<PAGE>   1
              UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

                                  FORM 10-Q


        [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended July 3, 1999
                -------------------------------------------

                                     OR

        [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
           For the transition period from __________ to ____________

                       Commission file number 0-18446

                            Fairwood Corporation
                            --------------------
           (Exact name of registrant as specified in its charter)

              Delaware                                   13-3472113
              --------                                   ----------
    (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                   Identification No.)

 One Commerce Center
 1201 N. Orange St., Suite 790, Wilmington, DE                19801
 ---------------------------------------------                -----
 (Address of principal executive offices)                 (Zip Code)

                               (302) 884-6749
                               --------------
            (Registrant's telephone number, including area code)

                               Not Applicable
            (Former name, former address and former fiscal year,
                        if changed since last report)


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


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

                                                    Outstanding at
          Class                                      July 3, 1999
          -----                                    -----------------

Class A Voting, $.01 Par Value                              500
------------------------------                     -----------------

Class B Non-Voting, $.01 Par Value                      999,800
----------------------------------                 -----------------


<PAGE>   2


                      FAIRWOOD CORPORATION AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                             (Dollars in thousands)



<TABLE>
<CAPTION>
                                                               July 3,      December 31,
                           Assets                               1999           1998
                           ------                          -------------    -----------
                                                            (Unaudited)
<S>                                                        <C>              <C>
Current Assets:

  Cash and cash equivalents                                 $    9,842          2,165
                                                              --------       --------


  Accounts and notes receivable:
    Trade                                                        8,443         22,662
    Notes receivable, affiliate                                      -            500
    Due from affiliate                                               -          4,089
                                                              --------       --------
                                                                 8,443         27,251
  Less allowance for discounts and doubtful accounts               215          1,317
                                                              --------       --------

                                                                 8,228         25,934
                                                              --------       --------


  Inventories                                                    7,045         14,666

  Prepaid expenses and other current assets                        279          2,567
                                                              --------       --------


               Total current assets                             25,394         45,332
                                                              --------       --------



Property, plant and equipment, at cost                           9,384         32,874
  Less accumulated depreciation and amortization                 6,441         20,380
                                                              --------       --------
                                                                 2,943         12,494
                                                              --------       --------


Other assets                                                       315            337
                                                              --------       --------




                                                            $   28,652         58,163
                                                              ========       ========
</TABLE>


                                                                     (Continued)

                                      - 2 -
<PAGE>   3


                      FAIRWOOD CORPORATION AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                             July 3,       December 31,
                 Liabilities and Deficit                       1999            1998
                 -----------------------                   ------------    -----------
                                                            (Unaudited)
<S>                                                        <C>             <C>
Current Liabilities:
  Line of credit and term loan                              $        -         27,480
  Overdraft                                                          -          2,212
  Current maturities of long-term debt:
    Revolving credit                                           351,800              -
    Senior subordinated debentures                              80,000              -
    Senior subordinated pay-in-kind debentures                 105,853        105,853
    Merger debentures                                           62,928         62,928
    Other                                                            -             45
  Accounts payable                                               3,398          7,092
  Due to affiliate                                               1,073              -
  Accrued interest                                             132,357        118,462
  Accrued expenses                                               3,785          8,389
  Federal and state income taxes                                   534          5,027
                                                              --------       --------

               Total current liabilities                       741,728        337,488
                                                              --------       --------

Long-term debt:
  Revolving credit                                                   -        305,855
  Senior subordinated debentures                                     -         80,000
  Mortgage payable                                                   -          2,006
                                                              --------       --------

                                                                     -        387,861
                                                              --------       --------

Deferred income taxes                                                -          1,957
Other liabilities                                                  412             72
                                                              --------       --------

                                                                   412          2,029
                                                              --------       --------

Redeemable preferred stock:
  Junior preferred, cumulative, par value $.01 per share           100            100
                                                              --------       --------

Common stock and other shareowners' deficit:
  Common stock and additional paid-in capital                   55,948         55,948
  Accumulated other comprehensive income                     (      27)     (      27)
  Accumulated deficit                                        ( 769,509)     ( 725,236)
                                                              --------       --------
                                                             ( 713,588)     ( 669,315)
                                                              --------       --------


                                                            $   28,652         58,163
                                                              ========       ========
</TABLE>

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

                                      - 3 -
<PAGE>   4

                      FAIRWOOD CORPORATION AND SUBSIDIARIES

            Unaudited Condensed Consolidated Statements of Operations

                                 (In thousands)




