UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                                   (Mark One)

[X]  Annual Report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended December 31, 1998 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:  0-20829

                           DIAMOND HOME SERVICES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                        36-3886872
    -------------------------------                    -------------------
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)

                222 Church Street
               Woodstock, Illinois                            60098
--------------------------------------------         ---------------------------
      (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code:   (815) 334-1414

Securities registered pursuant to Section 12(b) of the Act:  None

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

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /

The  registrant  estimates that the aggregate  market value of the  registrant's
Common  Stock held by  non-affiliates  on March 1, 1999  (based upon an estimate
that 57.2% of the shares are so owned by non-affiliates  and upon the average of
the closing  bid and asked  prices for the Common  Stock on the Nasdaq  National
Market  on that  date) was  approximately  $27,400,000.  Determination  of stock
ownership by  non-affiliates  was made solely for the purpose of  responding  to
this requirement and registrant is not bound by this determination for any other
purpose.

As of March 1, 1999,  8,507,375  shares of the  registrant's  Common  Stock were
outstanding.

The following documents are incorporated into this Form 10-K by reference:
     Selected  portions of the Annual Report to Stockholders for the fiscal year
     ended  December  31,  1998  (Parts I and II).  Proxy  Statement  for Annual
     Meeting of Stockholders to be held on May 13, 1999 (Part III).


                                       -1-

<PAGE>



                                     PART I


ITEM 1.  BUSINESS

A.       GENERAL

         The Company is one of the country's  leading  marketers and contractors
of installed home improvement  products,  including  roofing  systems,  gutters,
fencing and doors, and one of the country's leading  manufacturers and wholesale
distributors  of  fencing  and  perimeter  security   products.   The  Company's
subsidiary Diamond Exteriors,  Inc.(R) ("Exteriors") markets and sells installed
home improvement products and services primarily under the "Sears" name pursuant
to a non-exclusive  license agreement with Sears, Roebuck and Co. ("Sears") that
expires June 30,  1999.  Exteriors  markets and sells its  products  directly to
residential  customers in 44 states  through a combination of national and local
advertising  and of in-home direct sales through its home  consultants.  Through
its finance  subsidiary  Marquise Financial  Services,  Inc.  ("Marquise"),  the
Company provides  financing to consumers of installed home improvement  products
and services.  Marquise  also buys pools of secured  consumer  receivables.  The
Company's subsidiary Reeves Southeastern Corporation ("Reeves") manufactures and
sells fencing and other perimeter  security products  nationwide to distributors
and, through its subsidiary Foreline Security Corporation ("Foreline"), provides
electronic   security   products  and   services.   Reeves  and  Foreline   have
approximately 34 offices and properties in 19 states.

         Segment reporting of financial information required by this Item is set
forth in footnote 16 ("Segment  Data") to the notes to the Financial  Statements
in the Company's  Annual Report,  which  information is included in Exhibit 13.1
and hereby incorporated herein by reference.


B.       INSTALLED HOME IMPROVEMENTS SEGMENT

PRODUCTS AND SERVICES

         Set  forth  below is a brief  description  of the  major  products  and
services offered by the installed home improvements segment:

Roofing and Gutters.  Exteriors sells, furnishes,  and arranges the installation
of most types of residential roofing systems,  primarily asphalt (fiberglass and
organic mat based),  architectural  laminates,  and premium 3-tab strip shingles
manufactured by Owens Corning and by Globe Building  Materials,  Inc. ("Globe"),
the Company's largest stockholder. In addition,  Exteriors sells, furnishes, and
arranges  the  installation  of  aluminum,  copper,  and steel  gutter  systems.
Exteriors  repairs roofs as a Sears authorized  contractor and provides warranty
service on  Sears's  behalf for  exterior  home  products  sold,  furnished  and
installed  by Sears prior to Sears's  exit in December  1992 from the  installed
home improvement  business.  Exteriors also sells,  furnishes,  and arranges the
installation of soffit/fascia  and siding for dormers and gable ends and repairs
chimneys  in  connection  with  its  roofing  installations.  In 1998  Exteriors
terminated its test of a light commercial roofing program.

Fencing.  Exteriors sells, furnishes, and arranges the installation of a variety
of  residential   fencing  products.   The  primary  product  offering  includes
galvanized  and full color (vinyl and powder  coated)  chain link,  premium wood
fence products and ornamental (PVC and aluminum)  fences.  All fence systems are
available in various heights and styles. The galvanized chain link system offers
a unique  "ribbed"  design for added strength that is sold  exclusively  through
Exteriors.  (See "C.  Manufacturing and Wholesale  Distribution  Segment.") This
segment also does fence repairs.



                                       -2-

<PAGE>



Garage Doors.  Exteriors  sells,  furnishes,  and arranges the  installation  of
residential garage doors. The product offering provides the customer a selection
of high quality  insulated and uninsulated steel doors including window options.
Exteriors also installs the Sears Craftsman  brand garage door openers.  In most
markets, Exteriors offers garage door repairs.

Entry  and  Security  Doors.  Exteriors  sells,  furnishes,   and  arranges  the
installation of a variety of pre-finished  energy-efficient  fiberglass,  steel,
and wood entry doors. All doors are available in several styles and colors.
Exteriors also sells patio doors, storm doors, and steel-framed security doors.

Additional  Products.  Secondary products which this segment sells and furnishes
and for which it arranges installations include mobile home products, skylights,
attic insulation,  and gutter protection  systems.  Under certain  circumstances
this segment does insurance estimates.

Fee and Finance Income. In 1998,  Exteriors  generated credit  participation fee
income from Sears and its  affiliates on installed  sales  financed by Sears and
its  affiliates  and  from  other  third-party   finance  companies,   totalling
approximately  $2.2  million.  In  addition,  Marquise,  the  Company's  finance
subsidiary,   provides  secured  fixed  rate,  fixed-term,   retail  installment
financing to all creditworthy  customers that cannot obtain unsecured financing.
Finance   interest   income  on  receivables   financed  by  Marquise   totalled
approximately $1.6 million in 1998.

NATIONAL MARKETING AND SALES LEAD GENERATION

         Exteriors's   principal   marketing   activities   are   conducted   by
participation in Sears's national preprints.  In addition,  Exteriors advertises
in the yellow pages, in local newspapers,  and, to a lesser extent, on radio and
television,  and,  in  conjunction  with Sears,  engages in  national  marketing
campaigns  and a  variety  of other  activities  to  generate  leads.  Exteriors
purchases all of its products  directly  from  independent  distributors  and/or
manufacturers.  All products sold by Exteriors under the license  agreement must
be pre-approved by Sears.

SALES

         Prior  to  1999,  potential  customers  who  contacted  Exteriors  were
scheduled for an in-home presentation from a sales associate.  Appointments were
set from the call center based on availability of sales  associates.  Each sales
office was  subsequently  responsible for assigning the  appointments to a local
sales associate.  Each sales associate  typically had two to three  appointments
each day and was required to report the results of each  appointment  on a daily
basis.  In  first  quarter  1999,  as part  of a  restructuring  of  operations,
Exteriors  announced a substantial  change to its sales  program.  Under its new
sales  program,  Exteriors  plans to operate out of 55 sales offices  initially.
Leads  will be  scheduled  to a sales  associate  directly  from  the  Company's
subsidiary  Solitaire  Heating and Cooling,  Inc.  ("KanTel(TM)").  The form and
frequency of in-home  presentations are also being revised.  The Company expects
that it will take several months to implement its new sales program.

INDEPENDENT INSTALLERS AND INSTALLATION MANAGEMENT

         Prior  to  1999  each  sales  office  generally  was  staffed  with  an
installation manager and customer service project coordinator.  In first quarter
1999 Exteriors announced that it was consolidating  installation  management and
coordination in eight mega-installation offices strategically located throughout
the country.

         Exteriors  retains  independent   installers  to  perform  all  of  its
installations.   Prior  to  retention,   Exteriors  generally  pre-screens  each
contractor's   background  and  works  to  ensure  that  the  contractor   meets
Exteriors's  customer service,  quality,  and safety standards.  At December 31,
1998, Exteriors had approximately 984 independent installers (i.e.,  independent
installers  who  have  worked  in the  past  sixty  days  for  Exteriors).  Many
independent installers operate multiple installation crews.

