================================================================================
                                   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 March 31, 1999

                                       OR

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


               For the transition period from _______ to _________

                         Commission File Number 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 April
30, 1999, the latest practicable date, was 8,507,375 shares.


<PAGE>


                          PART I. FINANCIAL INFORMATION
                          -----------------------------

ITEM 1. FINANCIAL STATEMENTS
----------------------------


                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                       Three Months Ended
                                                            March 31,
                                                  ------------------------------
                                                      1999            1998
                                                      ----            ----
                                                    (In thousands, except 
                                                         per share data)
Net sales......................................         $56,603         $28,876
Cost of sales..................................          37,534          16,189
                                                  -------------- ---------------
Gross profit...................................          19,069          12,687
Operating expenses:
    Selling, general, and administrative 
    expense ...................................          19,214          12,289
    Restructuring expense......................           1,313              --
    Operating interest expense.................             103              55
    Amortization expense.......................             744             160
                                                  -------------- ---------------
Operating income (loss)........................         (2,305)             183
Interest expense...............................           1,128              --
Interest income and other......................             159             126
                                                  -------------- ---------------
Income (loss) before income taxes..............         (3,274)             309
Income taxes...................................         (1,186)             124
                                                  -------------- ---------------
Net income (loss)..............................        ($2,088)            $185
                                                  ============== ===============

Net income (loss) per share:
     Basic.....................................         ($0.25)           $0.02
                                                  ============== ===============
     Diluted...................................         ($0.25)           $0.02
                                                  ============== ===============
Weighted average number of common 
shares outstanding:
     Basic.....................................           8,507           8,507
                                                  ============== ===============
     Diluted...................................           8,507           8,507
                                                  ============== ===============

See accompanying notes.


<PAGE>

<TABLE>

                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                               MARCH 31,          December 31, 
                                                                                 1999                1998
                                                                       --------------------    -------------------
                                                                           (Unaudited)
                                                                                     (In thousands)
                                                     ASSETS
<S>                                                                                 <C>                    <C>   
Current assets
  Cash and cash equivalents.....................................                    $5,398                 $5,104
  Accounts receivable, net......................................                    21,044                 22,138
  Inventories, net..............................................                    16,196                 15,771
  Refundable income taxes.......................................                     2,294                  1,297
  Prepaids  and other current assets............................                     3,859                  3,994
  Deferred income taxes.........................................                     1,985                  1,500
                                                                       --------------------    -------------------
Total current assets............................................                    50,776                 49,804

Finance company accounts receivable, net........................                     9,632                 10,011

Net property, plant and equipment...............................                    20,662                 20,812
Intangible assets, net..........................................                    38,103                 38,981
Other...........................................................                     6,333                  6,521
                                                                       --------------------    -------------------
Total assets....................................................                  $125,506               $126,129
                                                                       ====================    ===================

                                   LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities
  Due to bank and current portion of long-term debt.............                   $11,488                $10,225
  Accounts payable and accrued liabilities......................                    24,443                 22,181
  Deferred revenue..............................................                     1,029                  1,621
                                                                       --------------------    -------------------
Total current liabilities.......................................                    36,960                 34,027
Long-term liabilities:
  Long-term debt................................................                    43,134                 44,705
  Warranty and retention........................................                    10,878                 10,851
  Deferred income taxes.........................................                       286                    267
  Other.........................................................                     1,917                  1,867
                                                                       --------------------    -------------------
Total long-term liabilities.....................................                    56,215                 57,690
Common stockholders' equity.....................................                    32,331                 34,412
                                                                       --------------------    -------------------
Total liabilities and common stockholders' equity...............                  $125,506               $126,129
                                                                       ====================    ===================
See accompanying notes.

