================================================================================
                                   FORM 10 - Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
================================================================================
(Mark One)
[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 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 Identification No.)
incorporation or organization)

                  222 Church Street, Woodstock, Illinois 60098
          (Address of principal executive offices, including zip code)

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

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 ( )

The number of shares of the registrant's  common stock outstanding as of October
30, 1998, the latest practicable date, was 8,507,375 shares.



                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>

                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<CAPTION>

                                                        Three Months Ended                Nine Months Ended
                                                           September 30,                    September 30,
                                                   ------------------------------   ------------------------------
                                                       1998            1997              1998           1997
                                                       ----            ----              ----           ----
                                                               (In thousands, except per share data)

<S>                                                      <C>             <C>              <C>            <C>     
Net sales......................................          $76,505         $48,301          $170,996       $122,263
Cost of sales..................................           50,013          27,056           108,153         67,933
                                                   -------------- ---------------   --------------- --------------
Gross profit...................................           26,492          21,245            62,843         54,330
Operating expenses:
    Selling, general, and administrative expense          24,104          19,050            57,995         50,924
    Operating interest expense.................               83              --               206             --
    Amortization expense.......................              316             151               750            447
                                                   -------------- ---------------   --------------- --------------
Operating income...............................            1,989           2,044             3,892          2,959
Interest expense...............................            1,039              --             1,791             --
Interest income and other......................              147             170               403            576
                                                   -------------- ---------------   --------------- --------------
Income before income taxes.....................            1,097           2,214             2,504          3,535
Income tax provision...........................              531             864             1,130          1,379
                                                   -------------- ---------------   --------------- --------------
Net income.....................................             $566          $1,350            $1,374         $2,156
                                                   ============== ===============   =============== ==============

Net income per share:
     Basic.....................................             $.07            $.16              $.16           $.24
                                                   ============== ===============   =============== ==============
     Diluted...................................             $.07            $.16              $.16           $.24
                                                   ============== ===============   =============== ==============
Weighted average number of common shares outstanding:
     Basic.....................................            8,507           8,702             8,507          8,957
                                                   ============== ===============   =============== ==============
     Diluted...................................            8,508           8,702             8,508          8,957
                                                   ============== ===============   =============== ==============


See accompanying notes.


</TABLE>


<TABLE>

                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                     September 30, 1998      December 31, 1997
                                                                     --------------------    -------------------
                                                                         (Unaudited)
                                                                                   (In thousands)
                                                    ASSETS
<S>                                                                            <C>                       <C>   
Current assets
  Cash and cash equivalents.....................................               $   3,696                 $9,966
  Accounts receivable, net......................................                  23,733                  6,630
  Inventories, net..............................................                  16,368                     --
  Refundable income taxes.......................................                     375                    986
  Prepaids  and other current assets............................                   3,605                  1,959
  Deferred income taxes.........................................                   2,489                    872
                                                                     --------------------    -------------------
Total current assets............................................                  50,266                 20,413

Finance company accounts receivable, net........................                  11,056                  8,758

Net property, plant and equipment...............................                  18,229                  5,546
Intangible assets, net..........................................                  37,210                 16,514
Deferred income taxes...........................................                     852                  1,892
Other...........................................................                   7,846                  3,466
                                                                     --------------------    ------------------
Total assets....................................................                $125,459                $56,589
                                                                     ====================    ===================

                                  LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities
  Current portion of long-term debt.............................                $  7,022            $        --
  Due to bank...................................................                   4,525                  2,050
  Accounts payable and accrued liabilities......................                  22,219                 10,070
  Deferred revenue..............................................                     729                     --
  Due to stockholders...........................................                     554                    554
                                                                     --------------------    -------------------
Total current liabilities.......................................                  35,049                 12,674
Long-term liabilities:
  Long-term debt................................................                  41,674                     --
  Warranty and retention........................................                  10,290                  9,161
  Deferred income taxes.........................................                     790                     --
  Due to stockholders...........................................                     108                    544
   Other........................................................                   1,862                     --
                                                                     --------------------    -------------------
Total long-term liabilities.....................................                  54,724                  9,705
Common stockholders' equity.....................................                  35,686                 34,210
                                                                     --------------------    -------------------
Total liabilities and common stockholders' equity...............                $125,459                $56,589
                                                                     ====================    ===================
See accompanying notes.


</TABLE>


<TABLE>

                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<CAPTION>

                                                                                                Nine Months Ended
                                                                                                   September 30
                                                                                             -------------------------
                                                                                                  (In thousands)
                                                                                                1998          1997
<S>                                                                                               <C>          <C>   
Net income.................................................................................       $1,374       $2,156
   Adjustments to reconcile net income to net cash provided by (used in) operating
      activities:
      Depreciation and amortization........................................................        1,550          694
      Deferred income taxes................................................................        (577)           28
      Other................................................................................          227           --
       Changes in operating assets and liabilities:
        Accounts receivable and other assets...............................................      (4,405)      (2,362)
        Inventories........................................................................        (938)           --
        Accounts payable and accrued expenses..............................................      (1,449)        (267)
        Deferred revenues..................................................................        (356)           --
        Warranty and retention.............................................................        1,129        1,572
                                                                                             ------------  -----------
   Net cash used in operating activities...................................................      (3,445)        1,821
Investing activities:
     Acquisition of Reeves Southeastern Corporation, net of cash acquired..................     (30,938)           --
    Consumer finance loans originated, net of collections..............................          (2,298)      (2,019)
    Advances to "captive" insurance company and other......................................          630        (731)
    Capital expenditures, net..............................................................      (2,460)      (3,887)
                                                                                             ------------  -----------
    Net cash used in investing activities..................................................     (35,066)      (6,637)
Financing activities:
     Advances under revolving credit agreement, net........................................          100           --
    Proceeds on issuance of term debt......................................................       30,000           --
    Borrowings on finance company bank line of credit, net.................................        2,475           --
    Purchases of treasury stock............................................................           --      (4,688)
    Payments on notes receivable from officers for treasury stock and other................          102          356
    Payments due to stockholders...........................................................        (436)        (422)
                                                                                             ------------  -----------
    Net cash provided by (used in) financing activities....................................       32,241      (4,754)
    Net decrease in cash and cash equivalents..............................................      (6,270)      (9,570)
    Cash and cash equivalents at beginning of period.......................................        9,966       18,982
                                                                                             ------------  -----------
    Cash and cash equivalents at end of period.............................................       $3,696       $9,412
                                                                                             ============  ===========
   Supplemental cash flow disclosure:
     Interest paid.........................................................................       $1,089           --
                                                                                             ============  ===========
     Income taxes paid.....................................................................       $1,241       $1,362
                                                                                             ============  ===========
   Investing  and   financing   activities   exclude  the   following   non-cash
transactions:
      Acquisition of Reeves Southeastern Corporation through notes payable.................      $11,413           --
                                                                                             ============  ===========
See accompanying notes.


