SECURITIES  AND  EXCHANGE  COMMISSION
                          Washington, D.C.  20549

                                 FORM 10-K
    
(Mark One)
[X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES  EXCHANGE  ACT  OF  1934
For the fiscal year ended June 30, 1998

                                    OR

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

Commission file number:  1-12754

                   O'SULLIVAN INDUSTRIES HOLDINGS, INC.
          (Exact name of registrant as specified in its charter)

Delaware       (State or other jurisdiction of incorporation or
               organization)
43-1659062     (I.R.S. Employer Identification No.)

        1900 Gulf Street, Lamar, Missouri         64759-1899
     (Address of principal executive offices)     (Zip Code)

Registrant's telephone number, including area code:  (417) 682-3322

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

Title of each class              Name of each exchange on which registered
-------------------              -----------------------------------------
Common Stock, par value                   New York Stock Exchange
$1.00 per share
Preferred Stock Purchase Rights           New York Stock Exchange

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

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

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

      As of September 15, 1998, 15,971,097 shares of common stock of
O'Sullivan Industries Holdings, Inc. were outstanding, and the aggregate
market value of the voting stock held by non-affiliates of O'Sullivan
Industries Holdings, Inc. was $144,627,809, based on the New York Stock
Exchange composite trading closing price and using the definition of
beneficial ownership contained in Rule 16a-1(a)(2) promulgated pursuant to
the Securities Exchange Act of 1934 and excluding shares held by directors
and executive officers, some of whom may not be held to be affiliates upon
judicial determination.

      Portions of the definitive proxy statement relating to the 1998
Annual Meeting of Stockholders of O'Sullivan Industries Holdings, Inc.,
which will be filed within 120 days of June 30, 1998, are incorporated by
reference in Item 10, Item 11, Item 12 and Item 13 of Part III of this
form.

<PAGE>

                                  PART  I
                                  =======

ITEM 1.    BUSINESS

HISTORY AND OVERVIEW

      O'Sullivan Industries Holdings, Inc., a Delaware corporation, is a
leading manufacturer of ready-to-assemble ("RTA") furniture in the United
States.  O'Sullivan Industries Holdings, Inc., together with its
subsidiaries unless otherwise indicated, is called the "Company" or
"O'Sullivan" in this report.  The Company was incorporated in November 1993
and acquired O'Sullivan Industries, Inc. ("Industries") in February 1994,
immediately prior to the sale of its common stock (the "Offerings") in a
public offering by TE Electronics Inc. ("TE"), a subsidiary of Tandy
Corporation ("Tandy").  Prior to the Offerings, Industries operated as a
wholly owned subsidiary of TE.  Subsequent to the Offerings, neither Tandy
nor TE has had any continuing ownership interest in the Company.

      The Company owns manufacturing, warehouse and distribution
facilities in Lamar, Missouri,  South Boston, Virginia and Cedar City,
Utah.  O'Sullivan commenced operations at the Lamar, Missouri plant in
1965, and the South Boston, Virginia facility became operational in 1989.  
The Company phased in production at the Cedar City, Utah facility in the
spring of 1995.

      The Company is a holding company that owns O'Sullivan Industries,
Inc., a Delaware corporation.  Industries owns O'Sullivan Industries -
Virginia, Inc., a Virginia corporation ("O'Sullivan - Virginia").

      The Company engages in one industry segment:  the design,
manufacture and sale of RTA furniture.

THE RTA FURNITURE INDUSTRY

      RTA furniture is purchased in component form and then assembled by
the consumer.  RTA furniture is sold at generally lower price points than
assembled furniture.  Most RTA furniture is sold through office
superstores, discount mass merchants, mass merchants (department stores and
catalog showrooms), home centers, electronics retailers, furniture stores,
original equipment manufacturers ("OEM") and internationally.

      O'Sullivan manufactures RTA furniture in a number of steps.  First,
paper, vinyl or other materials are laminated to particle board or
fiberboard.  Then, generally, the board is cut to size.  The parts are then
processed over one or more lines to drill holes in the proper places and to
contour edges to the proper shapes and cover the edges with edgebanding or
foil material.  Parts may be embossed with a pattern or routed into the
proper shape.  Each component of a unit may undergo different processing
steps as needed to meet the specifications for the component.  Therefore,
not all parts of a particular product are manufactured on a single
production line.  After parts for a product are manufactured, the Company
packs the parts in a box together with the assembly instructions and
purchased items such as hardware, knobs and other detail pieces for the
unit.  

PRODUCTS

      The Company's products can be divided into several categories,
including home office, office and computer, electronics and home decor
furniture.

      HOME OFFICE, OFFICE AND COMPUTER.   Home office, office and computer
furniture includes desks, computer workcenters, bookcases, filing cabinets,
credenzas, tables, printer stands and computer storage racks.

      ELECTRONICS.   Electronics furniture includes home entertainment
centers, home theater systems, television and stereo tables and cabinets
and audio and video storage racks.

      HOME DECOR.   Home decor furniture includes microwave oven carts,
pantries and other kitchen furniture; living room and recreation room
furniture; and bedroom pieces such as dressers, night stands and wardrobes.

                                     -1-

<PAGE>

SALES AND MARKETING

      For information regarding the Company's sales, operating profits and
assets, see the consolidated financial statements of the Company included
in Part II of this report.

      The Company has developed a diverse and extensive customer base. 
O'Sullivan's top 50 customers comprised approximately 95% of its sales in
fiscal 1998.  O'Sullivan groups most of its customers into eight major
categories:  office superstores, discount mass merchants, mass merchants
(department stores and catalog showrooms), home centers, electronics
retailers, furniture stores, OEM and international.

      The Company's products are sold throughout the United States and in
Canada, Mexico, Great Britain and other countries.  Export sales were
$27.9 million, $22.5 million and $17.9 million in fiscal 1998, 1997 and
1996, respectively.  In fiscal 1998 and 1997, international sales increased
because of the success of the Company's United Kingdom operations and the
growth of international office superstores.  Fiscal 1998 sales to the
Middle East also increased, and sales to Mexico began to recover.  In
fiscal 1996, export sales increased primarily due to increased sales in
international markets of close-out merchandise.

      OfficeMax, Inc. and Office Depot, Inc. accounted for approximately
20.1% and 11.6%, respectively, of O'Sullivan's sales in fiscal 1998.  The
Company's top five customers accounted for approximately 58% of its sales
during the same period.  The loss of, or significant reductions in orders
from, any of these five customers could have a material adverse effect on
the Company.

      As is customary in the RTA furniture industry, O'Sullivan does not
have long-term supply contracts with any of its customers.  The Company has
entered into supply contracts with certain OEM customers, but these
contracts have simply provided for the delivery of a specified quantity of
goods in accordance with a specified price formula, and have not had a term
in excess of one year.

      MARKETING AND DISTRIBUTION.   The Company's field sales organization
consists of independent sales representative organizations and in-house
sales managers.  Also, in-house sales personnel deal directly with certain
major customers.  The sales managers supervise the independent sales
representatives and manage the Company's relationship with certain of its
customers.

      The Company's products are promoted by its customers to the public
pursuant to cooperative and other advertising agreements.  Under these
agreements, the Company covers a portion of the customer's advertising
expenses if the customer places approved advertisements mentioning the
Company and its products by name.  The Company may also provide support to
certain customers' advertising programs.  The Company generally does not
advertise directly to consumers, although it does advertise in trade
publications to promote its image as a producer of high quality RTA
products.

      The Company also participates in a variety of international and
regional furniture markets and trade shows, such as the semiannual
international furniture markets held in High Point, North Carolina.

PRODUCT DESIGN AND DEVELOPMENT

      The Company continually introduces new or redesigned products to
appeal to changing consumer tastes and to satisfy customer needs.  In-house
furniture designers develop product ideas in conjunction with the Company's
marketing personnel and customers.  The Company then produces full-scale
prototypes.  The prototypes are displayed at High Point and other trade
shows or otherwise shown to customers to measure customer interest.  If the
Company determines that a product will be successful, it commences
production.  In addition, O'Sullivan sometimes develops a specific product
at the request of a customer.  The Company expended approximately
$0.9 million, $0.7 million and $0.8 million for product design and
development during fiscal 1998, 1997 and 1996, respectively.

                                    -2-

<PAGE>

MANUFACTURING

      The Company manufactures its products in three facilities.  The
Lamar, Missouri facility began production in 1965.  The South Boston,
Virginia facility was opened in 1989.  The Cedar City, Utah facility phased
in production in the spring of 1995.

      The Company uses state-of-the-art computer-aided design and
computer-aided manufacturing equipment and software to assist in the
manufacturing process.  This equipment and software helps the Company
develop conceptual designs, production drawings, tooling patterns, quality
assurance procedures and customer instruction sheets more quickly.  The
Company continues to review and invest in new machinery, equipment and
software that will increase manufacturing efficiency and reduce costs.

SHIPPING

      The Company generally makes arrangements for the shipping of
products to its customers on a customer-by-customer basis.  When the
Company pays freight costs, it uses independent trucking companies with
which it has negotiated competitive transportation rates.

RAW MATERIALS

      The materials used in the Company's manufacturing operations include
particle board, fiberboard, coated paper laminates, glass, furniture
hardware and packaging materials.  

      The Company is dependent upon outside suppliers for all of its raw
material needs and is therefore subject to fluctuations in prices of raw
materials.  In particular, the Company's results of operations were
affected significantly in fiscal 1995 by higher prices of particle board
and fiberboard.  The Company buys its particle board and fiberboard at
market-based prices from a number of independent wood product suppliers. 
In 1995, prices for particle board and fiberboard increased because demand
for these materials increased more quickly than the available supply.  In
fiscal 1995, the Company also experienced increases in the prices of
certain other raw materials, including packaging materials and paper
laminates.  Packaging materials increased principally because of price
increases for corrugated cardboard.  The cost of imported paper laminates
increased because of increases in raw material costs and the decline of the
United States dollar against the Japanese yen.

      During fiscal 1996, the average purchase price for raw materials
decreased slightly from the high prices experienced in fiscal 1995,
lowering the costs of materials as a percent of cost of goods sold,
particularly in the last three quarters.  In fiscal 1997, price declines
continued, and the lower material costs contributed significantly to the
increases in the Company's gross margins and results of operations.  During
fiscal 1998 overall raw materials prices declined slightly.  Projections
for fiscal 1999 are not currently indicating significant price changes in
raw materials; however, there can be no assurance that these projections
will be accurate, particularly in the latter quarters of fiscal 1999 or
beyond.  The demand for raw materials may increase, which could result in
higher prices.  There can be no assurance that the Company will be able to
increase its sales prices sufficiently or lower manufacturing costs to
offset any cost increases or to maintain its margins.

      As is customary in the RTA furniture industry, the Company does not
maintain long-term supply contracts with its suppliers.  It does, however,
have long continuous relationships with all of its key suppliers and
encourages supplier partnerships.  The Company's supplier base is
sufficiently diversified so that loss of any one supplier in any given
commodity should not have a material adverse effect on the Company's
operations.  The Company has never been unable to secure needed raw
materials.  There could be adverse effects on the Company's operations and
financial conditions should the Company be unable to secure necessary raw
materials such as particle board or fiberboard.

      The Company often purchases its raw materials of a certain type from
a limited number of vendors.  These raw materials, however, are generally
available from other suppliers, although the cost from alternate suppliers
might be slightly higher.

                                      -3-

<PAGE>

BACKLOG

      Because the Company's business is characterized by short-term order
and shipment schedules, generally less than two weeks, the Company does not
consider backlog at any given date to be indicative of future sales.

COMPETITION

      The residential furniture market is very competitive and includes a
large number of both domestic and foreign manufacturers.  These
manufacturers include not only RTA furniture manufacturers, but also
manufacturers of assembled furniture.  Although a large number of companies
manufacture RTA furniture in a highly competitive market, the top five RTA
furniture manufacturers account for roughly 65% of the domestic market. 
Certain of the Company's competitors in the residential furniture market
have greater sales volumes and greater financial resources than the
Company.

      The Company and certain of its competitors continue to increase
their production capacity significantly as the market for RTA furniture has
grown.  In fiscal 1996 these increases in capacity created some surplus in
production capacity in the RTA furniture industry.  This extra capacity
heightened competition in the industry and pressured the Company's sales
margins in fiscal 1996 through increased price competition.  Excess
capacity also decreased overhead absorption because the Company's plants
operated at less than full capacity.  The current increases in production
capacity could again cause excess capacity and heightened competition if
anticipated sales increases do not materialize.  This could again adversely
affect the Company's margins and results of operations.

      Competition in the RTA furniture industry occurs principally (but
not necessarily in order of importance) in the areas of style, price,
quality, functionality, customer service and design.

SEASONALITY

      The Company generally experiences a somewhat higher level of sales
in the first and second quarters of the fiscal year in anticipation of the
back-to-school and holiday selling seasons.

WORKING CAPITAL

      The Company maintains a significant level of finished goods
inventory to meet the rapid delivery requirements of its customers.  During
fiscal 1998 inventories increased $2.6 million to accommodate an additional
$17.9 million in sales.  The other major component of the Company's current
assets is accounts receivable, which results from the Company's selling its
products on credit terms negotiated between the Company and each of its
customers.  