</TABLE>

<PAGE>

<TABLE>

                  DIAMOND HOME SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<CAPTION>

                                                                                                  Three Months Ended
                                                                                                       March 31,
                                                                                               -------------------------
                                                                                                    (In thousands)
                                                                                                  1999          1998
                                                                                                  ----          ----
<S>                                                                                               <C>              <C> 
Net income (loss)..........................................................................       ($2,088)         $185
   Adjustments to reconcile net income (loss) to net cash provided by (used in) 
      operating activities:
      Depreciation and amortization........................................................          1,431          263
      Deferred income taxes................................................................          (466)        (467)
      Other................................................................................          (149)           --
       Changes in operating assets and liabilities:
        Accounts receivable and other assets...............................................          1,160      (1,752)
        Inventories........................................................................          (425)           --
        Accounts payable and accrued expenses..............................................          2,262        (453)
        Deferred revenues..................................................................          (592)           --
        Warranty and retention.............................................................             27          194
                                                                                               ------------  -----------
   Net cash provided by (used in) operating activities.....................................          1,160      (2,030)
Investing activities:
    Consumer finance loans originated, net of collections..................................            379        (936)
    Other                                                                                            (407)        (288)
    Capital expenditures, net..............................................................          (537)        (365)
                                                                                               ------------  -----------
    Net cash used in investing activities..................................................          (565)      (1,589)
Financing activities:
     Advances under revolving credit agreement, net........................................            100           --
    Payments of term debt and capital leases...............................................          (280)           --
    Borrowings on finance company bank line of credit, net.................................             --        1,250
    Payments on notes receivable from officers for treasury stock and other................              7           28
    Payments due to stockholders...........................................................          (128)        (145)
                                                                                               ------------  -----------
    Net cash provided by (used in) financing activities....................................          (301)        1,133
    Net increase (decrease) in cash and cash equivalents...................................            294      (2,486)
    Cash and cash equivalents at beginning of period.......................................          5,104        9,966
                                                                                               ------------  -----------
     Cash and cash equivalents at end of period............................................         $5,398       $7,480
                                                                                               ------------  -----------
   Supplemental cash flow disclosure:
     Interest paid.........................................................................         $1,020          $55
                                                                                               ============  ===========
     Income taxes paid.....................................................................             $2          $--
                                                                                               ============  ===========
See accompanying notes.

</TABLE>

<PAGE>


                  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  period  ended  March 31,  1999 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1999. For further information,  refer to the consolidated financial
statements  included in the  Company's  1998 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.
             These condensed  consolidated  financial statements include Diamond
Home Services,  Inc. (the  "Company") and its  subsidiaries  Diamond  Exteriors,
Inc.(R)  ("Exteriors"),  Reeves Southeastern  Corporation  ("Reeves"),  Marquise
Financial Services,  Inc. ("Marquise"),  and Solitaire Heating and Cooling, Inc.
d/b/a KanTel(TM) ("KanTel").

2.           CONSUMER FINANCING

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


<TABLE>

                                                               March 31, 1999              December 31, 1998
                                                           -----------------------    ----------------------------
                                                                   (Unaudited)
<S>                                                                     <C>                            <C>       
ASSETS:
Cash.....................................................                $921,000                        $343,000
Financing receivables, net...............................               9,632,000                      10,011,000
Other assets.............................................               1,250,000                       1,237,000
                                                           -----------------------    ----------------------------
Total assets.............................................             $11,803,000                     $11,591,000
                                                           =======================    ============================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Due to Bank..............................................              $4,525,000                      $4,525,000
Due to Diamond Exteriors, Inc............................               6,871,000                       6,724,000
Other....................................................                 120,000                          74,000
                                                           -----------------------    ----------------------------
Total liabilities........................................              11,516,000                      11,323,000
Total stockholder's equity...............................                 287,000                         268,000
                                                           -----------------------    ----------------------------
Total liabilities and stockholder's equity...............             $11,803,000                     $11,591,000
                                                           =======================    ============================

</TABLE>

<PAGE>


         Results of  operations  for the three  months  ended March 31, 1999 and
1998, respectively:

<TABLE>

                                                                Three Months Ended March 31,
                                                       ------------------------------------------------
                                                                1999                     1998
                                                                ----                     ----
                                                                         (Unaudited)
<S>                                                                   <C>                     <C>     
Financing income....................................                  $394,000                $375,000
General and administrative expenses (1).............                   475,000                 457,000
                                                       ------------------------ -----------------------
Loss before tax benefit.............................                    81,000                  82,000
Income tax benefit..................................                    30,000                  33,000
                                                       ------------------------ -----------------------
Net loss............................................                   $51,000                 $49,000
                                                       ======================== =======================

(1)  Includes  interest  expense  paid to the Company and  provision  for credit
     losses.