</TABLE>



                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.            BASIS OF PRESENTATION

             The  accompanying   unaudited  condensed   consolidated   financial
statements have been prepared in accordance with generally  accepted  accounting
principles for interim  financial  information and Article 10 of Regulation S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating results for the three-month and nine-month periods ended September 30,
1998 are not necessarily  indicative of the results that may be expected for the
year  ending  December  31,  1998.  For  further   information,   refer  to  the
consolidated  financial  statements included in the Company's 1997 Annual Report
on Form 10-K and Form 8-K/A filed May 13, 1998.

             The   preparation  of  financial   statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2.           CONSUMER FINANCING

             The  following  summarized  condensed  financial   information  for
Marquise Financial,  the Company's finance subsidiary,  is before elimination of
inter-company transactions in consolidation:


<TABLE>
<CAPTION>



                                                               September 30, 1998          December 31, 1997
                                                             -----------------------     -----------------------
                                                                  (Unaudited)
<S>                                                                      <C>                          <C>    
ASSETS:
Cash.....................................................                  $239,000                     $23,000
Financing receivables, net...............................                11,056,000                   8,758,000
Other assets.............................................                 1,064,000                   1,046,000
                                                             -----------------------     -----------------------
Total assets.............................................               $12,359,000                  $9,827,000
                                                             =======================     =======================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Due to Bank..............................................                $4,525,000                  $2,050,000
Due to Diamond Exteriors, Inc............................                 7,438,000                   7,388,000
Other....................................................                    52,000                     147,000
                                                             -----------------------     -----------------------
Total liabilities........................................                12,015,000                   9,585,000
Total stockholder's equity...............................                   344,000                     242,000
                                                             =======================     =======================
Total liabilities and stockholder's equity...............               $12,359,000                  $9,827,000
                                                             =======================     =======================

</TABLE>

Results of operations  for the three months and nine months ended  September 30,
1998 and 1997, respectively:

<TABLE>
<CAPTION>

                                                          Three Months Ended                Nine Months Ended 
                                                             September 30,                     September 30,
                                                      ----------------------------    -------------------------------
                                                          1998          1997               1998            1997
                                                          ----          ----               ----            ----
                                                                               (Unaudited)

<S>                                                       <C>            <C>              <C>               <C>     
Financing income....................................      $407,000       $326,000         $1,194,000        $900,000
General and administrative expenses (1).............       505,000        689,000         $1,472,000       1,681,000
                                                      ------------- --------------    --------------- ---------------
Loss before tax benefit.............................        98,000        363,000            277,000         781,000
Income tax benefit..................................        42,000        142,000            114,000         305,000
                                                      ------------- --------------    --------------- ---------------
Net loss............................................       $56,000       $221,000            163,000        $476,000
                                                      ============= ==============    =============== ===============

(1)  Includes  interest  expense  paid  to  Diamond  Home  Services,  Inc.  (the
"Company") and provision for credit losses.

</TABLE>


Cash flow for the nine months ended September 30, 1998 and 1997, respectively:

<TABLE>
<CAPTION>

                                                                   Nine Months Ended September 30
                                                             -------------------------------------------
                                                                  1998                       1997
                                                             ---------------           -----------------
                                                                            (Unaudited)
<S>                                                             <C>                         <C>        
Cash at beginning of period............................                 $0                     $50,000
Net cash used in operating activities..................           (276,000)                   (476,000)
Net cash used in investing activities..................         (2,298,000)                 (1,039,000)
Net cash provided by financing activities..............          2,813,000                   1,465,000
                                                             ---------------           -----------------
Cash at end of period..................................           $239,000                          $0
                                                             ===============           =================
</TABLE>

     At September 30, 1998, Marquise Financial had approximately $2.0 million in
approved but not funded loan commitments.

3.           ACQUISITION

     On  April  20,  1998,  the  Company  consummated  the  purchase  of all the
outstanding and voting shares in the capital of Reeves Southeastern  Corporation
("Reeves")  for an aggregate  consideration  of  $42,900,000  consisting  of: 1)
$30,000,000 cash at closing; 2) $3,700,000 non-interest bearing notes payable in
installments  through June 2000;  3)  $8,000,000 in 7% notes payable (to be paid
into an escrow account for future possible  environmental  expenses, as defined)
in installments  through June 2005; and 4) $1,500,000 in transaction  costs (the
"Acquisition"). In connection with the Acquisition, the Company replaced its $15
million  unsecured  bank line of credit with a $45 million  secured bank line of
credit.

     Based on the terms of the transaction,  the acquisition is accounted for as
a purchase,  in accordance with Accounting Principles Board Opinion No. 16 ("APB
No. 16").  Accordingly,  the accompanying condensed  consolidated  statements of
income include Reeves's results of operations since the date of acquisition. The
Company revalued the basis of Reeves's  acquired assets and assumed  liabilities
to fair  value  at the  date of  purchase.  The  purchase  price  of  Reeves  is
calculated  as the  cash  plus  fair  value  of notes  paid  plus the  Company's
transaction  costs. The difference between the purchase price and the fair value
of  identifiable  tangible and intangible  assets  acquired and the  liabilities
assumed and incurred is recorded as goodwill and will be amortized over a period
of 40  years.  The  Company  has  not  completed  its  valuation  of the  Reeves
acquisition and the purchase price allocation is subject to change as additional
information   concerning  asset  and  liability  valuation  is  completed.   The
preliminary allocation of purchase price is as follows:

                   Purchase price                               $41,413,000
                   Transaction costs                              1,500,000
                                                         -------------------
                   Total purchase price                         $42,913,000
                                                         ===================

                   Fair value of assets acquired                $48,832,000
                   Goodwill                                      21,366,000
                   Liabilities assumed                         (27,285,000)
                                                         -------------------
                   Total                                        $42,913,000
                                                         ===================

             The following unaudited pro forma information  reflects the results
of the Company's  operation as if the  acquisition had occurred at the beginning
of the period  presented  adjusted  for 1) the effect of the  recurring  charges
related to the  acquisition,  primarily the  amortization of goodwill,  interest
expense  on  borrowings  to  finance  the   acquisition,   and  an  increase  in
depreciation  expense due to the write-up to fair market value of fixed  assets;
and 2) the  elimination  of  compensation  for prior  management  and directors,
certain benefit plans, and non-recurring charges.

