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                            CONVERTIBLE NOTE

           FOR VALUE RECEIVED, INTERIORS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to AUSTOST ANSTALT
SCHAAN, 7440 Fuerstentum, Lichenstein Landstrasse 163, Fax No.:
011-431-534532895 (the "Holder") or order, without demand, the sum of
$750,000.00, with simple interest accruing at the annual rate of 6%, on March
19, 2000 (the "Maturity Date"), as such date may be extended by agreement of
the parties hereto.

                 The following terms shall apply to this Note:

                                   ARTICLE I

                           DEFAULT RELATED PROVISIONS

           1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.

           1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note principal and interest are paid in full.

           1.3 Interest Rate. At the earliest of each Conversion Date (as
hereinafter defined), quarterly in arrears, commencing July 1, 1998, or the
Maturity Date, accelerated or otherwise, the Borrower shall pay interest to the
Holder at the annual rate of 6% per annum.

                                   ARTICLE II

                               CONVERSION RIGHTS

           The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.

           2.1. Conversion into the Borrower's Common Stock.
                --------------------------------------------

           (a) The Holder shall have the right from and after 180 days after
the issuance of this Note and then at any time on or prior to the Maturity
Date, as it may be extended by agreement of the parties hereto, and until this
Note is fully paid, to convert up to one-half of the outstanding and unpaid
principal portion of this Note of $25,000 or greater amount, or any lesser
amount representing the full remaining outstanding and unpaid principal portion
and at the Holder's election, the accrued interest on the Note (the date of
giving of such notice of conversion being a





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"Conversion Date") into fully paid and nonassessable shares of Common Stock of
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. The entire principal amount of this Note and interest accrued thereon
may be converted commencing 270 days from the issue date of this Note. Upon the
delivery of this Note to the Borrower according to the procedure described in
the subscription agreement entered into between the Company and Holder (the
"Subscription Agreement"), accompanied, preceded or followed by notice from the
Holder to the Company of the Holder's written request for conversion, Borrower
shall issue and deliver to the Holder within seven days of the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the form
hereof for the balance of the principal amount hereof, and/or interest if any.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and/or
interest on the Note to be converted, by the Conversion Price.

           (b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lowest of: (i) the closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded, for the five trading days prior to the issue date of this Note; (ii)
eighty (80%) of the average closing bid price for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading
days immediately preceding (but not including) the Conversion Date with respect
to the Note principal and interest accrued thereon if the Conversion Date is
sooner than 270 days from the original issue date of this Note; or (iii)
seventy-five percent (75%) of the average closing bid price for the Common
Stock on the NASDAQ SmallCap Market, or on any securities exchange or other
securities market on which the Common Stock is then being traded, for the five
(5) trading days immediately preceding (but not including) the Conversion Date
with respect to the Note principal and interest accrued thereon if the
Conversion Date is on or later than 270 days after the original issue date of
this Note.

           (c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a)
and 2.1(b), shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:




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           A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence
the right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.

           B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.

           C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.

           D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issue,
the

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Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
conversion price. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any nonqualified
stock option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.

           (d) Note principal not previously converted into shares of Common
Stock may be converted by the Borrower into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price then in effect ("Mandatory
Conversion"). Notice of such conversion by the Borrower shall be given not less
than thirty (30) days prior to the applicable date of such Mandatory Conversion
(the "Mandatory Conversion Date"). As applicable, the notice shall specify Note
principal to be converted, the date fixed for conversion, and the conversion
price per share. In no event shall a Mandatory Conversion occur at any time
unless the Common Stock to be delivered upon conversion will be immediately
upon delivery and thereafter unlegended, freely tradable, and freely
transferable on the transfer books of the Borrower. A Mandatory Conversion may
not be effected by the Borrower if an Event of Default described in Article III
hereinafter has occurred or is continuing.

           (e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.

           2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of


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this Note shall be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted.

                                  ARTICLE III

                                EVENT OF DEFAULT

           The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as
set forth below:

           3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.

           3.2 Breach of Covenant. The Borrower breaches any covenant or other
term or condition of this Note and such breach continues for a period of seven
(7) days after written notice to the Borrower from the Holder.

           3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or in connection with the Subscription Agreement shall be
false or misleading.

           3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

           3.5 Judgments. Any money judgment, writ or similar process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.

           3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.




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           3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.

           3.8 Concession. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.

           3.9 Stop Trade. An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.

           3.10 Failure to Deliver Common Stock. Borrower's failure to timely
deliver Common Stock to the Holder or a replacement Note representing any
unconverted portion of this Note pursuant to this Note or Section 9 of the
Subscription Agreement.

           3.11 Registration Default. The occurrence of a Registration Default
as described in Section 10.2(j) of the Subscription Agreement.

                               ARTICLE IV

                              MISCELLANEOUS

           4.1 Failure or Indulgency Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

           4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telecopier number: (914) 665-5469. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided.

           4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented




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           4.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.

           4.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorney's fees.

           4.6 Governing Law. This Note shall be deemed to have been executed
in and shall be governed by the internal laws of the State of New York,
without regard to the principles of conflict of laws.

           4.7 Prepayment. This Note may not be prepaid by the Borrower without
the consent of the Holder.

           4.8 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

           IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 19 day of March, 1998.

                                     INTERIORS, INC.


                                     By: /s/ Max Munn
                                        ---------------------------------
                                         President