      BUSINESS AND CREDIT RISK CONCENTRATIONS.  The largest five customer
accounts receivable balances accounted for approximately 62% of the
Company's trade receivables balance at June 30, 1998.  The Company's
products are sold primarily through large chains of retail stores,
including office superstores, discount mass merchants, mass merchants
(department stores and catalog showrooms), home centers, electronics
superstores, furniture stores and OEM.  Credit is extended to these
customers based on evaluation of the customer's financial condition,
generally without requiring collateral.  Exposure to losses on receivables
is primarily dependent on each customer's financial condition.  Therefore,
the Company would be exposed to a large loss if one of its major customers
were not able to fulfill its financial obligations.  The Company maintains
certain limited credit insurance which helps reduce, but not eliminate,
exposure to potential credit losses.  The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.   

      The Company has had to absorb large losses in the past, such as the
bankruptcy and subsequent liquidation of Best Products Co., Inc. in fiscal
1997 and the Chapter 11 bankruptcy filing of Montgomery Ward & Co. in July
1997.   In addition, if a large customer of the Company files bankruptcy,
the Company may see reduced or no sales to that customer as a result of the
reorganization or liquidation of the bankrupt company.  The Company may not
be able to replace the lost sales immediately.

                                   -4-

<PAGE>

EMPLOYEES

      As of June 30, 1998, the Company had approximately 2,350 employees,
69% of whom were located in Lamar.  None of O'Sullivan's employees are
represented by a labor union.  The Company believes that its work force is
relatively stable when compared with furniture industry standards.  Over
900 of its employees have been with the Company for more than eight years
as of June 30, 1998.  The Company believes that it has good relations with
its employees.

PATENTS AND TRADEMARKS

      The Company has a United States trademark registration and
international trademark registrations or applications for the use of the
O'Sullivan(R) name on furniture.  The Company believes that the O'Sullivan
name and trademark are well-recognized and associated with high quality by
both its customers and consumers.  The Company's products are sold under a
variety of trademarks in addition to O'Sullivan, some of which are
registered trademarks.  These trademarks include Carmel Valley(R), the
Cockpit(R), PowerBay(TM), Durafin(R), Intelligent Designs(R), Quick Fit(TM)
and Armortop(TM).  The Company does not believe that the other trademarks
it owns enjoy the same level of recognition as the O'Sullivan trademark, or
that the loss of the right to use any one of these other trademarks would
be material to its business.  The Company holds a number of patents and
licenses, none of which are individually considered material to its
business.

ENVIRONMENTAL AND SAFETY REGULATIONS

      Extensive federal, state and local laws, regulations and ordinances
relating to the generation, storage, handling, emission, transportation and
discharge of certain materials, substances and waste into the environment
regulate the Company's operations.  Certain of the Company's operations
require permits, which are subject to revocation, modification and renewal
by governmental authorities.  


      Governmental authorities have the power to enforce compliance with
their regulations, and violators may be subject to fines, injunction or
both.  Compliance with these regulations has not in the past had a material
effect on the Company's earnings, capital expenditures or competitive
position.  The Company anticipates increased federal and state
environmental regulations affecting it as a manufacturer, particularly
regarding emissions and the use of certain materials in the production
process.  In particular, regulations to be issued under the Clean Air Act
Amendments of 1990 likely will subject the Company to new standards
regulating emissions of certain air pollutants from wood furniture
manufacturing operations.  The Company cannot at this time estimate the
impact of these new standards on the Company's operations, future capital
expenditure requirements or the cost of compliance.  The Company has
applied for air emission permits under Title V of the Clean Air Act
Amendments of 1990.

      The Company's manufacturing process creates by-products such as
sawdust and particle board flats.  At the South Boston facility, this
material is given to a recycler.  At the Lamar facility, the material has
been sent to a recycler and off-site disposal sites.  Wood by-products
generated at the Cedar City facility are shipped to a local landfill.  The
Company's by-product disposal costs were approximately $1,213,325, $953,000
and $850,000 for fiscal 1998, 1997 and 1996, respectively.

      The Company's manufacturing facilities ship waste products to
various disposal sites.  To the extent that such waste products include
hazardous substances that could be discharged into the environment at such
disposal sites or elsewhere, the Company is potentially subject to laws
which provide for responses to, and liability for, releases of hazardous
substances into the environment and liability for natural resource damages. 
One example of such laws is the federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"). 
Generally, liability under CERCLA is joint and several and is determined
without regard to fault.  In addition to CERCLA, similar state or other
laws and regulations may impose the same or even broader liability for
releases of hazardous substances.  The Company has been designated as a
potentially responsible party ("PRP") under one such state law, the
Arkansas Remedial Action Trust Fund Act, in connection with the cost of
cleaning up a disposal site in Diaz, Arkansas.  The Company  entered into a
de minimis buyout agreement with certain other PRP's, pursuant to which it
has contributed $2,000 to date toward cleanup costs.  The agreement
subjects de minimis PRP's to liability for additional contributions if
cleanup costs exceed $9 million.  In this event, the Company would be
liable for an equitable 

                                 -5-

<PAGE>

share of the excess.  Cleanup expenses have approached $9 million.
A plan has been approved by the state providing
that groundwater at the site be monitored, but that no further remediation
activities be undertaken.  The monitoring activities should not require an
assessment of the PRP's.  The Company believes that amounts it may be
required to pay in the future, if any, relating to this site will be
immaterial.

      In July 1998, the Company received a notice from the federal
Environmental Protection Agency ("EPA") alleging that certain reports had
not been filed with federal, state and local authorities under CERCLA and
the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA")
regarding emissions of formaldehyde from the Company's Lamar, Missouri
plant.  The Company has permits for all such emissions.  The Company is
investigating the allegations and has not determined whether to defend
against the claim alleged in the notice or to seek a settlement of the
matter with the EPA.  The Company does not expect the EPA's claim will have
a material adverse effect on the Company's business, results of operation
or financial condition.

      The Company's operations also are governed by laws and regulations
relating to workplace safety and worker health, principally the
Occupational Safety and Health Act and regulations thereunder.  The Company
believes that it is in substantial compliance with all such laws and
regulations.


ITEM 2.    PROPERTIES

      The Company owns three manufacturing, warehouse and distribution
facilities.  The Lamar, Missouri facility, which also serves as the
Company's headquarters, consists of approximately 1,094,000 square feet. 
The South Boston, Virginia facility has approximately 480,000 square feet,
and the Cedar City, Utah facility has approximately 530,000 square feet.

      The Company has minimal unused land at Lamar on which it could build
new production or warehouse facilities.  It does have excess land at South
Boston and Cedar City which may be used for expansion.

      The Company also leases space for showrooms in High Point, North
Carolina and Bentonville, Arkansas.   It leases warehouse space in Lamar
and Neosho, Missouri and South Boston, Virginia.

      The Company's Canadian operations are in a leased facility in
Markham, Ontario.  The Company's United Kingdom operations are in a leased
facility in Oxfordshire.

      The Company considers its owned and leased facilities to be adequate
for the needs of the Company and believes that all of its owned and leased
properties are well maintained and in good condition.  


ITEM 3.    LEGAL PROCEEDINGS

      The Company is a party to various legal actions arising in the
ordinary course of its business.  The Company does not believe that any
such pending actions will have a material adverse effect on its results of
operations or financial position.


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

      No matters were submitted to a vote of security holders of the
Company during the quarter ended June 30, 1998.

                                     -6-

<PAGE>

EXECUTIVE OFFICERS

      The Company's executive officers, and their ages and positions with
the Company as of September 1, 1998, are as follows:

<TABLE>
<CAPTION>
                              Officer
                              Since
Name                      Age <F1>     Position(s)
-----------------------   --- -------- ----------------------------------
<S>                       <C> <C>      <C>
Daniel F. O'Sullivan      57  1969     Chairman of the Board and
                                       Chief Executive Officer
Richard D. Davidson       50  1996     President and Chief Operating
                                       Officer and Director
Tyrone E. Riegel          55  1969     Executive Vice President
                                       and Director
Terry L. Crump            48  1996     Executive Vice President
                                       and Chief Financial Officer
Thomas M. O'Sullivan, Jr. 43  1993     Vice President-Sales
Rowland H. Geddie, III    44  1993     Vice President, General
                                       Counsel and Secretary
E. Thomas Riegel          54  1993     Vice President-Strategic
                                       Operations
James C. Hillman          53  1973     Vice President-Human Resources
Michael P. O'Sullivan     39  1995     Vice President-Marketing

<FN>
---------------
<F1>
Includes officer positions held with Industries.
</FN>
</TABLE>


      Daniel F. O'Sullivan was named President, Chief Executive Officer
and a Director of the Company in November 1993 and became Chairman of the
Board in December 1993.  He relinquished the position of President of the
Company in July 1996.  He served as President of Industries from 1986 until
July 1996, and was appointed Chairman of the Board and Chief Executive
Officer in 1994.  He also serves as Chairman of the Board and Chief
Executive Officer of O'Sullivan - Virginia.  Mr. O'Sullivan has been
employed by the Company since September 1962.  In August 1998,
Mr. O'Sullivan announced he would retire as Chairman and Chief Executive
Officer of the Company effective when the Board completes its search for
his replacement.

      Richard D. Davidson was named President and Chief Operating Officer
of the Company and its subsidiaries in July 1996.  He was named a Director
of Industries and O'Sullivan - Virginia in July 1996 and of the Company in
August 1996.  For more than five years prior to October 1995, he served as
a Senior Vice President of Sunbeam Corporation and as President of
Sunbeam's Outdoor Products Division.

      Tyrone E. Riegel has been Executive Vice President of Industries
since July 1986 and a Director since March 1994.  He was appointed as
Executive Vice President and a Director of the Company in November 1993. 
Mr. Riegel also serves as Executive Vice President and a Director of
O'Sullivan - Virginia.  Mr. Riegel has been employed by the Company since
January 1964.

      Terry L. Crump has been Executive Vice President and Chief Financial
Officer of the Company and its subsidiaries since July 1997.  From January
1996 to July 1997, he served as Vice President-Finance and Chief Financial
Officer of the Company and its subsidiaries.  He was appointed as a
Director of Industries and O'Sullivan - Virginia in January 1996.  From
August 1975 to January 1996, Mr. Crump was employed by Tandy, a retailer of
electronics products.  Mr. Crump held various positions with Tandy,
including Vice President and Controller of Tandy Retail Services and TE and
Vice President and Controller of Tandy Electronics manufacturing and
wholesale divisions.

      Thomas M. O'Sullivan, Jr. has been Vice President-Sales of the
Company and its subsidiaries since 1993.  Prior to his appointment as
Vice President-Sales, Mr. O'Sullivan was the National Sales Manager for
Industries and O'Sullivan - Virginia.  Mr. O'Sullivan has been employed by
the Company since June 1979.

      Rowland H. Geddie, III has been Vice President, General Counsel and
Secretary of the Company and its subsidiaries since December 1993.  He was
appointed a Director of Industries and O'Sullivan - Virginia in March 1994. 
From January 1993 through November 1993, Mr. Geddie was a contract attorney
for Tandy and TE.

                                   -7-

<PAGE>

      E. Thomas Riegel has been Vice President-Strategic Operations of the
Company and its subsidiaries since November 1995.  From June 1993 until
November 1995, he was Vice President-Marketing of the Company and its
subsidiaries.  Prior to his appointment as Vice President-Marketing,
Mr. Riegel was the National Marketing Manager for Industries and
O'Sullivan - Virginia.  Mr. Riegel has been employed by the Company since
May 1971.

      James C. Hillman has been Vice President-Human Resources of the
Company since November 1993 and of Industries since 1980.  He also serves
as Vice President-Human Resources of O'Sullivan - Virginia.  Mr. Hillman
has been employed by the Company since May 1971.

      Michael P. O'Sullivan has been Vice President-Marketing of the
Company and its subsidiaries since November 1995.  He served as National
Sales Manager of the Company from July 1993 until November 1995.  From July
1986 to July 1993, Mr. O'Sullivan was Sales Manager-Office Products of the
Company.  Mr. O'Sullivan has been employed by the Company since 1984.

      CERTAIN RELATIONSHIPS.   Daniel F. O'Sullivan, Thomas M. O'Sullivan,
Jr. and Michael P. O'Sullivan are brothers.  Tyrone E. Riegel and James C.
Hillman were, prior to the deaths of their respective spouses, brothers-in-law 
of Daniel F. O'Sullivan, Thomas M. O'Sullivan, Jr. and Michael P.
O'Sullivan.  Tyrone E. Riegel and E. Thomas Riegel are brothers.  Thomas M.
O'Sullivan, Sr., a Director and the founder of the Company, is the father
of Daniel F. O'Sullivan, Thomas M. O'Sullivan, Jr. and Michael P.
O'Sullivan and is the former father-in-law of Tyrone E. Riegel and James C.
Hillman.



                                  PART II
                                  =======

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

      The Company's common stock is traded on the New York Stock Exchange
under the symbol "OSU".  The following table sets forth the high and low
sale prices of the Company's common stock, as reported on the New York
Stock Exchange, for the periods indicated:


             Fiscal 1998 Quarter Ended         High      Low
             --------------------------       ------    -----

                      June 30, 1998            $16.44   $12.44
                     March 31, 1998            $12.94    $9.38
                    December 31, 1997          $14.00    $9.25
                   September 30, 1997          $16.44   $11.75


                Fiscal 1998 Quarter Ended       High       Low
               --------------------------      ------    ------

                      June 30, 1997            $16.63   $12.50
                     March 31, 1997            $14.75   $10.50
                    December 31, 1996          $14.00    $8.63
                   September 30, 1996           $9.75    $6.88


      As of September 8, 1998, there were approximately 895 stockholders
of record.  No dividends have been paid or declared subsequent to the
closing of the Offerings on February 2, 1994.