</TABLE>

         Cash  flow  for the  three  months  ended  March  31,  1999  and  1998,
respectively:

<TABLE>

                                                                       Three Months Ended March 31,
                                                                 ----------------------------------------
                                                                     1999                     1998
                                                                 --------------         -----------------
                                                                               (Unaudited)
<S>                                                                   <C>                        <C>    
Cash at beginning of period.....................................      $343,000                   $23,000
Net cash used in operating activities...........................      (20,000)                  (82,000)
Net cash provided by (used in) investing activities.............       381,000                 (815,000)
Net cash provided by financing activities.......................       217,000                 1,183,000
                                                                 --------------         -----------------
Cash at end of period...........................................      $921,000                  $309,000
                                                                 ==============         =================
</TABLE>

             At March 31, 1999,  Marquise  had  approximately  $600  thousand in
approved but not funded loan commitments.

3.       ACQUISITIONS

             On April 20, 1998, the Company purchased all the outstanding shares
of Reeves  for an  aggregate  consideration  of  $42,621,000  consisting  of: 1)
$30,000,000 cash at closing; 2) $3,413,000 non-interest bearing notes payable in
installments  through June 2000;  3)  $7,708,000 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.
         On November  16, 1998 the Company  acquired  certain net assets and the
telephone  lead-taking  operation and  telemarketing  business of H.I.,  Inc., a
related party,  for an aggregate  purchase price of $2,398,000  (including  $100
thousand in transaction  costs) consisting of $1,498,000 net cash at closing and
$900 thousand in 5% contingent convertible subordinated notes due October 2005.
         Based on the terms of the transactions,  the acquisitions are accounted
for as a purchase,  in accordance with Accounting  Principles  Board Opinion No.
16. Accordingly,  the accompanying consolidated statements of operations include
Reeves's and KanTel's results of operations  since the date of acquisition.  The
Company revalued the basis of Reeves's and KanTel's  acquired assets and assumed



<PAGE>


liabilities to fair value at the date of purchase. The purchase prices of Reeves
and  KanTel  are  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  amortized  over a
period  of 40 years  for  Reeves  and 7 years  for  KanTel.  The  allocation  of
acquisition purchase price is as follows:

                 Purchase price                                 $43,419,000
                 Transaction costs                                1,600,000
                                                         -------------------
                 Total purchase price                           $45,019,000
                                                         ===================

                 Fair value of assets acquired                  $63,072,000
                 Goodwill                                        10,661,000
                 Liabilities assumed                           (28,714,000)
                                                         -------------------
                 Total                                          $45,019,000
                                                         ===================

         The  following  unaudited  pro forma  information  for the three months
ended March 31, 1998 reflects the results of the  Company's  operation as if the
acquisitions had occurred at the beginning of the period presented adjusted,  in
the case of Reeves,  for 1) the effect of the recurring  charges  related to the
acquisition, primarily the amortization of goodwill and other intangible assets,
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.

                                              Three Months Ended March 31,
                                                    1999          1998
                                                    ----          ----
         Revenues                               $56,603,000         $52,778,000
         Net loss                               (2,088,000)           (350,000)
         Net loss per share - diluted               ($0.25)             ($0.04)

         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  acquisitions  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.


<PAGE>



4.           INVENTORIES

             The  components of  inventories  at March 31, 1999 and December 31,
1998 are as follows:
     
                                                  March 31,       December 31, 
                                                    1999             1998
                                          ------------------------------------
                 Raw materials                    $630,000           $449,000
                 Work in progress                  854,000            861,000
                 Finished goods                 14,712,000         14,461,000
                                          ------------------------------------
                 Total                         $16,196,000        $15,771,000
                                          ====================================

5.       SEGMENT DATA

         With the  acquisition of Reeves in April 1998, the Company  operates in
two industry segments and solely in the U.S.:  installed home improvements,  and
manufacturing and wholesale  distribution.  The industry segments are defined as
follows:

Installed Home Improvements
Selling,  furnishing and arranging the installation of roofing systems, gutters,
fencing,  doors  and  related  installed  exterior  home  improvement  products;
financing of installed home  improvements;  and  lead-taking  and  telemarketing
operations.