         In  certain  markets  on a test  basis  Exteriors  employs  one or more
persons to provide  follow-on  service and repairs for jobs that  Exteriors  has
installed.

                                       -3-

<PAGE>



SEARS LICENSE AGREEMENT

         Currently, Exteriors conducts primarily all of its direct marketing and
installation  activities under a license agreement with Sears. Exteriors entered
into a three-year  license  agreement with Sears effective  January 1, 1996. The
license  agreement  authorizes  Exteriors to sell,  furnish and install roofing,
gutters,  doors,  fences, and certain other products under the "Sears" name as a
Sears authorized  contractor to residential  customers in 44 states.  During the
term of the  license  agreement,  Exteriors  may not sell,  furnish  or  install
similar  products to consumers  under any other  retailer's name without Sears's
consent.  In December 1998, Sears and Exteriors extended the license agreement's
expiration  date to June 30,  1999.  Under  certain  circumstances,  the license
agreement  may be further  extended for a wind-down  period of up to six months.
The license  agreement  also  provides for  immediate  termination  by Sears for
various reasons,  including failure to comply with any material provision of the
license  agreement;  allegations  that the  approved  products  infringe a third
party's patent,  trademark or copyright or that they are being sold in violation
of law; Exteriors's failure to have merchantable,  conforming products ready for
delivery and  installation  at the time  specified;  or receipt by Sears, in its
opinion,   of  an  excessive  number  of  complaints   regarding  Exteriors  and
Exteriors's  failure  to provide  Sears  with  timely  adequate  assurances,  as
determined by Sears, that issues involving such complaints have been resolved to
Sears's  satisfaction.  In addition,  Sears has the right,  at any time, upon 12
months' notice to Exteriors to discontinue  Exteriors's  right to sell,  furnish
and install  certain  products in certain  markets under the "Sears" name if the
sales volume or if scores  relative to the Sears "Quality Every Day!"  standards
or  "Service  Quality  Index,"  as defined in the  license  agreement,  for such
products or services fall below the standards established by Sears.

         The  license  agreement  is  not  exclusive  by  its  terms;   however,
historically,  Sears has not  licensed  the same home  improvement  products  to
multiple  licensees within the same market.  The Company believes Sears does not
grant  licenses to more than one  licensee in a market  because  Sears wishes to
avoid  confusion  among the customers with respect to pricing and other factors;
provided,  however,  there can be no assurance that Sears will continue to limit
its licenses.  The license agreement may not be assigned by Exteriors to a third
party (other than an affiliate) without Sears's consent.

         The license agreement provides for Exteriors to pay Sears a license fee
based on  Exteriors's  gross  sales for  products  licensed  under  the  license
agreement.  The  license  fee is a fixed  percentage  of such sales for  certain
products.  The license  agreement  provides for an additional fee of 1% of gross
sales for each sale made  pursuant to a customer  referral  from a Sears  retail
store associate.

         The license agreement imposes quality standards that must be maintained
by Exteriors  as to the  products  and the services it offers.  Prior to any new
product  introduction,  each product sold under the license agreement with Sears
must be approved by Sears. In addition,  all marketing  materials  employing the
"Sears" name are subject to the prior approval of Sears.  The license  agreement
grants  Sears  certain  rights  regarding  customer  information   generated  by
Exteriors  during  the  term of the  license  agreement,  as  well as  regarding
telephone  numbers used by Exteriors in connection with its operations under the
license   agreement  and  limits  the  rights  of  Exteriors  in  such  customer
information or goodwill.  Exteriors  cannot use such  information  other than in
connection with the license agreement. The license agreement also provides Sears
the right to settle, at Exteriors's expense and without Exteriors's consent, any
customer  complaints.  The  Company  is not aware of any  material  claims  made
against  Sears by  customers  of  Exteriors  which  Exteriors  has not  directly
resolved or is in the process of resolving with the customer,  but no assurances
can be  given  that  Sears  will not do so in the  future  with  respect  to the
Company's  customers.  The Company has agreed to and supports  Sears's policy of
"Satisfaction  Guaranteed  or Your  Money  Back."  The  license  agreement  also
provides  that the  customers  are  third-party  beneficiaries  of the  one-year
product  and  labor  warranty  from  Exteriors  to Sears  with  respect  to each
installation.

         The   license   agreement   provides   for  the  payment  of  a  credit
participation  fee as long as  Sears is  given a right  of  first  refusal  with
respect  to a minimum  of 75% of the total  dollar  volume of  applications  for
credit  received by  Exteriors  in  connection  with sales made  pursuant to the
license agreement.  If Sears declines any credit application,  Exteriors, at its
discretion, can provide credit to the applicant or seek a third party to provide
credit.  Beginning in 1996, the Company received from Sears and its affiliates a
participation fee equal to approximately

                                       -4-

<PAGE>



1.6% of sales financed through Sears and its affiliates.  The participation fees
are payable by Sears and its affiliates over a ten-year period,  with 71% of the
total  participation  fee to be paid in the first  three  years  following  each
installation  financed  through Sears and its affiliates.  Exteriors's  right to
receive  the   participation   fee  is  subject  to  termination  under  certain
circumstances.

         In 1996, 1997 and 1998, Exteriors incurred license fees to Sears in the
aggregate  amount  of  approximately  $16.4  million,  $16.9  million  and $16.3
million,  respectively.  In addition,  Sears and its affiliates have financed in
excess of $500 million of Exteriors's sales since the Company's inception.

         Exteriors and Sears are currently  negotiating a new license  agreement
which  Sears has stated  may be  subject to one or more sets of state  franchise
laws. There can be no assurance that the license agreement will be renewed,  nor
can  there be any  assurance  that a renewed  agreement  will  contain  terms or
conditions  substantially  similar to those  contained in the  existing  license
agreement.  In the  event  that  Sears  were to  terminate  or fail to renew the
license  agreement,  the Company  believes that,  through its established  sales
and/or  installation  system,  its  products  and  services  could be  marketed,
installed and financed  independently or under the name of an alternative retail
licensor.  However,  termination  of the  license  agreement  or certain  rights
thereunder,  the failure of Sears to renew the license  agreement with Exteriors
on its current terms or conditions,  an increase in the rates of the license fee
paid by Exteriors to Sears, a decrease in the credit  participation  fee paid by
Sears to  Exteriors,  the addition of other Sears  licensees  marketing  (or the
marketing by Sears or its  affiliates  of)  Exteriors's  products in Exteriors's
markets,  Sears's exercise of its right to discontinue the Company's  license in
any market or for any product or a decline in Sears's  reputation or an increase
in adverse  publicity  about Sears could have a material  adverse  effect on net
sales and  profitability of the Company.  The Company is not owned or controlled
by, or under common control with, Sears. Neither Sears nor any of its affiliates
assumes any  responsibility  with respect to the accuracy of any information set
forth herein.

WORKING CAPITAL ITEMS

         Customer  Financing.   During  fiscal  1998,   approximately  88.9%  of
Exteriors's  sales  were  financed,  and,  of the  sales  which  were  financed,
approximately  87.1%  were  financed  through  Sears  and  third  party  finance
companies,  including Sears  affiliates.  A home consultant is generally able to
determine  credit  availability  for a customer  by calling  one of  Exteriors's
finance  resources  during  the  in-home  presentation.  In  Exteriors's  credit
arrangements  with its  third-party  finance  companies,  the finance  companies
assume  all  credit  risk  and  Exteriors  receives,   upon  completion  of  the
installation,  the contract  price (less  discounts,  sometimes,  in the case of
non-prime credit).  Because Exteriors's target market is a homeowner living in a
single  family  home,  its  potential  customers  generally  are able to  obtain
financing.  However,  in the  past the  credit  approval  rate of Sears  and its
affiliates  for  Exteriors's  customers  has varied from time to time based on a
variety of factors.  The  continued  availability  of  affordable  financing for
potential customers is necessary for Exteriors to continue to sell its products.
(See also "Sears License Agreement" above.)