      The Company currently intends to retain all earnings to finance the
development of its operations and to repurchase a portion of its
outstanding common stock.  The Company does not anticipate paying cash
dividends on its shares of common stock in the near future.  The Company's
future dividend policy will be determined by its Board of Directors on the
basis of various factors, including but not limited to the Company's
results of operations, financial condition, business opportunities and
capital requirements.  The payment of dividends is subject to the
requirements of Delaware law, as well as restrictive financial covenants in
its debt agreements.  In addition, the Company's revolving credit facility
with a bank has provisions specifying certain limitations on dividends,
investments and future indebtedness.  At June 30, 1998, the Company was in
compliance with such covenants.

                                   -8-

<PAGE>

ITEM 6.    SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

      The selected historical consolidated results of operations and
balance sheet data for the five years ended June 30, 1998 are derived from
the Company's audited financial statements.  This selected consolidated
financial data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related notes included on the
following pages.
<TABLE>
<CAPTION>
                                           Year Ended June 30,
                             --------------------------------------------
                             1998      1997      1996      1995      1994  
                             ----      ----      ----      ----      ----  
                                 (in thousands, except per share data)
<S>                       <C>       <C>       <C>       <C>       <C>      
Earnings Data:                                         
Net sales                  $339,407  $321,490  $291,766  $269,306  $270,729
Cost of sales              $244,086   230,578   229,262   208,176   200,930
                            -------   -------   -------   -------   -------
Gross profit                 95,321    90,912    62,504    61,130    69,799
Selling, marketing and
 administrative expenses     69,212    62,137    52,691    45,489    45,291
Restructuring charge              -         -     5,212         -         -
                            -------   -------   -------   -------   -------
Operating income             26,109    28,775     4,601    15,641    24,508
Interest expense,net          2,468     2,327     3,831     2,382     1,286
                            -------   -------   -------   -------   -------
Income before income
 taxes and cumulative
 effect of change in
 accounting principle        23,641    26,448       770    13,259    23,222
Income tax provision          8,742    10,050       433     5,038     9,128
                            -------   -------   -------   -------   -------
Income before
 cumulative effect of
 change in accounting
 principle                   14,899    16,398       337     8,221    14,094
Cumulative effect
 of change in accounting
 principle <F1>                   -         -         -        -      2,025
                            -------   -------   -------   -------   -------
Net income                 $ 14,899  $ 16,398  $    337  $  8,221  $ 16,119
                           ========  ========  ========  ========  ========
                                                                 
Earnings per common share <F2> <F3>
 Basic                        $0.91     $0.98     $0.02     $0.49     
 Diluted                      $0.89     $0.96     $0.02     $0.49          
Weighted Average Shares Outstanding <F2> <F3>
 Basic                       16,339    16,786    16,820    16,820     
 Diluted                     16,715    17,056    16,822    16,820          
                                                                 
                                               June 30,
                             --------------------------------------------
                             1998      1997      1996      1995      1994  
                             ----      ----      ----      ----      ----  
                                             (in thousands)
Balance Sheet Data:                                              
Working capital            $ 72,893  $ 82,045  $ 71,136  $ 86,058  $ 76,433
Total assets                250,314   232,607   212,317   228,477   197,204
Long-term debt               30,000    30,000    30,000    51,000    28,000
Stockholders' equity        163,670   156,790   141,615   140,624   132,756

---------------
<FN>
<F1>
In the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes.
<F2>
Historical earnings per share are not presented for periods prior to
July 1, 1994, as the historical capital structure of the Company prior to
the Company's initial public offering is not comparable with the current
capital structure.
<F3>
Effective for the year ended June 30, 1998, the Company adopted FAS 128,
Earnings per Share.  In accordance with FAS 128, the basic and diluted EPS
and weighted average shares outstanding have been restated for all periods
presented.
</FN>
</TABLE>

                                   -9-

<PAGE>

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

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

      Net sales for fiscal 1998 increased $17.9 million, or 5.6%, to
$339.4 million from $321.5 million for fiscal 1997.  The average selling
price per unit increased 13.1% in fiscal 1998, while the number of units
sold decreased 5.9%, reflecting the growth in the office superstore
channel, which sells products with higher average price points. Sales
decreases in discount mass merchant, mass merchant (department
store/catalog showroom), home improvement and original equipment
manufacturer ("OEM") channels were more than offset by increased sales
through the office superstore, regional mass merchants, electronics
retailers and export channels.  The sales increases mentioned above are the
result of targeted sales efforts toward the regional retail chains, the
addition of new customers in the electronics channel and the continued
success of products in the office superstore channels.  The decrease in the
discount mass merchant channel is due to the volatile order pattern of a
major mass merchant in the first half of fiscal 1998.  The decrease in the
mass merchant (department store/catalog showroom) channel reflects the
bankruptcy of Best Products, Inc. in September 1996.  The lower sales to
the home improvement channel resulted from the decision of the largest home
improvement company to discontinue carrying RTA furniture products other
than storage products for the home.  OEM sales continued the decline which
began in fiscal 1995 because of a decreased emphasis on lower-margin OEM
business.

      In September 1996, one of the Company's then-largest customers, Best
Products Co., Inc., filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11").  It subsequently liquidated
its assets and ceased doing business.  Sales to Best Products in fiscal
1998 and 1997 were $0.0 and approximately $6.0 million, respectively.

      In July 1997, another large customer of the Company, Montgomery
Ward & Co., filed for bankruptcy protection under Chapter 11.  Montgomery
Ward expects that it will be able to reorganize its operations under
Chapter 11 protection and has continued to purchase products from the
Company.  Although sales to Montgomery Ward were down slightly in fiscal
1998, sales in the last two quarters have declined considerably when
compared to last year.  The level of purchases could decline further as a
result of reorganization or otherwise.

      If Montgomery Ward or any other major customer ceases or
substantially reduces its purchases from the Company, there can be no
certainty that the Company will be able to replace these sales.

      The Company's gross margin increased to $95.3 million in fiscal 1998
from $90.9 million in fiscal 1997, but decreased slightly as a percentage
of sales to 28.1% in fiscal 1998 from 28.3% in the prior year.  The change
in customer mix from discount mass merchant toward office superstores
provided higher margins which were offset in fiscal 1998 by lost
efficiencies due to the installation of new manufacturing software systems,
the installation of new equipment and the related adaptation of
manufacturing processes.  While the software has now been fully installed,
installation of manufacturing equipment continues in the South Boston,
Virginia facility with an anticipated completion date of October 1998.  

      Selling, marketing and administrative expenses were $69.2 million,
or 20.4% of sales, and $62.1 million, or 19.3% of sales, respectively, in
fiscal 1998 and 1997.  The increase in selling, marketing and
administrative expenses was due primarily to: (i) higher advertising costs
associated with promotional efforts with certain customers; and (ii) higher
outbound freight costs associated with the change in the freight program of
a large customer.  Fiscal 1997 expense included additional bad debt
expenses for the bankruptcies of  Montgomery Ward and Best Products, Inc.,
as noted more fully above.

      Interest expense increased by $0.2 million to $2.5 million in fiscal
1998.  The increase was due primarily to lower cash balances this year due
to increased capital expenditures and the stock repurchase program.

      The Company's effective tax rate for fiscal 1998 was 37.0%, down
slightly from 38.0% in fiscal 1997. 

                                    -10-

<PAGE>

FISCAL 1997 COMPARED TO FISCAL 1996

      Net sales for fiscal 1997 increased $29.7 million or 10.2%, to
$321.5 million from $291.8 million for fiscal 1996.  The average selling
price per unit was virtually unchanged in fiscal 1997, with the additional
sales revenue due to an increase in the number of units sold.  Increased
sales through the discount mass merchant channel accounted for the majority
of the year-to-year sales increase.  The Company also experienced healthy
gains in the office products and export channels offset by decreased sales
through the catalog showroom, OEM and furniture/specialty distribution
channels.  The sales decrease in the mass merchant channel was due to the
bankruptcy of Best Products Co., Inc. in September 1996.  OEM sales
continued the decline which began in fiscal 1995 because of a lack of
emphasis on lower-margin OEM business.

      As noted above, one of the Company's largest customers, Best
Products Co., Inc., filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in September 1996.  It
subsequently liquidated its assets and ceased doing business.  Sales to
Best Products in fiscal 1997 and 1996 approximated $6 million and
$20 million, respectively.

      In July 1997, another large customer of the Company, Montgomery
Ward & Co., filed for bankruptcy protection under Chapter 11.  Montgomery
Ward subsequently announced that it closed its Lechmere stores and Electric
Avenue outlets.  The Lechmere and Electric Avenue stores sold
ready-to-assemble furniture.  The Company recorded fiscal 1997 sales to
Lechmere approximating $1.7 million but had no direct sales to Electric
Avenue.

      The Company's gross margin increased to $90.9 million in fiscal 1997
from $62.5 million in fiscal 1996, and increased as a percentage of sales
to 28.3% in fiscal 1997 from 21.4% in the prior year.  The Company's gross
margin improved because of lower material costs, decreased overhead on a
per unit basis due to increased volume and capacity utilization rates and
improved operating efficiency partially offset by a loss on sale of fixed
assets, which was primarily reported in cost of sales.  

      Selling, marketing and administrative expenses were $62.1 million or
19.3% of sales, and $52.7 million or 18.1% of sales, respectively, in
fiscal 1997 and 1996.  The increase in selling, marketing and
administrative expenses, as a percentage of sales, is due primarily to: 
(i) higher bad debt expense associated with the bankruptcies discussed
above; (ii) increased profit sharing and incentive compensation costs
associated with the Company's improved financial results; and
(iii) increased salaries and wages due to additional management, marketing
and MIS staff.

      In the third quarter of fiscal 1996, the Company incurred a pre-tax
restructuring charge of $5.2 million ($3.2 million after-tax) for the
discontinuance and disposal of certain product lines and certain related
assets, for training costs associated with terminated employees at the Utah
facility and for costs to modify an international division.  The
restructuring charge was part of a program to cut costs and better utilize
working capital, with proceeds from the program used to reduce debt and for
other general corporate purposes.  The disposal of assets and modification
of the international division which began in fiscal 1996 were completed
during fiscal 1997.

      Interest expense decreased by $1.5 million to $2.3 million in fiscal
1997.  The decrease was due primarily to reduced borrowings caused by lower
working capital requirements and increased cash flow from operations.

      The Company's effective tax rate for fiscal 1997 was 38.0% compared
to 56.2% for fiscal 1996.  The higher effective rate for fiscal 1996
reflects the inter-relationship of certain non-deductible goodwill for tax
purposes and substantially reduced pre-tax income for that year.

LIQUIDITY AND CAPITAL RESOURCES

      As of June 30, 1998, the Company had cash and cash equivalents
amounting to $1.8 million and net working capital of $72.9 million compared
to cash and cash equivalents of $7.0 million and working capital of
$82.0 million at June 30, 1997.  The $9.1 million decrease in net working
capital was attributable to decreased cash balances, increased accounts
payable and the addition of the current portion of long-term

                                 -11-
<PAGE>

debt offset by increased investments in receivables and inventories due to
higher sales levels and a decrease in income taxes payable.

      Cash provided by operating activities for fiscal 1998 amounted to
$27.2 million compared to $23.5 million in the comparable year period. 
Although the Company had lower net income in the current year, cash flows
from operations increased primarily because of increased depreciation and
amortization expense, smaller increases in receivables and inventory and
increased payables for the current year over the prior year.  The cash flow
provided by operating activities, cash on hand and borrowings under the
revolving credit line were used primarily to fund capital expenditures and
the repurchase of stock used for the stock repurchase program and employee
benefit plans.

      At June 30, 1998, the Company had outstanding long-term debt of
$30.0 million.  The Company issued $20.0 million of its 8.01% notes in a
1995 private placement to certain insurance companies.  The notes are
payable in $4.0 million increments from fiscal 1999 to fiscal 2003;
accordingly, $16.0 million of the debt is classified as long-term and $4.0
million is classified as current portion of long-term debt.  A subsidiary of
the Company is the obligor on $10.0 million of 8.25% industrial development
revenue bonds ("IRB's") that mature on October 1, 2008.  The Company
intends to refinance these bonds with new, ten-year IRB's in October 1998. 
The remainder of the Company's long-term debt is $4.0 million borrowed
under the Company's revolving credit facility. 

      The Company has an unsecured $25.0 million revolving credit facility
with a bank that expires on February 28, 2000.  As of June 30, 1998, there
were $4.0 million in borrowings under the revolving line of credit.  The
Credit Facility also includes a $10.8 million standby letter of credit
established in favor of Tandy Corporation ("Tandy").  The letter of credit
indemnifies Tandy from its obligations as guarantor of the $10.0 million of
IRB's for which a subsidiary of the Company is the obligor.  Tandy can draw
against the standby letter of credit only in the event that it must pay any
amounts with respect to the bonds.

