U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB


                     ANNUAL REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended                       Commission file number 1-14478
December 31, 1997



                                 ROOM PLUS, INC.
                                 ---------------
                 (Name of small business issuer in its charter)

            New York                                  11-2622051
            --------                                  ----------
      (State or other jurisdiction                    (I.R.S. Employer
      of incorporation or organization)               Identification No.)



                 91 Michigan Avenue, Paterson, New Jersey 07503
                 ----------------------------------------------
               (Address of principal executive offices) (Zip Code)


                                 (973) 523-4600
                                 --------------
                           (Issuer's telephone number,
                              including area code)

Securities registered under Section 12 (b) of the Exchange Act:

<TABLE>
<CAPTION>
      Title of each Class                                        Name of each exchange on which registered
      -------------------                                        -----------------------------------------
<S>                                                              <C>   
Common Stock, par value $.00133 per share                        NASDAQ SmallCap & Boston Stock Exchange

Redeemable Common Stock Purchase Warrants                        NASDAQ SmallCap & Boston Stock Exchange

Securities registered under Section 12 (g) of the Exchange Act:
</TABLE>

                    Common Stock, par value $.00133 per share
                    -----------------------------------------
                                (Title of Class)

Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of Class)

Check whether issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 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.


<PAGE>

                        Yes   X     No
                            -----      -----


Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this form 10-KSB. [ X ]

The issuer's revenues for the fiscal year ended December 31, 1997 were
                                  $16,851,321.

             The aggregate market value of the voting stock held by
        non-affiliates computed by reference to the closing price of the
                   stock on February 27, 1998 was $6,187,222.
   The Company has not issued any stock which does not possess voting rights.



The number of shares of the issuer's Common Stock, par value $.00133 per share,
    outstanding as of March 20, 1998 was 4,385,000. The actual number of the
      issuer's Redeemable Common Stock Purchase Warrants outstanding as of
                          March 20, 1998 was 2,530,000.


Transitional Small Business Disclosure Format (check one):
            Yes         No    X
                -----       -----

<PAGE>



                                TABLE OF CONTENTS


               ROOM PLUS, INC.                                   PAGE #
               ---------------                                   ------

PART I
   Item 1      Description of Business                              1
   Item 2      Description of Property                              5
   Item 3      Legal Proceedings                                    6
   Item 4      Submission of Matters to a Vote of Security Holders  6


PART II
   Item 5      Market for Common Equity and Related Stockholder 
               Matters                                              7
   Item 6      Management's Discussion and Analysis of
               Financial Condition and Results of Operations        8
   Item 7      Financial Statements                                12
   Item 8      Changes In and Disagreements With Accountants
               on Accounting and Financial Disclosure              25


PART III
   Item 9      Directors, Executive Officers, Promoters and 
               Control Persons; Compliance with Section 16 (a) 
               of the Exchange Act                                 25
   Item 10     Executive Compensation                              26
   Item 11     Security Ownership of Certain Beneficial Owners 
               and Management                                      27
   Item 12     Certain Relationships and Related Transactions      28
   Item 13     Exhibits, Lists and Reports on Form 8-K             29




SIGNATURES                                                         32



Forward Looking Statements

This Report on Form 10-KSB may contain statements that are forward-looking in
nature and such statements should not be considered as guarantees of future
performance because they involve many uncertainties and risks. Actual results
may vary materially from projected results based upon a number of factors,
including, but not limited to, the Company's ability to successfully expand its
retail distribution, to further automate the manufacturing process to increase
productivity and reduce costs and to compete with its direct and indirect
competitors.
<PAGE>



Item 1. Description of Business

(a) General

   The Company is a New York corporation that was organized in 1982 under the
   name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
   mica-laminated furniture. From 1979 to 1982, the founders of the Company had
   engaged in the same business under other corporate names. In March 1995, Bunk
   Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
   manufacturer of the furniture sold by RPF Holding, was merged into RPF
   Holding. The surviving entity in such merger, which was named TAM Industries,
   Inc., changed its name to Room Plus, Inc. in June 1995. The Company's
   principal offices are located at 91 Michigan Avenue, Paterson, New Jersey
   07503, and its telephone number at that address is (973) 523-4600.

   The Company is a fully-integrated manufacturer and retailer of mica-laminated
   furniture for residential uses, primarily bedroom furniture for children ages
   three to 16 years old. The Company's products are of a modular design and are
   intended to be multi-functional, interchangeable and space-saving.

   The Company distributes its products through its own distribution network of
   17 retail showrooms located in the greater New York City and Philadelphia
   metropolitan areas. Management believes that stores located in strip malls
   and densely populated areas offer the highest visibility of the Company's
   products and ease of access for the Company's targeted customers. The
   Company's retail showrooms range from approximately 2,000 to 5,000 square
   feet and yield average annual sales of $259 per square foot.

   The Company uses standard component pieces to manufacture furniture for
   children's and adult's bedrooms and home offices. The approximately 300
   standard components can be finished in various colors and textures and
   combined in various configurations to produce a finished product which is
   personalized to the customer's taste, space and budget. The use of standard
   components also permits the Company's furniture to be reconfigured as the
   customer's needs or tastes change. For example, a loft bed can be converted
   into separate beds, a desk, a dresser and a bookcase, and a baby's changing
   table can be converted into a child's play table and a dresser.