<TABLE>
<CAPTION>

                                                 Three months ended                     Nine months ended
                                                   September 30,                          September 30,
                                        ------------------------------------    -------------------------------------
                                              1998              1997                  1998               1997
                                              ----              ----                  ----               ----
<S>                                          <C>                <C>                  <C>                <C>         
Revenues                                     $76,505,000        $79,225,000          $201,525,000       $214,201,000
Net income                                       566,000          1,778,000             1,301,000          3,233,000
Net income per share -- diluted                     $.07               $.20                  $.15               $.36

</TABLE>

          The pro forma results have been prepared for comparative purposes only
and do not purport to be  indicative of the results  which  actually  would have
been attained if the  Acquisition  had been  consummated on the dates  indicated
above,  nor does it  purport to  indicate  or  suggest  what the  results of the
operations of the Company will be for any future period.

4.        INVENTORIES

          The components of inventories at September 30 are as follows:
                                                               1998
                                                               ----
                   Raw materials                                 $616,000
                   Work in progress                               628,000
                   Finished goods                              15,124,000
                                                         =================
                   Total                                      $16,368,000
                                                         =================


5.        DEBT

          In connection with the Reeves acquisition,  in April 1998, the Company
replaced its  $15,000,000  unsecured bank line of credit with a $42,000,000  (as
amended)  secured  syndicated  bank credit  facility.  The credit  facility,  as
amended,  is for a term of five years expiring  April 2003. The credit  facility
provides,  among other things:  1)  $30,000,000 in term notes (to be used solely
for the Reeves  acquisition)  with  quarterly  principal  payments of $1,047,000
commencing in December 1998;  and 2) a $15,000,000  revolving line of credit (to
be  used  for  Reeves's  working  capital  requirements  and  general  corporate
purposes).  In connection with the increase in interest rates  discussed  below,
the revolving  line of credit was reduced to  $12,000,000  in November  1998. In
November 1998 the interest rates for the term notes and revolving line of credit
were increased to provide for monthly interest payments at varying premiums over
LIBOR or bank  prime  rates,  at  borrower's  option,  based on EBITDA  coverage
ratios.  Through December 31, 1998, the interest rates are fixed as follows:  1)
Term  Notes:  LIBOR  plus 3.00% or prime plus  .75%;  and 2)  Revolving  line of
credit: LIBOR plus 3.00% or prime plus .75%. The interest rates on the Term Note
and Revolving line were increased and the amount of the revolving line of credit
was reduced as discussed  above until such time as the Company meets its minimum
EBITDA coverage ratio.  The terms of the credit  facility  contain,  among other
provisions, restrictive requirements for maintaining cash flow and debt coverage
ratios, minimum net worth, restrictions on incurring additional debt, dividends,
acquisitions and stock  repurchases.  Deferred loan fees and costs are amortized
over the term of the credit facility (5 years).

          At September 30, 1998, debt consisted of:

                   Term notes                          $30,000,000
                   Revolver                              7,278,000
                   7% Notes payable                      8,000,000
                   0% Notes payable                      3,487,000
                   Discount                              (284,000)
                   Capital leases                          215,000
                                                  -----------------
                                                        48,696,000
                   Less:  current portion              (7,022,000)
                                                  =================
                                                       $41,674,000
                                                  =================

6.        SUBSEQUENT EVENT

          In October,  1998,  the Company  entered  into an agreement to acquire
certain  net  assets  and the  business  of KanTel,  the  telephone  lead-taking
operation  and  telemarketing  division  of HI Inc.,  a  related  party,  for an
aggregate  purchase price of $2.7 million  consisting of 1) $1.5 million in cash
and 2) $1.2 million in 5% convertible subordinated notes due October 2005.






ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997

Net Sales

          Net sales  increased $28.2 million,  or 58.4%,  from $48.3 million for
the third  quarter  1997 to $76.5  million for the third  quarter  1998.  Reeves
contributed $29.9 million to net sales for the third quarter 1998.

          Installed Home Improvements

          Installed home improvement  product sales decreased $1.7 million,  or
3.5%,  from $48.3  million for the third  quarter 1997 to $46.6  million for the
third quarter 1998. Net sales  attributable  to roofing and gutter  products and
services increased $1.2 million,  or 3.9%, to $31.2 million in the third quarter
1998. Net sales  attributable  to fencing  products and services  decreased $596
thousand,  or 6.8%,  to $8.1  million in the third  quarter  of 1998.  Net sales
attributable  to garage  doors,  entry  doors,  and other  products and services
decreased  $2.5  million,  or 28.0%,  to $6.3 million in the third quarter 1998.
Credit  participation fee income increased $111 thousand to $632 thousand in the
third  quarter  1998.  Finance  interest  income  increased $81 thousand to $407
thousand on receivables  financed by the Company's finance subsidiary,  Marquise
Financial.  Backlog,  defined  as jobs sold but not  installed,  increased  $2.6
million from $16.0  million at the end of June 1998 to $18.6  million at the end
of the third quarter 1998.  Backlog decreased $3.2 million from $20.2 million at
the end of June 1997 to $17.0 million at the end of the third quarter 1997.  The
decrease in installed sales was  attributable to a $2.3 million decrease in door
category sales, primarily in security, storm, and entry doors, as Sears expanded
the sale of security and entry doors into many of its stores and permitted other
licensees to increase sales of these products.  The increase in backlog compared
to the end of the second  quarter 1998 was  attributable  to improved  operating
efficiencies measured in close ratio, reduced cancellations and increased credit
approvals.