      The Credit Facility has several financial ratio covenants including
the maintenance of a minimum working capital ratio and a minimum net worth. 
In addition, the Credit Facility has provisions specifying certain
limitations on dividends, investments and future indebtedness.  The Company
is currently in  compliance with all of its debt agreements.

      On May 6, 1997, the Board of Directors authorized the purchase of up
to five percent of the outstanding shares of its common stock during the
next 24 months.  Funding for the purchases is expected to come from
available working capital and existing borrowing facilities.  The program
includes no specific pricing or timing targets and may be suspended at any
time or terminated prior to completion.  As of June 30, 1998, the Company
had purchased approximately 738,000 shares of its common stock for
approximately $8,351,000.

      The Company also purchases common stock for its employee benefit
programs.  For the fiscal year, the Company purchased approximately
$3.6 million in stock and transferred $3.2 million, at cost, to its
employee benefit plans.

      Derivative financial instruments are utilized by the Company to
reduce interest rate risks.  The Company does not hold or issue derivative
financial instruments for trading purposes.  During fiscal 1997 the Company
entered into a forward starting interest rate swap agreement with a
notional principal amount of $10.0 million.  The effective date of the
agreement is October 1, 1998 and the termination date is October 1, 2008. 
The Company has contracted to pay a fixed rate of 7.13% and receive a
floating interest rate during the duration of the swap agreement.  The
Company has the ability and intent to call its existing $10.0 million of
8.25% IRB's commencing October 1998 at a redemption price of 103%, which
will result in an extraordinary charge, net of tax, of approximately
$0.2 million.  The bonds will be refinanced at the then existing interest
rates.  Accordingly, the swap has the effect of hedging the Company against
an increase in interest rates prior to the first opportunity to refinance
these bonds.  Management has designated this swap as a hedge of the future
interest rate exposure of refinancing these bonds.

      Amounts to be paid or received under the swap agreement will be
accrued as interest rates change and will be recognized over the life of
the swap agreement as adjustments to interest expense.  Gains or

                                   -12-
<PAGE>

losses on terminated swaps will be recognized over the remaining life of the
underlying obligation as an adjustment to interest expense.  The fair value
of the forward starting swap agreement approximated $948,000 at June 30,
1998 (representing the amount the Company would have to pay to terminate
the swap) and has not been recognized in the Consolidated Financial
Statements, since it is accounted for as a hedge.

      The Company believes that cash flow from operations, along with
current unused balances under existing credit agreements, will be
sufficient to fund the Company's operations in fiscal 1999, including the
stock repurchase program and capital expenditures, which are currently
estimated at approximately $25.0 million to increase production capacity,
improve productivity, enhance new product development efforts and for
replacement equipment.  The Company invested $28.4 million in capital
expenditures during fiscal 1998 for new machinery and equipment and the
installation of new management systems and related hardware and software.

YEAR 2000 COMPLIANCE

      Almost all companies must address whether their computer systems and
applications will recognize and process dates after December 31, 1999.  In
prior years, many computer programs were written using two digits rather
than four to define the applicable year.  These programs were written
without considering the impact of the upcoming change of the century and
may experience problems handling dates beyond the year 1999.  This could
cause computer applications to fail or to create erroneous results unless
corrective measures are taken.  

      In fiscal 1998, the Company completed final rollout of an enterprise
software package to support the Company's expanded sales and multiple plant
and warehouse locations.  With the exception of two ancillary modules, the
vendor of the software package states the package is year 2000 compliant. 
The Company has identified one other software program that is not year 2000
compliant.  The Company expects to install and test upgrades to all three
non-compliant programs by April 30, 1999.

      The Company is in the process of testing its computer systems to
verify that software and hardware can process dates after December 31,
1999.  This testing will continue.  In addition, during the first half of
fiscal 1999, the Company will begin testing its electronic communications
with certain of its customers to ensure that order, shipping and invoicing
data for dates after December 31, 1999 can be processed.  This testing and
verification is expected to continue.

      The Company's ability to produce its product is dependent upon
timely receipt of raw materials.  Accordingly, the Company has requested
its suppliers to provide information regarding their efforts to address
year 2000 compliance issues.  Every major supplier responded that it has
evaluated and addressed its year 2000 compliance issues or is in the
process of doing so.  If a major supplier does not resolve its year 2000
compliance issues and is unable to provide the Company with timely
deliveries of quality product after 1999, the Company expects to locate and
use alternative suppliers, although it is possible that it may be unable to
do so, or may be able to do so only at increased expense.

      In addition, the Company has reviewed remaining critical business
systems and is in the process of reviewing its computerized machinery and
equipment for year 2000 compliance issues.  As deficiencies are discovered,
a plan to remedy the deficiency is crafted and implemented.  The review of
machinery and equipment is expected to be complete by December 31, 1998. 
The Company expects that aggregate amounts expended to resolve year 2000
issues will not be material.

      The Company expects to complete implementation of computer systems
that are year 2000 compliant in fiscal 1999.  However, this expectation is
subject to uncertainties.  For example, if the Company does not identify or
fix all year 2000 problems in critical operations, the Company's results of
operations or financial condition could be materially impacted.  The
Company's results could also be hurt if a major supplier or customer is
unable to supply raw materials or receive the Company's product.

                                    -13-
<PAGE>

MARKET RISK

      The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates and certain commodity prices.  Pursuant to
the Company's policies, natural hedging techniques and derivative financial
instruments may be utilized to reduce the impact of adverse changes in
market prices.  The Company does not hold or issue derivative instruments
for trading purposes, and has no material sensitivity to changes in market
rates and prices on its derivative financial instrument positions.

      The Company has market risk in interest rate exposure, primarily in
the United States.  The Company manages interest rate exposure through its
conservative debt ratio target and its mix of fixed and floating rate debt. 
Interest rate swaps may be used to adjust interest rate exposures when
appropriate based on market conditions, and, for qualifying hedges, the
interest differential of swaps is included in interest expense.  The
Company believes that its foreign exchange risk is not material.

      Due to the nature of its product lines, the Company has material
sensitivity to certain commodities.  The Company manages commodity price
exposures primarily through the duration and terms of its vendor contracts. 
A one percent change in these commodity prices would affect the earnings of
the Company by approximately $0.6 million.  

SEASONALITY AND INFLATION

      The Company generally experiences a somewhat higher level of sales
in the first and second quarters of the fiscal year in anticipation of the
back-to-school and holiday selling seasons.

      The Company is dependent upon outside suppliers for all of its raw
material needs and, therefore, is subject to fluctuations in prices of raw
materials.  In particular, the Company's results of operations were
affected significantly in fiscal 1995 by higher prices of particle board,
fiberboard and paper products.  The Company had limited success in
minimizing the effect of these cost increases through improvements in
production, pricing and product redesign.  During fiscal 1996, the average
purchase price for raw materials declined slightly, with additional price
decreases in 1997 and 1998.  However, there can be no assurance that these
trends will continue.  The demand for raw materials may increase, which
could result in higher prices.  There can be no assurance that the Company
will be able to increase its prices or reduce its production costs
sufficiently to offset any cost increases or to maintain its margins.

INCOME TAXES

      In connection with the initial public offerings of the Company's
common stock (the "Offerings"), Tandy, TE Electronics Inc. and the Company
entered into a Tax Sharing and Tax Benefit Reimbursement Agreement (the
"Tax Agreement").  Pursuant to the Tax Agreement, Tandy is responsible for
all U.S. federal income taxes, state income taxes and foreign income taxes
with respect to the Company for all periods ending on or prior to the date
of consummation of the Offerings and for audit adjustments to such federal
income and foreign income taxes.  The Company is responsible for all other
taxes owing with respect to the Company, including audit adjustments to
state and local income and for franchise taxes.

      The Company and Tandy made an election under Sections 338(g) and
338(h)(10) of the Internal Revenue Code with the effect that the tax basis
of the Company's assets was increased to the deemed purchase price of the
assets.  An amount equal to such increase was included in income in the
consolidated federal income tax return filed by Tandy.  This additional tax
basis results in increased income tax deductions and, accordingly, reduced
income taxes payable by the Company.  Pursuant to the Tax Agreement, the
Company pays Tandy an amount that approximates the federal tax benefit
expected to be realized with respect to such additional basis.  Amounts
payable to Tandy pursuant to the Tax Agreement are recorded as current
federal income tax expense in the accompanying consolidated statements of
operations.  Income tax expense thus approximated the amount which would be
recognized by the Company in the absence of the Tax Agreement.  Although
the amount of the payment required to be made in a particular year under
the Tax Agreement may differ somewhat from the difference in that tax year
between the Company's actual taxes and the taxes that the Company would
have owed had the increase in basis not occurred, the aggregate amount of
payments required to be made by the Company to Tandy over the life of the
Tax Agreement will not differ

                                    -14-
<PAGE>

materially from the difference over the life of the Tax Agreement between the
Company's actual taxes and the amount of taxes that the Company would have
owed had the increase in basis not occurred.  Consequently, such payments
should have no effect on the Company's earnings and should not have a 
material effect on its cash flow. The Tax Agreement provides for adjustments
to the amount of tax benefit payable in the event of certain material
transactions, such as a business combination or significant disposition of
assets.  During fiscal 1998, 1997 and 1996, $11.7 million, $6.0  million and
$0.0 million, respectively, were paid to Tandy under the Tax Agreement.

FORWARD LOOKING INFORMATION

      Certain portions of this Report, and particularly the Management's
Discussion and Analysis of Financial Condition and Results of Operation and
the Notes to the Consolidated Financial Statements in Part II of this
report and the portions of Item 1 in Part I captioned "Raw Materials,"
"Competition,"  "Working Capital Business and Credit Risk Concentrations"
and "Environmental and Safety Regulations" contain forward-looking
statements.  These statements can be identified by the use of future tense
or dates or terms such as "believe," "expect,"  "anticipate" or "plan." 
Important factors could cause results to differ materially from those
anticipated by some of the statements made in this report.  Some of the
factors include, among other things:

  * changes from anticipated levels of sales of the Company's
    products, whether due to future national or regional economic and
    competitive conditions, customer acceptance of existing and new
    products, or otherwise;

  * pricing pressures due to excess capacity in the ready-to-assemble
    furniture industry, as occurred in 1995, or customer demand in
    excess of the Company's ability to supply product;

  * raw material cost increases, particularly in particle board and
    fiberboard, such as the increases that reduced the Company's
    earnings in fiscal 1994 and 1995;

  * transportation cost increases due to a shortage of supply of
    trucks or railcars;

  * the bankruptcy of a major customer, such as Best Products Co.,
    Inc. in 1996 and Montgomery Ward & Co. in 1997;

  * loss of significant customers in connection with a merger or
    acquisition or bankruptcy;

  * actions of current or new competitors, such as reduction of prices
    on competitive products or introduction of new products
    competitive with the Company's products;

  * the consolidation of manufacturers in the ready-to-assemble
    furniture industry;

  * increased advertising costs associated with promotional efforts;

  * failure by the Company or a major supplier or vendor to identify
    and remedy all critical year 2000 compliance issues;

  * pending or new litigation or governmental regulations;

and other uncertainties, all of which are difficult to predict and many of
which are beyond the control of the Company.


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
      The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Part II, Item 7).


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Immediately following are the report of independent accountants, the
consolidated balance sheets of O'Sullivan Industries Holdings, Inc. and
subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, cash flows and changes in stockholders' equity
for each of the three years in the three year period ended June 30, 1998,
and the notes thereto.

                                   -15-
<PAGE>


                               (Letterhead)
                        PricewaterhouseCoopers LLP
                         1850 City Center Tower II
                            301 Commerce Street
                            Fort Worth TX 76102
                         Telephone (817) 870 5500



REPORT  OF  INDEPENDENT  ACCOUNTANTS

August 17, 1998

To the Board of Directors and Stockholders of 
O'Sullivan Industries Holdings, Inc.