         Purchasing.  Exteriors  purchases roofing  materials,  gutters,  doors,
fencing and related products  primarily from a variety of local,  regional,  and
national independent distributors and/or manufacturers. Exteriors purchases most
fencing products directly from Reeves. Each independent  distributor  provides a
variety  of  services  to  Exteriors,  including  the  maintenance  of  adequate
inventories to support  Exteriors's  prompt need for materials,  the delivery of
requisite  materials to each job site,  and the  provision  of extended  payment
terms for the  products  purchased.  Some  manufacturers  also back  Exteriors's
warranty  under  specified   circumstances.   Through  the  use  of  independent
distributors,   Exteriors  avoids  the  costs  associated  with  maintaining  an
inventory, with operating distribution centers, and with delivering materials to
job sites. The independent  distributors  benefit from their  relationships with
Exteriors  due to the  consistent  volume  of  purchases  by  Exteriors  and the
resultant  increased  inventory  turnover  and the limited  credit risk posed by
Exteriors.



                                       -5-

<PAGE>



         In 1996,  1997  and  1998  over  60% of  Exteriors's  roofing  material
purchases were supplied by three independent  distributors  having facilities in
multiple locations. The Company believes that other distribution companies would
be able to offer comparable services and pricing to this segment.  Owens Corning
Corp. and Globe primarily  manufactured  the roofing  products that this segment
purchased. Approximately 8%, 8% and 10% in dollar volume of all roofing products
purchased  by this  segment  during  1996,  1997 and  1998,  respectively,  were
manufactured by Globe. In 1998,  Reeves  manufactured  approximately 75% of this
segment's fencing purchases.

SEASONALITY

         Exteriors's  results of operations  may fluctuate  from year to year or
quarter to quarter due to a variety of factors. The Company expects lower levels
of  sales  and  profitability   during  the  period  from  mid-November  through
mid-March,  impacting  the first and fourth  quarter of each  fiscal  year.  The
Company believes that this seasonality is caused by winter weather in certain of
Exteriors's  markets located in the  northeastern  and north central U.S. and by
rainy weather, each of which limits Exteriors's ability to install exterior home
improvement products.

BACKLOG

         Backlog at Exteriors, defined as jobs sold but not installed, increased
approximately  $3.0 million,  from  approximately  $10.9 million at December 31,
1997, to approximately $13.9 million at December 31, 1998.

COMPETITION

         The  industry  in which  Exteriors  competes is large,  fragmented  and
competitive. The Company believes that it is one of the largest companies in the
U.S. engaged in the sale and installation of exterior home improvement products.
Exteriors  competes for sales with numerous local and regional home  improvement
installers and independent installers in each of its markets, some of which also
serve as independent  installers for Exteriors.  Exteriors also competes against
major retailers and manufacturers that may license and/or market and arrange for
the installation of products similar to Exteriors's,  including Home Depot, Inc.
and  Lowe's  Companies,  Inc.  ("Lowe's").  To date,  none of the  retailer-  or
manufacturer-sponsored   programs  has  provided   significant   competition  to
Exteriors.  However,  there can be no assurance that this absence of competition
will continue.  Certain of these competitors are  significantly  larger and have
greater financial resources than the Company. In addition, these major retailers
or  manufacturers  each has a  nationwide  chain of  retail  stores or access to
outlets,  which  provides them the  opportunity  to offer  products and services
similar to Exteriors's  directly to their customers.  Exteriors  competes on the
basis of price, Sears name recognition,  workmanship,  customer service,  price,
and the ability of Exteriors  and the  manufacturer  to fulfill  their  warranty
obligations.  Because Exteriors's focus is on providing  additional value to its
customers through warranty protection,  insurance coverage, proprietary products
and superior customer service, Exteriors typically offers and sells its products
and  services at prices that may be  significantly  higher than those of most of
its local competitors.

EMPLOYEES AND INDEPENDENT INSTALLERS

         At December  31, 1998,  Exteriors,  KanTel(TM),  and Marquise  employed
approximately  1,170 persons,  including  approximately 600 sales associates and
approximately  120  part-time  employees.  In  addition,  at December  31, 1998,
Exteriors had relationships (i.e.,  independent installers who have performed an
installation  for the Company in the last sixty days) with  approximately  1,000
independent installers which perform installation services.  Many of Exteriors's
independent installers operate multiple installation crews.




                                       -6-

<PAGE>



C.       MANUFACTURING AND WHOLESALE DISTRIBUTION SEGMENT

         On April 20, 1998, the Company  acquired all of the stock of Reeves and
its subsidiaries,  including  Foreline,  for approximately $42.6 million in cash
and  notes  (including  $1.5  million  transaction  costs).  Reeves  has been in
operation since 1947; Foreline has been in operation since 1961.

PRODUCTS

         Set  forth  below is a brief  description  of the  major  products  and
services offered by Reeves and Foreline:

Fencing  Systems.  Reeves  sells  a full  line  of  fencing  products  including
galvanized and aluminized  chain link,  color coated chain link,  gates,  barbed
wire,  barbed tape,  welded wire, guard rails,  wood, PVC and steel and aluminum
ornamental.  These  products are available in a wide variety of sizes and styles
and are used for all types of applications  including  residential,  commercial,
industrial,   military,   prisons,  airports  and  recreational  facilities.  In
conjunction  with the sale of  these  products,  Reeves  also  offers  technical
support on selected products.

Access Control.  Reeves sells a full line of access control  products  including
automatic gate operators,  telephone  entry systems and card access  systems.  A
team of  specially  trained  personnel  provides  technical  support  for  these
products.

Installation  Management.  In late 1998,  Reeves began  offering a private label
"furnished  and  installed"  management  service for  fencing.  This service was
initiated in conjunction with an agreement to provide these services for Lowe's.
Utilizing  its own  specialty  line of fencing  products,  its pool of certified
independent  fencing  installers  and  its  internally   developed  systems  and
processes, Reeves is able to deliver a turn-key solution for the installation of
fencing systems.

Electronic Security. Foreline is a full service retailer of security systems and
related services.  Products sold and serviced include specialized bank equipment
(vaults, safe deposit boxes, teller stations, drive thrus), card access systems,
closed circuit television  surveillance  systems and fire/burglar alarm systems.
Foreline  also offers 24 hour  monitoring  of these  systems via its own central
monitoring station.

Miscellaneous.  Reeves sells mechanical steel tubing and related  accessories to
manufacturers  of portable  canopies,  carports,  greenhouses and awning frames.
Reeves also wholesales and retails steel entry doors on a limited basis.

SALES

         Most   of    Reeves's    sales   are   to    regional    dealers    and
contractor/installers,  although  it  has a  few  national  accounts  (including
Exteriors) and a few other channels of distribution. No single customer accounts
for more than 5% of Reeves's sales.

WORKING CAPITAL

         Reeves  has a  significant  investment  in  both  inventory  and  trade
accounts  receivable.  It is  standard  industry  practice  to stock  locally an
adequate amount of commonly used items that are available for immediate  pick-up
or delivery to  customers.  The items and  quantity  stocked  vary  depending on
geographical  location,  customer  preferences,  lead  times  and  historic  and
projected  sales  volumes.  It is also  standard  industry  practice  to provide
customers with credit and in certain instances extended payment terms.  Extended
payment terms are typically offered during the seasonally slow periods to induce
a stocking  customer to purchase during these periods and on large  construction
projects where payments to Reeves's customers are often delayed.



                                       -7-

<PAGE>



RAW MATERIALS

         Reeves  purchases  raw materials  for its  manufacturing  processes and
finished  goods  for  redistribution  from a variety  of  domestic  and  foreign
distributors and/or  manufacturers.  Purchasing decisions are based primarily on
the delivered cost of the product, the quality of product and the ability of the
supplier to provide a consistent  supply of the product.  While Reeves currently
buys these  products from a limited  number of  suppliers,  each of the products
utilized is generally  available  from multiple  sources.  If necessary,  Reeves
would be able to secure product from other suppliers on a comparable basis.

SEASONALITY AND BACKLOG

         Reeves's  results  of  operations  may  fluctuate  from year to year or
quarter to quarter due to a variety of factors.  Reeves  expects lower levels of
sales and profitability  during the period from mid-November  through mid-March,
impacting  the fourth and first  quarters of each fiscal year.  Reeves  believes
this seasonality is caused by weather conditions in certain of Reeves's markets,
construction cycles and consumer buying habits with respect to exterior home and
garden  products.  Backlog  at  Reeves,  defined  as orders  placed  but not yet
delivered, was approximately $3.1 million at December 31, 1998.