<TABLE>
<CAPTION>
                                    Three Months Ended                 Six Months Ended
                                  ------------------------         ------------------------

                                   July 3,       June 27,           July 3,       June 27,
                                    1999           1998              1999           1998
                                  ---------      ---------         ---------      ---------

<S>                             <C>             <C>               <C>            <C>
Net sales                        $  33,106         38,244            77,957         81,268
                                   -------        -------           -------        -------

Cost of sales                       32,018         35,413            74,008         75,313

Selling, administrative and
  general expenses                   4,602          8,142            10,354         14,364
                                   -------        -------           -------        -------

                                    36,620         43,555            84,362         89,677
                                   -------        -------           -------        -------

Operating loss                    (  3,514)      (  5,311)         (  6,405)      (  8,409)

Interest income                         19             66                26             70

Interest on indebtedness          ( 18,715)      ( 18,002)         ( 36,982)      ( 35,136)

Loss on sale of Stratford
 Division                         (    967)             -          (    967)             -

Other income (expenses), net            88             70               102            120
                                   -------        -------           -------        -------


Loss before income taxes          ( 23,089)      ( 23,177)         ( 44,226)      ( 43,355)


Provision for income taxes               -              -                 -              -
                                   -------        -------           -------        -------


Net loss                         $( 23,089)      ( 23,177)         ( 44,226)      ( 43,355)
                                   =======        =======           =======        =======
</TABLE>


See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.


                                      - 4 -
<PAGE>   5

                      FAIRWOOD CORPORATION AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                --------------------------

                                                                   July 3,      June 27,
                                                                    1999          1998
                                                                  ---------    ----------

<S>                                                              <C>            <C>
Cash flows from operating activities:
  Net loss                                                       $( 44,226)     ( 43,355)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation and amortization                                    956           919
      Gain on disposal of property, plant and equipment           (     21)            -
      Loss on disposal of Stratford Division                           967             -
      Changes in assets and liabilities, net of disposition:
        Accounts receivable                                          4,838      (  2,530)
        Inventories                                               (  1,247)     (    822)
        Prepaid expenses and other current assets                      285      (    518)
        Accounts payable                                             4,504      (  4,223)
        Accrued expenses                                            14,372        21,576
        Federal and state income taxes                            (  4,493)     (     30)
        Due to affiliate                                             1,073             -
        Other, net                                                     270         1,718
                                                                   --------      -------
Cash used - operating activities                                  ( 22,722)     ( 27,265)
                                                                   --------      -------

Cash flows from investing activities:
  Disposition of property, plant and equipment                          21             -
  Disposition of Stratford Division                                 14,047             -
  Capital expenditures                                            (    404)     (    962)
  Advances to affiliate                                                500      (  2,500)
                                                                   -------       -------
Cash provided (used) - investing activities                         14,164      (  3,462)
                                                                   --------      -------

Cash flows from financing activities:
  (Repayments) borrowings-Overdraft                               (  2,212)        1,360
  Proceeds from revolving credit                                    45,945        22,858
  Repayment of long-term debt                                     (     18)     (    212)
  (Repayment of) proceeds from credit line, net                   ( 27,480)       22,883
  Repayments to Factor                                                   -      ( 15,554)
                                                                   -------       -------
Cash provided - financing activities                                16,235        31,335
                                                                   -------       -------

Increase in cash and cash equivalents                                7,677           608
Cash and cash equivalents:
  Beginning of period                                                2,165           605
                                                                   -------       -------
  End of period                                                  $   9,842         1,213
                                                                   =======       =======

Supplemental schedule of cash flow information
-----------------------------------------------
Cash paid during year for:
  Interest                                                       $  21,639        14,109
  Income tax payments, net                                           4,493            30
</TABLE>

Supplemental schedule of noncash operating and financing activities

In the six month periods ending July 3, 1999 and June 27, 1998 the Company
recognized $47 thousand and $39 thousand, respectively, of accrued dividends
payable to shareholders, which dividends have not been paid.

Cash and cash equivalents include cash in banks and highly-liquid short-term
investments having a maturity of three months or less on date of purchase.

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

                                      - 5 -
<PAGE>   6


                      FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements


1.       In the opinion of management, the accompanying unaudited condensed
         consolidated financial statements include all adjustments, consisting
         of only normal recurring adjustments, necessary to present fairly the
         results of operations for the three and six months ended July 3, 1999
         and June 27, 1998, the financial position at July 3, 1999 and December
         31, 1998 and the cash flows for the six months ended July 3, 1999 and
         June 27, 1998. The results of operations for the three and six month
         periods ended July 3, 1999 are not necessarily indicative of the
         results to be expected for the full year.