In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes
in stockholders' equity present fairly, in all material respects, the
financial position of O'Sullivan Industries Holdings, Inc. and its
subsidiaries at June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles. 
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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP

                                     -16-
<PAGE>

<TABLE>
<CAPTION>
           O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                      June 30, 1998 and June 30, 1997
                   (in thousands, except for share data)

<S>                                           <C>        <C>
        Assets:                                   1998        1997
        ------                                    ----        ----
Current assets:                                            
 Cash and cash equivalents                     $  1,810    $  6,975
 Trade receivables, net of allowance for
    doubtful accounts of $2,289 and $3,158,
    respectively                                 61,548      58,661
 Inventories:                                              
    Finished merchandise                         26,892      29,840
    Work in process                               6,835       4,224
    Raw materials                                13,000      10,094
                                                -------     -------
                                                 46,727      44,158
 Prepaid expenses and other current assets        3,762       3,134
                                                -------     -------
    Total current assets                        113,847     112,928
                                                -------     -------
Property, plant and equipment, at cost:                    
 Land                                             1,034       1,034
 Buildings and improvements                      41,216      39,195
 Machinery and equipment                         92,950      72,290
 Construction in progress                        10,466       7,047
                                                -------     -------
                                                145,666     119,566
 Less accumulated depreciation and amortization (52,288)    (44,643)
                                                -------     -------
                                                 93,378      74,923
                                                -------     -------
Goodwill, net of accumulated amortization        43,089      44,756
                                                -------     -------
                                               $250,314    $232,607
                                                =======     =======
    Liabilities and Stockholders' Equity:
    ------------------------------------                   
Current liabilities:                                       
 Accounts payable                              $ 14,031    $  7,234
 Current portion of long-term debt                4,000           -
 Accrued employee compensation                   11,467      10,527
 Accrued advertising                              9,402       7,482
 Accrued liabilities                              1,744       1,472
 Income taxes payable                               310       4,168
                                                -------     -------
         Total current liabilities               40,954      30,883
Long-term debt, less current maturities          30,000      30,000
Deferred income taxes                            15,690      14,934
                                                -------     -------
         Total liabilities                       86,644      75,817
Stockholders' equity:                                      
 Preferred stock; $1.00 par value,
    20,000,000 shares authorized, none issued      -           -
 Common stock; $1.00 par value, 100,000,000
    shares authorized, 16,819,950 issued         16,820      16,820
 Additional paid-in capital                      87,809      87,955
 Foreign currency translation                       (36)         13
 Retained earnings                               68,317      53,418
                                                -------     -------
                                                172,910     158,206
 Less common stock in treasury at cost,
    798,231 shares in 1998;
    94,000 shares in 1997                         9,240       1,416
                                                -------     -------
         Total stockholders' equity             163,670     156,790
                                                -------     -------
Commitments and contingencies
 (Notes 2, 5, 6, 9 and 12)                      -------     -------  
                                               $250,314    $232,607
                                                =======     =======

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                   -17-
<PAGE>

<TABLE>
<CAPTION>

           O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
             For the years ended June 30, 1998, 1997 and 1996
                 (in thousands, except for per share data)


<S>                                       <C>        <C>        <C>
                                            1998       1997       1996
                                            ----       ----       ----
Net sales                                 $339,407   $321,490   $291,766
Costs and expenses:                                             
  Cost of sales                            244,086    230,578    229,262
  Selling, marketing and administrative     69,212     62,137     52,691
  Restructuring charge                         -          -        5,212
  Interest, net                              2,468      2,327      3,831
                                           -------    -------    -------
                                           315,766    295,042    290,996
                                           -------    -------    -------
Income before income tax provision          23,641     26,448        770
Income tax provision                         8,742     10,050        433
                                           -------    -------    -------
Net income                                $ 14,899   $ 16,398   $    337
                                           =======    =======    =======
                                                     
Earnings per common share:                                      
  Basic                                   $   0.91   $   0.98   $   0.02
  Diluted                                 $   0.89   $   0.96   $   0.02
Weighted average common shares outstanding:
  Basic                                     16,339     16,786     16,820
  Diluted                                   16,715     17,056     16,821
                                                     
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                  -18-
<PAGE>

<TABLE>
<CAPTION>
           O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the years ended June 30, 1998, 1997 and 1996
                              (in thousands)

<S>                                            <C>       <C>      <C>
                                                1998      1997     1996
                                                ----      ----     ----
Cash flows from operating activities:                            
  Net income                                  $ 14,899  $16,398  $   337
  Adjustments to reconcile net income to
     net cash provided by
     operating activities:                                       
         Depreciation and amortization          11,560    9,960    9,235
         Bad debt expense                        1,581    3,178      675
         Loss on disposal of assets                 11      599        -  
         Restructuring charge                        -        -    5,212
         Deferred income taxes                     414    1,000      157
         Employee option amortization              749      749        -  
  Changes in current assets and liabilities:                     
     Trade receivables                          (4,468)  (8,269)  (3,355)
     Inventories                                (2,569)  (2,677)   7,364
     Other assets                                 (335)    (792)   1,945
     Accounts payable, accrued liabilities and
         income taxes payable                    5,367    3,366    3,775
                                               -------   ------   ------
         Net cash provided by
           operating activities                 27,209   23,512   25,345
                                               -------   ------   ------

Cash flows used for investing activities:                        
  Capital expenditures                         (28,359) (15,825)  (4,403)
                                                -------  -------  -------
         
Cash flows used for financing activities:                        
  Addition to (repayment of) long-term debt      4,000        -  (21,000)
  Purchase of common stock for treasury        (11,584)  (3,527)       -
  Exercise of stock options                        274        -        -
  Sale of common stock to employee
    benefit plans                                3,295    2,309        -
                                                ------   ------  ------- 
         Net cash flows used by
           financing activities                 (4,015)  (1,218) (21,000)
                                                ------   ------  -------                                                
Net increase (decrease) in cash and
  cash equivalents                              (5,165)   6,469      (58)
Cash and cash equivalents, beginning of year     6,975      506      564
                                                ------   ------   ------
Cash and cash equivalents, end of year         $ 1,810  $ 6,975  $   506
                                                ======   ======   ======
         
Supplemental cash flow information:                              
  Interest paid                                  2,847    2,631    3,843
  Income taxes paid                             11,650    5,983   (1,145)

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                   -19-
<PAGE>

<TABLE>
<CAPTION>
           O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             For the years ended June 30, 1998, 1997 and 1996
                              (in thousands)

                             Preferred stock   Common stock   Additional
                             ---------------  ---------------  paid-in
                             Shares  Dollars  Shares  Dollars  capital
                             ------  -------  ------  ------- ----------
<S>                          <C>     <C>      <C>     <C>     <C>
Balance, June 30, 1995            -  $     -  16,820  $16,820 $ 87,121
Net income
Foreign currency translation
Stock option calcellation,
  net of taxes of $342                                             636
                             ------  -------  ------  ------- --------
Balance, June 30, 1996            -  $     -  16,820  $16,820 $ 87,757
Net income
Foreign currency translation
Purchase of common stock
Sale of common stock                                               198
                             ------- -------- ------  ------- --------
Balance, June 30, 1997             - $      - 16,820  $16,820 $ 87,955
Net income
Foreign currency translation
Purchase of common stock
Exercise of stock options,
  net of tax benefit                                              (263)
Sale of common stock                                               117
                             ------- -------- ------  ------- --------
Balance, June 30, 1998             - $      - 16,820  $16,820 $ 87,809
                             ======= ======== ======  ======= ========

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

<TABLE>
<CAPTION>
                             Foreign                    Treasury stock
                             currency       Retained   ----------------
                             translation    earnings   Shares   Dollars
                             -----------    --------   ------   -------
<S>                          <C>            <C>        <C>      <C>
Balance, June 30, 1995       $        -     $ 36,683      -     $   -
Net income                                       337
Foreign currency translation         18
Stock option calcellation,
  net of taxes of $342
                              ---------      -------   ------    -------
Balance, June 30, 1996       $       18     $ 37,020      -     $   -
Net income                                    16,398
Foreign currency translation         (5)
Purchase of common stock                                (297)     (3,527)
Sale of common stock                                     203       2,111
                              ---------      -------   ------    -------
Balance, June 30, 1997       $       13     $ 53,418     (94)   $ (1,416)
Net income                                    14,899
Foreign currency translation        (49)
Purchase of common stock                                (999)    (11,584)
Exercise of stock options,
  net of tax benefit                                      38         582
Sale of common stock                                     257       3,178
                              ---------      -------   ------    -------
Balance, June 30, 1998       $      (36)    $ 68,317    (798)   $ (9,240)
                              =========      =======   ======    =======

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

<TABLE>
<CAPTION>
                                  Total
                                  stockholders'
                                  equity
                                  -------
<S>                               <C>
Balance, June 30, 1995            $140,624
Net income                             337
Foreign currency translation            18
Stock option calcellation,
  net of taxes of $342                 636
                                   -------  
Balance, June 30, 1996            $141,615
Net income                          16,398
Foreign currency translation            (5)
Purchase of common stock            (3,527)
Sale of common stock                 2,309
                                   -------
Balance, June 30, 1997            $156,790
Net income                          14,899
Foreign currency translation           (49)
Purchase of common stock           (11,584)
Exercise of stock options,
  net of tax benefit                   319
Sale of common stock                 3,295
                                   -------
Balance, June 30, 1998            $163,670
                                   =======

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                  -20-
<PAGE>



                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL INFORMATION

       O'Sullivan Industries Holdings, Inc., a Delaware corporation, is a
domestic producer of ready-to-assemble ("RTA") furniture.  O'Sullivan's RTA
furniture includes desks, computer tables, cabinets, home entertainment
centers, audio equipment racks, microwave oven carts and a wide variety of
other RTA furniture for use in the home, office and home office.  The
products are distributed primarily through office superstores, discount
mass merchants, mass merchants (department stores and catalog showrooms),
home centers, electronics retailers, furniture stores, OEM and
internationally.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       BASIS OF PRESENTATION:  The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.  All
significant intercompany transactions, balances and profits have been
eliminated.

       PERVASIVENESS OF ESTIMATES:  The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and related revenues and expenses, and
disclosure of gain and loss contingencies at the date of the financial
statements.  Actual results could differ from those estimates.

       CASH AND CASH EQUIVALENTS:  Cash and cash equivalents include cash
on hand and all highly liquid investments with original maturities of three
months or less.

       BUSINESS AND CREDIT RISK CONCENTRATIONS:  The largest five customer
accounts receivable balances accounted for approximately 62% and 61% of the
Company's trade receivable balance at June 30, 1998 and 1997, respectively. 
Credit is extended to customers based on evaluation of the customer's
financial condition, generally without requiring collateral.  Exposure to
losses on receivables is dependent on each customer's financial condition. 
Therefore, the Company would be exposed to a large loss if one of its major
customers were not able to fulfill its financial obligations.  The Company
maintains certain limited credit insurance which helps reduce, but not
eliminate, exposure to potential credit losses.  In addition, the Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.   

       REVENUES:  Revenue is recognized at the date of shipment of product
to customers.

       INVENTORIES:  Inventories are stated at the lower of cost,
determined on a first-in, first-out (FIFO) basis, or market.

       PROPERTY, PLANT AND EQUIPMENT:  Depreciation and amortization of
property, plant and equipment are calculated using the straight-line
method, which amortizes the cost of the assets over their estimated useful
lives.  The ranges of estimated useful lives are:  buildings--30 to 40
years; machinery and equipment--3 to 10 years; leasehold improvements--the
lesser of the life of the lease or asset.  Maintenance and repairs are
charged to expense as incurred.  Renewals and betterments which materially
prolong the useful lives of the assets are capitalized.  The cost and
related accumulated depreciation of property retired or sold are removed
from the accounts, and gains or losses on disposal are recognized in the
statement of operations.  Depreciation and amortization expense was
$9,893,000, $8,293,000 and $7,568,000 for fiscal 1998, 1997, and 1996,
respectively, of which $8,200,000, $7,309,000 and $6,317,000, respectively,
has been included in cost of sales.

       AMORTIZATION OF EXCESS PURCHASE PRICE OVER NET TANGIBLE ASSETS OF
BUSINESSES ACQUIRED:  Cost in excess of net assets acquired is amortized
over a 40-year period using the straight-line method.  Accumulated
amortization at June 30, 1998 and 1997 approximated $24,752,000 and
$23,085,000, respectively.

                                  -21-
<PAGE>

       IMPAIRMENT OF LONG-LIVED ASSETS:  Long-lived assets (i.e., property,
plant and equipment and goodwill) held and used by the Company are reviewed
for impairment whenever events or changes in circumstances indicate that
the net book value of the asset may not be recoverable.  An impairment loss
will be recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the asset is less than
the net book value of the asset.  Generally, the amount of the impairment
loss is measured as the difference between the net book value of the assets
and the estimated fair value of the related assets.

       FAIR VALUE OF FINANCIAL INSTRUMENTS:  The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate.  Unless otherwise disclosed, the fair
value of financial instruments approximates their recorded values due
primarily to the short-term nature of their maturities.

       ADVERTISING COSTS:  Advertising costs are expensed the first time
the advertising takes place.  Advertising expense for fiscal 1998, 1997 and
1996 was $19,625,000, $15,248,000 and $12,961,000, respectively.

       INCOME TAXES:  Deferred taxes are provided on the liability method
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable temporary differences.  Temporary differences
are the differences between the reported amounts of assets and liabilities
and their tax bases.  Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. 
Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.

       ENVIRONMENTAL REMEDIATION AND COMPLIANCE:  Environmental remediation
and compliance expenditures that relate to current operations are expensed
or capitalized, as appropriate.  Expenditures that relate to an existing
condition caused by past operations and that do not contribute to current
or future revenue generation are expensed.  Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated.  Generally, the timing of these accruals
coincides with completion of a feasibility study or the Company's
commitment to a formal plan of action.  To date, environmental expenditures
have not been material, and management is not aware of any material
environmental related contingencies. 

       SIGNIFICANT FOURTH QUARTER ADJUSTMENTS:   During the fourth quarter
of fiscal 1997, bad debt charges approximating $700,000, net of tax, were
recorded due to the bankruptcy filing of a major customer. 

       EARNINGS PER SHARE:  Effective for the quarter ended December 31,
1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share ("FAS 128").  FAS 128 replaces prior earnings per
share ("EPS") reporting requirements and requires the dual presentation of
basic and diluted EPS.  Basic EPS excludes dilution and is computed by 
dividing net income by the weighted average number of shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock.  The dilutive effect of outstanding options
issued by the Company are reflected in diluted EPS using the treasury stock
method.  Under the treasury stock method, options will only have a dilutive
effect when the average market price of common stock during the period
exceeds the exercise price of the options.  In accordance with FAS 128, the
basic and diluted EPS and average weighted shares outstanding have been
restated for all periods presented.

