<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion should be read in conjunction with the
audited Consolidated Financial Statements and the notes thereto.
     Certain information presented herein includes "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. However, there can be no assurance that the
Company's actual results will not differ materially from its
expectations. The matters referred to in forward-looking statements may
be affected by risks and uncertainties affecting the Company's business.

Continuing Operations
     During the last several years, the Company has devoted substantial
resources to its sales and marketing efforts, developed new markets and
distribution networks for its products and implemented an aggressive
program of new product introductions. Significant resources have also
been devoted to developing and enlarging the Company's direct factory
sales force.
     The following table sets forth, for the periods presented, certain
information relating to the continuing operations of the Company,
expressed as a percentage of net sales:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Operating Results as a Percentage of Sales                         October 31, 1998        November 1, 1997        November 2, 1996
 ...................................................................................................................................
<S>                                                                      <C>                     <C>                     <C>
Net sales                                                                100.0%                  100.0%                  100.0%
 ...................................................................................................................................
Cost of sales, including nonrecurring items                               71.8                    70.3                    68.6
 ...................................................................................................................................
Special and nonrecurring items                                              .2                     3.3                      --
 ...................................................................................................................................
Gross margin                                                              28.0                    26.4                    31.4
 ...................................................................................................................................
Selling, general and administrative expenses                              20.6                    19.5                    20.3
 ...................................................................................................................................
Operating profit                                                           7.4                     6.9                    11.1
 ...................................................................................................................................
Interest income (expense), net                                             (.4)                     .1                      .1
 ...................................................................................................................................
Minority interest in consolidated subsidiary                                --                      --                      .1
 ...................................................................................................................................
Earnings from continuing operations before income taxes                    7.0                     7.0                    11.3
 ...................................................................................................................................
Income tax expense                                                         2.6                     2.6                     4.3
 ...................................................................................................................................
Net earnings from continuing operations                                    4.4                     4.4                     7.0
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Information - Before Special and Nonrecurring Items
 ...................................................................................................................................
     Gross margin                                                         30.4%                   29.7%                   31.4%
 ...................................................................................................................................
     Operating profit                                                      9.8                    10.1                    11.1
 ...................................................................................................................................
     Earnings from continuing operations before income taxes               9.5                    10.2                    11.3
 ...................................................................................................................................
     Net earnings from continuing operations                               6.0                     6.4                     7.0
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Net Sales
     In 1998, net sales from continuing operations were $143.4 million,
an increase of 26.9% over 1997 net sales of $113.0 million. The sales
increase over the prior year is primarily the result of the Howe
Furniture Corporation (Howe) acquisition and increased sales to the
hospitality market.
     Net sales from continuing operations in 1997 were $113.0 million,
an increase of 12.2% over 1996 net sales of $100.7 million. The sales
increase over the prior year primarily resulted from increased sales to
the hospitality market, from strong sales of office furniture products
through the Company's Flight network of office furniture dealers and
directly to end-users and from the acquisition of The Chair Source in
late 1996. The 1997 fiscal year included 52 weeks compared with 53 weeks
in 1996, which partially offset the increase in sales.
     Sales were unfavorably impacted by a decline in sales from the
Company's food service market as several of its major customers in this
market segment opened significantly fewer new stores in 1997 than in 1996.
     The Company's strong sales results for both 1998 and 1997 were
favorably impacted by the Company's continued concentration of resources
on sales and marketing programs and new product introductions. During
1997, the Company increased the number of direct sales representatives
that are selling its products from 40 to 48 representatives and during
1998, to further increase the effectiveness of direct sales representatives,
efforts were redirected to have a more specialized market focus.

12
<PAGE>
<PAGE>

Costs and Expenses
     The Company's fiscal year 1998 and 1997 reported operating results
each included special and nonrecurring items associated with various
strategic initiatives the Company has undertaken making direct
comparisons of reported results difficult.
     During 1998, the Company recorded a $4.7 million pre-tax charge,
$2.9 million after-tax or $.32 per share, related to management's
decision to discontinue the Company's hotel casegoods line of business.
The charge entails the writedown of assets, including inventories,
equipment and goodwill, associated with the product line located in the
Tijuana, Mexico facility. Cost of sales includes a $3.3 million pre-tax
charge to write-down the carrying value of inventory. The remaining
components of the charge have been reported in Special and Nonrecurring
Items on the Consolidated Statement of Earnings.
     Also during 1998, the Company recorded a $1.3 million pre-tax
gain, $0.8 million after-tax or $.09 per share, on the sale of the
Company's corporate headquarters building. The gain has been reported in
Special and Nonrecurring Items on the Consolidated Statement of
Earnings.
     During 1997, the Company recorded a pre-tax charge of $3.7
million, $2.3 million after-tax or $.23 per share, for charges
associated with the announced consolidation of the Company's
manufacturing operations at its Anaheim, California and Belding,
Michigan facilities into its City of Industry, California facility and
the elimination of several duplicative and nonperforming wood seating
product lines. These charges are reported in Special and Nonrecurring
Items on the Consolidated Statement of Earnings.
     During the fourth quarter of 1998, the Company recorded additional
pre-tax charges of $0.2 million, $0.1 million after-tax or $.01 per share,
related to the consolidation of the Company's manufacturing facilities
that was announced in 1997. These charges are reported in Special and
Nonrecurring Items on the Consolidated Statement of Earnings.
     In 1998, the Company's gross margin increased to $40.1 million
from $29.8 million in 1997, a 34.5% increase which was primarily due to
increased sales volume. Gross margin as a percent of sales, excluding
the special and nonrecurring items, increased to 30.4% in 1998 from
29.7% in 1997. The increase is primarily due to product mix and
incremental sales from the Howe acquisition which maintained a higher
gross margin percentage than the Company's historical business. In
addition, during the first half of 1998, the Company consolidated the
Belding, Michigan and Anaheim, California facilities into the City of
Industry, California facility to benefit from economies of scale and
further reduce its fixed overhead costs. During the fourth quarter of
1998, the Company began to exit the hotel casegoods market which began
to have a favorable impact on the gross margin percentage during the
quarter.
     The Company's gross margin decreased to $29.8 million in 1997 from
$31.6 million in 1996, a 5.6% decrease primarily due to the special and
nonrecurring items reported in 1997. Gross margin as a percentage of
sales, excluding the special and nonrecurring items, was 29.7%, a
decrease from 31.4% in 1996. The decrease was primarily due to costs
associated with the development of new products manufactured at the
Company's Tijuana, Mexico and Czech Republic plants. Demand for the
Company's lodging product exceeded capacity of the Tijuana plant causing
the Company to outsource certain product components at a higher cost.
The Company has since more than doubled the capacity of the Tijuana
facility.
     Selling, general and administrative expenses were $29.5 million,
$22.0 million and $20.5 million in 1998, 1997 and 1996, respectively.
The overall increase is principally related to the aforementioned
acquisitions, higher level of business and increased sales and marketing
programs including salaries, commissions, travel and literature. As a
percentage of net sales, the expense rate was 20.6% in 1998, 19.5% in
1997 and 20.3% in 1996. The increase in the expense rate in 1998 is
primarily due to the Howe acquisition which previously maintained a
higher expense rate than the Company.
     The decrease in the expense rate in 1997 is primarily due to
efficiencies of higher sales volume, the impact of cost reduction
programs, and lower expenses under the Company's management bonus
program.

Interest and Taxes
     Net interest expense was $619,000 in 1998, compared to net
interest income of $139,000 in 1997 and $95,000 in 1996. The interest
expense in 1998 was due to outstanding borrowings as a result of the
Howe acquisition, while the increase in interest income during 1997 is
due primarily to interest received on the proceeds from the sale of the
William Hodges division in late 1997.
     Income tax expense was $3.7 million, $3.0 million and $4.3 million
in 1998, 1997 and 1996, respectively. The effective income tax rate was
36.8% in 1998, and 38.0% in 1997 and 1996.