2.       The accompanying unaudited condensed consolidated financial statements
         should be read in conjunction with Fairwood Corporation's ("Fairwood or
         Company") audited consolidated financial statements included in the
         1998 annual report on Form 10-K. Fairwood is a holding company as is
         its subsidiary, Consolidated Furniture Corporation ("Consolidated
         Furniture") which is the parent of Futorian Furnishings, Inc.
         ("Futorian", formerly Furniture Comfort Corporation), whose two
         operating divisions, Stratford Division ("Stratford") and Barcalounger
         Division ("Barcalounger") manufacture motion upholstered residential
         furniture.

         On June 3, 1999, Fairwood sold substantially all of the assets of the
         Stratford Division for approximately $14 million in cash plus the
         assumption of certain liabilities. The proceeds from the sale were used
         to pay-down the line of credit and term loan ("the Futorian Loan
         Agreement"). The sale included substantially all of the business and
         assets of the Stratford Division, including the sale of its owned
         manufacturing plant in New Albany, Mississippi and its office and
         showroom in Bannockburn, Illinois and the assignment of leases for
         certain other manufacturing and showroom facilities. The revenues and
         segment losses from the Stratford Division are disclosed in note 11.

         The original estimated sale price of approximately $16.7 million
         has been reduced primarily as a result of a decision to exclude certain
         affiliate receivables.  Approximately $0.5 million of the sale price
         is held in escrow. Fairwood's estimated loss on the sale is
         approximately $1 million, subject to final sale price adjustments.

3.       Fairwood's comprehensive income includes a minimum pension liability
         which is calculated and reported annually. As a result, the minimum
         pension liability has no effect on the quarterly unaudited condensed
         consolidated statement of operations.

4.       All inventories (materials, labor and overhead) are valued at the lower
         of cost or market using the last-in, first-out (LIFO) method. The
         components of inventory, in thousands, are as follows:

<TABLE>
<CAPTION>
                                           July 3, 1999     December 31, 1998
                                           -------------    -----------------
                                            (Unaudited)

<S>                                        <C>                  <C>
        Raw materials                       $  4,624             10,740
        In process                             1,621              3,054
        Finished goods                         2,322              8,579
                                              ------             ------
        Inventories at
          first-in, first out                  8,567             22,373
        LIFO reserve                           1,522              7,707
                                              ------             ------
        Inventories at LIFO                 $  7,045             14,666
                                              ======             ======
</TABLE>

                                      - 6 -
<PAGE>   7



                      FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements


5.       No provision for income taxes has been provided during the six months
         ended July 3, 1999 and June 27, 1998, as the Company is in a net
         operating loss carryforward position.

6.       In October 1998, the United States Bankruptcy Court (the "Bankruptcy
         Court") approved the settlement of issues arising out of an Internal
         Revenue Service ("IRS") audit examination of the consolidated Federal
         income tax returns of Fairwood and its subsidiaries for the periods
         ended July 11, 1988 through December 31, 1991. In the second quarter of
         1999, full payment of the Fairwood Group's Federal tax liabilities was
         made to the IRS. The tax payment, including estimated interest, was
         approximately $4.5 million and was provided for in the financial
         statements in previous years. As approved by the Bankruptcy Court, the
         settlement was funded by additional borrowings under Consolidated
         Furniture's existing revolving credit agreement, with any refund
         obtained returned to the lender under that facility. The settlement
         significantly reduced Fairwood's available net operating loss
         carryforwards.

         Fairwood is obligated to the extent of any adjustment by the IRS to the
         interest component of the settlement and the state effect of this
         settlement. The estimated obligation for the adjustment and state
         effect is included in Federal and state income taxes on the
         accompanying balance sheet.

7.       On April 1, 1995, October 1, 1995, and each semi-annual interest
         payment date thereafter, Fairwood failed to make the required interest
         payments due on the senior subordinated pay-in-kind debentures and
         merger debentures (collectively, the "Fairwood Debentures") and
         Fairwood does not expect to make the cash interest payments required
         under the Fairwood Debentures on any future semi-annual interest
         payment date. Accrued interest of $121.6 million on the Fairwood
         Debentures, which includes $73.8 million due to Court Square Capital
         Limited ("CSCL"), is included in accrued interest on the accompanying
         unaudited condensed consolidated balance sheet as of July 3, 1999. On
         January 3, 1996, certain holders of the Fairwood public debentures (the
         "Bondholders") filed an involuntary Chapter 7 petition against Fairwood
         in the United States Bankruptcy Court for the Southern District of New
         York (the "Bankruptcy Court.") Fairwood, Consolidated Furniture and
         certain Citicorp affiliates filed a motion in response to the
         involuntary filing seeking to dismiss the petition. By order dated
         December 4, 1996, the Bankruptcy Court denied the motion to dismiss the
         petition.