                                    -22-
<PAGE>
 
       The following is a reconciliation of the numerator and denominator
used in the basic and diluted EPS calculation:

<TABLE>
<CAPTION>
                                             For the year ended June 30,
                                             ---------------------------
                                               1998     1997    1996 
                                               ----     ----    ---- 
                                                    (in thousands)
<S>                                         <C>      <C>     <C>     
Income available to common stockholders
    (numerator)                              $14,899  $16,398 $   337
                                              ======   ======  ======               
Weighted average shares outstanding
    (basic EPS denominator)                   16,339   16,786  16,820
Effect of dilutive stock options                 376      270       1
                                              ------   ------  ------
Weighted average shares,
    plus assumed conversions
    (diluted EPS denominator)                 16,715   17,056  16,821
                                              ======   ======  ======
</TABLE>

Options to purchase 370,000 additional shares of common stock at prices
ranging from $13.13 to $16.09 per share were outstanding but were not
included in the computation of diluted EPS because the options' exercise
prices were greater than the average market price of the common shares, and
thus the effect would have been antidilutive.

       ACCOUNTING FOR STOCK-BASED COMPENSATION:  The Company accounts for
stock based compensation pursuant to the intrinsic value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25").  The Company has made
pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in FAS 123 had been applied.  See
Note 7.

       STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS: In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income and No. 131, Disclosures About Segments of an
Enterprise and Related Information ("FAS 130" and "FAS 131", respectively). 
FAS 130 requires disclosure of total non-stockholder changes in equity in
interim periods and additional disclosures of the components of 
non-stockholder changes in equity on an annual basis.  The net change in
market value of the interest rate swap during fiscal 1998 was approximately
$529,000, net of taxes, and will be shown as a component of comprehensive
income.  FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders.  Implementation of FAS 131 is not expected to have a material
effect on the financial statements.

       In June 1998, the FASB issued Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
("FAS 133").  This new accounting standard will require that derivative
instruments be measured at fair value and recognized in the balance sheet
as either assets or liabilities, as the case may be.  The treatment of
changes in the fair value of a derivative (i.e., gains and losses) will
depend on its intended use and designation.  Gains and losses on
derivatives designated as hedges against the cash flow effect of a
forecasted transaction will initially be reported as a component of
comprehensive income and, subsequently, reclassified into earnings when the
forecasted transaction affects earnings.  Gains and losses on all other
forms or derivatives will be recognized in earnings in the period of
change.  The Company will adopt FAS 130 effective July 1, 1998, and FAS 131
and 133 effective July 1, 1999.

       RECLASSIFICATIONS:  Certain items in the prior years' financial
statements have been reclassified to conform with the current year's
presentation.  

                                     -23-
<PAGE>

NOTE 3 - RESTRUCTURING CHARGE

       In March 1996, the Company adopted a business restructuring plan to
cut costs and better utilize working capital.  The plan included the
discontinuance of certain product lines which had received marginal
acceptance in the marketplace, costs associated with the initial training
of terminated employees at the Company's Utah facility and the modification
of the business structure of an international division.  A pre-tax charge
of $5.2 million was recognized in the third quarter of fiscal 1996 related
to the restructuring plan.  The components of the restructuring charge and
an analysis of the amounts charged against the reserve are outlined in the
table below:
<TABLE>
<CAPTION>
                                        Charges           Charges
                                        through  Balance  through  Balance
       Restructuring Charges   Original June 30, June 30, June 30, June 30, 
           (in thousands)      Reserve    1996     1996     1997   1997
       ----------------------  -------- -------  -------- -------- --------
<S>                               <C>     <C>       <C>     <C>      <C>

Discontinued product lines <F1>   $4,155  $(4,117)   $ 38   $ (38)   $    -
Initial training costs of
   terminated employees <F2>         387     (387)      -        -        -
Impairment of fixed assets <F3>      274     (274)      -        -        -
Modification costs of
   international division <F4>       396     (121)    275    (275)        -
                                   -----    ------    ---    -----    -----
Total                             $5,212  $(4,899)   $313   $(313)   $    -
                                   =====    ======    ===    =====    =====
------------
<FN>
<F1>
Relates to certain product lines that were discontinued and the remaining
inventory was written down to net realizable value.      
<F2>
Certain manufacturing employees were terminated at the Utah facility and the
costs associated with the initial training of these employees was written off.
<F3>
Represents the write off of certain machinery that was used to manufacture
the discontinued product lines.
<F4>
Represents the cost to modify the business structure of an international
division.
</FN>
</TABLE>


      Proceeds from the disposal of discontinued inventory approximated
$1.5 million and was received in fiscal 1997.  The restructuring charge has
been included as a separate line item in the accompanying consolidated
statement of operations and consolidated statement of cash flows.

NOTE 4 - DISPOSITION OF FIXED ASSETS

      In fiscal 1997, the Company disposed of certain machinery and
tooling with a net book value of $743,000 for aggregate proceeds of $46,000
and a note receivable of $98,000, realizing a loss of $599,000, which has
been primarily classified as cost of sales in the accompanying consolidated
statement of operations.

NOTE 5 - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS

<TABLE>
<CAPTION>
                                                        June 30,
                                                ---------------------
                                                  1998          1997
                                                  ----          ----
                                                    (in thousands)
<S>                                             <C>           <C>
Variable-rate revolving credit agreement        $ 4,000       $     -
8.01% senior notes, due fiscal 1999 to 2003      20,000        20,000
8.25% industrial development revenue bonds,
  due fiscal 2009                                10,000        10,000
                                                 ------        ------
Total debt                                       34,000        30,000
Less current portion of 8.01% notes              (4,000)            -
                                                 ------        ------
Total long-term debt                            $30,000       $30,000
                                                 ======        ======
</TABLE>

       At June 30, 1998, the Company had outstanding long-term debt of
$30.0 million.  The Company issued $20.0 million of its 8.01% notes in a
1995 private placement to certain insurance companies.  The notes are
payable in $4.0 million increments from fiscal 1999 to fiscal 2003;
accordingly, $16.0 million of the

                                    -24-
<PAGE>

debt is classified as long-term and $4.0 is classified as current portion of
long-term debt.  A subsidiary of the Company is the obligor on $10.0 million
of 8.25% industrial development revenue bonds ("IRB's") that mature on
October 1, 2008.  The Company intends to refinance these bonds with new,
ten-year IRB's in October 1998.  The remainder of the Company's long-term
debt is $4.0 million borrowed under the Company's revolving credit facility. 

       The Company has a Credit Agreement with a bank.  The Credit
Agreement includes a $25.0 million revolving line of credit and a $10.8
million standby letter of credit indemnifying Tandy Corporation ("Tandy")
from its obligations as guarantor of the $10.0 million industrial
development revenue bonds for which the Company is the obligor.  Tandy can
draw against the standby letter of credit only in the event that it must
pay any amounts with respect to the industrial development revenue bonds. 
As of June 30, 1998, there were $4.0 million in borrowings under the
revolving line of credit at an average rate of 6.0%.  

       The Credit Agreement has several financial ratio covenants including
the maintenance of a minimum working capital ratio and a minimum net worth. 
In addition, the Credit Agreement has provisions specifying certain
limitations on dividends, investments and future indebtedness.  In June
1997, the terms of the Credit Agreement were amended.  The amendment (a)
extended the term of the Credit Agreement through February 28, 2000;
(b) reduced the bank's lending commitment from $30 million to $25 million;
and (c) facilitated the removal of another bank from the Credit Agreement.

       Borrowings under the Credit Agreement accrue interest at varying
rates based upon a Eurodollar based rate (6.0% at June 30, 1998) or the
bank's prime lending rate (8.5% at June 30, 1998) and upon the Company's
debt ratio.  The Company must pay a commitment fee of 0.15% annually on the
lending commitment.  The obligation is paid quarterly.  Amounts advanced
under the Credit Agreement are due on February 28, 2000.

       In May 1995, the Company completed a private placement of $20
million principal amount of senior notes.  Under the terms of the Note
Purchase Agreements, the Company is required to meet certain financial
ratio requirements, including a funded debt-to-earnings ratio requirement,
a minimum net worth requirement and an earnings to fixed charges ratio
requirement.  This note is due in annual $4.0 million increments beginning
May 15, 1999.

       At June 30, 1998, the Company was in compliance with all of its debt
agreements.

       Interest on the 8.25% industrial development revenue bonds is paid
semiannually.  The loan is secured by the $10.8 million standby letter of
credit under the Credit Agreement. 

       Aggregate contractual principal payments for the next five fiscal
years subsequent to June 30, 1998 are summarized as follows:  1999 -
$4,000,000; 2000 - $8,000,000; 2001 - $4,000,000; 2002 - $4,000,000; 
2003 - $4,000,000; and thereafter - $10,000,000.

       Consolidated interest expense was $2,468,000, $2,327,000, and
$3,831,000 for the years ended June 30, 1998, 1997 and 1996, respectively.

       Derivative financial instruments are utilized by the Company to
reduce interest rate risks.  The Company does not hold or issue derivative
financial instruments for trading purposes.  During fiscal 1997, the
Company entered into a forward starting interest rate swap agreement with a
notional principal amount of $10.0 million.  The effective date of the
agreement is October 1, 1998 and the termination date is October 1, 2008. 
The Company has contracted to pay a fixed rate of 7.13% and receive a
floating interest rate (LIBOR) during the duration of the swap agreement. 
The Company has the ability and intent to call its existing $10.0 million
of 8.25% industrial development revenue bonds in October 1998 at a
redemption price of 103%.  The bonds will be refinanced with an
October 2008 due date at the then existing interest rates.  Accordingly,
the swap will have the effect of hedging the Company against an increase in
interest rates prior to the first opportunity to refinance these bonds. 
Management has designated this swap as a hedge of the future interest rate
exposure of refinancing these bonds.

                                     -25-
<PAGE>

       Amounts to be paid or received under the swap agreement will be
accrued as interest rates change and will be recognized over the life of
the swap agreement as adjustments to interest expense.  Gains or losses on
terminated swaps will be recognized over the remaining life of the
underlying obligation as an adjustment to interest expense.  The fair value
of the forward starting swap agreement approximated $948,000 at June 30,
1998 (representing the amount the Company would have to pay to terminate
the swap) and has not been recognized in the Consolidated Financial
Statements, since it is accounted for as a hedge.


NOTE 6 - INCOME TAXES

       The income tax provision consists of the following:

<TABLE>
<CAPTION>
                         Year ended June 30,
                     -------------------------
                       1998     1997     1996
                       ----     ----     ----
                         (in thousands)
       <S>          <C>       <C>       <C>
       Current:
          Federal   $  7,886  $  9,955  $  275
          State          442       473       1
                     -------   -------   -----
                       8,328    10,428     276
       Deferred          414      (378)    157
                     -------   -------   -----
                    $  8,742  $ 10,050  $  433
                     =======   =======   =====
</TABLE>


       The following table reconciles the Company's federal corporate
statutory rate and its effective income tax rate:
<TABLE>
<CAPTION>
                                                 Year ended June 30,
                                             --------------------------
                                              1998     1997      1996
                                              ----     ----      ---- 
<S>                                          <C>      <C>       <C>  
Statutory rate                               35.0%    35.0%      34.0%
State income taxes, net of federal benefit    1.7      1.7         -
Goodwill amortization                         1.3      1.2       39.2
Other, net                                   (1.0)     0.1      (17.0)
                                             ----     ----       ----
Effective tax rate                           37.0%    38.0%      56.2%
                                             ====     ====       ====
</TABLE>

                                   -26-
<PAGE>

       The principal current and non-current deferred tax assets and
liabilities consist of the following at June 30, 1998 and 1997:
<TABLE>
<CAPTION>

                                                       June 30,
                                                  -----------------
                                                     1998     1997
                                                     ----     ----
<S>                                              <C>       <C>
Deferred tax assets:                                (in thousands)
-------------------
Inventories                                      $     -   $    336
Bad debt reserve                                      847     1,168
Insurance reserves                                    755       378
Accrued compensation                                  898       462
Other amounts expensed for financial
    reporting purposes not yet deducted for tax        93        63
                                                   ------    ------
                                                    2,593     2,407
Deferred tax liabilities:
------------------------                                   
Depreciation and amortization                      15,690    15,067
Inventories                                            39         -  
Prepaid and other                                     346       408
                                                  -------   -------
Total deferred tax liability                      (16,075)  (15,475)
                                                  -------   -------
      Net deferred tax liability                 $(13,482) $(13,068)
                                                  =======   =======
Reported as:
-----------                                                
Current assets (included in prepaid expenses
     and other current assets)                   $  2,208  $  1,866
Noncurrent liabilities-deferred income taxes      (15,690)  (14,934)
                                                  -------   -------
      Net deferred tax liability                 $(13,482) $(13,068)
                                                  =======   =======
</TABLE>

       In connection with the 1994 initial public offerings of the
Company's common stock (the "Offerings"), Tandy Corporation ("Tandy"), TE
Electronics Inc. and the Company entered into a Tax Sharing and Tax Benefit
Reimbursement Agreement (the "Tax Agreement").  Pursuant to the Tax
Agreement, Tandy is primarily responsible for all U.S. federal income
taxes, state income taxes and foreign income taxes with respect to the
Company for all periods ending on or prior to the date of consummation of
the Offerings and for audit adjustments to such federal income and foreign
income taxes.  The Company is responsible for all other taxes owing with
respect to the Company, including audit adjustments to state and local
income and for franchise taxes.

