stockholders' equity (deficit)                                              (154,976)           (151,938)
                                                                                 ---------           ---------
Total liabilities and stockholders' equity (deficit)                             $ 264,416           $ 203,352
                                                                                 =========           =========
See accompanying notes
</TABLE>
                                                         3
<PAGE>
<TABLE>
<CAPTION>

                                             DESA HOLDINGS CORPORATION

                                       Consolidated Statements of Operations
                                                   (in thousands)

                                                    (Unaudited)



                                                                         Thirteen Weeks Ended            Twenty-six Weeks Ended

                                                                    Aug 28,             Aug 29,          Aug 28,        Aug 29,
                                                                      1999               1998             1999           1998
                                                                   ---------           ---------        ---------      ---------

<S>                                                               <C>                 <C>              <C>            <C>
Net sales                                                          $  97,924           $  75,416        $ 160,717      $ 116,170
Cost of sales                                                         65,349              50,332          109,800         79,941
                                                                   ---------           ---------        ---------      ---------
Gross profit                                                          32,575              25,084           50,917         36,229

Operating costs and expenses:
     Selling                                                          16,559              11,970           29,194         20,753
     General and administrative                                        3,446               3,096            7,048          5,964
     Other                                                             1,540               1,272            3,064          2,138
                                                                   ---------           ---------        ---------      ---------
                                                                      21,545              16,338           39,306         28,855
                                                                   ---------           ---------        ---------      ---------

Operating profit                                                      11,030               8,746           11,611          7,374

Interest expense                                                       7,334               6,745           13,962         13,237
                                                                   ---------           ---------        ---------      ---------
Income (loss) before provision (benefit) for income taxes              3,696               2,001           (2,351)        (5,863)

Provision (benefit) for income taxes                                   1,720                 878             (939)        (2,620)
                                                                   ---------           ---------        ---------      ---------

Net Income (loss)                                                      1,976               1,123           (1,412)        (3,243)

Less dividends and accretion on preferred stock                          685                 613            1,348          1,203
                                                                   ---------           ---------        ---------      ---------
Income (loss) applicable to common stockholders                    $   1,291           $     510        $  (2,760)     $  (4,446)
                                                                   =========           =========        =========      =========




See accompanying notes
</TABLE>


                                                         4

<PAGE>
<TABLE>
<CAPTION>


                                                      DESA Holdings Corporation
                                          Consolidated Statements of Stockholders' Deficit
                                                              ($000's)

                                                                     Carryover                         Cumulative
                                          Nonvoting    Capital in   Predecessor                           Other           Total
                               Common       Common     Excess of       Basis         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                                                                              (1,412)                            (1,412)

   Foreign currency
     translation adjustment                                                                                 (302)             (302)
                                                                                                                        ----------

Comprehensive loss                                                                                                          (1,714)
                                                                                                                        ----------


Accretion of preferred stock                                                               (129)                              (129)

Dividends on preferred stock                                                             (1,219)                            (1,219)

Issuance of common stock                                      25                                                                25


                                --------------------------------------------------------------------------------        ----------
Balance at
August 28, 1999                  $155         $1         $98,009      ($32,309)       ($219,503)         ($1,329)        ($154,976)

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


See accompanying notes


</TABLE>

                                                                 5
<PAGE>
<TABLE>
<CAPTION>

                                                     DESA HOLDINGS CORPORATION
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)

                                                             (Unaudited)

                                                                                  Twenty-six Weeks Ended

                                                                                 Aug 28,             Aug 29,
                                                                                  1999                 1998
                                                                                ----------          -----------
<S>                                                                          <C>                 <C>
Cash flows from operating activities
Net loss                                                                      $    (1,412)        $     (3,243)