                                      - 7 -
<PAGE>   8



                      FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements

         Thereafter, on December 26, 1996, Fairwood exercised its right to
         convert the Chapter 7 case to a case under Chapter 11. As of the date
         hereof, Fairwood continues to operate as a debtor in possession under
         Section 1108 of the Bankruptcy Code. The Chapter 11 case pertains only
         to Fairwood Corporation. Fairwood Corporation's direct and indirect
         subsidiaries, including Consolidated Furniture Corporation, Futorian
         Furnishings, Inc., as well as the operating divisions, Stratford and
         Barcalounger, are not parties to the bankruptcy. In April 1997 the
         Bondholders' filed a Motion With the Bankruptcy Court seeking to
         convert Fairwood's Chapter 11 case to a case under Chapter 7 or,
         alternatively, for the appointment of a Chapter 11 trustee. By order
         dated March 2, 1999, the Bondholders' motion to convert the case or,
         alternatively, for the appointment of a Chapter 11 trustee, was denied
         in its entirety. The Bondholders' have appealed that ruling. The
         Company cannot predict the outcome of this appeal.

8.       Consolidated Furniture's revolving credit under its Credit Agreement
         with CSCL (the "Credit Agreement") and senior subordinated debentures
         mature on January 3, 2000 and, accordingly, have been classified as
         current liabilities in the accompanying unaudited condensed
         consolidated balance sheet of the Company as of July 3, 1999.
         Consolidated Furniture expects to negotiate an extension of these
         maturity dates or refinance such indebtedness prior to January 3, 2000.
         However, there can be no assurance that the Consolidated Furniture will
         be able to negotiate such an extension, or that the terms of such
         extension or refinancing will not be on terms less favorable than those
         currently in place.

         Fairwood's failure to make the April 1, 1995 and subsequent period
         interest payments constitutes an event of default which permits the
         acceleration of the Fairwood Debentures by the demand of the holders of
         the requisite aggregate principal amount of the debentures. Upon
         acceleration, the Fairwood Debentures would be currently due and
         payable. Accordingly, the Fairwood Debentures have been classified as
         current liabilities in the accompanying unaudited condensed
         consolidated balance sheet as of July 3, 1999.

9.       Until June 3, 1999 Stratford provided new product development and
         selling activities to Simmons, an affiliate.  Under the agreement
         to provide services, Stratford recognized approximately $0.1 million
         and $0.2 million for the period April 4, 1999 through June 3, 1999 and
         the three-month period ended June 27, 1998, respectively, and
         approximately $0.3 million and $0.4 million for the period January 1,
         1999 through June 3, 1999 and the six-month period ended June 27, 1998,
         respectively.  Stratford was also reimbursed approximately $0.5 million
         and $1.2 million in selling expenses for the period April 4, 1999
         through June 3, 1999 and the period January 1, 1999 through June 3,
         1999, respectively. Also for the period April 4, 1999 through June 3,
         1999 and the period January 1, 1999 through June 3, 1999, respectively,
         Stratford recognized approximately $.6 million and $1.4 million of
         reimbursements for general and administrative expenses. Under a
         separate agreement, Stratford received repayment of its advances to
         Simmons in the amount of $500,000.

10.      Fairwood's reportable segments include the Stratford division and the
         Barcalounger division. These segments were managed separately because
         of their distinctly different markets and facilities. Stratford was
         sold on June 3, 1999.