Net Earnings
     1998 net earnings from continuing operations increased to $6.4
million, or $.68 per share, from $4.9 million, or $.50 per share in
1997, an increase in earnings and earnings per share of 28.9% and 36.0%,
respectively. In 1998, net earnings were $6.4 million, compared to $12.6
million in 1997, a decrease of 49.7%. Net earnings per share was $.68 in
1998, compared with $1.28 in 1997, a 46.9% decrease. The decrease was
primarily due to the gain recognized from the sale of the William Hodges
division in 1997.
<PAGE>
     Excluding the special and nonrecurring items reported in both 1998
and 1997, net earnings from continuing operations were $8.6 million, or
$.92 per share, compared to $7.2 million, or $.73 per share, in 1997; an
increase in earnings of 18.8% and an increase in earnings per share of
26.0%
     Net earnings totaled $12.6 million in 1997, compared to $8.4
million in 1996, an increase of 49.8%. Earnings per share reached $1.28
in 1997, compared with $.86 in 1996, a 48.8% increase. The increase is
due primarily to an after-tax gain on the sale of the William Hodges
division of $6.8 million,

                                                                      13
<PAGE>
<PAGE>

or $.69 per share, offset partially by an after-tax charge of $2.3
million, or $.23 per share, for costs associated with the strategic
initiatives undertaken in 1997. Excluding the one-time gain on the sale
and the restructuring charge for the strategic initiatives, 1997 net
earnings were $7.2 million, or $.73 per share, compared to $7.0 million,
or $.71 per share, in 1996; increases of 3.1% and 1.4%, respectively.

Liquidity and Capital Resources
     The Company's working capital at October 31, 1998, was $35.8
million and its ratio of current assets to current liabilities was 2.8
to 1.0. Cash provided by operating activities was $0.6 million in 1998
and $3.4 million in 1997. Cash generated from operations in 1998
decreased primarily due to increased payments for accounts payable and
accrued liabilities.
     Cash used by investing activities in 1998 was $17.4 million while
1997 investing activities generated $13.9 million. The change is
primarily due to the Howe acquisition ($16.0 million) in 1998 and the
sale of the William Hodges Division ($17.7 million) in 1997. The Company
invested $6.6 million in 1998 and $3.8 million in 1997 in capital
additions primarily to increase manufacturing capacities and to improve
operating efficiencies, as well as normal recurring capital
replacements. The Company's capital budget for 1999 is approximately
$4.0 million, which will be used primarily to acquire new equipment.
     Cash provided by financing activities was $5.7 million in 1998,
and in 1997, cash used in financing activities was $6.7 million. The
increase in 1998 is due primarily to borrowings under a new loan
agreement. During 1998 and 1997, the Company acquired 567,000 and
500,000, shares of its common stock respectively, at a total cost of
$7.5 million and $7.2 million, respectively. The Company is authorized
to purchase up to 289,000 additional shares of its common stock under
the stock repurchase plan approved by the Board of Directors.
     The Company has a $20.0 million unsecured revolving line of credit
agreement with a commercial bank. The revolving line of credit bears
annual interest at the Company's option, at the Prime Rate, Federal
Funds Rate or LIBOR adjusted for a spread based upon the Company's
leverage ratio, and expires on April 22, 2000. As of October 31, 1998,
the outstanding balance under the revolving line of credit was $16.9
million.
     The Company expects that it will meet its ongoing working capital
and capital requirements from a combination of existing cash, internally
generated funds and available borrowings under its revolving credit
facility. The Company's operating cash flows constitute its primary
internal source of liquidity.
     Generally, inflation has not had a material effect on the Company
in the past, and no such effect is expected in the near future.
Historically, the Company has been able to increase prices to offset
increases in the cost of manufacturing its products, and management
presently believes that the Company will continue to be able to do so.

Recently Issued Accounting Standards
     In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
SOP 98-1 establishes the accounting guidance for the capitalization of
certain internal-use software costs once certain criteria are met. This
accounting standard will be effective for the Company beginning November
1, 1999. The adoption of SOP 98-1 is not expected to have a material
impact on the Company.
     In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activity."
SFAS No. 133 provides comprehensive and consistent standards for the
recognition and measurement of derivative and hedging activities. It
requires that derivatives be recorded on the Consolidated Balance Sheets
at fair value and establishes criteria for hedges of changes in the fair
value of assets, liabilities or firm commitments, hedges of variable
cash flows of forecasted transactions, and hedges of foreign currency
exposures of net investments in foreign operations. Changes in the fair
value of derivatives that do not meet the criteria for hedges would be
recognized in the Consolidated Statement of Earnings. This statement
will be effective for the Company beginning November 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material impact on
the Company.

The Year 2000 Issue
     The year 2000 (Y2K) issue refers to the inability of a date-
sensitive computer program to recognize a two-digit date field
designated "00" as the year 2000. Mistaking "00" for 1900 could result
in a system failure or miscalculations causing disruptions to
operations, including manufacturing, a temporary inability to process
transactions, send invoices or engage in other normal business
activities. This is a significant issue for most, if not all companies,
with far reaching implications, some of which cannot be anticipated or
predicted with any degree of certainty.
     During 1998, the Company began the process of addressing its Y2K
issues. The process includes six steps: 1) plan, 2) inventory, 3)
assess, 4) remediate, 5) test, and 6) develop contingency plans. The
planning phase was completed during 1998 and resulted in the Y2K issues
being managed around four functional areas. The functional areas that
were identified are business applications, supply chain, information
technology (IT) technical infrastructure and customer issues.
<PAGE>
     The Company inventoried and assessed its business applications
during 1998. At that time, the company determined that its current main
application software, Computer Associates PRMS package, was not Y2K
compliant. A Y2K compliant software upgrade version is available and in-
house. Based upon the complexity, number of modifications and custom
programming, the installation of the upgrade is a major project. The
total number of hours required to implement and test the upgrade is
estimated to be approximately 4,000 man hours and will take five to six
months to complete.

14
<PAGE>
<PAGE>

     The Company has identified those companies in the supply chain
which provide materials, products or services that are critical to the
Company's operations. Critical suppliers' Y2K issues are being assessed
through the use of questionnaires and other inquiries.
     The IT technical infrastructure area is primarily comprised of
desktop computer workstations and software, computer networking
infrastructure, host server systems and telecommunication systems. The
inventory and assessment of known long lead-time items has been
completed. Major projects are identified and are scheduled for
completion during 1999. An exhaustive and comprehensive follow-up
investigation of this area is underway to assure no critical components
have been overlooked.
     The Company has been working with customers to address their Y2K
concerns regarding the Company's ability to operate. Any plans to
address the ability of our significant customers to accept our products
after December 31, 1999, will be determined as contingency plans are
developed.
     The Company intends to perform integrated Y2K testing of critical
systems in all functional areas during the second quarter of 1999. Given
the nature of the Company's' manufacturing and other operations, full-
scale integrated testing may not be practical in some areas and,
therefore, may be limited in scope to avoid significant disruption of
the Company's operations. Statements of compliance from vendors and
other compliance evidence are expected to mitigate the risk of not
performing integrated testing in those areas.
     The development of contingency arrangements for all functional
areas is early in the planning stage. Plans will include procedures that
attempt to minimize the impact of any unremediated and unresolved Y2K
issues on the Company's operations and financial position. Initial plans
are expected to be complete by mid-1999 and will continue to be refined
as developments warrant.
     To date, the Company has incurred approximately $100,000 in costs
related to Y2K work. Additional costs to evaluate and remediate the
remaining issues are currently estimated to be in the range of $100,000-
$500,000 and will be expensed as incurred during 1999.
     Based on the status of the Company's work to address its Y2K
issues, management does not expect the Y2K issue to pose significant
operational problems for the Company. However, if the software upgrade
is delayed or the remediation of other issues is not completed timely,
Y2K could have a material adverse effect on the Company, depending on
the nature and extent of any remaining non-compliance. Furthermore, if
the Company's customers and suppliers fail to rectify their Y2K issues
in their own systems the resultant effect on the Company may be
material. Management anticipates that the most reasonably likely worst-
case scenario would involve a temporary shutdown of certain operations.
Through the development of contingency plans, the company expects to
mitigate the effect that any such temporary shutdowns would have on the
Company or third parties.
     The estimated costs and date of completion of Y2K remediation are
based on management's best estimates, which were derived from numerous
assumptions about future events. These assumptions include the
availability of certain resources, third-party modification plans and
other factors. There can be no guarantee that these estimates will be
achieved and actual results could differ materially. Specific factors
that might cause material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the ability
to identify and correct all relevant computer codes, and the cost and
availability of replacements for devices with embedded chips.

