On a year-to-date basis, total written orders decreased 4.2% as compared to the prior year. Within that same period, Wholesale net orders booked decreased 6.1%, while Retail written sales increased 1.2% and comparable store written sales decreased 0.5%.

        For the nine months ended March 31, 2005, the Company has utilized $58.9 million of available cash from operations to repurchase 1.7 million shares of its stock in the open market. As of the end of the current quarter, the Company has a remaining authorization to repurchase an additional 1.4 million shares. Subsequent to quarter end, the Company repurchased an additional 716,900 shares at a total cost of $22.6 million.

        Farooq Kathwari, Chairman and CEO, commented: “During the third quarter, sales were lower by 5.5% compared to the previous year while our operating earnings represented 12.7% of sales. The retail environment in recent months has been challenging as has also been noted by many others across our industry. In addition, we faced difficult comparables with prior year third quarter sales having increased 9% and our total written sales up 14%.”

     Mr. Kathwari continued: “During the last three years we have changed 70% of our products to improve both style and value, strengthened our retail network by adding more than 40 new stores in prime locations, and balanced our sourcing of products between our U.S. plants and offshore manufacturing. In April, we completed our major initiative of the last six months of introducing a new selection of modern and casual home furnishings in our stores. As such, we plan to launch a national television campaign, beginning on April 25^th, to support these programs. We firmly believe that our solutions-based marketing strategy, including our Everyday Pricing initiative, has continued to positively differentiate us and is best for our customers and our business.”

        Commenting on business trends Mr. Kathwari stated: “So far, April remains slow. With the product introductions completed in April, we will launch a strong marketing program, spearheaded by national television, which should help increase customer traffic and business. We plan to provide another update during the next several weeks as we see better clarity both in economic conditions and the impact of our efforts.”

Accounting for Leasing Transactions

        On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under accounting principles generally accepted in the United States of America. The Company’s management subsequently initiated a review of its lease-related accounting practices and

determined that the manner in which it accounts for (i) the amortization of leasehold improvements, (ii) landlord/tenant incentives (specifically, construction allowances), and (iii) the recognition of rent expense (income) when the lease term in an operating lease contains periods of free or reduced rents (i.e. “rent holidays” and/or rent escalation provisions) were not consistent with the views expressed by the SEC and/or the applicable accounting guidance.

        As a result of its review, management, in consultation with the Audit Committee of the Board of Directors of the Company and its independent registered public accounting firm, KPMG LLP, concluded that the Company’s consolidated financial statements contained within (i) the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (including all periods presented therein) and (ii) the Company’s Quarterly Reports on Form 10-Q for the interim periods ended September 30, 2004 and December 31, 2004 (including all periods presented therein), should be restated. The necessary restatement adjustments do not have any impact on previously reported revenues, same store sales, cash balances, inventory, or compliance with any of the Company’s debt covenants, nor are such adjustments expected to have any material impact on future earnings. The Company intends to file amended consolidated financial statements for all of the aforementioned periods prior to, or contemporaneously with, the filing of its Quarterly Report on Form 10-Q for the interim period ended March 31, 2005.

        For a detailed discussion of each of the aforementioned lease accounting matters, including the financial statement impact of the Company’s adjustments related to each (collectively, the “restatement adjustments”), please see the Company’s Current Report on Form 8-K as filed with the SEC on April 20, 2005, a copy of which is available at www.ethanallen.com/investors. The impact of the restatement adjustments on the Company’s financial statements for the periods presented herein is set forth below.

        The impact of the leasehold improvement amortization restatement adjustments on the Company’s June 30, 2004 Consolidated Balance Sheet was an increase in deferred tax assets of $0.4 million, a decrease in property, plant and equipment of $1.1 million, and a decrease in retained earnings of $0.7 million. The impact of these adjustments on the Consolidated Statement of Operations for the three months ended March 31, 2004 was not material. The impact of these adjustments on the Consolidated Statement of Operations for the nine months ended March 31, 2004 was an increase in depreciation expense of $0.3 million and a decrease in income tax expense of $0.1 million. These adjustments had no impact on net cash provided by operating activities during any of the periods restated.

        The impact of the construction allowances restatement adjustments on the Company’s June 30, 2004 Consolidated Balance Sheet was an increase in property, plant and equipment of $1.5 million, and an increase in deferred lease incentives of $1.5 million. The impact of these