Manufacturing and Wholesale Distribution
Manufacturing of chain-link fencing; wholesale distribution of chain-link, wood,
PVC and ornamental fencing and related products;  installation,  maintenance and
monitoring of perimeter security products and services.

         Inter-segment  sales are  generally  recorded at market.  Income (loss)
from  operations  by  segment  consists  of net sales less  operating  costs and
expenses  including  costs of  borrowed  funds,  income  and  general  corporate
expenses that are traceable to the business segment.
         Income from  operations  and earnings  before  interest,  income taxes,
depreciation and  amortization  for the installed home  improvement  segment for
1999  includes a pretax  charge of  $1,313,000  for  restructuring  and  related
expenses.


<PAGE>



                                                   MARCH 31,       March 31, 
                                                     1999             1999
                                               ---------------- ----------------
Net sales
     Installed Home Improvements                   $28,878,000      $28,876,000
     Manufacturing and Distribution                 27,725,000               --
                                               ---------------- ----------------
                                                    56,603,000       28,876,000
Inter-segment sales:
     Manufacturing and Distribution                    898,000               --
     Eliminations                                    (898,000)               --
                                               ---------------- ----------------
     Net Sales                                     $56,603,000      $28,876,000
                                               ================ ================

Pre-tax income
     Installed Home Improvements                  ($2,508,000)         $309,000
     Manufacturing and Distribution                  (766,000)               --
                                               ---------------- ----------------
                                                  ($3,274,000)         $309,000
                                               ================ ================

Depreciation and amortization expense
     Installed Home Improvements                      $647,000         $263,000
     Manufacturing and distribution                    784,000               --
                                               ---------------- ----------------
                                                    $1,431,000         $263,000
                                               ================ ================

Additions to property, plant, and equipment
     Installed home improvements                      $355,000         $365,000
     Manufacturing and distribution                    182,000               --
                                               ---------------- ----------------
                                                      $537,000         $365,000
                                               ================ ================

Earnings (Loss) before interest, income
   taxes, depreciation and amortization
     Installed home improvements                  ($1,724,000)         $446,000
     Manufacturing and distribution                  1,009,000               --
                                               ---------------- ----------------
                                                    ($715,000)         $446,000
                                               ================ ================

             The Company'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  quarters of each year.  The Company
believes  that this  seasonality  is caused by winter  weather in certain of the
Company's  markets  located in the  northeastern  and north  central U.S. and by
rainy weather,  each of which limits the Company's  ability to install  exterior
home improvement products;  and demand for commercial and industrial fencing and
related products.



<PAGE>


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

RESULTS OF OPERATIONS

FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998

Net Sales

             Net sales increased $27.7 million, or 96.0%, from $28.9 million for
the first  quarter  1998 to $56.6  million for the first  quarter  1999.  Reeves
contributed $27.7 million to net sales for the first quarter 1999.

             Installed Home Improvements

             Installed  home  improvement  product  sales  remained  consistent,
totaling  $28.9 million for the first  quarter of both 1999 and 1998.  Net sales
attributable to roofing and gutter products and services increased $85 thousand,
or 0.5%, to $18.7 million in the first quarter 1999. Net sales  attributable  to
fencing products and services  decreased $71 thousand,  or 1.8%, to $3.8 million
in the first quarter of 1999.  Net sales  attributable  to garage  doors,  entry
doors, and other products and services decreased $172 thousand, or 3.0%, to $5.5
million in the first quarter 1999.  Credit  participation  fee income  increased
$138  thousand to $494  thousand in the first  quarter  1999.  Finance  interest
income  increased $22 thousand to $397 thousand on  receivables  financed by the
Company's finance subsidiary,  Marquise.  Backlog,  defined as jobs sold but not
installed, decreased $2.6 million from $13.9 million at the end of December 1998
to $11.3 million at the end of the first quarter 1999.  Backlog  increased  $1.2
million from $10.9  million at the end of December  1997 to $12.1 million at the
end of the first quarter 1998.