                                      - 8 -
<PAGE>   9



                      FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements


         The segment financial information, in thousands, are as follows:


                          Six months ended July 3, 1999
                                   (unaudited)

<TABLE>
<CAPTION>
                         Stratford     Barcalounger    Corporate     Eliminations      Totals
                         ---------     ------------    ---------     ------------      ------

<S>                    <C>            <C>             <C>           <C>             <C>
Revenues from external
 customers              $   49,739     $     28,218    $       -     $          -    $   77,957
Intersegment income            882                -            -       (      882)            -
Interest expense, net        1,464               17       35,475                -        36,956
Segment profit (loss)     ( 10,320)           2,352     ( 36,258)               -      ( 44,226)
</TABLE>



                         Six months ended June 27, 1998
                                   (unaudited)

<TABLE>
<CAPTION>
                         Stratford     Barcalounger    Corporate     Eliminations      Totals
                         ---------     ------------    ---------     ------------      ------

<S>                    <C>            <C>             <C>           <C>             <C>
Revenues from external
 customers               $  54,006     $     27,262    $       -     $          -    $   81,268
Intersegment income          1,092                -            -       (    1,092)            -
Interest expense, net        1,413               11       33,642                -        35,066
Segment profit (loss)     (  9,929)           2,003     ( 35,429)               -      ( 43,355)
</TABLE>


                         Three months ended July 3, 1999
                                   (unaudited)

<TABLE>
<CAPTION>
                         Stratford     Barcalounger    Corporate     Eliminations      Totals
                         ---------     ------------    ---------     ------------      ------

<S>                    <C>            <C>             <C>           <C>             <C>
Revenues from external
 customers              $   19,240     $     13,866    $       -     $          -    $   33,106
Intersegment income            336                -            -       (      336)            -
Interest expense, net          780               10       17,906                -        18,696
Segment profit (loss)     (  5,739)           1,188     ( 18,538)               -      ( 23,089)
</TABLE>


                        Three months ended June 27, 1998
                                   (unaudited)


<TABLE>
<CAPTION>
                         Stratford     Barcalounger    Corporate     Eliminations      Totals
                         ---------     ------------    ---------     ------------      ------

<S>                    <C>            <C>             <C>           <C>             <C>
Revenues from external
 customers               $  24,840     $     13,404    $       -     $          -    $   38,244
Intersegment income            546                -            -       (      546)            -
Interest expense, net          805                6       17,125                -        17,936
Segment profit (loss)     (  6,014)             999     ( 18,162)               -      ( 23,177)
</TABLE>

                                      - 9 -
<PAGE>   10

Item 2.

                     FAIRWOOD CORPORATION AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

                           AND RESULTS OF OPERATIONS


Certain information in this quarterly report on Form 10-Q, including but not
limited to the Management's Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934. Certain forward-looking
statements can be identified by the use of forward-looking terminology such as,
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimated," or "anticipates" or the negative thereof or
other comparable terminology, or by discussions of strategy, plans or
intentions. Forward-looking statements involve risks and uncertainties,
including those described in the Company's Annual Report on Form 10-K, which
could cause actual results to be materially different than those in the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company assumes no obligation to update such information.

Liquidity and Capital Resources

At July 3, 1999, the Company had long-term debt of approximately $600.6 million
of which approximately $600.6 million is current and approximately $537.7 is
owed to Court Square Capital Limited ("CSCL"), an affiliate. Long-term debt was
approximately $556.7 million at December 31, 1998, of which $168.8 million was
current and approximately $491.7 million was owed to CSCL. Accrued interest on
long-term debt was approximately $132.4 million and $118.5 million at July 3,
1999 and December 31, 1998, respectively. Approximately $82.0 million and $73.3
million of the accrued interest was owed to CSCL at July 3, 1999 and December
31, 1998, respectively. The Company's outstanding indebtedness includes its
senior subordinated pay-in-kind debentures and merger debentures (collectively,
the "Fairwood Debentures"). Fairwood had the option during the first five years
to pay interest on the Fairwood Debentures either through cash payments or
through the distribution of additional securities. During such five-year period,
Fairwood distributed additional securities in satisfaction of its interest
obligations.

On June 3, 1999, substantially all of the assets and liabilities of Stratford
Division, a division of Futorian Furnishings, Inc. ("Futorian"), an indirect
wholly-owned subsidiary of the Company were sold to a third party for
approximately $14 million. The original estimated sale price of approximately
$16.7 million has been reduced primarily as a result of a decision to exclude
certain affiliate receivables. Approximately $0.5 million of the sale price is
held in escrow. Fairwood's estimated loss on the sale is approximately $1
million, subject to final sale price adjustments. The proceeds from the
sale were used to pay-down Futorian's existing line of credit and term loan.