          Manufacturing and Wholesale Distribution

          Manufacturing  and wholesale  distribution  sales are comprised of the
following major product lines:

              Chain link and accessories                            $20,284,000
              Wood                                                    4,714,000
              Ornamental/specialty                                    2,524,000
              Gate operators and access control                       1,199,000
              Security systems                                        2,620,000
                                                               -----------------
                                                                     31,341,000
              Less:  inter-segment sales                              1,452,000
                                                               =================
                                                                    $29,889,000
                                                               =================

          Manufacturing and wholesale  distribution  sales,  after adjusting for
the planned  discontinuation  of a pipe and tube joint  venture,  was 1.4% lower
than the comparable prior period. The quarter was impacted by lower sales in the
Richmond,  Virginia  market  and a general  softness  of sales in the  northeast
markets, consistent with the Company's installed home improvement segment.

Gross Profit

          Gross profit increased $5.2 million,  or 24.7%, from $21.2 million, or
44.0% of net sales, for the third quarter 1997 to $26.5 million, or 34.6% of net
sales,  for the third quarter  1998.  Reeves  contributed  $7.2 million to gross
profit in the third quarter 1998 (on net sales,  after  inter-segment  sales, of
$29.9 million).

          Installed Home Improvements

          Installed  home  improvement   product  gross  profit  decreased  $1.9
million,  or 9.3%,  from $21.2 million,  or 44.0% of installed home  improvement
product  sales,  for the  third  quarter  1997 to  $19.3  million,  or  41.4% of
installed  home  improvement  product  sales,  for the third quarter  1998.  The
decrease in gross profit amount was  attributable  to reduced door sales,  lower
sales volume in fencing products and services due to the decrease in lead count,
and overall  lower  average  unit sales price as a result of expanded  and lower
price  points.  The  decrease in gross  profit,  expressed  as a  percentage  of
installed home  improvement  product sales,  resulted from a decrease in average
unit sales  price as a result of  expanded  and lower  price  points,  partially
offset by a $192  thousand  increase in credit  participation  fee income and in
finance  interest  income.  The license fee  incurred  to Sears  decreased  $332
thousand, or 6.5%, from $5.1 million, or 10.7% of net installed home improvement
product sales (which is defined as installed home  improvement  product sales or
segment sales excluding credit  participation and finance interest income),  for
the  third  quarter  1997  to $4.8  million,  or  10.5%  of net  installed  home
improvement  product  sales,  for the third  quarter  1998.  The decrease in the
license fee amount and index  incurred to Sears for the third  quarter  1998 was
due to an overall decrease in net installed home  improvement  product sales and
to a shift in the balance of sales,  primarily  roofing repairs and pricing test
programs,  to lower  license fee  products and  services.  Sears and the Company
entered into a three-year  license  agreement  effective  January 1, 1996. Among
other  things,  the license  agreement  provides for a fixed license fee, at the
March  1995  license  fee rate,  to be charged  during  the term of the  license
agreement.  Gross profit before the Sears license fee, credit  participation fee
and finance interest income decreased $2.5 million, or 9.8%, from $25.5 million,
or 53.7% of net installed home improvement  product sales, for the third quarter
1997 to $23.0 million, or 50.5% of net installed home improvement product sales,
for the third quarter 1998. The decrease in gross profit amount and gross profit
index was  attributable  to lower sales  volume,  including the decrease of $2.3
million in door sales,  and lower average unit sales  prices.  The unit costs of
materials,  installation labor and warranty expense remained relatively constant
during the quarterly period.

          Manufacturing and Wholesale Distribution

          Manufacturing and wholesale distribution gross profit was $7.2 million
or 23.0% of gross (before inter-segment elimination) manufacturing and wholesale
distribution   revenue.   Gross  profit,  as  a  percentage  of  segment  sales,
approximated last year's index of 23.2%.

Selling, General and Administrative Expenses

          Selling,  general and administrative  expenses increased $5.1 million,
or 26.5%,  from $19.0  million in the third quarter 1997 to $24.1 million in the
third  quarter 1998 and, as a percentage of net sales,  decreased  from 39.4% to
31.5%.  Reeves  contributed $5.4 million in selling,  general and administrative
expense in the third quarter 1998.

          Installed Home Improvements

          Selling,   general  and  administrative   expenses  for  this  segment
decreased $342 thousand,  or 1.8%,  from $19.0 million in the third quarter 1997
to $18.7  million in the third  quarter 1998 and, as a  percentage  of installed
home  improvement  sales,  increased  from  39.4% to 40.2%.  Direct  advertising
expense  increased  $631  thousand,  or 23.2%,  from $2.7  million for the third
quarter 1997 to $3.4 million for the third  quarter 1998; as a percentage of net
installed sales,  direct  advertising  expense increased from 5.6% for the third
quarter 1997 to 7.4% for the third quarter 1998,  reflecting  substituting local
newspaper advertising placements for pay-per-lead ad placements,  in addition to
below-plan lead generating  effectiveness  of ad placements,  offset by improved
close ratios during the quarter. Selling commission expense, including attendant
payroll-related  benefits,  decreased $658 thousand, or 13.1%, from $5.0 million
in the third  quarter  1997 to $4.4  million  in the third  quarter  1998;  as a
percentage of net installed sales,  selling  commission  expense  decreased from
10.7% to 9.6% in the third quarter 1998. Sales  representatives  are compensated
on a  variable  commission  basis  depending  upon the type and gross  profit of
product sold.  Performance-based  compensation paid to officers and field, sales
and  production  managers  decreased $509 thousand to $248 thousand in the third
quarter,  reflecting  the decrease in net installed home  improvement  sales and
operating profit. The balance of selling,  general and administrative  expenses,
primarily sales lead-generation activities, administrative, field operations and
Marquise  Financial  payrolls and related costs and general expenses,  increased
$214 thousand,  or 2.0%,  from $10.5 million,  or 21.8% of net segment sales, in
the third quarter 1997 to $10.7 million,  or 23.1% of net segment sales,  in the
third quarter 1998. Included in general and administrative expenses were special
charges  related to lead  center  activities  approximating  $100  thousand  and
information technology project expenses approximating $350 thousand. Information
technology  expenses are  expected to continue  into the fourth  quarter  before
expected benefits may be realized.