             Manufacturing and Wholesale Distribution

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

                 Chain link and accessories                     $18,436,000
                 Wood                                             3,207,000
                 Ornamental/specialty                             1,813,000
                 Gate operators and access control                1,768,000
                 Security systems                                 3,399,000
                                                           -----------------
                                                                 28,623,000
                 Less:  inter-segment sales                       (898,000)
                                                           -----------------
                                                                $27,725,000
                                                           =================

             Manufacturing and wholesale distribution sales were 16% higher than
the  comparable  prior  period.  The quarter was impacted by higher sales in all


<PAGE>


major products and a significant  improvement  in the New York market.  Backlog,
defined as orders placed but not delivered,  was  approximately  $3.6 million at
March 31, 1999.

Gross Profit

             Gross profit increased $6.4 million,  or 50.3%, from $12.7 million,
or 43.9% of net sales, for the first quarter 1998 to $19.1 million,  or 33.7% of
net sales, for the first quarter 1999. Reeves  contributed $6.6 million to gross
profit in the first quarter 1999 on net sales, including inter-segment sales, of
$28.6 million.

             Installed Home Improvements

             Installed  home  improvement  product gross profit  decreased  $173
thousand,  or 1.4%, from $12.7 million,  or 43.9% of installed home  improvement
product  sales,  for the  first  quarter  1998 to  $12.5  million,  or  43.3% of
installed  home  improvement  product  sales,  for the first quarter  1999.  The
decrease in gross profit amount and the decrease in gross profit  expressed as a
percentage of installed home improvement  product sales were  attributable to an
increase in total  allowances and a decrease in total jobs installed,  primarily
"furnished and  installed"  jobs directed by Sears,  Roebuck and Co.,  partially
offset by higher average sales prices and increases in credit  participation fee
income and finance interest  income.  The license fee incurred to Sears remained
constant at $2.9 million,  or 10.4% 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 first
quarter 1998,  compared to 10.5% of net installed home improvement product sales
for the first quarter 1999.  On January 1, 1996,  Sears and the Company  entered
into an agreement  which has been  extended  through June 30, 1999.  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 $319 thousand,  or 2.1%, from $14.9 million,  or 52.9%
of net installed home  improvement  product sales, for the first quarter 1998 to
$14.6 million, or 52.0% of net installed home improvement product sales, for the
first quarter 1999. The unit costs of material,  installation labor and warranty
expense remained relatively constant during the quarterly period.

             Manufacturing and Wholesale Distribution

             Manufacturing  and  wholesale  distribution  gross  profit was $6.6
million or 22.9% of gross (before inter-segment  elimination)  manufacturing and
wholesale  distribution revenue. Gross profit, as a percentage of segment sales,
improved over the year-ago quarter index of 22.2%.

Selling, General and Administrative Expenses

             Selling,   general  and  administrative   expenses  increased  $6.9
million, or 56.4%, from $12.3 million in the first quarter 1998 to $19.2 million
in the first  quarter 1999 and, as a  percentage  of net sales,  decreased  from
42.6% to  33.9%.  Reeves  contributed  $5.8  million  in  selling,  general  and
administrative expense in the first quarter 1999.