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

     Depreciation                                                                   2,305                1,512
     Amortization                                                                   2,980                1,945
     Deferred income taxes                                                              0                  (15)
     Equity in undistributed earnings of joint venture                               (119)                 (78)
     (Increase) decrease in operating assets:
         Accounts receivable, net                                                 (33,881)             (28,436)
         Inventories                                                              (27,542)             (14,558)
         Other current assets                                                        (811)                (529)
     Increase (decrease) in operating liabilities:
         Accounts payable                                                          21,337               22,290
         Accrued interest                                                             568               (1,789)
         Other accrued liabilities                                                  4,592               (5,391)
         Income taxes payable                                                        (910)              (3,831)
         Other liabilities                                                            176                  208
                                                                                ----------          -----------
Net cash used in operating activities                                         $   (32,717)        $    (31,915)
                                                                                ----------          -----------


Investing activities
Capital expenditures                                                               (2,918)              (2,806)
Dividends received from joint venture                                                 106                   83
Net cash paid for acquisition of businesses                                             0              (39,635)
Other                                                                                (390)                (672)
                                                                                ----------          -----------
Net cash used in investing activities                                         $    (3,202)        $    (43,030)
                                                                                ----------          -----------


Financing activities

Increase in working capital loan                                                   38,930               33,722
Decrease in note payable                                                              (64)                   0
Principal payments of term loans                                                   (1,875)              (1,125)
Issuance of common stock                                                               25               12,076
Increase in acquisition loans                                                           0               30,000
Payment of debt financing costs                                                      (703)                   0
                                                                                ----------          -----------
Net cash provided by financing activities                                          36,313               74,673

Effect of exchange rates on cash                                                       (5)                  (5)
                                                                                ----------          -----------
Increase (decrease) in cash and cash equivalents for the period                       389                 (277)

Cash and cash equivalents at beginning of period                                      888                  794
                                                                                ==========          ===========
Cash and cash equivalents at end of period                                    $    $1,277         $        517
                                                                                ==========          ===========

</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 including inventory levels,  accounts receivable
levels and debt levels during the year.

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 BV, 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.

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.

                                       7
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


Summarized Financial Information of DESA International, Inc

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 August 28, 1999 and February 27, 1999 and for
the thirteen and twenty-six weeks ended August 28, 1999, and August 29, 1998.

Summarized consolidated balance sheet information (in thousands):

                                               August 28,         February 27,
                                                  1999                1999
                                              --------------------------------
Assets
Current assets                                 $ 250,554           $ 187,892
Net fixed assets                                  16,246              15,633
Goodwill, net                                     79,757              80,744
Deferred tax assets                                  598                 598
Other assets                                      24,082              25,250
                                               -----------------------------
                                               $ 371,237           $ 310,117

Liabilities and stockholders' deficit
Current liabilities                            $ 111,250           $  51,939
Long-term debt                                   156,250             153,000
9 7/8% Senior Subordinated Notes                 130,000             130,000
Other liabilities                                    775                 599
Stockholders' deficit                            (27,038)            (25,421)
                                               -----------------------------
                                               $ 371,237           $ 310,117

Summarized consolidated statements of operations information (in thousands):
<TABLE>
<CAPTION>
                                            Thirteen Weeks Ended             Twenty-six Weeks Ended
                                          August 28,    August 29,         August 28,      August 29,
                                             1999          1998               1999            1998
                                         -------------------------        ----------------------------
<S>                                      <C>           <C>                <C>             <C>
Net Sales                                 $ 97,924      $ 75,416           $ 160,717       $ 116,170
Income (loss) before income taxes            3,745         2,094             (2,254)         (5,762)
Net income (loss)                            2,025         1,216             (1,315)         (3,142)

</TABLE>


                                       8
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


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.

3. Financing Arrangements

Outstanding borrowings consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                August 28,              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                 61,612                   22,682
Commitment (D)
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)                    2,154                    2,138
                                                              --------------------------------------
Total outstanding borrowings                                      335,516                  298,445
Less current portion of long-term debt                             47,112                   13,307
                                                              --------------------------------------
Total long-term debt                                            $ 288,404                $ 285,138

<FN>
(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.

                                               9
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


(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 August 28,  1999,
     letters of credit of $5,813,000 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 of 1/2of 1% per annum on the daily  unutilized
     Working Capital Loan Commitment.