European Monetary Union
     On January 1, 1999, eleven member countries of the European Union
adopted the Euro as their common legal currency. Effective that date,
conversion rates between the existing sovereign currency (legacy
currency) of each of these participating countries and the Euro will be
irrevocably fixed, and the Euro will be available for non-cash
transactions. The legacy currencies of these countries will remain legal
tender during a transition period from January 1, 1999 to January 1,
2002. During this transition period, parties may pay for goods and
services using either the Euro or the relevant legacy currency. Currency
conversion will be performed using a method whereby one legacy currency
is converted to the Euro and then to the second legacy currency. The
conversion to the Euro will be completed in July 2002 when the legacy
currencies of the participating member countries cease to be legal
tender.
     While the conversion to the Euro is expected to increase cross-
border price transparency, and therefore stimulate cross-border
competition within the single currency zone created by the participating
countries, the effect on the price of raw materials that the Company
purchases is expected to generally offset the effect on the finished
products it sells. In addition, the conversion to the Euro is expected
to have the positive effect of eliminating currency risk in cross-border
sales.
     The Company has a team in place to identify issues arising from
the implementation of the Euro, plan for the changeover, and communicate
with customers, suppliers, and employees. Information systems will be
updated to allow the method of currency conversion to the requisite
number of decimal places in a timely fashion. If the updates are not
ready, currency conversion will be accomplished manually or through
outsourcing until the updates are installed. The cost of the technological
updates or any interim measures is not expected to be material.
<PAGE>
     For the reasons stated above, management does not expect the
introduction of the Euro to have a material effect on the Company's
business, financial condition, or results of operations. If cross-border
price transparency causes the markets from which the Company purchases
raw materials or to which it sells finished products to behave
differently than management expects, the introduction of the Euro could
have a material effect on the Company.

                                                                      15
<PAGE>
<PAGE>

<TABLE>
Consolidated Statements of Earnings
For the Years Ended October 31, 1998, November 1, 1997, and November 2, 1996

<CAPTION>
--------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                             1998                1997                1996
 ..............................................................................................................

<S>                                                           <C>                 <C>                 <C>
Net sales                                                     $143,426            $113,010            $100,702
Cost of sales, including nonrecurring items                    103,067              79,507              69,125
Special and nonrecurring items                                     271               3,700                  --
 ..............................................................................................................
Gross margin                                                    40,088              29,803              31,577
Selling, general and administrative expenses                    29,482              22,044              20,469
 ..............................................................................................................
Operating profit                                                10,606               7,759              11,108
Interest income (expense), net; including interest income of
   $264, $228 and $263, respectively                              (619)                139                  95
Minority interest in consolidated subsidiary                        64                  47                  89
 ..............................................................................................................
Earnings from continuing operations before income taxes         10,051               7,945              11,292
Income tax expense                                               3,701               3,019               4,291
 ..............................................................................................................
Net earnings from continuing operations                          6,350               4,926               7,001
Discontinued operations, net of tax                                 --                 938               1,432
Gain on sale of discontinued operations, net of tax                 --               6,770                  --
 ..............................................................................................................
Net earnings                                                  $  6,350            $ 12,634            $  8,433
--------------------------------------------------------------------------------------------------------------

Earnings per share - Basic:
Continuing operations                                         $    .69            $    .51            $    .73
Discontinued operations                                             --                 .10                 .15
Gain on sale of discontinued operations                             --                 .70                  --
 ..............................................................................................................
Net earnings per share                                        $    .69            $   1.31            $    .88
--------------------------------------------------------------------------------------------------------------

Earnings per share - Diluted:
Continuing operations                                         $    .68            $    .50            $    .71
Discontinued operations                                             --                 .09                 .15
Gain on sale of discontinued operations                             --                 .69                  --
 ..............................................................................................................
Net earnings per share                                        $    .68            $   1.28            $    .86
--------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
</TABLE>

16
<PAGE>
<PAGE>

<TABLE>
Consolidated Balance Sheets
October 31, 1998, and November 1, 1997

<CAPTION>
------------------------------------------------------------------------------------------
(In thousands, except per share data)                             1998                1997
 ..........................................................................................
<S>                                                         <C>                  <C>
Assets

Current assets:
  Cash and cash equivalents                                   $  5,186             $16,294
  Accounts receivable, less allowances of $672 and
   $337, respectively                                           22,683              18,625
  Inventories, net                                              24,877              22,687
  Prepayments and other current assets                           3,081               3,732
  ........................................................................................
    Total current assets                                        55,827              61,338
    ......................................................................................
Property, plant and equipment:
  Land                                                           2,116               2,731
  Buildings and improvements                                    11,395              12,347
  Machinery and equipment                                       32,154              26,360
  ........................................................................................
                                                                45,665              41,438
  Less accumulated depreciation                                 18,167              16,227
  ........................................................................................
    Net property, plant and equipment                           27,498              25,211
    ......................................................................................
Other assets, net of accumulated amortization:
  Goodwill                                                      23,243               9,454
  Other                                                          5,406               3,354
  ........................................................................................
    Total other assets                                          28,649              12,808
    ......................................................................................
Total Assets                                                  $111,974             $99,357
------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                            $ 11,695             $10,458
  Accrued liabilities                                            6,769              10,716
  Current maturities of long-term debt                           1,607               1,473
  ........................................................................................
    Total current liabilities                                   20,071              22,647
    ......................................................................................
Long-term obligations:
  Long-term debt                                                17,208                 321
  Pension liability                                                 --                  96
  Deferred income taxes                                            876               2,155
  Minority interest in consolidated subsidiary                     810                 874
  Other                                                          1,063                  --
  ........................................................................................
    Total liabilities                                           40,028              26,093
    ......................................................................................
Stockholders' equity:
  Common stock, $.02 par value: authorized 20,000,000 shares;
   issued 9,915,117                                                198                 198
  Additional paid-in capital                                    47,376              47,376
  Treasury stock, at cost (992,777 and 477,512 shares,
   respectively)                                               (13,557)             (6,855)
  Cumulative translation adjustments                               (19)               (727)
  Retained earnings                                             37,948              33,272
  ........................................................................................
    Total stockholders' equity                                  71,946              73,264
    ......................................................................................
Total Liabilities and Stockholders' Equity                    $111,974             $99,357
------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
</TABLE>

                                                                        17
<PAGE>
<PAGE>

<TABLE>
Consolidated Statements of Stockholders' Equity
For the Years Ended October 31, 1998, November 1, 1997, and November 2, 1996
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(In thousands)                                   Additional                  Cumulative                Total
                                     Common       Paid-in     Treasury      Translation   Retained  Stockholders'
                                      Stock       Capital       Stock       Adjustments   Earnings     Equity
 .................................................................................................................
<S>                                   <C>         <C>         <C>             <C>         <C>          <C>
Balance, October 28, 1995             $191        $42,761     $   (135)       $   182     $15,308      $58,307
 Net earnings                           --             --           --             --       8,433        8,433
 Cash dividends                         --             --           --             --        (958)        (958)
 Issuance of stock to Employee
   Stock Purchase Plan                  --            195          533             --          --          728
 Exercise of employee incentive
   stock options                         2            355          864             --        (553)         668
 Compensation expense under
   non-qualified stock options          --              7           --             --          --            7
 Tax benefit of stock options           --            647           --             --          --          647
 Translation adjustments                --             --           --             92          --           92
 Cancellation of restricted stock       --            (19)          --             --          19           --
 Amortization of restricted stock       --             --           --             --          24           24
 Treasury stock purchases               --             --       (2,791)            --          --       (2,791)
 Issuance of stock for acquisition       5          3,314           --             --          --        3,319
-----------------------------------------------------------------------------------------------------------------
Balance, November 2, 1996             $198        $47,260     $ (1,529)       $   274     $22,273      $68,476
 Net earnings                           --             --           --             --      12,634       12,634
 Cash dividends                         --             --           --             --      (1,348)      (1,348)
 Issuance of stock to Employee
   Stock Purchase Plan                  --              8          893             --          --          901
 Exercise of employee incentive
   stock options                        --             --          624             --        (314)         310
 Tax benefit of stock options           --            103           --             --          --          103
 Translation adjustments                --             --           --         (1,001)         --       (1,001)
 Amortization of restricted stock       --             --           --             --          27           27
 Treasury stock purchases               --             --       (7,202)            --          --       (7,202)
 Issuance of stock for acquisition      --              5          359             --          --          364
-----------------------------------------------------------------------------------------------------------------
Balance, November 1, 1997             $198        $47,376     $ (6,855)       $  (727)    $33,272      $73,264
 Net earnings                           --             --           --             --       6,350        6,350
 Cash dividends                         --             --           --             --      (1,457)      (1,457)
 Issuance of stock to Employee
   Stock Purchase Plan                  --             --           31             --          --           31
 Exercise of employee incentive
   stock options                        --             --          323             --        (217)         106
 Translation adjustments                --             --           --            708          --          708
 Treasury stock purchases               --             --       (7,473)            --          --       (7,473)
 Issuance of stock for acquisition      --             --          417             --          --          417
-----------------------------------------------------------------------------------------------------------------
Balance, October 31, 1998             $198        $47,376     $(13,557)       $   (19)    $37,948      $71,946
-----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
</TABLE>