<PAGE>



             Installed Home Improvements

             Selling,  general  and  administrative  expenses  for this  segment
increased $1.2 million, or 9.8%, from $12.3 million in the first quarter 1998 to
$13.5 million in the first  quarter 1999 and, as a percentage of installed  home
improvement sales,  increased from 42.7% to 46.9%.  Direct  advertising  expense
increased $490 thousand,  or 38.4%, from $1.3 million for the first quarter 1998
to $1.8 million for the first  quarter  1999;  as a percentage  of net installed
sales, direct advertising expense increased from 4.5% for the first quarter 1998
to 6.3% for the first quarter 1999,  reflecting  partial carry-over into January
1999 of  advertising  placements  for high-cost  pay-per-lead  ad placements and
reduced  close  ratios,   partially   offset  by  above-plan   lead   generating
effectiveness of ad placements.  Selling commission expense, including attendant
payroll-related benefits, decreased $138 thousand, or 4.9%, from $2.8 million in
the  first  quarter  1998  to $2.7  million  in the  first  quarter  1999;  as a
percentage of net installed sales,  selling  commission  expense  decreased from
9.9% to 9.5% in the first quarter 1999. Sales  representatives  were 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 remained relatively constant at $100 thousand. Effective
May  1,  1999,  as  part  of  the  restructuring  initiative,  the  compensation
arrangement  for  home  consultants,   sales  managers,   and  field  operations
management has been changed to include  minimum draws and fixed auto  allowances
offset by lower  commission  rates.  The  purpose  of the  change is to  improve
recruiting and retention of field personnel. The balance of selling, general and
administrative   expenses,    primarily   sales   lead-generation    activities,
administrative,  field  operations  and Marquise  payrolls and related costs and
general expenses, increased $852 thousand, or 10.4%, from $8.1 million, or 28.1%
of net segment sales, in the first quarter 1998 to $9.0 million, or 32.2% of net
segment sales, in the first quarter 1999. Included in general and administrative
expenses in the first quarter 1999 are information  technology-related  expenses
approximating $450 thousand not included in the first quarter 1998.  Information
technology  expenses are  expected to continue  into the second  quarter  before
expected benefits may be realized.

             Manufacturing and Wholesale Distribution

             Selling,  general,  and  administrative  expenses  for this segment
includes selling expenses of $4.6 million representing the operations, primarily
payroll  and  related  costs,   and  facilities  and  equipment   costs,  of  32
distribution centers and $1.1 million of general and administrative expenses.

Restructuring Expense

             During the first quarter 1999, the Company  recorded a $1.3 million
pre-tax charge for  restructuring  and related  activities in its installed home
improvements  segment.  The $1.3 million charge was comprised of a $759 thousand
charge for severance and employee  retention  incentive bonuses, a $314 thousand
charge for restructuring  consultancy and related expenses,  and a $240 thousand
charge for out-of-pocket expenses related to restructuring  implementation.  The
first quarter 1999  restructuring  charge was approximately $300 thousand higher
than initial  estimates  necessitated by the need to both hold to and accelerate
the restructuring timetable.


<PAGE>


             At March 31, 1999,  the  allowance  for  restructuring  expense was
approximately $800 thousand.

Operating Interest Expense

             Operating  interest expense increased from $55 in the first quarter
1998 to $103  thousand in the first  quarter  1999.  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  $584  thousand  from $160
thousand in the first  quarter 1998 to $744  thousand in the first quarter 1999.
The amortization  expense relates  primarily to goodwill  incurred in connection
with the September 1994 stock repurchase from management and the amortization of
intangibles,  including  goodwill and covenants  not to compete,  related to the
Reeves  acquisition in April 1998 and to a lesser extent the Kantel  acquisition
in November 1998.

Interest Expense

             Interest  expense  increased  from $0 in the first  quarter 1998 to
$1.1  million in the first  quarter  1999.  This  increase  relates to  interest
expense  incurred  related to the debt associated with the acquisition of Reeves
and to a lesser  extent to working  capital  requirements  related to Reeves and
capitalized leases related to the Company's new information technology systems.

Interest Income and Other

             Interest  income  increased  $33 thousand from $126 thousand in the
first quarter 1998 to $159 thousand in the first quarter 1999,  primarily due to
finance  income on Reeves's  trade  receivables  partially  offset by  decreased
interest income from lower invested cash balances.

Income Tax Provision

             The Company's income tax provision decreased from $124 thousand, or
an effective rate of 40.1%,  for the first quarter 1998 to an income tax benefit
of $1.2 million,  or an effective rate of 36.2%, for the first quarter 1999. The
difference in the effective income tax rate and the federal statutory rate (34%)
is due primarily to  amortization  of certain  intangibles  (which  increased in
1999) which are not deductible for federal income tax purposes and the effect of
state income taxes.