                                     - 10 -
<PAGE>   11


Fairwood is a holding company with no operations. Fairwood has effectively no
cash flow from its subsidiaries because the cash produced by the operations of
the subsidiaries is not expected for the foreseeable future to be sufficient to
permit the subsidiaries to transfer funds to Fairwood. Fairwood's sole asset is
the stock of Consolidated Furniture, its wholly-owned subsidiary. Fairwood's
obligations under the Fairwood Debentures (as defined below) are collateralized
by Fairwood's pledge of its interest in Consolidated Furniture's capital stock.
CSCL, as holder of Fairwood's senior subordinated pay-in-kind debentures, has a
first priority collateral interest in all of the outstanding capital stock of
Consolidated Furniture, and the holders of the merger debentures have a second
priority collateral interest in such capital stock. The Fairwood Debentures are
obligations of Fairwood. Consolidated Furniture is not an obligor under the
Fairwood Debentures.

However, Consolidated Furniture is an obligor under a revolving credit agreement
with CSCL ("Credit Agreement"). The Credit Agreement does not permit
Consolidated Furniture to borrow funds and transfer them to Fairwood to enable
Fairwood to make cash interest payments on the Fairwood Debentures. The
borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Consolidated Furniture. Consolidated Furniture is also a holding
company without operations. Its primary asset is the outstanding capital stock
of Futorian which has operations that it conducts through its one remaining
division, Barcalounger. Futorian is also a direct obligor under the Credit
Agreement and has pledged substantially all of its assets to collateralize the
obligations under the Credit Agreement. Futorian is not an obligor under the
Fairwood Debentures.

On each of April 1, 1995 and October 1, 1995, and each semi-annual interest
payment date thereafter, Fairwood failed to make the required interest payments
due on the senior subordinated pay-in-kind debentures and merger debentures
(collectively, the "Fairwood Debentures") and Fairwood does not expect to make
the cash interest payments required under the Fairwood Debentures on any future
semi-annual interest payment date. Accrued interest of $128.4 million on the
Fairwood Debentures, which includes $77.9 million due to CSCL, is included in
accrued interest in the accompanying unaudited condensed consolidated balance
sheet as of July 3, 1999.

There can be no assurance that Fairwood will be able to continue as a going
concern. On January 3, 1996, certain holders of the Fairwood public debentures
(the "Bondholders") filed an involuntary Chapter 7 petition against Fairwood in
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp
affiliates filed a motion in response to the involuntary filing seeking to
dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court
denied the motion to dismiss the petition.

Thereafter, on December 26, 1996, Fairwood exercised its right to convert the
Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Futorian, as well as the operating divisions, Stratford
and Barcalounger, are not parties to the bankruptcy. In April 1997 the
Bondholders' filed a Motion with the Bankruptcy Court seeking to
convert Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively,
for the appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. The Bondholders' have
appealed that ruling. The Company cannot predict the outcome of this appeal.


                                     - 11 -
<PAGE>   12


Fairwood's failure to make the April 1, 1995 and subsequent period interest
payments constitutes an event of default which permits the acceleration of the
Fairwood Debentures by the demand of the holders of the requisite aggregate
principal amount of the debentures, subject to a 180-day acceleration blockage
provision. Upon acceleration, the Fairwood Debentures would be due and payable.
Accordingly, the Fairwood Debentures have been classified as current liabilities
in the accompanying unaudited condensed consolidated balance sheet as of July 3,
1999.

Consolidated Furniture, Fairwood's wholly-owned subsidiary, expects to service
its interest payment obligations under the Credit Agreement and senior
subordinated debentures from its cash flow from operations and available credit
facilities. Throughout 1998 and the first quarter of 1999 Consolidated Furniture
funded interest obligations related to long-term indebtedness on the revolving
line of credit and the senior subordinated debentures through increased
borrowings from CSCL under the Credit Agreement. Borrowings from CSCL during the
first six months of 1999 were approximately $45.9 million. There were no
principal repayments to CSCL during the first six months of 1999. Consolidated
Furniture is dependent upon CSCL for funding of its debt service costs. CSCL has
in the past increased its revolving credit line to Consolidated Furniture in
order for Consolidated Furniture to meet its debt service obligations on the
revolving line of credit and the senior subordinated debentures. Under the
Credit Agreement, Consolidated Furniture and its subsidiaries are generally
restricted from transferring moneys to Fairwood with the exception of amounts
for (a) specified administrative expenses of Fairwood and (b) payment of income
taxes. The senior subordinated debentures, senior subordinated pay-in-kind
debentures and merger debentures also have certain restrictions as to the
payment and transfer of moneys.

Management believes that cash flow from operations and funding from CSCL will be
adequate to meet Consolidated Furniture's obligations on the revolving credit
and the senior subordinated debentures through December 31, 1999.