18
<PAGE>
<PAGE>

<TABLE>
Consolidated Statement of Cash Flows
For the Years Ended October 31, 1998, November 1, 1997, and November 2, 1996
<CAPTION>
-------------------------------------------------------------------------------------------------
(In thousands)                                                   1998           1997        1996
 .................................................................................................
<S>                                                           <C>             <C>         <C>
Cash flows from operating activities:
Net earnings                                                  $  6,350        $12,634     $ 8,433
 Adjustments to reconcile net earnings to cash
   provided by operating activities:
   Gain on sale of discontinued operations                          --         (6,770)         --
   Earnings from discontinued operations                            --           (938)     (1,432)
   Depreciation and amortization                                 3,753          4,230       3,816
   Special and nonrecurring items, net                           3,521             --          --
   Translation adjustments during year                             708         (1,001)         92
   Tax benefit of stock option exercises                            --            103         647
   Compensation expense under stock and option plans                --             27          31
   Deferred income tax provision                                 1,768           (978)        819
   Minority interest in consolidated subsidiary                    (64)           (47)        (89)
   Change in assets and liabilities:
     Accounts receivable, net                                     (595)        (3,346)      1,472
     Inventories                                                (4,695)        (3,055)     (3,941)
     Prepayments and other current assets                          587           (438)       (464)
     Other assets, net                                          (2,490)          (944)     (1,443)
     Accounts payable                                           (1,845)         3,264        (172)
     Accrued liabilities                                        (6,215)           763      (1,203)
     Other liabilities                                            (156)            --          --
     ............................................................................................
     Cash provided by continuing operations                        627          3,504       6,566
     Cash provided by (used in) discontinued operations             --            (99)        867
     ............................................................................................
     Cash provided by operating activities                         627          3,405       7,433
     --------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Additions to property, plant and equipment, net              (6,594)        (3,807)     (4,449)
   Proceeds from sale of discontinued operations                    --         17,711          --
   Net proceeds from sale of building                            5,170             --          --
   Cost of businesses acquired (including working capital at
    acquisition of $564 in 1998 and $165 in 1996)              (15,962)            --      (1,189)
     ............................................................................................
     Cash provided by (used in) investing activities           (17,386)        13,904      (5,638)
     --------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Common stock issuances                                          137          1,575       1,396
   Treasury stock purchases                                     (7,473)        (7,202)     (2,791)
   Cash dividends                                               (1,457)        (1,348)       (958)
   Additions to (repayment of) long-term debt, net              14,777            389        (634)
   Change in pension liability                                    (333)          (143)        (64)
     ............................................................................................
     Cash provided by (used in) financing activities             5,651         (6,729)     (3,051)
     --------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents               (11,108)        10,580      (1,256)
Cash and cash equivalents - beginning of period                 16,294          5,714       6,970
 .................................................................................................
Cash and cash equivalents - end of period                     $  5,186        $16,294     $ 5,714
-------------------------------------------------------------------------------------------------
Supplemental cash flow information:
   Cash paid for interest                                     $    728        $    91     $   121
   ..............................................................................................
   Cash paid for taxes                                        $  5,329        $ 4,841     $ 3,809
-------------------------------------------------------------------------------------------------
</TABLE>

                                                                        19
<PAGE>
<PAGE>

Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
     The accompanying consolidated financial statements include the
accounts of Falcon Products, Inc. and its subsidiaries (the Company).
All significant intercompany balances and transactions are eliminated in
consolidation.
     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
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

Fiscal Year
     The Company's fiscal year ends on the Saturday closest to October
31. Fiscal years 1998 and 1997 ended October 31, 1998 and November 1,
1997, respectively, and included 52 weeks. Fiscal year 1996 ended on
November 2, 1996, and included 53 weeks. References to years relate to
fiscal years rather than calendar years.

Nature of Business
     The principal products manufactured and sold by the Company are
pedestal table bases, table tops, metal and wood chairs, booths,
millwork and casegoods. The Company's sales are primarily to the food
service, contract furniture, hospitality, government and healthcare
markets. The Company considers its operations a single industry segment.
     The Company operates factories in Mexico through wholly-owned
subsidiaries which produce all of its table base casting requirements
and wood chair frames and casegood products for the hospitality
industry. Substantially all of the sales of these subsidiaries are to
the parent company and are eliminated in consolidation. The Company has
a manufacturing facility in the Czech Republic, Falcon Mimon, a.s.,
which manufactures and sells chair frames and fully finished wood chairs
throughout Europe and in North America. In addition, the Company
operates Howe Europe a/s, in Middelfart, Denmark, which markets,
assembles and distributes tables and chairs to the European
contract/office market. Sales from foreign operations and export sales
from domestic facilities were $13.6 million, $9.3 million and $10.9
million in 1998, 1997 and 1996, respectively.

Cash and Cash Equivalents
     The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Substantially all of the Company's cash equivalents are denominated in
U.S. dollars and therefore the effect of exchange rate changes on cash
balances was not significant during any of the years presented.

Inventories
     Inventories are valued at the lower of cost or market.  Cost is
determined by the first-in, first-out method.
     Inventories at October 31, 1998, and November 1, 1997,
consist of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------
(In thousands)                                      1998           1997
 ........................................................................
<S>                                              <C>            <C>
Raw materials                                    $18,174        $17,579
Work in process                                    5,288          4,320
Finished goods, net                                1,415            788
 ........................................................................
                                                 $24,877        $22,687
------------------------------------------------------------------------
</TABLE>

Property, Plant and Equipment
     Investments in property, plant and equipment are recorded at cost.
Improvements are capitalized, while repair and maintenance costs are
charged to operations. When assets are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts; gains or
losses are included in operations.
     Depreciation, including the amortization of assets recorded under
capital leases, is computed by use of the straight-line method over
estimated service lives. Principal service lives are: buildings and
improvements - 5 to 40 years; machinery and equipment - 3 to 13 years.
     Certain of the Company's assets were acquired through long-term
lease obligations financed principally by Industrial Development Revenue
Bonds. These leases represent installment purchases. Accordingly, the
assets are recorded at cost and the related obligations are included in
long-term obligations as mortgages payable.

Long-lived Assets
     Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of," requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. The
Company has assessed the recoverability of long-lived assets, including
intangible assets, and has determined that no impairment loss need be
recognized for applicable assets of continuing operations.

20
<PAGE>
<PAGE>

Other Assets
     Other assets consist of the following at October 31, 1998, and
November 1, 1997:

<TABLE>
<CAPTION>
------------------------------------------------------------------------
(In thousands)                                      1998           1997
 ........................................................................
<S>                                              <C>            <C>
Goodwill, net of accumulated amortization
of $2,285 and $1,481                             $23,243        $ 9,454

Deferred catalog costs, net of accumulated
amortization of $965 and $318                      2,241          1,226

Other, net of accumulated amortization
of $1,127 and $544                                 3,165          2,128
 ........................................................................
                                                 $28,649        $12,808
------------------------------------------------------------------------
</TABLE>

     Goodwill represents the excess of cost over fair value of net
assets acquired at the date of acquisition. Goodwill is amortized on a
straight-line basis over thirty to forty years. Deferred debt issue
costs are amortized on a straight-line basis over the original life of
the respective debt issue, approximately three years. The cost of the
design, production and distribution of sales catalogs and reprints
thereof is being amortized on a straight-line basis over two to five
years.