(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  2000, $80,000  of  interest  payments  were  deferred  and were  converted  into
     principal.
</FN>
</TABLE>

In  accordance  with the terms of the Credit  Facility,  the  ability of DESA to
incur additional  indebtedness is limited,  as defined. At August 28, 1999, DESA
can incur additional indebtedness of $7.6 million.

4. Comprehensive Income

Comprehensive loss consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                         Thirteen Weeks Ended       Twenty-six Weeks Ended
                                       August 28,    August 29,    August 28,     August 29,
                                          1999          1998          1999           1998
                                       -----------------------------------------------------
<S>                                      <C>         <C>           <C>           <C>
Net income (loss)                         $ 1,976     $ 1,123       $ (1,412)     $ (3,243)
Net change in foreign currency
      translation adjustment                 (84)       (404)           (302)         (537)
                                       ----------- ---------------------------------------
Comprehensive income (loss)               $ 1,892      $  719       $ (1,714)     $ (3,780)
                                       ===================================================
</TABLE>

As of August 28, 1999 and August 29,  1998 the  cumulative  other  comprehensive
loss consisted solely of the Company's foreign currency translation adjustment.


                                       10

<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


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.  Operational  results and
other financial data for the two business  segments for the periods ended August
28, 1999 and August 29, 1998 are presented below (in thousands):

<TABLE>
<CAPTION>
                                           Zone Heating       Specialty             General
                                             Products          Products            Corporate          Total
                                          --------------------------------------------------------------------
<S>                                         <C>                <C>               <C>                 <C>

Thirteen weeks ended August 28, 1999
Net sales                                    $ 50,204           $ 47,720                --            $ 97,924
Operating profit (loss)                         6,086              6,009          $ (1,065)             11,030
Depreciation and amortization                   1,759                667               419               2,845
Identifiable assets                           141,201            108,277            14,938             264,416
Capital expenditures                            1,051                263                --               1,314

Thirteen weeks ended August 29, 1998
Net sales                                      42,479             32,937                --              75,416
Operating profit (loss)                         5,873              3,863              (990)              8,746
Depreciation and amortization                   1,396                465               385               2,246
Identifiable assets                           136,639             88,343            16,811             241,793
Capital expenditures                            1,228                132                48               1,408


<CAPTION>
                                           Zone Heating       Specialty             General
                                             Products          Products            Corporate          Total
                                          --------------------------------------------------------------------
<S>                                         <C>                <C>               <C>                 <C>

Twenty-six weeks ended August 28, 1999
Net sales                                    $ 70,868           $ 89,849                --            $160,717
Operating profit (loss)                         3,782              9,973          $ (2,144)             11,611
Depreciation and amortization                   2,864              1,602               819               5,285
Identifiable assets                           141,201            108,277            14,938             264,416
Capital expenditures                            2,025                865                28               2,918

Twenty-six weeks ended August 29, 1998
Net sales                                      52,148             64,022                --             116,170
Operating profit (loss)                         3,043              6,334            (2,003)              7,374
Depreciation and amortization                   1,778                926               753               3,457
Identifiable assets                           136,639             88,343            16,811             241,793
Capital expenditures                            2,491                249                66               2,806
</TABLE>




                                       11
<PAGE>

                            DESA HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



6. Prior Period Acquisitions

On August 19,  1998,  the  Company  consummated  two  acquisitions.  The Company
acquired all of the outstanding stock of Fireplace Manufacturers,  Inc. ("FMI"),
which then merged into DESA, for a net cash purchase price of  $25,805,000.  The
purchase price includes  non-compete  agreements with certain  executives of FMI
covering a three year period for aggregate  payments of $3,050,000.  The Company
also acquired certain of the assets of Universal  Heating,  Inc. ("UHI") through
Desa U. S. Inc.,  which then  merged  into DESA,  for a cash  purchase  price of
$12,634,000,  including non-compete payments of $1,998,000. The Company financed
the two acquisitions through borrowings of $26,363,500 under the Credit Facility
(Term Loan B) and the issuance of Common Stock for $12,075,500.