          Manufacturing and Wholesale Distribution

          Selling,   general,  and  administrative  expenses  for  this  segment
includes selling expenses of $4.4 million representing the operations, primarily
payroll  and  related  costs,   and  facilities  and  equipment   costs,  of  31
distribution centers and $1.0 million of general and administrative expenses.

Operating Interest Expense

          Operating interest expense increased from $0 in the third quarter 1997
to $83 thousand in the third  quarter 1998.  The increase in operating  interest
expense resulted from the Company's finance  subsidiary's  borrowings during the
quarter.

Amortization of Intangibles

          Amortization of intangibles increased $165 thousand from $151 thousand
in the third  quarter  1997 to $316  thousand  in the third  quarter  1998.  The
amortization  expense relates  primarily to goodwill incurred in connection with
the September 1994 stock  repurchase from management and the Reeves  acquisition
in April 1998.

Interest Expense

          Interest  expense  increased from $0 in the third quarter 1997 to $1.0
million in the third quarter 1998.  This  increase  relates to interest  expense
incurred  related to working capital  requirements  and the debt associated with
the acquisition of Reeves.

Interest Income and Other

          Interest income decreased $23 thousand from $170 thousand in the third
quarter  1997 to $147  thousand  in the third  quarter  1998,  primarily  due to
decreased interest income from lower invested cash balances.

Income Tax Provision

          The Company's income tax provision decreased from $864 thousand, or an
effective  rate of 39.0%,  for the third  quarter 1997 to $531  thousand,  or an
effective  rate of 48.4%,  for the third  quarter  1998.  The  difference in the
effective income tax rate and the federal  statutory rate (34%) is due primarily
to  amortization  of  intangibles  (which  increased  in  1998)  which  are  not
deductible for income tax purposes and the effect of state income taxes.



FIRST NINE MONTHS 1998 COMPARED TO FIRST NINE MONTHS 1997

Net Sales

          Net sales increased $48.7 million,  or 39.9%,  from $122.3 million for
the first nine  months 1997 to $171.0  million  for the first nine months  1998.
Reeves contributed $54.4 million to net sales in the first nine months 1998.

          Installed Home Improvements

          Installed home  improvement  product sales decreased $5.7 million,  or
4.6%,  from $122.3  million for the first nine months 1997 to $116.6 million for
the first  nine  months  1998.  Net sales  attributable  to  roofing  and gutter
products and services  decreased  $695 thousand or 0.9% to $75.8 million for the
first nine months 1998. Net sales  attributable to fencing products and services
decreased  $1.6 million or 7.4% to $20.4 million for the first nine months 1998.
Net sales  attributable  to garage doors,  entry doors,  and other  products and
services  decreased  $3.9  million or 17.9% to $17.7  million for the first nine
months 1998.  Credit  participation  fee income  increased $254 thousand to $1.5
million in the first nine months 1998.  Interest income on receivables  financed
by the Company's consumer finance subsidiary, Marquise Financial, increased $294
thousand to $1.2  million for the first nine months  1998.  Backlog,  defined as
jobs sold but not  installed,  increased  $7.7 million from $10.9 million at the
end of December,  1997 to $18.6  million at the end of September  1998.  Backlog
increased  $2.2 million from $14.8  million at the end of December 1996 to $17.0
million at the end of  September  1997.  The  decrease  in  installed  sales was
attributable to a significant decrease, primarily in the second quarter 1998, in
lead  production  or number of in-home  presentations,  lower unit sales prices,
and, in this quarter,  a $2.3 million decrease in security and entry door sales,
partially  offset by improved  operating  efficiencies  measured in close ratio,
reduced cancellations and increased credit approvals.

          Manufacturing and Wholesale Distribution

          Manufacturing  and wholesale  distribution  sales are comprised of the
following major product lines:

                   Chain link and accessories                  $37,245,000
                   Wood                                          9,210,000
                   Ornamental/specialty                          4,566,000
                   Gate operators and access control             2,121,000
                   Security systems                              4,243,000
                                                          -----------------
                                                                57,385,000
                   Less:  inter-segment sales                    3,012,000
                                                          -----------------
                                                               $54,373,000
                                                          =================

          Manufacturing and wholesale  distribution  sales,  after adjusting for
the planned  discontinuation  of a pipe and tube joint venture,  were 2.8% lower
than the comparable prior period.  The period was impacted by lower sales in the
Richmond, Virginia market and lower wood sales in the second quarter.

Gross Profit

          Gross profit increased $8.5 million,  or 15.7%, from $54.3 million, or
44.4% of net sales, for the first nine months 1997 to $62.8 million, or 36.8% of
net sales,  for the first nine months  1998.  Reeves,  acquired in April,  1998,
contributed $13.2 million to gross profit in the first nine months 1998.

          Installed Home Improvements

          Installed  home  improvement   product  gross  profit  decreased  $4.7
million,  or 8.7%,  from $54.3 million,  or 44.4% of installed home  improvement
product  sales,  for the first nine  months 1997 to $49.6  million,  or 42.5% of
installed home  improvement  product sales,  for the first nine months 1998. The
decrease in gross  profit  amount was  attributable  to lower  sales  volume due
primarily to the decrease,  in the second  quarter,  in lead count,  and, in the
third  quarter,  to a $2.3  million  decrease in door sales,  in addition to the
decrease in average  unit sales price  during the period as a result of expanded
and lower  price  points  during  the  period.  The  decrease  in gross  profit,
expressed as a percentage of installed home improvement product sales,  resulted
from a decrease in average  unit sales  price as a result of expanded  and lower
price  points,   partially  offset  by  a  $548  thousand   increase  in  credit
participation  fee  income and in  finance  interest  income.  The  license  fee
incurred to Sears decreased $1.2 million,  or 8.9%, from $13.0 million, or 10.7%
of net installed home improvement  product sales, for the first nine months 1997
to $11.8 million,  or 10.4% of net installed home improvement product sales, for
the first nine months  1998.  The  decrease in the license fee incurred to Sears
for the first nine months 1998 was due to an overall  decrease in net  installed
home improvement product sales and to a shift in the balance of sales, primarily
roofing  repairs and pricing test  programs,  to lower  license fee products and
services.  Sears and the Company  entered  into a three-year  license  agreement
effective January 1, 1996. Among other things,  the license  agreement  provides
for a fixed  license  fee,  at the March 1995  license  fee rate,  to be charged
during the term of the license agreement.  Gross profit before the Sears license
fee,  credit  participation  fee and  finance  interest  income  decreased  $6.4
million, or 9.8%, from $65.1 million, or 54.2% of net installed home improvement
product sales, for the first nine months 1997 to $58.7 million,  or 51.5% of net
installed home  improvement  product sales,  for the first nine months 1998. The
decrease in gross profit amount and gross profit index was attributable to lower
sales volume,  including the decrease of $2.3 million in door sales in the third
quarter,  and lower  average  unit sales  prices.  The unit costs of  materials,
installation labor and warranty expense remained  relatively constant during the
nine month period.