COMPETITION

         The industry in which this segment  competes is  fragmented  and highly
competitive.  Reeves  competes  for  sales  with  numerous  local  and  regional
wholesale  distributors  in each of its markets,  some of which also buy product
from Reeves.  In  addition,  Reeves also  competes for sales with  manufacturers
which sell their  products  directly to Reeves's  customers in addition to or in
lieu of  utilizing  wholesale  distributors  like Reeves.  Reeves also  competes
against two other  national  manufacturer/wholesale  distributors  (MasterHalco,
Inc.  and MMI  Products,  Inc.) and major  retailers  like Home Depot and Lowe's
which offer fencing materials to fence contractors.

         Because  Reeves and each of its  competitors  compete  primarily on the
basis of price, reputation and service, Reeves expects highly competitive market
conditions to continue. As a whole the industry in which Reeves participates has
been  undergoing a  consolidation,  with many of the smaller  manufacturers  and
wholesale  distributors being purchased by larger manufacturers and/or wholesale
distributors. While the impact of this consolidation is unknown, Reeves believes
it will not impact its ability to compete.

EMPLOYEES

         At  December  31,  1998,  this  segment  employed   approximately   420
associates.


D.       GOVERNMENT REGULATIONS

         The  businesses  and activities of both segments are subject to various
federal, state, and local laws, regulations,  and ordinances.  Reeves is subject
to a consent decree related to property one of its  subsidiaries  owns,  some or
all of which is a federal environmental Superfund site. Nevertheless, compliance
with  federal,  state and local  provisions  that have been  enacted  or adopted
regulating  the  discharge  of  materials  into the  environment,  or  otherwise
relating  to the  protection  of the  environment,  is not  expected  to  have a
material effect upon the capital expenditures, earnings and competitive position
of either  segment.  (See also Item 7 - "Information  Regarding  Forward-Looking
Statements; Compliance with Government Regulations.")




                                       -8-

<PAGE>



E.       EXECUTIVE OFFICERS OF THE REGISTRANT

         As of March 18,  1999,  the  executive  officers of the Company were as
follows:

<TABLE>
<CAPTION>

NAME                       AGE      POSITION

<S>                        <C>      <C>                                   
C. Stephen Clegg           48       Chairman of the Board and Chief Executive Officer
Geoffrey H. Foreman        49       President and Chief Operating Officer
Michael A. Augello         43       Vice President; President, Reeves
Eugene J. O'Hern, Jr.      55       Controller
Richard G. Reece           50       Vice President, Chief Financial Officer and Treasurer
Joseph U. Schorer          45       Vice President, General Counsel and Secretary

</TABLE>

         MR. C. STEPHEN CLEGG has been a director of the Company since September
1993 and has served as the Company's  Chairman of the Board and Chief  Executive
Officer since February 1996 and as President from April 1996 to September  1998.
From April 1989 to the  present,  Mr. Clegg has served as Chairman of the Board,
Chief Executive Officer and controlling  stockholder of Globe, a manufacturer of
home building products, including roofing shingles and related roofing products.
Globe is the Company's largest stockholder. Mr. Clegg has served as the Chairman
of the  Board and Chief  Executive  Officer  of  Mid-West  Spring  Manufacturing
Company,  a company which manufactures  specialty springs,  wire forms and metal
stamping products ("Mid-West Spring"), and its predecessors since April 1993 and
has served as a director since 1991. Since April 1994, Mr. Clegg has also served
as  the  Chairman  of  the  Board,   Chief  Executive  Officer  and  controlling
stockholder of Catalog Holdings, Inc. ("Catalog"). Catalog is the parent company
of HI, Inc.  which  received  fees from the Company  for  providing  call center
services,  for  processing  sales  leads,  and for other  services  prior to the
acquisition of its principal  business by KanTel(TM).  Mr. Clegg is president of
Clegg Industries,  Inc., a private investment firm which he founded in September
1988.  Mr.  Clegg  devotes  and  intends to devote a majority of his time to the
Company.  Mr.  Clegg is  currently  a director  of two other  public  companies,
Birmingham Steel Corporation,  a steel production  company,  and RVM Industries,
Inc., a manufacturer of aluminum products.

         MR.  GEOFFREY  H.  FOREMAN  joined the Company as  President  and Chief
Operating  Officer  in  October  1998.  From  November  1989 until he joined the
Company,  Mr.  Foreman  was  senior  vice  president  of  sales,  marketing  and
distribution at  Wayne-Dalton  Corp.,  an  international  manufacturer of garage
doors, entry doors, and automatic openers.

         MR.  MICHAEL A. AUGELLO has served as Vice President of the Company and
President of Reeves and Foreline  since the Company's  acquisition  of Reeves in
April  1998.  From 1990 until the  acquisition,  Mr.  Augello  served in various
positions at Reeves. He has been Reeves's president since 1994.

         MR.  EUGENE J. O'HERN,  JR., has been  controller  of the Company since
July 1996.  From July 1993 through June 1996,  Mr. O'Hern was the  controller at
Briskin  Manufacturing  Company,  a  manufacturer  of automobile  and industrial
components.

         MR.  RICHARD  G. REECE has served as Vice  President,  Chief  Financial
Officer  and  Treasurer  of the  Company  since  April  1996.  He was  assistant
treasurer of the Company from August 1994 to April 1996 and a director  from May
1995 to April 1996. Mr. Reece was Vice President and Chief Financial  Officer of
Globe from August 1994 to June 1996.  From  November  1990 to the  present,  Mr.
Reece has been the sole officer, director and stockholder of Paradigm 2000 Inc.,
a consulting firm which he founded.

         MR.  JOSEPH U.  SCHORER  joined  the  Company  in 1997 as  acting  Vice
President,  General  Counsel and Secretary,  and since March 1997, has served as
Vice President,  General Counsel and Secretary of the Company,  Globe,  Mid-West
Spring and Catalog and their  subsidiaries.  Mr. Schorer  devotes and intends to
devote a majority of his time to the Company.  From January 1985 until he joined
the Company, Mr. Schorer was a partner in the Chicago, Illinois office of Mayer,
Brown & Platt, an international corporate law firm.

                                       -9-

<PAGE>



ITEM 2.  PROPERTIES

         The  Company's  principal   executive  and  administrative   office  is
currently  located in  approximately  23,000 square feet of office and warehouse
space in Woodstock, Illinois pursuant to a lease agreement that expires December
31,  2001.  As  of  December  31,  1998,   Exteriors  leased   approximately  64
sales/installation  offices.  These offices  occupy between 200 and 3,000 square
feet (with an average of  approximately  1,600 square feet) and  typically  have
lease terms ranging from one to three years. As of December 31, 1998, KanTel(TM)
principally  operated at premises occupying  approximately 15,000 square feet in
Lawrence, Kansas, pursuant to a lease agreement that expires December 31, 2000.

         Reeves has two manufacturing and central distribution  facilities.  The
Tampa,  Florida  facility  consists  of  approximately  160,000  square  feet of
manufacturing  and  warehouse  space on a 16-acre site.  The  Midfield,  Alabama
facility consists of approximately 50,000 square feet of combined  manufacturing
and warehouse space on a 6-acre site.

         Reeves has 32 local  sales/distribution  offices in its network.  These
facilities  generally  consist  of 3,000 to 10,000  square  feet of  office  and
warehouse space and from one to four acres of outside storage space. Fourteen of
the 32 facilities are leased, with the remainder being owned.


ITEM 3.  LEGAL PROCEEDINGS

         International   Equity  Capital  Growth  Fund,   L.P.   ("IECGF")  owns
approximately  24% of the common stock (on a fully diluted  basis) of Globe.  On
May 14, 1996, IECGF filed a purported  derivative  action on behalf of Globe and
the Company  against Mr. Clegg and Jacob  Pollock,  a director of both Globe and
the Company,  in the Court of Chancery of the State of Delaware  (the  "Delaware
Suit"). The complaint,  as amended,  alleges, among other things, that Mr. Clegg
breached his  fiduciary  duty to the Company by causing  Catalog (in lieu of the
Company) to acquire a Sears  licensee that does home  improvement  repairs.  The
complaint  also  challenges  as excessive a $150,000  payment to Catalog for the
purchase of warrants,  sales leads and call center  services.  No other specific
transactions  relating to the Company's affairs are challenged in the complaint.
The complaint  also makes  allegations  against Mr. Clegg and Mr.  Pollock which
include  breach of fiduciary  duty as a result of alleged  conflicts of interest
related to certain  transactions which have been consummated at Globe. Mr. Clegg
and Mr. Pollock strongly deny the breaches alleged in the Delaware Suit.