Pension Plan
     The Company has a noncontributory defined benefit pension plan
covering certain hourly and substantially all domestic salaried
personnel. The Company's policy is to fund pension benefits to the
extent contributions are deductible for tax purposes and in compliance
with federal laws and regulations.
     The Company also has a noncontributory defined benefit pension
plan which covered certain employees of Howe Furniture Corporation.
Benefits under this plan were curtailed January 1, 1993.

Stock Dividends
     On November 21, 1995, the Board of Directors of the Company
declared a 10% stock dividend. The record date of this transaction was
December 13, 1995, with a distribution date of January 2, 1996. All
information contained in the accompanying Consolidated Financial
Statements and these Notes to Consolidated Financial Statements relating
to the Company's common stock, including shares outstanding, stock
option plans and per share data, has been restated to give effect to the
stock dividend discussed above.

Foreign Currency Translation
     The Financial Statements of the Company's non-U.S. subsidiaries
are translated into U.S. dollars in accordance with SFAS No. 52. The
functional currency for Falcon Mimon, a.s. and Howe Europe a/s has been
determined to be the subsidiaries' local currency. As a result, the
gain or loss resulting from the translation of its financial statements
to U.S. dollars is included as a separate component of stockholders'
equity.
     For the Company's Mexican subsidiaries, inventory, prepayments and
property are translated at historical exchange rates while other assets
and liabilities are translated at current exchange rates. Revenues and
expenses are translated at average exchange rates during the year. The
resulting translation adjustment is included in selling, general and
administrative expenses.
     The net foreign currency translation and transaction losses
included in earnings for 1998, 1997 and 1996, were $737, $304 and $235
thousand, respectively.

Interest Rate Hedge Agreement
     The Company manages fluctuations in interest rates on borrowings
under its revolving credit facility by using an interest rate swap
agreement. The interest rate swap agreement is accounted for as a hedge
of a debt obligation, and accordingly, the net settlement amount is
recorded as an adjustment to interest expense in the period incurred.
     The Company's interest rate swap agreement requires the Company to
pay a fixed rate and receive a floating rate thereby creating fixed rate
debt. The Company's participation in interest rate hedging transactions
involves instruments that have a close correlation with its debt,
thereby managing risk. The interest rate swap agreement has been
designed for hedging purposes and is not held or issued for speculative
purposes.

Earnings Per Share
     In 1998, the Company adopted SFAS No. 128, "Earnings Per Share."
All per share amounts have been calculated in accordance with SFAS No.
128 using the weighted average number of shares outstanding during each
period, adjusted for the impact of common stock equivalents using the
treasury stock method when the effect is dilutive. All per share data
has been retroactively restated in accordance with SFAS No. 128.

<PAGE>
Note 2 - Business Acquisitions
     In March 1998, the Company acquired the stock of Howe Furniture
Corporation and its subsidiaries ("Howe") for $16.6 million, and assumed
$2.2 million of outstanding long-term debt of Howe. Howe specializes in
the design, engineering and marketing of tables for the contract office
and hospitality markets. The Company used the purchase method of
accounting to record this acquisition. Accordingly, results of
operations have been included in the financial statements from the date
of acquisition. The excess of the purchase price over amounts assigned
to net tangible assets ($13.9 million) was recorded as goodwill.
     In October 1996, the Company acquired certain assets and assumed
certain liabilities of The Chair Source for 241,400 newly issued shares
of common stock valued at approximately $3.3 million, plus 75,000 shares
of common stock to be issued

                                                                      21
<PAGE>
<PAGE>

through October 1999, subject to certain contingencies. The Chair Source
manufactures wood and upholstered seating and distributes them primarily
to the hospitality, lodging and food service markets. The company used
the purchase method of accounting to account for this acquisition and
recorded goodwill of approximately $2.9 million relating to this
acquisition.
     In February 1996, the Company acquired substantially all
of the assets and assumed certain liabilities of a manufacturing
facility located in Tijuana, Mexico. This facility specializes in
manufacturing upscale wood and upholstered seating for the lodging and
hospitality markets. The total purchase price for this facility was
approximately $500 thousand and was funded by the Company with its
available cash reserves. The company used the purchase method of
accounting to account for this acquisition and recorded goodwill of
approximately $421 thousand relating to this acquisition.

Note 3 - Special and Nonrecurring Items
     During 1998, the Company recorded a pre-tax charge of $4.7
million, $2.9 million after-tax, related to management's decision to
discontinue and dispose of the Company's hotel casegoods line of
business. The charge entails the writedown of assets, including
goodwill, inventories and equipment, associated with the product line
located in the Tijuana, Mexico facility. Of the total charge, cost of
sales includes a $3.3 million charge to write-down the carrying value of
inventory. The remaining components of the charge have been reported in
special and nonrecurring items in the Consolidated Statement of Earnings
and are related to impairment charges and reserves for losses on
disposal of certain assets and exit costs for lease termination.
     In 1998, the Company also recorded a $1.3 million pre-tax gain,
$0.8 million after-tax, on the sale of the Company's corporate headquarters
building during 1998, which is included in special and non-recurring items,
in the accompanying Consolidated Statement of Earnings. The Company entered
into a two year lease agreement to lease back a portion of the premises,
and accordingly, the portion of the total $2.5 million gain representing
the present value of the operating lease payments, approximately $1.2
million, was deferred and is included in other liabilities on the
accompanying Consolidated Balance Sheet as of October 31, 1998. The
deferred gain will be credited to income as a reduction to rent expenses
over the term of the lease.
     During the fourth quarter of 1998, the Company recorded an
additional pre-tax charge of $0.2 million, $0.1 million after-tax, related
to the consolidation of the Company's manufacturing facilities that was
announced in 1997.
     During 1997, the Company recorded a pre-tax charge of $3.7
million, $2.3 million after-tax, for special and nonrecurring items. The
charges are a result of the consolidation of the Company's manufacturing
operations at its Anaheim, California and Belding, Michigan facilities
into its City of Industry, California facility and the elimination of
several duplicative and nonperforming wood seating product lines. These
pre-tax charges are recorded as a separate line in the Consolidated
Statements of Earnings and included $3.0 million for costs associated
with asset write-downs and dispositions and $0.7 million for exit costs
of leased facilities and employee severance and termination costs.

Note 4 - Discontinued Operations
     On September 8, 1997, the Company completed the sale of its
William Hodges division (the Hodges Division) to Leggett & Platt,
Incorporated for approximately $17.7 million. The Hodges Division
manufactures wire shelving and kitchen equipment. The sale resulted in a
gain of approximately $6.8 million, net of applicable income taxes of
$3.8 million.
     The results of the Hodges Division for 1997 through the date of
the sale (approximately 10.5 months) and for fiscal year 1996 are
classified as discontinued operations in the accompanying consolidated
financial statements. Earnings from the discontinued Hodges Division
were $938 thousand in 1997 and $1,432 thousand in 1996, net of
applicable income taxes of $575 thousand and $877 thousand,
respectively. Net revenues from the Hodges Division in 1997 through the
date of the sale were $7.8 million. Hodges Division revenues in fiscal
year 1996 were $10.3 million.

<PAGE>
Note 5 - Rental Expense and Lease Commitments
     The Company leases certain manufacturing facilities and certain
office and transportation equipment under non-cancelable lease
agreements having an initial term of more than one year and expiring at
various dates through the year 2006.
     The future minimum rental commitments due under lease agreements
are as follows at October 31, 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------
(In thousands)                          Capital                Operating
                                         Leases                 Leases
 ........................................................................
<S>                                      <C>                    <C>
1999                                     $ 61                   $2,129
2000                                       61                    1,411
2001                                       61                    1,373
2002                                       61                      849
2003                                       61                      670
Later years                                61                    1,777
 ........................................................................
Total minimum lease payments              366                   $8,209
                                                                --------
Less-amount representing interest         (45)
 ..............................................
Present value of minimum
      lease payments                     $321
----------------------------------------------
</TABLE>

     Total operating lease and rental expense was approximately $1,622,
$1,463 and $953 thousand in 1998, 1997 and 1996, respectively.