The Company  accounted for such  acquisition  using the purchase  method.  As of
August  28,  1999,  there  are  unresolved  contingencies  related  to  the  FMI
acquisition, the resolution of which could result in adjustments to the purchase
price for the FMI  acquisition.  The following  summarizes the fair value of the
assets  acquired  and  liabilities  assumed  at  August  19,  1998  for  the two
acquisitions (in thousands):

          Current assets                  $  4,450
          Property, plant and equipment      1,201
          Other assets                      15,734
          Goodwill                          20,114
          Current liabilities               (3,060)
                                          --------
                                          $ 38,439

The  following  supplemental  pro  forma  information  is  presented  as if  the
acquisition had been completed as of February 28, 1999 and March 1, 1998:

                                                 Twenty-six weeks ended
                                           August 28, 1999    August 29, 1998
                                           -----------------------------------
                                                  (dollars in thousand)

          Net sales                            $ 160,717          $ 128,877
          Income from operations before           11,611              8,446
          extraordinary item
          Loss before extraordinary item          (1,412)            (5,880)
          Net loss                                (1,412)            (3,647)


                                       12



<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 that 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 and  twenty-six  week periods ended August 28, 1999,
and  August  29,  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 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.

                                       13

<PAGE>


Results of Operations

Thirteen Week Period Ended August 28, 1999, Compared to the Thirteen Week Period
Ended August 29, 1998

Net sales.  Net sales in the  thirteen  weeks ended  August 28,  1999,  ("second
quarter 2000") were $97.9 million,  an increase of 30% or $22.5 million compared
to the  thirteen  weeks ended  August 29, 1998  ("second  quarter  1999").  Zone
heating  products  had net sales of $50.2  million in second  quarter  2000,  an
increase of 18% or $7.7 million from the second  quarter 1999.  This increase is
primarily in hearth  product sales due to the  acquisition  of FMI and increased
fireplace  product  demand  in  the  propane  marketer/natural  gas  utility
distribution channel.

Specialty products had net sales of $47.7 million in the second quarter 2000, an
increase of 45% or $14.8 million over second  quarter 1999,  due to an increased
market  demand  for  generators  related to the  concern  of year 2000  computer
problems and sales for the electric pole saw.

Cost of Sales.  For second  quarter 2000,  cost of sales was $65.3  million,  an
increase of $15.0 million or 30% from second quarter 1999,  attributable  to the
higher  net sales for the  period.  Cost of sales was 67% of net sales in second
quarter 2000 compared to 67% for second quarter 1999. Period to period costs are
comparable because of a product mix with  proportionately  lower sales growth of
zone heating  products  (which are sold at higher margins  compared to specialty
products) being offset by lower manufacturing  overhead per unit of zone heating
products.  Manufacturing overhead per unit is lower as a result of higher second
quarter production levels this year compared to a year ago.

Selling,  General and Administrative Expenses. For second quarter 2000, selling,
general and  administrative  expenses  were $21.5  million,  an increase of $5.2
million or 32% from second quarter 1999, primarily attributable to the net sales
increase.  As a percentage  of net sales,  selling,  general and  administrative
expenses were 22% for second quarter 2000 compared to 22% in first quarter 1999.
This comparable level is associated with increased sales, which absorbed more of
the fixed  expenses  in the  engineering  and  administration  areas,  offset by
increased  shipping  costs  associated  with  the  setup  of a new  distribution
facility and higher customer sales program costs.

Operating  Profit.  Operating  profit was $11.0 million for second  quarter 2000
compared to an operating  profit of $8.7  million for second  quarter  1999,  an
improvement  of $2.3  million  or 26%.  Operating  profit  attributable  to zone
heating  products was $6.1 million for second  quarter  2000, an increase of $.2
million or 4% from second quarter 1999.  This is a result of the increased sales
and  higher  factory  overhead  absorption  offset by higher  selling  costs and
shipping costs associated with the sales increase.  Specialty products operating
profit was $6.0 million for the second quarter 2000, an increase of $2.1 million
or 56% over second  quarter 1999.  This increase is  attributable  to the higher
level of specialty products sales and their related contribution margins.