Consolidated Furniture's revolving credit and senior subordinated debentures
mature on January 3, 2000 and, accordingly, have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheet
as of July 3, 1999. Consolidated Furniture expects to negotiate an extension of
these maturity dates with CSCL or refinance such indebtedness prior to January
3, 2000. However, there can be no assurance that the Consolidated Furniture will
be able to negotiate such an extension, or that the terms of such extension or
refinancing will not be on terms less favorable than those currently in place.

For a discussion of the status of the IRS examination, refer to Fairwood's
footnote 6 to Fairwood's unaudited condensed consolidated financial statements
included herein.

Results of Operations

Three Months Ended July 3, 1999 Versus Three Months Ended June 27, 1998

The following discussion presents the material changes in results of operations
which have occurred in the second quarter of 1999 in comparison to the same
period in 1998. The comparability of these periods is impacted by the June 3,
1999 sale of the Stratford division.



                                     - 12 -
<PAGE>   13


Net sales on a consolidated basis were approximately $33.1 million in the second
quarter of 1999, a decrease of 13.4% from last year's second quarter
consolidated net sales of approximately $38.2 million. Cost of sales on a
consolidated basis decreased 9.6% in the second quarter of 1999 to $32.0
million, or 96.7% of net sales, as compared to $35.4 million, or 92.7% of net
sales, in 1998. These sales and cost of sales decreases were impacted largely by
the sale of Stratford.

On June 3, 1999, Fairwood sold substantially all the assets of the Stratford
Division. For the period through June 3, 1999 the Stratford Division had net
sales (including intercompany sales) of $19.6 million as compared to $25.4
million for the second quarter of 1998. The Stratford Division cost of sales
were $21.2 million for the second quarter of 1999 compared to $25.1 million for
the second quarter of 1998.

Second quarter 1999 net sales by Barcalounger increased 3.0% to approximately
$13.8 million as compared to $13.4 million for the comparable period in 1998.
This increase in sales reflects a decrease in total volume of .2%, and a 3.5%
increase in average sales prices. The increase is due to the increase in sale of
products with more expensive upper grade leather. Barcalounger cost of sales
increased to $11.1 million, or 80.4% of net sales in the second quarter of 1999,
as compared to $10.8 million, or 80.6% of net sales in the second quarter of
1998.

Selling, administrative and general expenses on a consolidated basis for the
second quarters of 1999 and 1998 were approximately $4.6 million and $8.1
million, respectively, representing a decrease of 43.2%. The decrease was due
primarily to a reserve taken in the second quarter of 1998 by Stratford for
expected non-collection of amounts due from a large national retail chain, the
write down of non-performing assets and prepaid expenses in 1998, the sale of
Stratford in 1999, offset partially by costs to transfer certain administrative
operations to Chicago.

Interest expense, was approximately $18.7 million and $18.0 million for the
second quarters of 1999 and 1998, respectively, an increase of 3.9%. The
increase was primarily due to increased borrowings on the Credit Agreement
off-set partially by the repayment of the Futorian line of credit and term loan.

Six Months Ended July 3, 1999 Versus Six Months Ended June 27, 1998

The following discussion presents the material changes in results of operations
which have occurred in the first six months of 1999 in comparison to the same
period in 1998. The comparability of these periods is impacted by the June 3,
1999 sale of the Stratford division.

Net sales on a consolidated basis were approximately $78.0 million in the first
six months of 1999, a decrease of 4.1% from last year's first six months
consolidated net sales of approximately $81.3 million, due primarily to the sale
of Stratford opearations in 1999. Cost of sales on a consolidated basis
decreased 1.7% in first six months of 1999 to approximately $74.0 million, or
94.9% of net sales, as compared to $75.3 million, or 92.6% of net sales, in
1998. These sales and cost of sales decreases were impacted largely by the sale
of Stratford.


                                     - 13 -
<PAGE>   14


On June 3, 1999, Fairwood sold substantially all the assets of the Stratford
Division. For the period through June 3, 1999 the Stratford Division had net
sales (including intercompany sales) of $50.6 million as compared to $55.1
million for the first six months of 1998. The Stratford Division cost of sales
were $52.3 million for the first six months of 1999 compared to $54.4 million
for the first six months of 1998.