          Manufacturing and Wholesale Distribution

          Manufacturing  and  wholesale  distribution  gross  profit  was  $13.2
million or 23.0% of gross (before inter-segment  elimination)  manufacturing and
wholesale distribution revenue.


Selling, General and Administrative Expenses

          Selling,  general and administrative  expenses increased $7.1 million,
or 13.9%,  from $50.9  million in the first nine months 1997 to $58.0 million in
the first nine months 1998 and, as a  percentage  of net sales,  decreased  from
41.6% to 33.9%.  Reeves,  acquired in April,  1998,  contributed $9.6 million in
selling, general and administrative expense in the first nine months 1998.

          Installed Home Improvements

          Selling,   general  and  administrative   expenses  for  this  segment
decreased  $2.5  million,  or 5.0%,  from $50.9 million in the first nine months
1997 to $48.4  million in the first nine  months 1998 and,  as a  percentage  of
installed  home  improvement  sales,  decreased  from  41.6%  to  41.5%.  Direct
advertising expense decreased $622 thousand,  or 7.7%, from $8.0 million for the
first nine months 1997 to $7.4  million  for the first nine  months  1998;  as a
percentage of net segment sales,  direct advertising expense decreased from 6.6%
for the  first  nine  months  1997  to 6.4%  for the  first  nine  months  1998,
reflecting  below-plan lead generating  effectiveness of ad placements offset by
improved close ratios during the first nine months.  Selling commission expense,
including attendant payroll-related benefits,  decreased $1.4 million, or 11.4%,
from $12.6  million in the first nine months 1997 to $11.2  million in the first
nine months  1998;  as a percentage  of net segment  sales,  selling  commission
expense  decreased  from  10.2% to 9.6% in the first  nine  months  1998.  Sales
representatives  are compensated on a variable  commission  basis depending upon
the type and gross profit of product sold.  Performance-based  compensation paid
to officers and field, sales and production  managers decreased $756 thousand to
$494 thousand in the first nine months, reflecting the decrease in net installed
home improvement sales and operating profit. The balance of selling, general and
administrative   expenses,    primarily   sales   lead-generation    activities,
administrative,  field  operations and Marquise  Financial  payrolls and related
costs and  general  expenses,  increased  $276  thousand,  or 1.0%,  from  $29.0
million,  or 23.7% of net segment sales,  in the first nine months 1997 to $29.3
million,  or 25.1% of net segment sales, in the first nine months 1998. Included
in general and  administrative  expenses  were  special  charges  related to the
Reeves  acquisition  and lead center  activities  aggregating  $550 thousand and
information technology project expenses approximating $800 thousand. Information
technology  expenses are  expected to continue  into the fourth  quarter  before
expected benefits may be realized.

          Manufacturing and Wholesale Distribution

          Selling,   general,  and  administrative  expenses  for  this  segment
includes selling expenses of $7.8 million representing the operations, primarily
payroll  and  related  costs,   and  facilities  and  equipment   costs,  of  31
distribution centers and $1.8 million of general and administrative expenses.

Operating Interest Expense

          Operating  interest expense increased from $0 in the first nine months
1997 to $206  thousand in the first nine months 1998.  The increase in operating
interest expense  resulted from the Company's  finance  subsidiary's  borrowings
during the first nine months.

Amortization of Intangibles

          Amortization of intangibles increased $303 thousand from $447 thousand
in the first nine  months 1997 to $750  thousand in the first nine months  1998.
The amortization  expense relates  primarily to goodwill  incurred in connection
with  the  September  1994  stock  repurchase  from  management  and the  Reeves
acquisition in April 1998.

Interest Expense

          Interest  expense  increased  from $0 in the first nine months 1997 to
$1.8 million in the first nine months 1998.  This  increase  relates to interest
expense incurred related to working capital requirements and the debt associated
with the acquisition of Reeves.

Interest Income and Other

          Interest  income  decreased  $173  thousand  from $576 thousand in the
first nine months 1997 to $403 thousand in the first nine months 1998, primarily
due to decreased interest income from lower invested cash balances.

Income Tax Provision

          The Company's income tax provision  decreased from $1.4 million, or an
effective rate of 39.0%,  for the first nine months 1997 to $1.1 million,  or an
effective  rate of 45.1%,  for the first nine months 1998. The difference in the
effective income tax rate and the federal  statutory rate (34%) is due primarily
to  amortization  of  intangibles  (which  increased  in  1998)  which  are  not
deductible for income tax purposes and the effect of state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

          The  Company's  primary  capital needs have been to fund the growth of
the Company,  to fund the September 1994 stock  repurchase from  management,  to
fund the operations of the Company's  finance  subsidiary,  Marquise  Financial,
and,  more  recently,  to  fund  new  information  technology  systems  and  the
acquisition of Reeves. The Company's primary sources of liquidity have been cash
flow from operations,  borrowings under its bank credit facilities, and, in June
1996,  the net  proceeds of its initial  public  offering.  The  Company's  home
improvement installation business is not capital intensive. Capital expenditures
for first  nine  months  1998 and years  1997 and 1996 were  approximately  $2.5
million, $3.9 million, and $461 thousand, respectively. Capital expenditures for
1998 are expected to approximate $3.0 million,  primarily related to ongoing new
equipment  purchases  and software  development  for the  Company's  information
technology  systems  and  major  plant  repairs.  Future  requirements  for  new
information  technology and other capital expenditures are expected to be funded
by cash flow from  operations  and  operating  leases.  On April 30,  1997,  the
Company announced a stock repurchase  program to repurchase up to 500,000 shares
of its common stock and on August 12, 1997, the Company  increased the number of
shares it is authorized to repurchase by 500,000 to 1,000,000 shares. During the
second and third  quarters  1997 the  Company  purchased  572,300  shares of its
common stock for $4.7 million.