       The Company and Tandy made an election under Sections 338(g) and
338(h)(10) of the Internal Revenue Code with the effect that the tax basis
of the Company's assets was increased to the deemed purchase price of the
assets.  An amount equal to such increase was included in income in the
consolidated federal income tax return filed by Tandy.  This additional tax
basis results in increased income tax deductions and, accordingly, reduced
income taxes payable by the Company.  Pursuant to the Tax Agreement, the
Company pays Tandy an amount that approximates the federal tax benefit
expected to be realized with respect to such additional basis.  Amounts
payable to Tandy pursuant to the Tax Sharing Agreement are recorded as
current federal income tax expense in the accompanying consolidated
statements of operations.  Income tax expense thus approximates the amount
which would be recognized by the Company in the absence of the Tax
Agreement.  Although the amount of the payment required to be made in a
particular year under the Tax Agreement may differ somewhat from the
difference in that tax year between the Company's actual taxes and the
taxes that the Company would have owed had the increase in basis not
occurred, the aggregate amount of payments required to be made by the
Company to Tandy over the life of the Tax Agreement will not differ
materially from the difference over the life of the Tax Agreement between
the Company's actual taxes and the amount of taxes that the Company would
have owed had the increase in basis not occurred.  Consequently, such
payments should have no effect on the Company's earnings and should not
have a material effect on its cash flow.  The Tax Agreement provides for
adjustments to the amount of tax benefit payable in the event of certain
material transactions, such as a business combination or significant
disposition of assets.  During fiscal 1998, 1997 and 1996, $11.7 million,
$6.0 million and $0.0 million, respectively, were paid to Tandy pursuant to
this agreement. 

                                    -27-
<PAGE>

NOTE 7 - STOCK OPTIONS

       Under the Company's Amended and Restated 1994 Incentive Stock Plan
(the "ISP"), designated officers, employees, employee directors and
consultants of the Company are eligible to receive awards in the form of
incentive stock options, nonqualified stock options, stock appreciation
rights ("SAR's"), restricted stock grants or performance awards.  Annually,
non-employee directors receive options to purchase 2,000 shares of common
stock (increased from 1,000 shares beginning in fiscal 1998).  The purchase
price of common stock subject to an option shall not be less than the
market value of the stock on the date of the grant and for a term not to
exceed ten years.  Pursuant to amendments to the ISP, an aggregate of
2,000,000 shares of common stock have been reserved for issuance under the
Plan, no more than 300,000 of which may be awarded as restricted stock or
performance awards.  The Company has awarded restricted shares of common
stock totaling 19,950 shares. 

       During the first quarter of fiscal 1996, the Company canceled
1,150,500 options that had been granted in February 1994.  Associated with
these options, compensation expense of $690,300 was recognized during
fiscal 1995.  As part of the cancellation, the accumulated liability at
June 30, 1995, approximating $636,000, net of taxes, was reclassified to
additional paid-in capital.

       In July 1996, the Compensation Committee granted, subject to
stockholder approval, options to purchase 625,250 shares of common stock to
the Company's officers and other key employees.  Depending on whether
certain performance objectives were met, the options would become
exercisable in one-third increments on each of the first three
anniversaries of the date of the grant and would expire ten years after the
date of the grant.  To the extent performance objectives were not met, the
options would become exercisable on August 10, 2003 and would expire
September 10, 2003.  As a result of the Company's performance in fiscal
1997, the options became exercisable over three years through fiscal 1999
and will expire in July 2006.  The stockholders approved the grants in
November 1996; accordingly, the Company will recognize compensation expense
of approximately $2.2 million over the three year vesting period, which
amount is based on the difference between the exercise price and the fair
market value of common stock on the date of stockholder approval.  The
Company recognized compensation expense of $749,000 in each of fiscal 1998
and fiscal 1997 related to the granting of these options.

       Additionally, during fiscal 1997, the Board of Directors granted
options to purchase 284,150 shares of common stock that were not based on
performance objectives.  Full vesting terms ranged from three to five years
with the options expiring ten years from the date of the grant.  The
exercise prices for these options were equal to the fair market value on
the respective dates of grant; therefore, no compensation expense was
recognized.
<TABLE>
<CAPTION>
                             Summary of Stock Option Transactions
                                 (share amounts in thousands)

                        June 30, 1998     June 30, 1997     June 30, 1996
                      ----------------- ----------------  ----------------
                              Weighted          Weighted         Weighted
                              Average           Average          Average
                              Exercise          Exercise         Exercise
                      Shares  Price     Shares  Price     Shares Price
                      ------  --------  ------  --------  ------ --------

<S>                   <C>     <C>       <C>     <C>       <C>    <C>
Outstanding at
  beginning of year   1,215   $ 7.61    324     $ 9.14     1,275  $18.37
Grants                  378    15.90    909       7.31       242    7.34
Exercised               (38)    7.13     (1)      7.50         -      -
Canceled                (11)    9.32    (17)      8.02    (1,193)  18.64
                      -----           -----                ----- 
Outstanding at
  end of year         1,544     9.77  1,215       7.61       324    9.14
                      =====           =====                =====
Exercisable at
  end of year           500     8.45    145      10.04        42    12.57
                      =====           =====                =====
Weighted average fair
  value of options
  granted during the
  year                        $ 7.95            $ 6.53             $ 4.04
                               =====             =====              =====
</TABLE>

                                        -28-
<PAGE>


<TABLE>
<CAPTION>

                    Options Outstanding           Options Exercisable
             ----------------------------------  ---------------------
             Shares       Weighted               Shares       
             Outstanding  Average      Weighted  Exercisable  Weighted
Range of        at        Remaining    Average      at        Average
Exercise     6/30/98      Contractual  Exercise  6/30/98      Exercise
Prices       (000's)      Life         Price     (000's)      Price
----------   -----------  -----------  --------  -----------  --------
<S>           <C>        <C>          <C>       <C>          <C>
$ 6.19- 7.60   1,032      7.9 years    $ 7.22        383      $ 7.24
$ 7.61- 9.50       9      7.7 years      8.65          4        8.39
$ 9.51-11.40       1      9.6 years      9.75          -          -
$11.41-13.30     140      6.9 years     12.52        113       12.55
$13.31-15.20      10      9.2 years     13.38          -          -
$15.21-16.09     352      9.0 years     16.09          -          -
               -----                                 ---
$ 6.19-16.09   1,544      8.0 years    $ 9.77        500      $ 8.45
               =====                                 ===
</TABLE>

       The Company has adopted the disclosure-only provisions of FAS 123. 
Accordingly, no compensation cost has been recognized for options granted
except as mentioned above.  Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date for
awards in fiscal 1998 and fiscal 1997 in accordance with the provisions of
FAS 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
                                                  Year Ended June 30, 
                                               -----------------------
                                                 1998     1997    1996
                                                 ----     ----    ----
                                                    (in thousands)
<S>                              <C>           <C>      <C>     <C>
Net income                       As reported   $14,899  $16,398 $  337
                                 Pro forma      13,729   15,521    232
                                                                
Basic earnings per share         As reported      0.91     0.98   0.02
                                 Pro forma        0.85     0.92   0.01
                                                                
Diluted earnings per share       As reported      0.89     0.96   0.02
                                 Pro forma        0.84     0.92   0.01
</TABLE>

       The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model based upon the following
assumptions:  expected volatility of 37.56% to 51.16%; risk-free interest
rate ranging from 5.39% to 6.73%; expected lives of 6 or 7 years and no
expected dividend payments.  For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the
vesting period.

       The effects of applying FAS 123 in this pro forma disclosure are not
indicative of the impact on future years as the pro forma amounts above do
not include the impact of stock option awards granted prior to fiscal 1996.

NOTE 8 - EMPLOYEE BENEFIT PLANS

       The Company maintains a stock purchase program that is available to
most employees.  The stock purchase program (the "SPP"), as amended, allows
a maximum employee contribution of 5%, while the Company's matching
contribution is 25%, 40% or 50% of the employee's contribution, depending
on the length of the employee's participation in the program.  The matching
contributions to the stock purchase program were $0.7 million in fiscal
1998, $0.6 million in fiscal 1997 and $0.6 million in fiscal 1996.

                                   -29-
<PAGE>

       The Company also has a Savings and Profit Sharing Plan (the "Plan")
in which most employees are eligible to participate.  Under the savings or
Section 401(k) portion of the Plan, employees may contribute from 1% to 15% of
their compensation (subject to certain limitations imposed by the Internal
Revenue Code), and the Company makes matching contributions equal to 50% of
the first 5% of eligible employee contributions.  Under the profit sharing
portion of the Plan, the Company may contribute annually an amount up to
7.5% of the Company's pre-tax earnings, subject to Board approval. 
Employer matching contributions are invested in Company common stock. 
Employer matching contributions vest immediately, while profit sharing
contributions vest 100% when the employee has five years of service with
the Company.   For fiscal 1998 and 1997, the Company accrued approximately
$1.7 million and $2.0 million, respectively, for the profit sharing portion
of the Plan.  The matching contributions to the savings portion of the Plan
was $0.7 million for fiscal 1998 and $0.6 million for fiscal 1997.

       Employees can direct the voting of Company common stock attributable
to their SPP and Plan accounts.

       Effective July 1, 1997, the Company implemented its Deferred
Compensation Plan (the "DCP").  The DCP is available to employees of the
company deemed to be "highly compensated employees" pursuant to the
Internal Revenue Code.  The Company will make certain matching accruals to
the accounts of participants.  All amounts deferred or accrued under the
terms of the plan represent unsecured obligations of the Company to the
participants.  Matching and profit sharing accruals under the DCP were not
material in fiscal 1998.

NOTE 9 - TERMINATION PROTECTION AGREEMENTS

       The Company has entered into Termination Protection Agreements with
its executive officers (collectively, the "Executives").  The Termination
Protection Agreements, all of which are substantially similar, have initial
terms of two years which automatically extend to successive one-year
periods unless terminated by either party.  If the employment of any of the
Executives is terminated, with certain exceptions, within 24 months
following a change in control, or in certain other instances in connection
with a change in control, the Executives are entitled to receive certain
cash payments, as well as the continuation of fringe benefits for a period
of up to twelve months.  Additionally, all benefits under the Savings and
Profit Sharing Plan and the Deferred Compensation Plan vest, all
restrictions on any outstanding incentive awards or shares of restricted
common stock will lapse and such awards or shares will become fully vested,
all outstanding stock options will become fully vested and immediately
exercisable, and the Company will be required to purchase for cash, on
demand made within 60 days following a change in control, any shares of
unrestricted common stock and options for shares at the then current
per-share fair market value.  The Agreements as amended in February 1996 also
provide one year of outplacement services for the Executive and that, if
the Executive moves more than 20 miles from his primary residence in order
to accept permanent employment within 36 months after leaving the Company,
the Company will, upon request, repurchase the Executive's primary
residence at a price determined in accordance with the Agreement.

NOTE 10 - STOCKHOLDER RIGHTS PLAN

       The Company has adopted a Stockholder Rights Plan under which one
right (a "Right") was issued with respect to each share of common stock. 
Each Right entitles the holder to purchase from the Company a unit
consisting of one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share, at a purchase
price of $110 per Right, subject to adjustment in certain events. 

       The Rights are currently attached to all certificates representing
outstanding shares of common stock, and separate certificates for the
Rights will be distributed only upon the occurrence of certain specified
events.  The Rights will separate from the common stock and a "Distribution
Date" will occur upon the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of common
stock, or (ii) ten business days (or such later date as may be determined
by the Company's Board of Directors before the Distribution Date occurs)
following the commencement of a tender offer or exchange offer that would
result in a person becoming an Acquiring Person.  

       The Rights are not exercisable until the Distribution Date and will
expire at the close of business on February 1, 2004, unless earlier
redeemed or exchanged by the Company.  

                                    -30-
<PAGE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES

       The Company leases warehouse space, computers and certain other
equipment under operating leases.  As of June 30, 1998, minimum future
lease payments for all noncancelable lease agreements were as follows (in
thousands):

                         1999      $1,396
                         2000         723
                         2001         633
                         2002         348
                         2003         124
                                    -----
                         Total     $3,224
                                   ======


       Amounts incurred by the Company under operating leases (including
renewable monthly leases) were $1,367,000, $936,000 and $560,000 in 1998,
1997 and 1996, respectively.

       The Company is a party to various legal actions arising in the
ordinary course of its business.  The Company does not believe that any
such pending actions will have a material adverse effect on its results of
operations or financial position.  The Company maintains liability
insurance at levels which it believes are adequate for its needs and
comparable with levels maintained by other companies in the furniture
manufacturing business. 

       The Company's operations are subject to extensive federal, state and
local laws, regulations and ordinances relating to the generation, storage,
handling, emission, transportation and discharge of certain materials,
substances and waste into the environment.  Permits are required for
certain of the Company's operations and are subject to revocation,
modification and renewal by governmental authorities.  In general,
compliance with air emission regulations is not expected to have a material
adverse effect on the Company's business, results of operations or
financial condition. 