22
<PAGE>
<PAGE>

Note 6 - Long Term Debt
     Long-term debt consists of the following at October 31, 1998, and
November 1, 1997:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(In thousands)                                    1998              1997
 .........................................................................
<S>                                            <C>                <C>
Revolving line of credit expiring
April 22, 2000, interest at prime minus
2.0%                                           $16,935            $   --

Notes payable to a foreign bank, secured
by certain assets of Falcon Mimon, due
in varying monthly installments through
1999, interest at LIBOR + 2.5%                   1,559             1,301

Obligations under capital leases, due
in annual installments through
November 16, 2003, interest at 4.0%                321               368

Other                                               --               125
 .........................................................................
                                                18,815             1,794
Less current maturities                          1,607             1,473
 .........................................................................
                                               $17,208            $  321
-------------------------------------------------------------------------
</TABLE>

     At October 31, 1998, the Company had letters of credit outstanding
of approximately $409 thousand relating to insurance reserves and
certain foreign purchases.
     In connection with the acquisition of Howe, the Company entered
into an unsecured $20.0 million revolving line of credit expiring April
22, 2000. The rate of interest on borrowings under this agreement is, at
the Company's option, the Prime Rate, Federal Funds Rate or LIBOR
adjusted for a spread based upon the Company's leverage ratio. The
variable interest rate was 6.4% at October 31, 1998.
     Under the loan agreements, the Company must comply with certain
covenants including, but not limited to, the maintenance of specific
ratios and net worth. The Company has complied with the terms of the
loan agreements.
     The minimum annual maturities of long-term debt, including capital
lease obligations, are: $1,607, $16,985, $52, $54 and $57 thousand in
1999 through 2003, respectively, and $60 thousand thereafter.
     The Company has entered into an interest rate swap agreement with
a notional amount of $12.0 million. The notional amount of the interest
rate swap does not represent amounts exchanged by the parties and thus,
is not a measure of the Company's exposure through its use of the
interest rate swap agreement. The amounts exchanged are determined by
reference to the notional amount and other terms of the contract.
     Management believes that the seller of the interest rate swap
agreement will be able to meet its obligation under the agreement. The
Company has policies regarding the financial stability and credit
standing of major counterparties. Non-performance by the counterparty is
not anticipated nor would it have a material adverse effect on the
results of operations or financial position of the Company.

Note 7 - Income Taxes
     The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes" (SFAS No. 109), which requires income
taxes to be accounted for using a balance sheet approach known as the
liability method. The liability method accounts for deferred income
taxes by applying statutory tax rates in effect at the date of the
balance sheet to differences between the book and tax basis of assets
and liabilities. Adjustments to deferred income taxes resulting from
statutory rate changes flow through the tax provision in the year of the
change.
     The components of income tax expense are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(In thousands)                                 1998              1997              1996
 ........................................................................................
<S>                                          <C>               <C>               <C>
Current:
  Federal                                    $1,551            $3,587            $3,107
  State                                         207               410               365
  Foreign                                       175                --                --
Deferred                                      1,768              (978)              819
 ........................................................................................
                                             $3,701            $3,019            $4,291
----------------------------------------------------------------------------------------
</TABLE>

<PAGE>
     The following is a reconciliation between statutory federal income
tax expense and actual income tax expense:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(In thousands)                                 1998              1997              1996
 ........................................................................................
<S>                                          <C>               <C>               <C>
Computed "expected"
 federal income tax expense                  $3,417            $2,701            $3,852
Increase (decrease) resulting from:
  State income taxes                            393               378               452
  Other, net                                   (109)              (60)              (13)
 ........................................................................................
                                             $3,701            $3,019            $4,291
----------------------------------------------------------------------------------------
</TABLE>

     The significant components of deferred income tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------
(In thousands)                                 1998              1997
 ......................................................................
<S>                                         <C>               <C>
Deferred tax assets:
  Inventories                               $   434           $   648
  Reserves and accruals                         949             1,505
  Net operating loss carryforward               822                --
                                              2,205             2,153
Deferred tax liabilities:
  Depreciation and other property
   basis differences                         (1,153)           (1,558)
  Other                                        (158)             (597)
 ......................................................................
                                             (1,311)           (2,155)
 ......................................................................
Net deferred income tax asset (liability)   $   894           $    (2)
----------------------------------------------------------------------
</TABLE>

     Net current deferred income tax assets are included in prepayments
and other current assets in the accompanying Consolidated Balance
Sheets. The Company's net operating loss carryforward of $2.2 million
expires in 2013. The Company's income tax returns have been examined by
the Internal Revenue Service for fiscal years through 1994.

                                                                     23
<PAGE>
<PAGE>

Note 8 - Stock Option and Stock Purchase Plans
     The Company has an employee incentive stock option plan which
allows the Company to grant key employees incentive and nonqualified
stock options to purchase up to 1,100,000 shares of the Company's common
stock at not less than the market price on the date of grant. Options
not exercised accumulate and are exercisable, in whole or in part, in
any subsequent period but not later than ten years from the date of
grant.
     The Company also has a Non-Employee Director Stock Option Plan,
approved by the stockholders, under which the Company annually grants an
option to purchase 1,650 shares of common stock to each director who is
neither an officer of the Company nor compensated under any employment
or consulting arrangements ("Non-Employee Director"). Under the plan,
the option exercise price is the fair market value of the Company's
common stock on the date of the grant and the options are exercisable,
on a cumulative basis, at 20% per year commencing on the date of the
grant.
     The Non-Employee Director Stock Option Plan was amended in
December 1998 to increase the number of shares underlying the options
granted from 1,650 to 2,000.
     The Company accounts for the option plans using APB Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation expense has been recognized relating to the stock options.
     Pro forma net earnings and net earnings per common share in the
following table were prepared as if the Company had accounted for its
stock option plans under the fair market value method of SFAS No. 123,
"Accounting for Stock-Based Compensation."

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
                                         1998           1997           1996
 ............................................................................
<S>                                    <C>           <C>             <C>
Net earnings-pro forma                 $6,127        $12,446         $8,425
Net earnings per share-
  pro forma                              $.66          $1.26           $.86
Weighted-average fair value
  of options granted                    $6.64          $7.39          $6.54
----------------------------------------------------------------------------
</TABLE>

     For the pro forma disclosures, the fair value of each option grant
is estimated at the date of the grant using an option pricing model with
the following assumptions:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
                                         1998           1997           1996
 ............................................................................
<S>                                  <C>            <C>            <C>
Expected dividend yield                    1%            .7%            .6%
Expected stock price
  volatility                              30%            30%            30%
Risk-free interest rate                  5.8%           6.4%           5.8%
Expected life of option              10 years       10 years       10 years
----------------------------------------------------------------------------
</TABLE>

     In 1998, the Company adopted an Employee Stock Purchase Plan.
Under the Employee Stock Purchase Plan, employees may contribute up to
10% of their gross income to purchase stock of the Company at 85% of the
lesser of the fair market value on the grant date or the exercise date.
     During 1997, the Company had a Stock Purchase Plan under which
eligible employees could elect to invest up to 10% of salary earned
during each pay period and the Company contributed an amount equal to
40% of each participant's contributions. This plan was terminated at the
end of fiscal 1997.

<PAGE>
Stock option transactions under the plans for 1998, 1997, and 1996 are
summarized below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                        1998                          1997                          1996
 ...................................................................................................................................
                                               Average         Number         Average        Number         Average        Number
                                                Price        of Shares         Price       of Shares         Price       of Shares
 ...................................................................................................................................
<S>                                             <C>           <C>             <C>           <C>             <C>           <C>
Options outstanding at beginning of year        $10.70        687,892          $9.35        575,925          $7.58        766,450
Options granted                                 $14.07        242,550         $14.49        168,900         $13.04         68,150
Options canceled                                $13.55         37,791         $13.16         12,754         $10.00         64,348
Options exercised                                $4.88         21,803          $7.01         44,179          $3.44        194,327
 ...................................................................................................................................
Options outstanding at end of year              $11.66        870,848         $10.70        687,892          $9.35        575,925
-----------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year                                    447,663                       311,847                       245,346
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Stock options outstanding at October 31, 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                            Options Outstanding                                Options Exercisable
                              ..........................................................................................
                                Number          Remaining         Weighted Average        Number       Weighted Average
Range of Exercise             of Options     Contractual Life      Exercise Price       of Options      Exercise Price
 ........................................................................................................................
<S>                             <C>                <C>                 <C>                <C>               <C>
$ 0.50 - $10.00                 355,488            4.6                 $ 9.07             314,733           $ 8.99
$10.00 - $13.00                 132,510            6.5                 $11.16              63,620           $10.96
$13.00 - $15.00                 382,850            8.7                 $14.23              69,310           $14.37
 ........................................................................................................................
                                870,848            6.7                 $11.66             447,663           $10.10
------------------------------------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE>
<PAGE>