<PAGE>


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,  and, more
recently,  to fund new  information  technology  systems and  acquisitions.  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  manufacturing  and  wholesale
distribution businesses require minimal levels of capital expenditures while its
installed  home  improvement  businesses  are  not  capital  intensive.  Capital
expenditures  for  first  three  months  1999  and  years  1998  and  1997  were
approximately  $537  thousand,  $3.8 million,  and $4.3  million,  respectively.
Capital  expenditures  for  1999  are  expected  to  approximate  $3.2  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 capital  leases.  During
1997,  the Company  announced a stock  repurchase  program to  repurchase  up to
1,000,000 shares of its common stock.  During the second and third quarters 1997
the Company purchased  572,300 shares of its common stock for $4.7 million.  The
Company's bank credit facilities  impose certain  restrictions on the repurchase
of common stock.
             On April 20,  1998,  the  Company  acquired  all of the  issued and
outstanding  stock  of  Reeves  for  approximately   $42.6  million,   including
transaction expenses. In November, 1998, the Company acquired certain net assets
and the business of KanTel, the lead-taking and telemarketing  operation of H.I.
Inc., a related party,  for  approximately  $2.4 million in cash and convertible
subordinated  notes.  In  connection  with the Reeves  acquisition,  the Company
obtained a $42 million secured syndicated bank credit facility.
             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,
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.
Marquise's  primary  objective  is  to  support,  along  with  other  designated
third-party finance companies, the Company's requirement for providing financing
to its installed home improvement  businesses's customers. In the fourth quarter
1996,  as a follow-on  objective  to  expanding  Marquise'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  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  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



<PAGE>


principal amount of individual  receivables  purchased by Marquise from entities
other  than the  Company  may  significantly  exceed the  average  amount of all
receivables owned by Marquise.  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 has
been  capitalized and funded with the Company's  excess  operating cash flow and
borrowings under the Company's bank lines of credit. In December 1997,  Marquise
obtained a $10  million  secured  line of credit  and,  at March 31,  1999,  had
borrowed  $4.5  million.  At March 31,  1999,  Marquise has  approximately  $9.6
million  in  net  finance   receivables.   At  March  31,  1999,   Marquise  had
approximately  $600  thousand  in  outstanding  commitments  of the fixed  rate,
secured loans. The Company anticipates that its existing cash balances, the bank
lines of credit,  the sale of Marquise's  consumer loan finance  receivables  as
market  conditions  may warrant  from time to time and excess cash flow from its
installed  home  improvement  businesses  will  be  sufficient  to  satisfy  the
Company's consumer financing cash requirements in the foreseeable future.
             From its  inception in June 1993,  the Company has  generated  cash
flow from operations of approximately $28.2 million.  Cash flows from operations
have  been  used  to fund  and  leverage  the  Company's  investing  activities,
including  acquisitions,  Marquise  consumer  lending  activities,  and  capital
expenditures; and its financing activities, including the repurchase of 42.2% of
common stock in September 1994 from management, and repurchase of 6.3% of common
stock in 1997. At March 31, 1999, the Company had approximately $26.4 million in
cash and cash equivalents and trade receivables and net working capital of $15.3
million.  At March 31,  1999,  the  Company  had  $54.6  million  in total  debt
including $41.4 million borrowed under its bank lines of credit.

YEAR 2000 STATE OF READINESS
         Please refer to the Company's 1998 Management's Discussion and Analysis
of Financial  Condition  and Results of  Operations  included in its 1998 Annual
Report to Shareholders for a detailed  description of the Company's  approach to
and  organization of the Year 2000 ("Y2K")  problem.  The  information  provided
below  constitutes a "Year 2000 Readiness  Disclosure"  for purposes of the Year
2000 Information Readiness and Disclosure Act.
         The  Company  expects  to  implement   successfully   the  systems  and
programming  changes  necessary to address Y2K internal IT and non-IT  readiness
issues.  While the  Company  does not  believe  that the costs  associated  with
preparing for Y2K readiness will have a material adverse affect on the Company's
results of operations and financial  condition,  there can be no assurances that
there  will  be  no  delay  in,  or  increased   costs   associated   with,  the
implementation of such changes required for readiness.
         The  Company's  target  is to  ensure  that  all  applications  are Y2K
compliant by June 30, 1999. The assessment, planning, and preparation phases are
substantially  complete.  As of April  30,  1999,  the  implementation  phase is
approximately 85% complete and costs incurred through March 31, 1999 approximate
$250,000.  Total costs for Y2K readiness are estimated to range from $300,000 to
$400,000.  The Company's  programs for purchasing  hardware and software,  which
began  in  early  1997,  have  addressed  many  Y2K  issues.  The  Company's  IT
initiatives  have  replaced  substantially  all key  software  with new industry
software,   such  as  Oracle  ERP   applications  and  Vantive  for  lead-taking
activities,  and have  installed  new hardware  such as Compaq and Bay Networks.
Reeves, a key subsidiary,  has completed the upgrading of its AS/400 BPCS system
to a Y2K-certified revision of the software.