          On  April  20,  1998,  the  Company  acquired  all of the  issued  and
outstanding stock of Reeves for approximately $43 million, including transaction
expenses.  In October,  1998,  the  Company  announced  it had  entered  into an
agreement to purchase KanTel,  a lead-taking and  telemarketing  operation,  for
approximately  $2.7  million in cash and  convertible  subordinated  notes.  The
acquisition will be financed with cash from operations, and is expected to close
in mid-November 1998.

          The  Company  believes  that it has  sufficient  operating  cash flow,
working  capital  base,  and  available  bank lines of credit to meet all of its
obligations for the foreseeable  future,  including ongoing funding for Marquise
Financial,  for the stock repurchase  program announced in 1997, for investments
in information technology, and for the acquisition,  development,  and expansion
of complementary new products and services and markets.

          In November  1995,  the Company  commenced the  operations of Marquise
Financial.  Marquise's  primary  objective  is  to  support,  along  with  other
designated   third-party  finance  companies,   the  Company's  requirement  for
providing financing to its core installation  business customers.  In the fourth
quarter  1996,  as a  follow-on  objective  to  expanding  Marquise  Financial's
consumer  financing  markets and  products,  Marquise  introduced  a new finance
product -- fixed rate loans secured by developed residential real estate -- to a
segment of its  creditworthy  customers  that cannot obtain  unsecured  consumer
loans.  During the second quarter 1997, Marquise Financial expanded its scope of
operations,  in part to  leverage  its  consumer  finance  infrastructure  to i)
purchase from third parties portfolios of secured receivables, and ii) originate
secured  receivables  from  customers of,  and/or  purchase  individual  secured
receivables  originated by,  entities other than the Company and its affiliates.
These  entities do not  necessarily  engage in business in any of the  Company's
product  lines.  As a general  proposition,  these  entities are all expected to
operate businesses related to installed home improvement  products and services,
although  from time to time Marquise  Financial  may also  originate or purchase
receivables  secured by commercial real estate or otherwise acquire or originate
loans  that  do  not   constitute   obligations   arising  from  installed  home
improvements.   The  outstanding  principal  amount  of  individual  receivables
purchased  by  Marquise  Financial  from  entities  other than the  Company  may
significantly  exceed the average  amount of all  receivables  owned by Marquise
Financial.  The  Company is  continually  mindful of the risks  associated  with
consumer  financing  and  plans to  increase  its  consumer  finance  receivable
portfolio at a measured  pace  commensurate  with its  available  resources  and
acceptable levels for losses on finance receivables. Marquise Financial has been
capitalized  and  funded  with the  Company's  excess  operating  cash  flow and
borrowings  under the  Company's  former $15 million bank line of credit,  which
were  subsequently  paid down with a portion of the proceeds  from the Company's
June 1996 initial public offering. In December 1997, Marquise Financial obtained
a $10 million  secured line of credit and, at September  30, 1998,  had borrowed
$4.5 million.  At September 30, 1998, Marquise Financial has approximately $11.1
million in net finance  receivables.  During 1998, Marquise Financial originated
or  purchased  approximately  $5.0  million of fixed  rate,  secured  loans.  At
September  30, 1998,  Marquise  had  approximately  $8.1 million in  outstanding
commitments of the fixed rate, secured loans. At September 30, 1998, the Company
was  not  in  compliance  with  its  minimum  EBITDA  coverage  ratio  and  such
non-compliance has been waived. However, in November 1998 the Company's interest
rates on the Term Note and  revolving  line of  credit  were  increased  and the
revolving  line of credit  was  reduced  to  $12,000,000  until such time as the
Company's  minimum  EBITDA  coverage  ratio is back in  compliance.  The Company
anticipates that its existing cash balances,  the bank lines of credit, the sale
of Marquise  Financial's  consumer loan finance receivables as market conditions
may warrant  from time to time and excess  cash flow from its core  installation
operations   will  be  sufficient  to  satisfy  the  Company's   financing  cash
requirements in the foreseeable future.

          In December 1996,  with an initial  investment of  approximately  $450
thousand,  the Company  completed  agreements with insurance  companies with the
effect of establishing a captive insurance  company.  At September 30, 1998, the
investment in the captive  insurance  company  approximated  $1.2  million.  The
primary objective of this captive insurance business is to provide the means for
offering  workers'   compensation  and  general  liability  insurance  coverage,
primarily  for Company  installations,  to qualified  installers  as the Company
seeks to maintain  and expand its core  complement  of  independent  installers.
Premiums  are  immediately   collected  through   deductions  from  payments  to
installers;  and the excess cash balances,  after administrative  expenses,  are
invested,  pursuant  to  agreement,  with the  insurance  companies.  Losses are
comprised of actual  claims paid,  reserves for open claims and  allowances  for
incurred but not reported claims. The Company maintains individual and aggregate
stop-loss  reinsurance coverage at levels deemed to be adequate by management of
the Company. Premiums collected in the first nine months 1998 and year 1997 were
approximately  $365 thousand and $525  thousand,  respectively.  The Company has
identified a third-party  insurance  company who can now offer similar  coverage
and on more competitive  terms to our installers.  The Company is in the process
of assessing the termination of the captive  insurance  company and transferring
the business to a third-party insurance company.

          From its inception in June 1993,  the Company has generated  cash flow
from operations of approximately $19.8 million.  Cash flows from operations have
been used to fund and leverage the  Company's  investing  activities,  including
Reeves acquisition,  Marquise Financial consumer lending activities, and capital
expenditures; and its financing activities, including the repurchase of 40.2% of
common stock in September 1994 from management, and repurchase of 6.3% of common
stock in 1997.  At  September  30,  1998,  the Company had  approximately  $27.4
million  in cash and cash  equivalents  and trade  receivables  and net  working
capital of $15.7  million.  At September 30, 1998, the Company had $10.2 million
in unused  bank lines of credit and $53.9  million  total debt  including  $41.8
million under its bank lines of credit.