Note 9 - Earnings Per Share
     As discussed in Note 1 herein, the Company adopted SFAS No. 128 in
1998. In accordance with SFAS No. 128, the following tables reconcile
net earnings from continuing operations and weighted average shares
outstanding to the amounts used to calculate basic and diluted earnings
per share for each of the years ended 1998, 1997 and 1996.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(In thousands, except per share data)               Net              Shares          Per Share
                                                  Earnings                             Amount
----------------------------------------------------------------------------------------------
<S>                                                <C>                <C>               <C>
For the year ended October 31, 1998
  Net Earnings from Continuing
    Operations                                     $6,350                --                --
  ............................................................................................
  Basic Earnings Per Share
  Earnings available to common
    stockholders                                   $6,350             9,156             $0.69
  Assumed exercise of options
    (treasury method)                                  --               126                --
  ............................................................................................
  Diluted Earnings Per Share
  Earnings available to common
    stockholders                                   $6,350             9,282             $0.68
----------------------------------------------------------------------------------------------
For the year ended November 1, 1997
  Net Earnings from Continuing
    Operations                                     $4,926                --                --
  ............................................................................................
  Basic Earnings Per Share
  Earnings available to common
    stockholders                                   $4,926             9,665             $0.51
  Assumed exercise of options
    (treasury method)                                  --               211                --
  ............................................................................................
  Diluted Earnings Per Share
  Earnings available to common
    stockholders                                   $4,926             9,876             $0.50
----------------------------------------------------------------------------------------------
For the year ended November 2, 1996
  Net Earnings from Continuing
    Operations                                     $7,001                --                --
  ............................................................................................
  Basic Earnings Per Share
  Earnings available to common
    stockholders                                   $7,001             9,591             $0.73
  Assumed exercise of options
    (treasury method)                                  --               202                --
  ............................................................................................
  Diluted Earnings Per Share
  Earnings available to
    common stockholders                            $7,001             9,793             $0.71
----------------------------------------------------------------------------------------------
</TABLE>

     Basic earnings per share was computed by dividing Earnings
available to common stockholders by the weighted average shares of
common stock outstanding during the year. Diluted Earnings available to
common stockholders was determined assuming the options issued and
outstanding were exercised as of the first day of the respective year of
the grant date. Options to purchase 386,850 shares at a weighted average
exercise price of $14.23 per share, 155,400 shares at a weighted average
exercise price of $14.51 per share and 5,000 shares at a weighted
average exercise price of $14.50 were outstanding during 1998, 1997 and
1996, respectively but were not included in the computation of diluted
earnings per share because the exercise price was greater than the
average market price of the common stock. As a result of adoption of
SFAS No. 128, the Company restated reported earnings per share for 1997
and 1996. This accounting change had no impact of previously reported
per share data.

Note 10 - Pension Plans
     The Company has two noncontributory defined benefit pension plans
covering certain hourly and substantially all salaried domestic
personnel. In connection with the Howe acquisition, the Company acquired
the curtailed pension plan of Howe, whose assets exceed the accumulated
benefits. For the Company's non-curtailed plan, normal retirement age is
65, but provision is made for earlier retirement. Benefits are based on
1.5% of average annual compensation for each year of service. Full
vesting occurs upon completion of five years of service. Assets of the
plan consist entirely of an investment in a group annuity contract with
an insurance company.
<PAGE>
    The following actuarial assumptions were used in determining the
Company's net periodic pension cost and projected benefit obligation:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                     1998              1997              1996
 ..............................................................................................
<S>                                                 <C>               <C>               <C>
Discount rate                                       7.25%             7.25%             7.25%
Rate of salary increase                             5.00%             5.00%             5.50%
Expected long-term rate
  of return on plan assets                          9.00%             9.00%             9.00%
----------------------------------------------------------------------------------------------
</TABLE>

Net periodic pension cost of the plan, is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(In thousands)                                       1998              1997              1996
 ..............................................................................................
<S>                                               <C>                 <C>               <C>
Service cost - benefits earned
  during the period                               $   619             $ 473             $ 421
Interest cost on projected
  benefit obligation                                  369               279               257
Return on plan assets                                 704              (641)             (389)
Net total of other components                      (1,108)              345               137
 ...............................................................................................
Net periodic pension cost                         $   584             $ 456             $ 426
-----------------------------------------------------------------------------------------------
</TABLE>

The funded status of the defined benefit pension plans is as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(In thousands)                                        1998              1998             1997
 ...............................................................................................

                                                   Plan Whose        Plan Whose
                                                  Assets Exceed      Accumulated
                                                   Accumulated     Benefits Exceed
                                                    Benefits           Assets
 ................................................................................................
<S>                                                 <C>               <C>               <C>
Vested benefit obligation                           $(1,059)          $(4,359)          $(3,643)
Non-vested benefits                                      --              (380)             (631)
 ................................................................................................
Accumulated benefit obligation                       (1,059)           (4,739)           (4,274)
Effect of projected future
  compensation levels                                  (114)             (611)             (467)
 ................................................................................................
Projected benefit obligation                         (1,173)           (5,350)           (4,741)
Plan assets at fair value                             1,438             4,447             4,018
 ................................................................................................
Plan assets greater (less) than
  projected benefit obligation                          265              (903)             (723)
Unrecognized net loss due
  to past experience
  different from assumptions                             89               676               130
Unrecognized prior service cost                          --               513               586
Unrecognized net asset                                   --               (49)              (89)
 ................................................................................................
Prepaid (accrued) pension cost                      $   354           $   237           $   (96)
------------------------------------------------------------------------------------------------
</TABLE>

                                                                       25
<PAGE>
<PAGE>

Note 11 - Transactions with Related Parties
     Certain of the Company's directors or their affiliates provide
various consulting and other professional services to the Company or
receive commissions as sales representatives. During 1998, 1997 and
1996, the Company incurred expenses of approximately $222, $99 and $220
thousand, respectively, for such services.

Note 12 - Contingencies
     The Company is subject to various lawsuits and claims with respect
to such matters as patents, product liabilities, government regulations,
and other actions arising in the normal course of business. In the
opinion of management, the ultimate liabilities resulting from such
lawsuits and claims will not have a material adverse effect on the
Company's financial condition and results of operations.


Note 13 - Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
(In thousands except for share data)
--------------------------------------------------------------------------------------------------------------
1998                                              First            Second             Third            Fourth
 ..............................................................................................................
<S>                                             <C>               <C>               <C>               <C>
Net sales                                       $28,060           $33,651           $41,297           $40,418
 ..............................................................................................................
Special and nonrecurring items                       --                --               111               160
 ..............................................................................................................
Gross margin                                      8,134             9,525             9,113            13,316
 ..............................................................................................................
Net earnings                                      1,782             1,838               216             2,514
 ..............................................................................................................
Earnings per share - Diluted:
  ............................................................................................................
  Net earnings per share                           $.19              $.20              $.02              $.28
--------------------------------------------------------------------------------------------------------------

<CAPTION>
--------------------------------------------------------------------------------------------------------------
1997                                              First            Second             Third            Fourth
 ..............................................................................................................
<S>                                             <C>               <C>               <C>               <C>
Net sales                                       $26,733           $26,850           $28,570           $30,857
 ..............................................................................................................
Special and nonrecurring items                       --                --                --             3,700
 ..............................................................................................................
Gross margin                                      7,658             7,844             8,371             5,930
 ..............................................................................................................
Net earnings from continuing operations           1,688             1,580             1,653                 5
 ..............................................................................................................
Net earnings from discontinued operations           179               362               397                --
 ..............................................................................................................
Gain on sale of discontinued operations              --                --                --             6,770
 ..............................................................................................................
Net earnings                                      1,867             1,942             2,050             6,775
 ..............................................................................................................
Earnings per share - Diluted:
 ..............................................................................................................
  Continuing operations                            $.17              $.16              $.17              $ --
  ............................................................................................................
  Discontinued operations                           .02               .04               .04                --
  ............................................................................................................
  Gain on sale of discontinued operations            --                --                --               .69
  ............................................................................................................
  Net earnings per share                            .19               .20               .21               .69
--------------------------------------------------------------------------------------------------------------