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

         None.



                                     PART II

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

         Except as set forth below, the information required by this Item is set
forth in the excerpts from the Annual Report under the caption  "Corporate Data"
and in note 17 to the Financial Statements  "Quarterly  Financial  Information,"
which information is included in Exhibit 13.1 and hereby  incorporated herein by
reference.



                                      -10-

<PAGE>



         In the last two fiscal years,  the Company has not declared or paid any
cash dividends on its Common Stock.  The Company does not expect to declare cash
dividends and anticipates,  for the foreseeable  future,  that earnings and cash
resources will be used to finance the growth and  development of its businesses.
In addition, the Company's bank lines of credit place limitations, under certain
conditions, on the payment of cash dividends.


ITEM 6.  SELECTED FINANCIAL DATA.

         The information required by this Item is set forth in excerpts from the
Annual Report under the caption "Selected  Financial Data," which information is
included in Exhibit 13.1 and incorporated herein by reference.


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

         The information required by this Item is set forth in excerpts from the
Annual  Report  under the  caption  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations," which information is included in
Exhibit 13.1 and incorporated herein by reference.

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

                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

         Certain  statements  contained  herein  which  are not of a  historical
nature, including without limitation,  statements addressing the beliefs, plans,
objectives, estimates or expectations of the Company or future results or events
constitute  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation  Reform Act of 1995,  as  amended.  Such  forward-looking
statements  involve  known and  unknown  risks,  including,  but not limited to,
general economic and business conditions,  matters related to the Sears license,
warranty  exposure,   Exteriors's  reliance  on  home  consultants  and  on  the
availability  of qualified  independent  installers,  and conditions in the home
improvement industry, including the fencing industry, technology matters related
to  Year  2000,  the  collection  of  trade  and  finance  receivables,  and the
maintenance  of and  access  to  inventory.  The  Company's  plans,  objectives,
estimates,  and  expectations  are  subject to change at the  discretion  of the
Company.  Actual results,  performance or achievements of the Company may differ
materially  from results,  performance or  achievements  expressed or implied by
such forward-looking  statements. The Company undertakes no obligation to update
publicly any  forward-looking  statement whether as a result of new information,
future events or otherwise.

         In  addition  to the  risks  and  uncertainties  of  ordinary  business
operations,  the  forward-looking  statements  of the Company  contained in this
Annual Report on Form 10-K are subject to the following risks and uncertainties:

Operating History and Recent Operating Results

         The  Company  was  incorporated  in  May  1993  by a  group  consisting
primarily of former Sears home  improvement  managers and Globe,  and  commenced
operations on June 1, 1993, when it entered into a license agreement with Sears.
Accordingly,  Exteriors's  operating  history  is brief  and may not serve as an
accurate indicator of the Company's future performance. Since its inception, the
Company has experienced  substantial growth in revenue,  costs, and expenses and
in 1997 and 1998 Exteriors's operating income decreased from prior levels. There
can be no assurance that the Company's revenue growth and profitability  will be
sustained  or that the  restructuring  announced  in first  quarter  1999 of its
installed home improvement business will generate forecast results.



                                      -11-

<PAGE>



Dependence on Sears License

         A substantial  portion all of the  Company's  revenues are derived from
sales of products and services under a license  agreement  between Exteriors and
Sears.  The  license  agreement  is not  exclusive  by its terms,  and Sears may
license the same home improvement products to other licensees within Exteriors's
markets or sell the same  products  or  services  itself.  As it has done in the
past, the Company expects to negotiate and revise Exteriors's  license agreement
on terms that meet the Company's  three  fundamental  principles in dealing with
Sears:  (1)  top-line  growth,  (2)  quality,  and (3)  licensee  profitability.
Although in the past Sears has either renewed or extended the license  agreement
with Exteriors, the license agreement may not be renewed or extended by Sears or
Sears may condition extension or renewal on the agreement by the Company and its
subsidiaries to terms  substantially  less advantageous than the terms under the
current  license  agreement.  Termination  of the license  agreement  or certain
rights  thereunder,  the  failure of Sears to renew the license  agreement  with
Exteriors on its current terms, an increase in the rates of the license fee paid
by  Exteriors  to Sears or a decrease  in the credit  participation  fee paid by
Sears or its  affiliates  to  Exteriors,  the addition of other Sears  licensees
marketing  Exteriors's products in Exteriors's markets,  Sears's exercise of its
right to discontinue  Exteriors's license in any market or for any product,  the
development  or  acquisition  by Sears  itself or its  affiliates  of  competing
businesses,  products or services, or a decline in Sears's reputation could have
a material adverse effect on the net sales and profitability of the Company.  In
addition, in the event the license agreement is terminated or expires, Exteriors
would need to find alternative  methods to market its products.  The alternative
methods  may not be as  cost-effective  as  advertising  with Sears and,  to the
extent  such  methods are not as  cost-effective,  the  Company's  net sales and
profitability  could  be  adversely  affected.  (See  also  "B.  Installed  Home
Improvements Segment; Sears License Agreement" under Item 1.)

Warranty Exposure

         Exteriors  provides each customer with a warranty on product and labor.
Certain  manufacturers'  product  warranties often provide a declining amount of
coverage over time, while Exteriors's  warranty coverage does not decline during
the  warranty  period.  The labor  warranty  that  Exteriors  receives  from its
independent  roofing  installers  (generally one to two years) is  significantly
shorter in duration  than that  provided by Exteriors to its roofing  customers.
Due to Exteriors's  limited  operating  history and the length of the warranties
provided by Exteriors,  there can be no assurance  that the warranty  reserve is
adequate.  In all cases,  Exteriors  is liable to the  customer  to fulfill  all
warranty  obligations,  regardless  of  whether a  manufacturer  or  independent
installer  performs  its  warranty  obligations.  In  addition,  pursuant to the
license  agreement with Sears (i) Sears has the right to settle,  at Exteriors's
expense  and  without the  Company's  consent,  any  customer  complaints,  (ii)
Exteriors has agreed to and supports Sears policy of "Satisfaction Guaranteed or
Your Money Back" as it relates to customer complaints and adjustment,  and (iii)
Exteriors's  customers  are third party  beneficiaries  of the product and labor
warranty given by Exteriors to Sears with respect to each  installation.  To the
extent the  amount of money  spent to  reimburse  Sears for  customer  complaint
settlements or to satisfy customers under the  "Satisfaction  Guaranteed or Your
Money Back"  policy,  together  with any warranty  claims  settled by Exteriors,
materially  exceeds  the  warranty  reserve  or if  certain  manufacturers  or a
significant  number  of  independent  installers  are  unable to  fulfill  their
warranty  obligations,  Exteriors's  results of  operations  could be materially
adversely affected.

         Reeves  provides a warranty,  generally  varying from 5 to 25 years, on
each product  sold.  For the products that Reeves does not  manufacture,  Reeves
typically  gives the customer the same  warranty  that Reeves  receives from the
manufacturer. If the manufacturer goes out of its business or otherwise fails to
comply with its warranty obligations, Reeves may be responsible for any warranty
failure.  With  respect  to  products  that it  manufactures,  Reeves  maintains
products  liability  insurance  with  scope and in the  amounts  and  exclusions
typical  for a company  of  Reeves's  size and for  products  such as those that
Reeves manufactures. A liability claim that exceeds these limits or within these
insurance exclusions could result in claims that would have a materially adverse
effect on Reeves's business.

         Foreline's   warranty  may  be  longer  in  duration  for  products  it
distributes than the warranty of the manufacturer, and so Foreline may be liable
for warranty amounts for which it has no recourse against the manufacturer.

                                      -12-

<PAGE>



Reliance on Home Consultants

         Exteriors's  success depends upon its ability to identify,  develop and
retain  qualified  employees,   particularly  home  consultants.  As  a  result,
Exteriors devotes  significant  resources to the training and development of its
home  consultants.  There can be no assurance that Exteriors will continue to be
able to identify, develop and retain qualified home consultants.

         To the extent  that  Exteriors  does not  successfully  hire and retain
qualified home consultants or they are unable to achieve anticipated performance
levels,   Exteriors's  ability  to  penetrate  existing  and  new  markets  and,
therefore,  the  Company's  sales  growth  could  be  significantly  delayed  or
adversely affected.