Barcalounger net sales for the first six months of 1999 were approximately $28.2
million, an increase of 3.3%, as compared to 1998 second quarter sales of $27.3
million, reflective of a 0.1% decrease in the number of pieces sold and a 3.4%
increase in average selling prices. The net increase is due to the increase in
sale of products with more expensive upper grade leather. Barcalounger's cost of
sales increased to $22.6 million, or 80.1% of net sales in the first six months
of 1999, as compared to $22.0 million, or 80.7% of net sales in the first six
months of 1998. The decrease in cost of sales as a percentage of net sales was
the result of continued sales increases and a slight reduction in fixed overhead
costs as a percentage of sales.

Selling, administrative and general expenses on a consolidated basis for the
first six months of 1999 and 1998 were approximately $10.4 million and $14.4
million, respectively, representing a decrease of 27.8%. The decrease was due
primarily to reserves taken in the second quarter of 1998 for expected
non-collection of amounts due from a large national retail chain, the write down
of non-performing assets and prepaid expenses, offset partially for costs
incurred in 1998 to transfer certain administrative operations to Chicago.

Interest expense, was approximately $37.0 million and $35.1 million for the
first six months of 1999 and 1998, respectively, an increase of 5.4%. The
increase was primarily due to increased borrowings on the Credit Agreement
off-set partially by the repayment of the Futorian line of credit and term loan.

No income taxes have been provided in the first six months of 1999 and 1998,
espectively, as the Company is in a net operating loss carryforward position,
and a valuation allowance has been increased to offset any future benefit from
these positions.

Year 2000

The Year 2000 issue is the result of computer programs using a two-digit format,
as opposed to four digits to define the applicable year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause system
failures and other computer errors, resulting in business and operational
disruptions. The Company recognizes the need to identify and correct problems
associated with its existing computer systems and certain non-information
technology systems as the Year 2000 approaches. Both internal and external
resources are being used to identify, correct, and to test these financial,
information and operational systems for Year 2000 compliance.

While a number of the Company's systems have been determined to be Year 2000
compliant, certain applications required remediation. The Company has completed
its remediation and believes that all the Company's Systems are Year 2000
compliant and does not expect the impact of Year 2000 issues to have a material
impact on the financial position or results of operations of the Company.

Costs and expenses incurred through July 3, 1999 in addressing the Year 2000
issue have been less than $400,000. It is estimated that less than $10,000 in
additional costs will be incurred in the second half of 1999 for certain
incidental items.

                                     - 14 -
<PAGE>   15


The Company has made inquiries of key third parties to assess the potential
impact on the Company's operations if such parties are not successful in
remediating their systems in a timely manner. The Company is in the process of
developing contingency plans in the event Year 2000 failures of its key
suppliers and service providers.

The Company's expectations about future costs necessary to achieve Year 2000
compliance, the impact on its operations and its ability to bring each of its
systems into Year 2000 compliance are subject to a number of uncertainties that
could cause actual results to differ materially. Such factors include the
following:(i) the Company may not be successful in properly identifying all
systems and programs that contain two-digit year codes;(ii) the nature and
number of systems which require reprogramming, upgrading or replacement may
exceed the Company's expectations in terms of complexity and scope;(iii) the
Company may not be able to complete all remediation and testing necessary in a
timely manner;(iv) the Company has no control over the ability of its key
suppliers and customers to achieve Year 2000 compliance; and (v) the impact of
the Year 2000 problems on key customers may be of such magnitude that it may
adversely affect their demand for the Company's products and services. Fairwood
estimates the potential, worst-case-scenario as a result of Year 2000 failure
from these, or other, unanticipated factors, would delay production no more than
a week because of the non technical aspects of furniture manufacturing.

Part II OTHER INFORMATION

Item 1.  Legal Proceedings

                  Reference is made to Item 3, Legal Proceedings, previously
                  reported in the Registrant's Form 10-K for the year ended
                  December 31, 1998 for a description of pending legal action.

                   There are certain legal proceedings arising out of the normal
                  course of business, the financial risk of which are not
                  considered material in relation to the consolidated financial
                  position of the Company.

Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits

         None


    (b)  Reports on Form 8-K

         A report of Form 8-K was filed on June 18, 1999 regarding the
         disposition of substantially all of the assets of the Stratford
         Division, an indirect division of Fairwood.




                                     - 15 -
<PAGE>   16


                      FAIRWOOD CORPORATION AND SUBSIDIARIES


                                   SIGNATURES



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








                                           FAIRWOOD CORPORATION
                                           --------------------
                                               (Registrant)



                                         /s/ John B. Sganga
                                         ------------------
                                         John B. Sganga
                                         Chief Financial Officer,
                                         Executive Vice President,
                                         Secretary and Treasurer



Date:  August 17, 1998





                                     - 16 -