EBITDA.  EBITDA for the second  quarter 2000 was $13.9  million,  an increase of
$2.9 million or 26% from second quarter 1999. 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 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 second quarter 2000 was $7.3 million, an
increase of $.6 million or 9% compared to second  quarter 1999.  The increase is
associated  with higher  levels of borrowing  and  increased  interest  rates in
conjunction  with Amendment and Waiver No. 4 made to the Credit  Facility on May
25, 1999.

Income Tax. The income tax rate was 47% for second  quarter 2000, an increase of
3% from the second  quarter 1999 rate of 44%. The  increase is  attributable  to
differences  in the  mix  of  foreign  and  domestic  source  income  and  their
corresponding tax rates.

Net Income.  Net income was $2.0 million for second quarter 2000 compared to net
income of $1.1 million for second  quarter 1999, an  improvement of $.9 million.
This improvement is attributable to higher sales volume in both Zone heating and
Specialty products.

                                       14
<PAGE>

Twenty-six  Week Period Ended August 28, 1999,  Compared to the Twenty-six  Week
Period Ended August 29, 1998

Net sales.  Net sales in the twenty-six  weeks ended August 28, 1999,  ("year to
date 2000") were $160.7 million, an increase of 38% or $44.5 million compared to
the twenty-six  weeks ended August 29, 1998 ("year to date 1999").  Zone heating
products had net sales of $70.9 million in year to date 2000, an increase of 36%
or $18.7  million  from the year to date 1999.  This  increase is  primarily  in
hearth  product  sales due to the  acquisition  of FMI and  increased  fireplace
product  demand in the  propane  marketer  / natural  gas  utility  distribution
channel.

Specialty  products  had net sales of $89.8  million  in year to date  2000,  an
increase of 40% or $25.8  million  over year to date 1999,  due to an  increased
market demand for generators  related to the fear of year 2000 computer problems
and sales for the electric pole saw.

Cost of Sales.  For year to date  2000,  cost of sales was  $109.8  million,  an
increase  of $29.9  million or 37% from year to date 1999,  attributable  to the
higher net sales for the  period.  Cost of sales was 68% of net sales in year to
date 2000  compared  to 69% for year to date 1999.  This  decrease is because of
lower manufacturing  overhead per unit of zone heating products,  as a result of
higher year to date production levels this year compared to a year ago.

Selling,  General and Administrative  Expenses.  For year to date 2000, selling,
general and  administrative  expenses were $39.3  million,  an increase of $10.5
million or 36% from year to date 1999,  primarily  attributable to the net sales
increase.  As a percentage  of net sales,  selling,  general and  administrative
expenses  were 24% for year to date 2000  compared  to 25% in year to date 1999.
This lower level is associated with increased sales,  which absorbed more of the
fixed expenses in the  engineering  and  administration  areas,  offset by costs
associated  with the  set-up of a new  distribution  facility  for zone  heating
products.

Operating  Profit.  Operating  profit  was $11.6  million  for year to date 2000
compared to $7.4 million for year to date 1999, an  improvement  of $4.2 million
or 57%. Operating profit  attributable to zone heating products was $3.8 million
for year to date 2000,  favorable by $.7 million from year to date 1999. This is
a result of the increased sales and higher factory overhead absorption offset by
higher  selling costs and shipping  costs  associated  with the sales  increase.
Specialty  products operating profit was $10.0 million for year to date 2000, an
increase  of $3.6  million  or 57% over  year to date  1999.  This  increase  is
attributable  to  increased  sales  of  specialty  products  and  their  related
contribution margins.