         Exteriors  has  experienced  significant  turnover  with respect to its
sales associates in the past,  because,  among other reasons,  Exteriors's sales
associates  (now referred to as home  consultants)  worked on a  commission-only
basis and because, in certain regions of the country,  the business is seasonal.
In 1998,  approximately 20% of the sales associates generated  approximately 70%
of net  installed  sales.  Increased  turnover  and/or loss of  productive  home
consultants has a direct impact on net sales and profitability.  The turnover of
home consultants results in increased recruitment and training costs and a lower
than desired conversion rate of sales leads to sales. Exteriors recently revised
its compensation  system for home  consultants,  but Exteriors has no experience
with the impact of this  revised  compensation  system.  To the extent  that the
turnover rate of home consultants  continues or increases,  or Exteriors loses a
significant  number of its most productive home  consultants,  the net sales and
profitability  of the  Company  could  be  adversely  affected.  (See  also  "B.
Installed Home Improvements Segment; Sales" under Item 1).

Dependence on Availability of Qualified Independent Installers

         Part of the  Company's  success  depends  upon  Exteriors's  ability to
continue to identify and hire  independent  installers  possessing the technical
skills, experience and financial stability necessary to meet Exteriors's quality
standards and to satisfy Exteriors's insurance  requirements.  Because Exteriors
provides  up to a  15-year  warranty  for  labor  on  certain  products,  hiring
qualified  independent  installers who will perform the work in accordance  with
Exteriors's  specifications  and  predetermined  quality  standards is extremely
important. Most of Exteriors's independent installers also compete directly with
Exteriors  and  Exteriors,   to  a  lesser  extent,  competes  with  other  home
improvement companies for the services of independent installers. Exteriors only
retains an  independent  installer  at the time an  installation  is sold.  As a
result,  no independent  installer is obligated to work for Exteriors  until the
independent  installer  accepts  an  assignment.  In  the  past,  Exteriors  has
periodically  had  difficulty   retaining  a  sufficient   number  of  qualified
independent installers,  especially after periods of extreme weather in specific
geographic  areas  due to  increased  demand.  There  can be no  assurance  that
qualified independent  installers will continue to be available to, or choose to
work for,  Exteriors in sufficient numbers to satisfy  Exteriors's  installation
requirements.  Exteriors's  policy  requires  that  its  independent  installers
satisfy  Exteriors's  workers'  compensation,  general  liability and automotive
insurance  requirements.  In certain circumstances,  independent installers have
not  carried  or renewed  their  workers'  compensation  and  general  liability
insurance.  To the extent that independent  installers do not carry the required
insurance,  Exteriors  could incur  ultimate  liability for any injury or damage
claims.  (See  also  "B.  Installed  Home  Improvements   Segment;   Independent
Installers" under Item 1.)

         Under its agreement with Lowe's, Reeves has assumed various obligations
regarding the quality of installations its installers perform.  Reeves's failure
to obtain a sufficient number of qualified installers might materially adversely
affect Reeves's rights under the Lowe's agreement.



                                      -13-

<PAGE>



Interest Rate and Inflation Sensitivity

         The ability to finance  purchases on an affordable  basis, of which the
interest  rate charged is a  significant  component,  is an important  part of a
customer's  decision  to  purchase  Exteriors's   products.  As  interest  rates
increase, customers often pay higher monthly payments which may make Exteriors's
products  less  affordable,  and,  as a  result,  the  Company's  net  sales and
profitability  may decrease.  The Company's  borrowings are generally subject to
variable  interest  rates.  The Company does not hedge all of its interest  rate
exposure.  Profitability  may be affected if the Company is unable to pass on to
its customers increases in the interest rates the Company pays.

Dependence on Availability of Third Party Credit

         The Company  believes that the majority of installed home  improvements
in  the  United  States  are  financed.  During  1998,  approximately  88.9%  of
Exteriors's  sales  were  financed,  and,  of the  sales  which  were  financed,
approximately  87.1%  were  financed  through  Sears  and  third  party  finance
companies, including Sears affiliates. Since the Company's inception, the credit
approval rate of Sears and its affiliates for  Exteriors's  customers has varied
from time to time based on a variety of factors. To the extent its customers are
unable to obtain financing through Sears and its affiliates or other third party
finance  companies,   Exteriors's  results  of  operations  could  be  adversely
affected.

         Many of  Exteriors's  customers  who finance  their  purchases  through
Marquise may be higher  credit risks than  Exteriors's  other  customers  due to
various factors,  including,  among other things,  their  employment  status and
previous  credit  history,  the absence or limited  extent of their prior credit
history  or their  limited  financial  resources.  Consistent  with  Exteriors's
strategy,  many customers who finance their purchases  through Marquise have not
met and may not meet the credit  underwriting  criteria of third  party  finance
companies.  Consequently,  providing  financing to these  customers  will likely
involve a higher incidence of default and increased  delinquency  rates and will
involve greater  servicing costs. The Company currently bears the credit risk on
the purchases financed through Marquise, unlike purchases financed through third
party finance  companies,  such as Sears  affiliates.  Marquise has  experienced
credit  losses and  maintains a bad debt  reserve for  expected  losses.  Due to
Marquise's  limited operating  history and the Company's  limited  experience in
consumer  financing,  there can be no  assurance  that the bad debt  reserve  is
adequate.  To the extent that losses materially exceed the bad debt reserve, the
Company's results of operations could be materially  adversely  affected.  There
can be no assurance that the credit  performance of its customers will be at the
expected  level,  that  Marquise's  systems and controls will be adequate,  that
losses will be  consistent  with the  expected bad debt  experience  or that the
financing  Marquise  has  obtained  will be  sufficient  to support its expanded
operations.   (See  also  "B.  Installed  Home  Improvements  Segment;  Customer
Financing" under Item 1.)

Dependence on Key Personnel

         The Company  and its  subsidiaries  are  currently  dependent  upon the
ability and experience of their executive officers and there can be no assurance
that  the  Company  and its  subsidiaries  will be  able to  retain  all of such
officers.  The loss of a group of executives within a short period of time could
have a  material  adverse  effect on the  Company's  operations.  Certain of the
Company's   executive   officers   also  hold   executive   positions  and  have
responsibilities  with Globe,  certain of its affiliates and other companies and
expect to continue  in these  positions.  These  officers  currently  devote and
intend to devote a majority of their time to the management of the Company.  The
Company and its  subsidiaries  generally do not have employment  agreements with
their executive officers, although termination of Mr. Foreman's employment under
certain circumstances  entitles Mr. Foreman to certain separation payments.  The
Company and its  subsidiaries  do not maintain  key-man life insurance on any of
their officers or key personnel.



                                      -14-

<PAGE>



Highly Competitive Market

         The  industry  in which the  Company  and its  subsidiaries  compete is
large,  fragmented and competitive.  Exteriors  competes for sales with numerous
local home  improvement  installers and  independent  contractors in each of its
markets,  some of which  also serve as  independent  installers  for  Exteriors.
Exteriors also competes  against major retailers or  manufacturers  which market
and install  products  similar to  Exteriors's.  Reeves  competes  against other
manufacturers  and distributors of fencing products and against major retailers.
Its program for furnishing  and installing  fencing  products  competes  against
major retailers and  manufacturers  as well as local home  improvement  dealers.
Foreline competes against companies with significantly  greater  resources.  The
Company  expects that the market for its products and services  will expand and,
therefore,  competition  will increase in the future.  There can be no assurance
that the Company will remain  competitive or that the Company will be able to be
profitable. (See also "B. Installed Home Improvements Segment;  Competition" and
"C. Manufacturing and Wholesale  Distribution  Segment;  Competition" under Item
1.)

Seasonality; Quarterly Fluctuations

         The results of operations  for Exteriors and Reeves may fluctuate  from
year to year or quarter to quarter  due to a variety  of  factors.  The  Company
expects  lower  levels  of  sales  and  profitability  during  the  period  from
mid-November  through mid-March,  impacting the first and fourth quarter of each
fiscal  year.  In  addition,  the  demand  for the  Company's  products  and the
Company's  results of operations may be affected by the severity of the weather.
(See  also  "B.  Installed  Home  Improvements  Segment;  Seasonality"  and  "C.
Manufacturing and Wholesale Distribution Segment; Seasonality and Backlog" under
Item 1.)