<CAPTION>
--------------------------------------------------------------------------------------------------------------
1996                                              First            Second             Third            Fourth
 ..............................................................................................................
<S>                                             <C>               <C>               <C>               <C>
Net sales                                       $23,239           $23,266           $25,228           $28,969
 ..............................................................................................................
Gross margin                                      6,855             7,604             7,619             9,499
 ..............................................................................................................
Net earnings from continuing operations           1,459             1,730             1,699             2,113
 ..............................................................................................................
Net earnings from discontinued operations           164               397               346               525
 ..............................................................................................................
Net earnings                                      1,623             2,127             2,045             2,638
 ..............................................................................................................
Earnings per share - Diluted:
 .............................................................................................................
 Continuing operations                            $ .15              $.18              $.17              $.22
 .............................................................................................................
 Discontinued operations                            .02               .04               .04               .05
 .............................................................................................................
 Net earnings per share                             .17               .22               .21               .27
--------------------------------------------------------------------------------------------------------------
</TABLE>

26
<PAGE>
<PAGE>

Report of Independent Public Accountants


To Falcon Products, Inc.:
     We have audited the accompanying consolidated balance sheets of
FALCON PRODUCTS, INC. (a Delaware corporation) and subsidiaries as of
October 31, 1998 and November 1, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of
the three fiscal years in the period ended October 31, 1998. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
     We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
     In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Falcon
Products, Inc. and subsidiaries as of October 31, 1998 and November 1,
1997, and the results of their operations and their cash flows for each
of the three fiscal years in the period ended October 31, 1998, in
conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP

St. Louis, Missouri
December 15, 1998

                                                                       27

<PAGE>
<PAGE>

<TABLE>
Selected Financial Data

<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)                1998           1997           1996         1995          1994        1993

<S>                                                 <C>            <C>            <C>           <C>           <C>         <C>
Operating Data:
  Net sales                                         $143,426       $113,010       $100,702      $79,647       $67,957     $54,293
  Cost of sales, including nonrecurring items        103,067         79,507         69,125       52,883        45,318      37,073
  Special and nonrecurring items                         271          3,700             --           --            --          --
  Gross margin                                        40,088         29,803         31,577       26,764        22,639      17,220
  Selling, general and
    administrative expenses                           29,482         22,044         20,469       16,992        14,354      11,177
  Operating profit                                    10,606          7,759         11,108        9,772         8,285       6,043
  Interest income (expense), net                        (619)           139             95          141           145        (223)
  Minority interest                                       64             47             89          (44)            4          --
  Earnings from continuing
    operations before income taxes                    10,051          7,945         11,292        9,869         8,434       5,820
  Income tax expense                                   3,701          3,019          4,291        3,693         3,121       2,137
  Net earnings from continuing
    operations                                         6,350          4,926          7,001        6,176         5,313       3,683
  Discontinued operations, net of tax                     --            938          1,432        1,281           864         764
  Gain on sale of discontinued
    operations, net of tax                                --          6,770             --           --            --          --
  Net earnings                                      $  6,350       $ 12,634       $  8,433      $ 7,457       $ 6,177     $ 4,447
  --------------------------------------------------------------------------------------------------------------------------------

Earnings per share - Diluted: <F1>
  Continuing operations                             $    .68       $    .50       $    .71      $   .64       $   .55     $   .42
  Discontinued operations                                 --            .09            .15          .13           .09         .09
  Gain on sale of discontinued
    operations                                            --            .69             --           --            --          --
  Net earnings per share                            $    .68       $   1.28       $    .86      $   .77       $   .64     $   .50
  --------------------------------------------------------------------------------------------------------------------------------
  Cash dividends per share                          $    .16       $    .14       $    .10      $   .07       $   .04     $    --
  --------------------------------------------------------------------------------------------------------------------------------

Financial Position:
  Working capital                                   $ 35,756       $ 38,691       $ 34,531      $29,927       $25,658     $25,129
  Property, plant and equipment, net                  27,498         25,211         24,485       21,529        18,467      11,069
  Capital expenditures                                 6,594          3,807          4,449        4,969         4,608       1,506
  Total assets                                       111,974         99,357         84,388       74,884        64,905      53,228
  Long-term obligations                               18,815          3,446          3,490        3,424         3,550       1,648
  Stockholders' equity                                71,946         73,264         68,476       58,307        50,556      44,147
----------------------------------------------------------------------------------------------------------------------------------

<FN>
<F1>Per share data reflects adjustments related to the December 1995, 10% stock dividend and the January 1993, 50% stock dividend.
</TABLE>

                                    28
<PAGE>
<PAGE>

BOARD OF DIRECTORS

Franklin A. Jacobs<F*>
Chairman of the Board
and Chief Executive Officer
Falcon Products, Inc.

Raynor E. Baldwin<F+>
President
Woodsmiths, Inc.

Melvin F. Brown<F+>
Chairman Emeritus
Deutsche Financial Services

Donald P. Gallop<F*>
Chairman
Gallop, Johnson & Neuman, L.C.
Attorneys At Law

James L. Hoagland
Retired, Past President and
Chief Executive Officer
Graybar Electric Company, Inc.

S. Lee Kling<F*>
Chairman of the Board
Kling Rechter & Co., Inc.

Lee M. Liberman<F+>
Retired, Past Chairman of the Board
Laclede Gas Company

Darryl C. Rosser
President and Chief Operating Officer
Falcon Products, Inc.

James Schneider
Broker
International Monetary Market
Chicago Mercantile Exchange

[FN]
<F*> Member Executive Committee
<F+> Member Audit Committee

FORM 10-K
A copy of the Annual Report to the Securities
and Exchange Commission on Form 10-K may
be obtained from the Company at no charge.
Direct your requests to:

Corporate Secretary
Falcon Products, Inc.
9387 Dielman Industrial Drive
St. Louis, Missouri 63132

TRADING INFORMATION
Falcon Products, Inc., common stock is traded
on the New York Stock Exchange, Symbol: FCP

CORPORATE OFFICERS

Franklin A. Jacobs
Chairman of the Board and Chief Executive Officer

Darryl C. Rosser
President and Chief Operating Officer

Stephen E. Cohen
Vice President, Sales and Marketing

John K. Cronin
Vice President, Contract

Michael J. Dreller
Vice President, Finance and Chief Financial Officer

Lynda Garrison
Vice President, Customer Support Services

Richard Hnatek
Senior Vice President, Sales

Michael J. Kula
Vice President, Corporate Technology
and Development

Charles A. Pineau
Vice President, Human Resources

Robert E. Rohlman
Vice President, Food Service

Jack Spidell
Vice President, Operations

<PAGE>
TRANSFER AGENT
Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016
800-368-5948

CORPORATE COUNSEL
Gallop, Johnson & Neuman, L.C.
101 South Hanley Road
St. Louis, Missouri 63105

INDEPENDENT
PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1010 Market Street
St. Louis, Missouri 63101

ANNUAL MEETING
The Annual Meeting of Stockholders
will be held Wednesday, March 10, 1999,
at 4:00 p.m. in the Main Dining Room,
St. Louis Club, 16th Floor
7701 Forsyth Blvd.
Clayton, Missouri 63105

FACILITIES

Corporate Headquarters
Falcon Products, Inc.
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
www.falconproducts.com

Howe Sales Office
12 Cambridge Drive
Trumbull, Connecticut 06611

Falcon de Juarez, S.A. de C.V.
APDO, Postal 2519 E.
CD Juarez, Chih., Mexico
U.S.A. - P.O. Box 12865

Falcon de Baja California, S.A. de C.V.
La Campina No. 19511
Colonia La Mesa
Tijuana, Mexico

Falcon Mimon, a.s.
Hvezdovska 644
471 24 Mimon
Czech Republic

Falcon Products (Shenzhen) Limited
Pin Hu Cun, Pin Hu Zheng
Shenzhen
The People's Republic of China
518111

Howe Europe a/s
Fabriksvej 15c Ruegle
5500 Middelfart, Denmark

Falcon/Belmont
22 Falcon Drive
Belmont, Mississippi 38827

Falcon/City of Industry
16040 Stephens Street
City of Industry, California 91745

Falcon/Lewisville
Hwy. 82 East
P.O. Box 70
Lewisville, Arkansas 71845

Falcon/Newport
810 West Highway 25/70
Newport, Tennessee 37821

Chicago Showrooms
10-161, 1169 and 1194 Merchandise Mart
Chicago, Illinois 60654