<PAGE>


         The low-tech  nature of the Company's  products and services  minimizes
the risk of Y2K compliance  except for the Company's  Foreline  subsidiary.  The
cost of the readiness  program for security  products is not significant nor are
future readiness product costs, including customer satisfaction,  expected to be
significant.
         The Company has developed a Y2K process for dealing with key suppliers,
third-party finance companies, distributors and other business partners. As part
of its Y2K readiness, the Company is preparing to replace suppliers or eliminate
suppliers from consideration, which to date it has not done, for new business if
the supplier is not prepared for Y2K.
         The  Company  is  working  to  identify  and  analyze  the most  likely
worst-case  scenarios  for  third-party  relationships  affected  by Y2K.  These
scenarios  could include  possible  infrastructure  collapse,  for example,  the
failure  of power and water  supplies,  transportation  disruptions,  unforeseen
product shortages due to hoarding of products and failure of communications  and
financial  systems - any of which could have a material  effect on the Company's
ability to deliver its products and services to its customers. While the Company
has contingency plans for most issues under its control, infrastructure problems
outside its control,  such as product  supplies and third-party  financing could
result in delays in  delivering  its product  and  services.  The Company  would
expect  that most  utilities  and  service  providers  would be able to  restore
service  within days although more pervasive  system  problems for suppliers and
finance  companies  could  last for two to four weeks or more  depending  on the
completion of the systems and the effectiveness of their contingency plans.
         There is no  assurance,  despite its Y2K  readiness  efforts,  that the
Company  will be  successful  in its  efforts to  identify  and  address all Y2K
issues.  Even if the  Company  were to  complete  all  its  assessment  efforts,
implement  remediation  plans  believed to be adequate  and develop  contingency
plans  believed to be adequate,  problems may not be  identified or corrected in
time to prevent adverse consequences to the Company.  The foregoing  discussions
regarding  estimated  completion dates,  costs, risks and other  forward-looking
statements  regarding  Y2K are  based  on the  Company's  best  estimates  given
information that is currently available and is subject to change. Actual results
may differ materially from these estimates.

Seasonality
             The Company'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 year.  The  Company
believes  that this  seasonality  is caused by winter  weather in certain of the
Company's  markets  located in the  northeastern  and north  central U.S. and by
rainy weather,  each of which limits the Company's  ability to install  exterior
home improvement products including demand for commercial and industrial fencing
and related products.

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, as
amended.  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., warranty  exposure,  the Company's reliance on home consultants
and on the availability of qualified independent  installers,  lead activity and



<PAGE>


costs  related  thereto,  and  conditions  in  the  installed  home  improvement
industry. 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  most recent annual report on Form 10-K, its filings on Form 10-Q,
management's  discussion and analysis in the Company's most recent 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.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
--------------------------------------------------------------------

             No material changes from the disclosures in the Company's Form 10-K
for the fiscal year ended December 31, 1998.


<PAGE>


                           PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS

             (a)  Exhibits

                         (27)        Financial Data Schedule.

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


<PAGE>



                                   Signatures


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


                                                 DIAMOND HOME SERVICES, INC.




                                                   /S/ Richard G. Reece
Date:  May 13, 1999
                                             By:_________________________
                                                Richard G. Reece
                                                Vice President and
                                                Chief Financial Officer
                                                (For the Registrant and as
                                                Principal Financial Officer)