Compliance with Government Regulations

         The business and the activities of the Company,  its  subsidiaries  and
its independent installers are subject to various federal, state and local laws,
regulations  and  ordinances  relating to, among other  things,  in-home  sales,
consumer financing,  advertising,  the licensing of home improvement independent
contractors,  OSHA standards,  Department of Transportation  regulations (in the
case of Reeves),  environmental  laws and regulations  relating to water and air
quality,  hazardous wastes and the disposal of demolition debris and other solid
wastes, and building and zoning regulations. In certain jurisdictions, Exteriors
or one of its employees is required to be licensed as a contractor. In addition,
certain jurisdictions require Exteriors or the independent installer to obtain a
building permit for each installation.  In addition,  such laws and regulations,
may,  among other  things,  regulate  Exteriors's  advertising,  warranties  and
disclosures to customers. Building codes, licensing requirements and safety laws
vary from state to state and, in certain  circumstances,  limit the availability
and supply of independent  installers and impose  additional  costs in complying
with such laws.  Although the Company believes that it and its subsidiaries have
been and are currently in compliance in all material respects with such laws and
regulations,  there can be no assurance that in the future the Company's results
of operations will not be materially  adversely affected by existing or new laws
or regulations applicable to the Company's business.

         In 1998,  Exteriors began a test program in which it leased vehicles to
be used by home  consultants.  The failure of any home consultant to comply with
safety laws could expose Exteriors to substantial  liability.  Likewise,  Reeves
ships products on trucks that Reeves owns or leases.  Reeves maintains insurance
coverage with  exclusions  and limits that are typical for companies of Reeves's
size.  If a claim arises  against  Reeves  within an  insurance  exclusion or in
excess of policy limits, Reeves could be materially adversely affected.

         Reeves  is  subject  to  a  consent  decree  with  federal   regulatory
authorities related to environmental contamination on Superfund sites owned by a
Reeves  subsidiary and on other sites.  The decree  requires Reeves to engage in
ongoing  monitoring  for water  pollution and may require  Reeves,  depending on
results of testing and the  conclusions  of  regulatory  authorities,  to expend
additional  amounts for testing,  treatment,  and/or other costs  related to the
property. Reeves also has certain other ongoing environmental remediation costs.
The amounts to be spent by Reeves may become material in the future.


                                      -15-

<PAGE>



         Marquise  and  Exteriors  are  subject to  numerous  federal  and state
consumer  protection  laws and regulations  which may vary from  jurisdiction to
jurisdiction  and which,  among other  things,  require  the Company  related to
consumer   financing   to:  (i)  obtain  and  maintain   certain   licenses  and
qualifications;  (ii) limit the interest rates, fees and other charges Exteriors
and/or  Marquise  are allowed to charge;  and (iii) limit or  prescribe  certain
other terms on credit  applications and contracts.  Moreover,  individual states
may require Exteriors or Marquise to make certain  disclosures to consumers when
consumer  credit  contracts  are  executed.  Although the Company  believes that
Marquise and Exteriors have been and currently are in compliance in all material
respects with such laws and  regulations,  there can be no assurance that in the
future a change in existing laws or  regulations or the creation of new laws and
regulations  applicable  to their  business  will not have an adverse  effect on
their  ability  to  provide  customer  financing  of  their  products  or on the
profitability of such activities.

         KanTel(TM)  is subject to a variety  of federal  and state  regulations
regarding telemarketing activities,  including regulations promulgated under the
Telephone Consumer  Protection Act of 1991. These regulations  provide penalties
for failure to comply with their terms. To the extent KanTel(TM)  engages solely
in in-bound  telemarketing  (i.e.,  responding to calls that consumers  place to
Sears, the Company,  or the Company's  subsidiaries),  some of these regulations
are of limited applicability.  A change in these regulations,  the advent of new
statutes or  regulations,  or a change in KanTel(TM)'s  activities  (such as the
commencement of outbound telemarketing activities) could materially increase the
cost  of   KanTel(TM)'s   operations   and   therefore   affect  the   Company's
profitability. KanTel(TM)'s failure to comply with federal and state regulations
could  subject   KanTel(TM)  to  sanctions  or,  under  certain   circumstances,
restrictions on its operations that could also have a materially  adverse effect
on the Company.  (See also "Government Regulations" under Item 1.)

Dependence on Telecommunications Services

         The Company's subsidiaries are materially dependent on service provided
by various local and long distance telephone  companies.  A significant increase
in the cost of  telecommunications  voice or data services,  or any  significant
interruption  in  telecommunications  voice  or  data  services,  could  have  a
materially adverse effect on the Company.

Reliance on Technology

         The Company has invested significantly in sophisticated and specialized
telecommunications  and computer technology,  and has focused on the application
of this  technology to provide  customized  solutions to meet its clients needs.
The Company anticipates that it will be necessary to continue to select,  invest
in and develop new and  enhanced  technology  on a timely basis in the future in
order to maintain its competitiveness.  The Company's future success will depend
in part on its ability to continue to develop information  technology  solutions
which keep pace with evolving  industry  standards  and changing  infrastructure
requirements and client demands.  In addition,  the Company's business is highly
dependent on its computer and telephone equipment and software systems,  and the
temporary or permanent  loss of such equipment or systems,  through  casualty or
operating  malfunction,  could have a materially adverse effect on the Company's
business.

Year 2000

         The Year 2000 date change  issue is believed  to affect  virtually  all
companies and organizations.  If not corrected,  many applications could fail or
create  erroneous  results by or at Year 2000.  The  Company is  undertaking  an
investigation to determine its Year 2000 readiness, including a determination as
to  whether  the  computer  systems of the  Company  and its  subsidiaries,  the
computer systems of Sears and vendors,  installers, and creditors of the Company
and its subsidiaries (as they relate to the Company and its  subsidiaries),  and
the products with embedded chip  technology  that Foreline  distributed are Year
2000  compliant.  The  failure of any of the  foregoing  matters to be Year 2000
compliant might materially adversely affect the Company. (See also "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  set
forth  in  excerpts  from  the  Annual  Report  included  in  Exhibit  13.1  and
incorporated herein by reference.)



                                      -16-

<PAGE>



Inventory

         Inventory  management  has become  increasingly  complex as the Company
continues  to  rationalize  its supply chain and increase the mix of product and
service  offerings  through  commercial and retail channels.  Channel  suppliers
constantly  adjust their ordering  patterns in response to the Company's and its
competitors' prices as well as seasonal fluctuations in end-user demand. Some of
the  Company's  products  are  imported  and  require  long lead times and large
minimum  quantities.  Channel  purchasers  may increase  orders  during times of
shortages or cancel or delay orders in times of excess supply or in anticipation
of price decreases. Excess supplies could result in price reductions,  increased
carrying costs and inventory write-down which in turn could adversely affect the
Company's gross margins.

Stock Price

         The Company's stock price is subject to volatility. The announcement of
new products or new channels,  quarterly  variations in the Company's results of
operations, changes in earnings or revenue estimates by the investment community
as well as  speculation  in the  press or  investment  community  are  among the
factors  affecting the Company's  stock price.  In addition,  general market and
economic  conditions  unrelated to the Company's current or projected  operating
performance can affect the stock price. For these reasons,  recent trends should
not always be considered  reliable indicators of future stock price or financial
results.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The  information  required by this Item is set forth in an excerpt from
the Annual  Report under the caption  "Management's  Discussion  and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
which  information  is  included  in  Exhibit  13.1 and  incorporated  herein by
reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this Item is set forth in excerpts from the
Annual Report under the captions  "Consolidated  Balance Sheets,"  "Consolidated
Statements  of  Operations,"  "Consolidated  Statements  of  Changes  in  Common
Stockholders'  Equity,"  "Consolidated  Statements  of Cash Flows" and "Notes to
Consolidated  Financial  Statements,"  which  information is included in Exhibit
13.1 and incorporated herein by reference.


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

         None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         a.       Directors of the Company

                  The  information  required  by  this  Item  is  set  forth  in
                  registrant's   Proxy  Statement  for  the  Annual  Meeting  of
                  Stockholders  to be held on May 13,  1999,  under the captions
                  "Election  of  Directors"   and  "Section   16(a)   Beneficial
                  Ownership  Reporting  Compliance," which information is hereby
                  incorporated herein by reference.



                                      -17-

<PAGE>



         b.       Executive officers of the Company

                  Reference is made to "Executive Officers of the Registrant" in
Part I.