       In July 1998, the Company received a notice from the federal
Environmental Protection Agency ("EPA") alleging that certain reports had
not been filed with federal, state and local authorities under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, and the Emergency Planning and Community Right-to-Know Act of 1986
regarding emissions of formaldehyde from the Company's Lamar, Missouri
plant.  The Company has permits for all such emissions.  The Company is
investigating the alleged violations and has not determined whether to
defend against the claim alleged in the notice or to seek a settlement of
the matter with the EPA.  The Company does not expect the EPA's claims will
have a material adverse effect on the Company's business, results of
operation, financial condition or cash flow.

       The Company's manufacturing facilities ship waste product to various
disposal sites.  The Company has been designated as a potentially
responsible party ("PRP") under the Arkansas Remedial Action Trust Fund Act
in connection with the cost of cleaning up one site in Diaz, Arkansas and
has entered into a de minimis buyout agreement with certain other PRP's,
pursuant to which it has contributed $2,000 to date toward cleanup costs. 
The Company believes that amounts it may be required to pay in the future,
if any, will be immaterial. 

NOTE 12 - SHARE REPURCHASE PROGRAM

       On May 2, 1997, the Board of Directors authorized the purchase of up
to five percent of the outstanding shares of the Company's common stock
during the next 24 months.  The program includes no specific pricing nor
timing targets and may be suspended at any time or terminated prior to
completion.  As of  June 30, 1998, the Company had purchased 738,300 shares
for approximately $8,351,000 pursuant to this program.

                                -31-
<PAGE>

NOTE 13  - MAJOR CUSTOMERS AND INTERNATIONAL OPERATIONS

       Sales to three customers exceeded 10% of net sales in at least one
of the prior three fiscal years.  Sales to such customers as a percentage
of net sales were
<TABLE>
<CAPTION>
                             Year ended June 30,
                           ------------------------
                           1998      1997      1996
                           ----      ----      ----
           <S>            <C>       <C>       <C>
            Customer A     20.1%     17.1%     15.6%
            Customer B     11.6%     12.3%     12.5%
            Customer C      9.7%     12.0%      7.4%
</TABLE>

       There are no material foreign operations or export sales. 

NOTE 14  - QUARTERLY OPERATING RESULTS - UNAUDITED 
           (in thousands, except per share data)
<TABLE>
<CAPTION>
                                          Fiscal 1998 (By Quarter)
                                  -------------------------------------
                                     1         2         3         4
                                  ------------------------------------- 
<S>                              <C>       <C>       <C>       <C>
Net sales                         $77,141   $85,524   $92,325   $84,417
Gross profit                       22,738    23,386    24,653    24,544
Net income                          3,603     3,424     3,814     4,058
Basic earnings per common share      0.22      0.21      0.24      0.25
Diluted earnings per common share    0.22      0.20      0.23      0.25
</TABLE>

<TABLE>
<CAPTION>
                                           Fiscal 1997 (By Quarter)
                                   -------------------------------------
                                     1         2         3         4
                                   -------------------------------------
<S>                               <C>       <C>        <C>      <C>                  
Net sales                          $83,126   $80,593    $77,505  $80,266
Gross profit                        22,552    23,626     22,322   22,412
Net income                           3,476     4,574      3,895    4,453
Basic earnings per common share       0.21      0.27       0.23     0.27
Diluted earnings per common share     0.21      0.27       0.23     0.26

</TABLE>


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

   None

                                      -32-
<PAGE>


                                 PART III
                                 ========

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT*

ITEM 11.    EXECUTIVE COMPENSATION*

ITEM 12     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT*

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*

   *   The information called for by Items 10, 11, 12 and 13, to the
extent not set forth under the caption "Executive Officers of the Company"
in Part I of this annual report, is or will be set forth in the definitive
proxy statement relating to the 1998 Annual Meeting of Stockholders of
O'Sullivan Industries Holdings, Inc. pursuant to the Securities and
Exchange Commission's Regulation 14A.  Such definitive proxy statement
relates to a meeting of stockholders involving the election of directors
and the portions thereof called for by Items 10, 11, 12 and 13 of Form 10-K
are incorporated herein by reference pursuant to Instruction G of Form
10-K.


                                  PART IV
                                  =======

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

(a)(1) FINANCIAL STATEMENTS

       The following consolidated statements of O'Sullivan Industries
Holdings, Inc. and subsidiaries are filed as part of this report:

Report of Independent Accountants.................................16
Consolidated Balance Sheets as of June 30, 1998 and 1997..........17
Consolidated Statements of Operations for the three years
   ended June 30, 1998........................................... 18
Consolidated Statements of Cash Flows for the three years
   ended June 30, 1998............................................19
Consolidated Statements of Changes in Stockholders' Equity
   for the three years ended June 30, 1998........................20
Notes to Consolidated Financial Statement.........................21


(a)(2)     FINANCIAL STATEMENTS SCHEDULES

      Schedules have been omitted because they are not required or are not
applicable or the information required to be set forth therein either is
not material or is included in the financial statements or notes thereto.

(a)(3)     EXHIBITS:

      A list of exhibits required to be filed as part of this report is
set forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.

(b)   REPORTS ON FORM 8-K

      None

                                   -33-
<PAGE>


                                SIGNATURES
                                ==========

      Pursuant to the requirements of Sections 13 and 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 25th day of September, 1998.

                     O'SULLIVAN INDUSTRIES HOLDINGS,INC.
                     By:  /s/ Daniel F. O'Sullivan
                     Daniel F. O'Sullivan
                     Chairman and Chief Executive Officer



      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


/s/ Daniel F. O'Sullivan  Chairman of the Board and     September 25, 1998
                          Chief Executive Officer
                          (Principal Executive Officer)

/s/ Richard D. Davidson   President and                 September 25, 1998
                          Chief Operating Officer
                          and Director

/s/ Tyrone E. Riegel      Executive Vice President      September 25, 1998
                          and Director

/s/ Terry L. Crump        Executive Vice President and  September 25, 1998
                          Chief Financial Officer
                          (Principal Financial and Accounting Officer)

/s/ William C. Bousquette      Director                 September 25, 1998

/s/ Charles G. Hanson          Director                 September 10, 1998

/s/ Stewart M. Kasen           Director                 September 25, 1998

/s/ Thomas M. O'Sullivan, Sr.  Director                 September 25, 1998

/s/ Ronald G. Stegall          Director                 September 25, 1998


                                  -34-
<PAGE>


<TABLE>
<CAPTION>

                             INDEX TO EXHIBITS
Exhibit
No.           Description                                                Page   
-------       ---------------------------------------------------------  ----
<S>           <C>
3.1
& 
4.1           Certificate of Incorporation of O'Sullivan Industries
              Holdings, Inc. (the "Company") (incorporated by reference
              from Exhibit 3.1 to Registration Statement on Form S-1 (File
              No. 33-72120))

3.2
& 
4.2           By-laws of the Company (incorporated by reference from
              Exhibit 3.2 to Registration Statement on Form S-1 (File No.
              33-72120))

4.3           Specimen Stock Certificate of the Company (incorporated by
              reference from Exhibit 4.1 to Amendment No. 3 to
              Registration Statement on Form S-1 (File No. 33-72120))

4.4           Rights Agreement dated as of February 1, 1994 between the
              Company and the First National Bank of Boston, as Rights
              Agent (incorporated by reference from Exhibit 4.4 to
              Quarterly Report on Form 10-Q for the quarter ended March
              31, 1994 (File No. 1-12754))

*10.1         Amended and Restated O'Sullivan Industries Holdings, Inc.
              1994 Incentive Stock Plan (the "ISP") (incorporated by
              reference from Exhibit 4.5 to the Registration Statement on
              Form S-8 (File No. 333-21609)) 

*10.1a        First Amendment to the ISP (incorporated by reference from
              Exhibit 4.5(a) to Registration Statement on Form S-8 (File
              No. 333-21609))

*10.1b        Second Amendment to the ISP (incorporated by reference from
              Exhibit 10.1b to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

*10.2         Form of Amended and Restated Termination Protection
              Agreement between the Company and certain members of
              management (incorporated by reference from Exhibit 10.2 to
              Quarterly Report on Form 10-Q for the quarter ended
              March 31, 1996 (File No. 1-12754))

*10.3         O'Sullivan Industries Holdings, Inc. Stock Plan for
              Directors (incorporated by reference from Exhibit 10.1 to
              Quarterly Report on Form 10-Q for the quarter ended March
              31, 1997 (File No. 1-12754))

*10.4         O'Sullivan Industries Holdings, Inc. Deferred Compensation
              Plan (the "DCP") (incorporated by reference from Exhibit
              10.2 to Quarterly Report on Form 10-Q for the Quarter ended
              March 31, 1997 (File No. 1-12754))

*10.4a        First Amendment to the DCP (incorporated by reference from
              Exhibit 10.4a to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

10.5          Amended and Restated Tax Sharing and Tax Reimbursement
              Agreement dated as of June 19, 1997 between the Company and
              Tandy Corporation and TE Electronics Inc.  (incorporated by
              reference from Exhibit 10.5 to Annual Report on Form 10-K
              for the year ended June 30, 1997 (File No. 1-12754))

*10.7         Form of Indemnity Agreement between the Company and certain
              directors and officers (incorporated by reference from
              Exhibit 10.7 to Amendment No. 1 to Registration Statement on
              Form S-1 (File No. 33-72120))

*10.8         Schedule of Director Fees  (incorporated by reference from
              Exhibit 10.8 to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

10.9          Indenture of Trust dated as of October 1, 1988 between the
              Industrial Development Authority of Halifax County, Virginia
              and Texas American Bank/Fort Worth, N.A., as Trustee
              (incorporated by reference from Exhibit 10.9 to Amendment
              No. 1 to Registration Statement on Form S-1 (File No. 33-72120))

                                      -35-
<PAGE>


10.10         Agreement of Sale dated as of October 1, 1988 between the
              Industrial Development Authority of Halifax County, Virginia
              and O'Sullivan Industries - Virginia, Inc.  (incorporated by
              reference from Exhibit 10.10 to Amendment No. 1 to
              Registration Statement on Form S-1 (File No. 33-72120))

10.11         Composite Form of Note Purchase Agreement dated as of
              May 15, 1995 between the Company and each of New York Life
              Insurance Company and New York Life Insurance and Annuity
              Corporation (incorporated by reference from Exhibit 10.11 to
              Annual Report on Form 10-K for the year ended June 30, 1995
              (File No. 1-12754))
 
10.12         Amended and Restated Credit Agreement dated as of
              November 22, 1994, by and among the Company, O'Sullivan
              Industries, Inc., O'Sullivan Industries - Virginia, Inc.,
              The Boatmen's National Bank of St. Louis and Wachovia Bank
              of Georgia, N.A.  (incorporated by reference from
              Exhibit 10.12 to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

10.12a        First Amendment to Amended and Restated Credit Agreement
              dated as of May 15, 1995  (incorporated by reference from
              Exhibit 10.12a to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

10.12b        Second Amendment to Amended and Restated Credit Agreement
              dated as of December 29, 1995  (incorporated by reference
              from Exhibit 10.12b to Annual Report on Form 10-K for the
              year ended June 30, 1997 (File No. 1-12754))

10.12c        Third Amendment to Amended and Restated Credit Agreement
              dated as of June 13, 1997  (incorporated by reference from
              Exhibit 10.12c to Annual Report on Form 10-K for the year
              ended June 30, 1997 (File No. 1-12754))

10.13         Description of the Company's incentive compensation plan. . .37

21            Subsidiaries of the Registrant (incorporated by reference
              from Exhibit 21 to Annual Report on Form 10-K for the year
              ended June 30, 1995 (File No. 1-12754))

23            Consent of Independent Accountants. . . . . . . . . . . . . .38

27            Financial Data Schedule. . . . . . . . . . . . . . . . . . . 39

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

   *       Each of these exhibits is a "management contract or
           compensatory plan or arrangement."

</TABLE>

                                   -36-
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                               EXHIBIT 10.13


              O'SULLIVAN INDUSTRIES HOLDINGS, INC. BONUS PLAN


           The Company has a bonus plan in which its executive officers
and certain other management employees of the Company participate.  The
Compensation Committee recommends, and the Board of Directors adopts, the
plan's goals and target award levels, which can vary from year to year. 
The plan's goals may include goals for the Company's net income, sales,
efficient use of working capital and other factors; each goal may have a
different weighting.  For each goal, the Board sets a threshold level, a
target level and a maximum level.  If the threshold level is not achieved
with respect to a goal, no award is made for that goal.  Individual target
amounts are set by the Board as a percentage of each executive officer's
salary.

           After the end of a fiscal year, the Company's achievement will
be measured with respect to each goal.  Bonuses will be calculated based
upon results for the fiscal year compared with the goals.  The calculations
will then be used to compute each participant's bonus for the fiscal year
and will be paid to the participant.

                                  -37-
<PAGE>



                                EXHIBIT 23


                    CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-75556, 33-75438, 33-92904, 333-21609,
333-27635 and 333-28559) of O'Sullivan Industries Holdings, Inc. of our
report dated August 17, 1998 appearing on page 16 of this Form 10-K.





PricewaterhouseCoopers LLP
Fort Worth, Texas
September 25, 1998

                                      -38-
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