YEAR 2000 STATE OF READINESS

General State of Readiness

             The Company's  year 2000 (Y2K) project plan  addresses four primary
areas:

o    All major computer  software and hardware systems have been identified and
     are being tested for Y2K readiness;
o    All critical and strategic  vendors and partners  have been  identified by
     communications with these vendors on Y2K readiness;
o    All of  the  Company's  material  facilities  are  being  inventoried  for
     potential computer chip date related issues;
o    Any  products  manufactured,  sold and  installed by the Company are being
     identified and evaluated for any possible issues.

             In terms of  examining  both  information  technology  systems  and
non-information   technology   systems  for  Y2K  compliance,   the  project  is
approximately  60% complete at this time, with the bulk of the work  anticipated
to be complete by the end of January 1999.  Subsequent  integration  testing and
implementation of any mitigation plans are expected to be complete by the end of
the first  quarter  1999.  The  Company's  program for  purchasing  hardware and
software,  which began early in 1997, has addressed many Y2K concerns.  This I/T
initiative  has  replaced  substantially  all key  software  with  new  industry
standard  software (Oracle ERP applications and Vantive),  and has installed new
hardware  components  (Compaq and Bay Networks).  The Company's key  subsidiary,
Reeves, is in the process of upgrading its AS/400 BPCS system to a Y2K certified
revision of the  software.  This is expected to be complete  and fully tested by
the end of January 1999.

             A major  area of  concern  at this time is the  Reeves  subsidiary,
Foreline  Security Corp.  With $11 million in annual sales,  Foreline  installs,
services and maintains highly sophisticated electronic  date-sensitive equipment
used in its integrated  security  systems and solutions and security  monitoring
services.  The Company has not yet  completely  determined the Y2K compliance of
the equipment Foreline installed, services, or monitors.
This process is less than ten percent completed.

             The  Company  is in  the  process  of  gathering  information  from
material vendors and service  providers as to their Y2K compliance.  The Company
expects to have initial  responses to its inquiries by year end 1998.  Among the
Company's  material  service  providers  and  vendors  are Sears  Credit  (which
provides  financing  for most of Diamond  Exteriors's  customers),  AT&T  (which
provides voice  telecommunication  services),  MCI WorldCom (which provides data
telecommunication  service)  and ABC Supply Co.  (which  supplies a  substantial
amount of the material used in installations by Diamond Exteriors).

Costs

             To date, costs have been minimal.  Reeves's Y2K costs are less than
$100  thousand,  with  a  total  estimated  cost  of  $125  thousand  (excluding
Foreline).  Y2K costs for Foreline are harder to predict at this time due to the
early stages of the assessment phase. Potential expenditures are not expected to
exceed $100  thousand.  The rest of the Company's  costs are  approximately  $50
thousand, with total estimated cost of $150 thousand.



Risks and Contingency Plans

             Due to  the  low-tech  nature  of the  installed  home  improvement
industry,  the risk to the Company and its subsidiaries of Y2K non-compliance is
not  expected to be great.  With the  exception of some  numerically  controlled
machinery  in Reeves,  and of the  security  systems  installed,  monitored  and
serviced by Foreline,  there are few date-sensitive machines under the Company's
control that would impact the Company's daily business. The computer systems are
being upgraded at Reeves. Diamond Exteriors has replaced or is in the process of
replacing all key systems as part of an I/T  initiative.  This is expected to be
complete by the first  quarter  1999.  The major  exposure  comes from  critical
vendors to the Company.  The Company is still in the process of identifying  its
critical  vendors and  service  providers.  Unless one or more of the  Company's
material  vendors or suppliers is not Y2K  compliant,  the Company's most likely
worst-case scenario is that an undetermined number of the instruments  installed
and/or  supplied  by  Foreline  are not Y2K  compliant.  The Company has not yet
developed  contingency  plans with respect to each of its  critical  vendors and
service  providers,  should  that  vendor's  or  supplier's  failure  to be  Y2K
compliant  by December  31, 1999  render it unable in all  material  respects to
comply  with  its  obligations  to the  Company.  The  Company  expects  to have
contingency plans by the third quarter 1999.

Certain statements  contained herein,  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. Such
forward-looking  statements involve known or unknown risks,  including,  but not
limited to, general  economic and business  conditions,  matters  related to the
licensing agreement between Diamond Exteriors,  Inc. and Sears, Roebuck and Co.,
the extent of Year 2000 issues and Company's ability to respond to those issues,
warranty  exposure,  the  Company's  reliance  on  sales  associates  and on the
availability  of  qualified  independent  installers,   and  conditions  in  the
installed home improvement industry,  including, without limitation, the fencing
and perimeter  security  products  business.  There can be no assurance that the
actual future results, performance, or achievements expressed or implied by such
forward-looking  statements will occur. Users of forward-looking  statements are
encouraged  to review Item 7 of the  Company's  1997 annual report on Form 10-K,
its filings on Form 10-Q,  management's discussion and analysis in the Company's
1997 annual report to stockholders, the Company's filings on Form 8-K, and other
federal securities law filings for a description of other important factors that
may  affect  the  Company's  business,   results  of  operations  and  financial
condition.





                           PART II. OTHER INFORMATION

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

          (a) As of September 30, 1998,  the Company was not in compliance  with
the EBITDA  coverage ratio required under the terms of the Company's  syndicated
secured bank credit facility (the "Credit  Agreement").  Such non-compliance has
been waived by the lenders as of September 30, 1998; provided, however, that the
effectiveness  of the waiver is subject to and  contingent  upon the Company and
the lenders  entering  into an amendment  to the Credit  Agreement no later than
December 31, 1998 modifying certain financial covenants of the Company.


ITEM 6.  EXHIBITS

             (a)  Exhibits

                         (10.1)      First Amendment to Credit  Agreement.
                         (10.2)      Second Amendment to Credit  Agreement.
                         (27)        Financial Data Schedule.

             (b) No reports on Form 8-K were filed during the quarter.



                                   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.


                                             DIAMOND HOME SERVICES, INC.




                                                  /S/ Richard G. Reece
Date:  November 16, 1998
                                             By:_________________________
                                               Richard G. Reece
                                               Vice President and
                                               Chief Financial Officer
                                               (For the Registrant and as
                                               Principal Financial Officer)