ITEM 11.  EXECUTIVE COMPENSATION

         The  information  required  by this Item is set  forth in  registrant's
Proxy  Statement for the Annual  Meeting of  Stockholders  to be held on May 13,
1999,  under the  captions  "Executive  Compensation,"  "Compensation  Committee
Report  on  Executive  Compensation,"  "Compensation  Committee  Interlocks  and
Insider Participation," "Employment Agreements," and "Board of Directors," which
information is hereby incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required  by this Item is set  forth in  registrant's
Proxy  Statement for the Annual  Meeting of  Stockholders  to be held on May 13,
1999, under the caption "Securities Beneficially Owned by Principal Stockholders
and Management," which information is hereby incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required  by this Item is set  forth in  registrant's
Proxy  Statement for the Annual  Meeting of  Stockholders  to be held on May 13,
1999,  under the caption  "Certain  Transactions,"  which  information is hereby
incorporated herein by reference.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      (1)      Financial Statements

                           The  following  financial  statements of Diamond Home
                           Services, Inc. are included in Part II, Item 8:

                           (i)      Consolidated Balance Sheets - as of December
                                    31,   1998  and  1997;
                           (ii)     Consolidated  Statements   of  Operations  -
                                    years  ended  December  31,  1998,  1997 and
                                    1996;
                           (iii)    Consolidated Statements of Changes in Common
                                    Stockholders'  Equity - years ended December
                                    31, 1998, 1997 and 1996;
                           (iv)     Consolidated  Statements  of  Cash  Flows  -
                                    years  ended  December  31,  1998,  1997 and
                                    1996;
                           (v)      Notes to Consolidated  Financial Statements;
                                    and
                           (vi)     Report of Independent  Auditors from Ernst &
                                    Young LLP.

                  (2)      Financial Statement Schedules

                           No schedules  related to this Item to which reference
                           is made in applicable  regulations  of the Securities
                           and   Exchange   Commission   are   required  or  are
                           applicable,  and  therefore  all such  schedules  are
                           omitted.



                                      -18-

<PAGE>



                  (3)      Exhibits

                           Exhibits  required by Item 601 of Regulation  S-K are
                           listed in the Exhibit Index hereto, which information
                           is hereby incorporated by reference.

         (b)      Reports on Form 8-K

                  In the three months ended December 31, 1998, the Company filed
                  the following reports on Form 8-K:

                  (1)      A  report   filed   December   3,  1998,   concerning
                           amendments to the Company's  by-laws  concerning  the
                           time for a  stockholder's  giving notice of an intent
                           to  present  new  business  at the  Company's  annual
                           meeting of shareholders;

                  (2) A report filed December 21, 1998,  concerning extension of
the Sears license agreement.

         (c)      Exhibits

                  The exhibits  filed as part of this Annual Report on Form 10-K
                  are as specified in Item 14(a)(3) herein.

         (d)      Financial Statement Schedules

                  The financial statement schedules filed as part of this Annual
                  Report on Form 10-K are as specified in Item 14(a)(2) herein.


                                      -19-

<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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 on March 18, 1999.

                                     DIAMOND HOME SERVICES, INC.


                                     By   /s/ C. Stephen Clegg
                                         -------------------------
                                         C. Stephen Clegg, Chairman of the Board
                                         and Chief Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant as of March 18, 1999, in the capacities indicated:

          SIGNATURE                                      TITLE



/s/ C. Stephen Clegg            Chairman of the Board, Chief Executive Officer
      C. Stephen Clegg          and Director (Principal Executive Officer)


/s/ Richrad G. Reece            Vice President, Chief Financial Officer and
      Richard G. Reece          Treasurer (Principal Financial Officer)


/s/ Eugene J. O'Hern, Jr.       Controller (Principal Accounting Officer)
    Eugene J. O'Hern, Jr.


/s/  James F. Bere Jr.
      James F. Bere Jr.         Director


/s/ James M. Gillespie
     James M. Gillespie         Director


/s/ William Griffin
       William Griffin          Director


/s/ Jacob Pollock
        Jacob Pollock           Director


/s/ George A. Stinson
      George A. Stinson         Director



                                      -20-

<PAGE>



                                  EXHIBIT INDEX


EXHIBIT
NUMBER                        DESCRIPTION                                   PAGE


3.1        Amended and Restated  Certificate of  Incorporation  of the
           Company (1)

3.2        Amended  and  Restated   By-Laws  of  the  Company   (filed
           herewith)

10.1       Registration Rights Agreement between the Company and Globe
           Building Materials, Inc. (2)

10.1(a)    Amendment  to  Registration  Rights  Agreement  between the
           Company and Globe Building Materials, Inc. (2)

10.2       Form of  Indemnity  Agreement  between  the Company and its
           directors and certain officers. (2)

10.3       License  Agreement  between  Sears,  Roebuck  and  Co.  and
           Diamond Exteriors, Inc., dated January 1, 1996. (2)

10.3(a)    Amendment  Agreement  between  Sears,  Roebuck  and Co. and
           Diamond Exteriors, Inc., dated July 1, 1996. (1)

10.3(b)    Extension  Agreement  between  Sears,  Roebuck  and Co. and
           Diamond Exteriors, Inc., dated December 17, 1998. (3)

10.4       Lease between the Company and Haldun Square  Partners dated
           May 3, 1995. (2)

10.5*      Form of  Agreement  between  the  Company  and  each of the
           following managers of the Company: Frank Cianciosi,  Jerome
           Cooper, James M. Gillespie, Rodger Ibach, Marvin Lerman and
           Ronald Schurter. (2)

10.6*      Form of  Agreement  between  the Company and certain of its
           managers. (2)

10.7*      The Company's Incentive Stock Option Plan. (2)

10.8*      The Company's 1996 Nonemployee  Director Stock Option Plan.
           (2)

10.9       Credit Agreement dated April 20, 1998,  between the Company
           and Harris Trust and Savings Bank, as agent. (4)

10.9(a)    First Amendment to Credit  Agreement dated August 13, 1998,
           among the  Company,  Harris  Trust and  Savings  Bank,  and
           others. (5)

10.9(b)    Second  Amendment to Credit  Agreement  dated  November 13,
           1998, among the Company, Harris Trust and Savings Bank, and
           others. (6)

10.9(c)    Waiver to Credit  Agreement dated December 23, 1998,  among
           the  Company,  Harris  Trust and Savings  Bank,  and others
           (filed herewith).

10.9(d)    Amendment to Waiver to Credit  Agreement  dated January 20,
           1999, among the Company, Harris Trust and Savings Bank, and
           others (filed herewith).

10.10*     Letter to Geoffrey H. Foreman (filed herewith).

10.11      Stock  Purchase  Agreement  dated March 5, 1998,  among the
           Company,  shareholders of Reeves  Southeastern  Corp.,  and
           others (7)

13.1       Excerpts  from 1998 Annual  Report to  Stockholders  (filed
           herewith).

21.2       Subsidiaries of the Company (filed herewith).

23.1       Consent of Ernst & Young LLP (filed herewith).

27         Financial Data Schedule (filed herewith).




                                      -21-

<PAGE>



*        Denotes each management  contract or  compensatory  plan or arrangement
         required to be filed as an exhibit to this report.
(1)      Incorporated herein by reference to the exhibit of equivalent number to
         the  Company's   Registration   Statement  on  Form  S-1,  as  amended,
         Registration No. 333-10973.
(2)      Incorporated herein by reference to the exhibit of equivalent number to
         the  Company's   Registration   Statement  on  Form  S-1,  as  amended,
         Registration No. 333-3822.
(3)      Incorporated  herein by  reference  to the exhibit 10 to the  Company's
         Report on Form 8-K filed on December 21, 1998.
(4)      Incorporated  herein by  reference  to  exhibit  10.1 to the  Company's
         Report on Form 8-K filed on April 30, 1998.
(5)      Incorporated  herein by  reference  to  exhibit  10.1 to the  Company's
         Report on Form 10-Q filed on November 16, 1998.
(6)      Incorporated  herein by  reference  to  exhibit  10.2 to the  Company's
         Report on Form 10-Q filed on November 16, 1998.
(7)      Incorporated by  reference  to  exhibit 2.1 to the  Company's Report on
         Form 8-K filed on April 30, 1998.


                                      -22-