EBITDA.  EBITDA for year to date 2000 was $16.9  million,  an  increase  of $6.1
million  or 56% over year to date 1999 of $10.8  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 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 year to date 2000 was $13.9 million,  an
increase of $.7 million or 5% compared to second  quarter 1999.  The increase is
associated  with higher  levels of borrowing  and  increased  interest  rates in
conjunction  with Amendment and Waiver No. 4 made to the Credit  Facility on May
25, 1999.

Income  Tax.  The income tax rate was 40% for year to date 2000,  below the rate
for year to date 1999 of 45%. The decrease is attributable to differences in the
mix of foreign and domestic source income and their corresponding tax rates.

Net Income.  Net loss was $1.4  million for year to date 2000  compared to a net
loss of $3.2 million for year to date 1999, an improvement of $1.8 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

                                      15
<PAGE>

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  $32.7
million  compared  to net cash used of $31.9  million for the year to date 1999.
This  increase  in  cash  used  of $.8  million  reflects  the  higher  accounts
receivable  balance  of $64.3  million  and  higher  inventory  balance of $72.8
million, offset by higher accounts payable balance of $46.6 million.

Net cash used in  investing  activities  was $3.2  million  for the year to date
2000,  compared to $43.0 million for the year to date 1999. This lower cash used
for investing activities reflects the acquisition of UHI and FMI in year to date
1999.  Net cash provided by financing  activities  for the year to date 2000 was
$36.3  million,  compared  to  $74.7  million  for the  year to date  1999.  The
difference  reflects a decrease in the working  capital  loan and the prior year
issuance of Common Stock and bank loans  associated with the acquisitions of UHI
and FMI.

The Credit  Facility  provides for  commitments in an aggregate  amount of up to
$216.8  million.  Borrowings  outstanding  under the Credit Facility were $203.4
million on August 28, 1999.  Outstanding  letters of credit and foreign currency
contracts established to facilitate  merchandise purchases were $5.8 million and
$3.1 million,  respectively,  on August 28, 1999. The Company had the ability to
incur  additional  indebtedness  of $7.6  million at August  28,  1999 under the
Credit  Facility.  The Company is in compliance with all its covenants under the
Credit Facility.

The  Company  expects  that  capital  expenditures  during  fiscal  2000 will be
approximately $5.5 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.  Additionally,  the  Company  reviews  potential  acquisitions  and
relationships  from time to time and may be required to seek  additional debt to
fund any acquisition. The Company's ability to fund its operations, make planned
capital expenditures,  make scheduled debt payments,  make desired acquisitions,
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

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  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 has
completed a program to contact  such  suppliers  and  evaluate the extent of the
Year 2000 risk to the Company's' continued timely receipt of parts and

                                       16
<PAGE>


materials deliveries.  Management believes,  based upon supplier input, that the
risk of  significant  parts or materials  shortages is unlikely.  Management is,
however, monitoring the situation and will seek to find alternative suppliers or
to order sufficient quantities of critical parts and materials prior to the Year
2000 as adverse  situations are identified 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 have been or 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.

                                    17
<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  its  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 Value         Carrying          Fair Value
                                               Amount                               Amount
                                                                       (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>

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.

                                       18
<PAGE>


PART II           Other Information

Item 2.  Changes in Securities and Use of Proceeds

On March 19, 1999 and July 19, 1999,  options  representing  3,817 common shares
and 38 common  shares,  respectively,  were  exercised and shares were issued to
employees at an aggregate  sale price of $24,773 and $247,  respectively.  These
shares are exempt from registration under Section 4(2) of the Securities Act.


Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  27     Financial Data Schedule

         (b)      Reports on Form 8-K

The Company filed no reports on Form 8-K during the period for which this report
is made.


                                       19
<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:  October 12, 1999   /s/ Terry G. Scariot
                           Terry G. Scariot
                           Chief Executive Officer and President

Dated:  October 12, 1999   /s/ Edward G. Patrick
                           Edward G. Patrick
                           Vice President of Finance and Treasurer
                           (Principal Financial Officer)

Dated:  October 12, 1999   /s/ Scott M. Nehm
                           Scott M. Nehm
                           Vice President and Controller
                           (Chief Accounting Officer)


                                       20