   Unlike many of its direct competitors, the Company uses high quality raw
   materials in the manufacture of its products, including high-pressure,
   mica-laminate that is more resistant to impact and engineered wood that has
   been laminated on both sides to provide greater stability and protection
   against warping. The quality of materials and manufacturing processes used by
   the Company enable it to offer a limited lifetime warranty against structural
   defects.

   Because the Company's finished products are manufactured from standard
   components and personalized to the customer's needs, the Company does not
   maintain a large inventory of finished products (other than showroom display
   models). Finished products are manufactured to meet a specified desired
   delivery date, which is generally fixed at the time of the order and is
   generally within two to six weeks thereafter.

   The Company's manufacturing operations are conducted in a 78,000 square foot
   facility located in Paterson, New Jersey. In the past two years, the Company
   has implemented numerous changes to its manufacturing facility and processes
   in order to significantly reduce the future direct costs of manufacturing and
   to produce more contemporary styles of high quality, mica-laminated
   furniture.

   The Company's existing manufacturing facility currently operates on a single
   shift and has sufficient capacity to more than double its manufacturing
   volume without substantially increasing indirect costs of manufacture. During
   1997, the Company established five additional retail showrooms, three in the
   Philadelphia metropolitan area and two in New York City. The Company
   continues to upgrade and automate its manufacturing process and to further
   reduce direct manufacturing costs.



                                      -1-
<PAGE>

   The residential furniture industry is cyclical, fluctuating with the general
   economy. While the Company believes that furniture sales are influenced by a
   number of macroeconomic factors including existing home sales, housing
   starts, consumer confidence, interest rates and demographic trends, the
   Company believes that it is less affected by industry economic trends because
   of its focus on furniture for children. The Company believes that regardless
   of economic trends, parents will place a high priority on furnishing their
   children's rooms with affordable, high-quality furniture.

(b) Manufacturing Process

   The Company manufactures its products in a 78,000 square foot plant located
   in Paterson, New Jersey. The plant currently operates on one shift, five days
   per week, utilizing a "Just In Time" manufacturing process that allows the
   Company to reduce expenses associated with the maintenance of inventory. The
   plant has sufficient capacity to enable the Company to more than double its
   manufacturing volume without substantially increasing indirect manufacturing
   costs.

   Many of the current production processes used by the Company in the
   manufacture of its products are highly labor intensive as is traditional in
   the furniture manufacturing industry. Management believes that additional
   shifts of workers, together with the continued automation of the
   manufacturing process, will permit the Company to meet its manufacturing
   requirements over the foreseeable future without the necessity of expanding
   its manufacturing facility beyond its current size. The Company is also
   exploring the possibility of using any excess manufacturing capacity to
   provide independent retailers with a private label of the Company's products.

(c) Raw Materials and Suppliers

   The raw materials used by the Company in manufacturing its products include
   laminate, lumber, plywood, fiberboard, engineered wood, hardware, adhesives,
   finishing materials and mirrored glass. Management believes that such raw
   materials are readily available.

   The Company has no long-term supply contracts for its raw materials and
   generally purchases its raw materials from a small number of suppliers.
   Although the Company has strategic reasons such as price, quality and
   delivery for using a limited number of suppliers, the Company believes that
   sufficient other sources of raw materials are available should its current
   supply sources be disrupted. Raw materials prices fluctuate over time
   depending on factors such as supply and demand and increases in prices may
   have a short-term negative impact on the Company's financial condition.

(d) Products

   The Company manufactures and sells multi-functional high quality
   mica-laminated furniture designed both to make small spaces larger and to be
   convertible into other uses. The furniture offered by the Company is
   primarily made of engineered wood covered on the interior with low-pressure
   mica-laminate and on the exterior with high-pressure mica-laminate. The
   Company has begun producing a thinner, low-pressure laminated furniture line
   that sells at lower prices, and management believes that there is strong
   demand for this product line. The Company manufactures contemporary modular
   furniture that has rounded (post-formed) edges on tops and drawers. The
   benefits of rounded edges to the consumer include enhanced visual appeal and
   elimination of hard edges, which is an important safety consideration since
   the Company principally targets the children's furniture market. The Company
   also produces traditional square edge products.

   The Company manufactures approximately 300 standard components that can be
   combined in various configurations to meet a customer's space limitations or
   storage needs, and such components can be finished in hundreds of colors and
   textures. In addition, the Company offers numerous options and features to
   personalize its products for each customer. For example, telephone jacks can
   be added to bedroom headboards, dividers can be 


                                      -2-
<PAGE>

   included in drawers and night tables can be manufactured with a tray that
   slides away when not in use. Such features allow customers to have the look
   and utility of customized furniture at a lower cost.

   The Company maintains an open stock policy, which enables customers to add
   additional matching pieces over time to previously purchased furniture
   products and to change the look of their furniture by replacing door and
   drawer fronts and other accent pieces. The Company believes that such
   flexibility enhances the value of the furniture to the customer and
   encourages repeat business.

   A substantial majority of the Company's sales relate to bedroom furniture for
   children and young adults. The Company offers a wide range of beds for
   children with matching desks and dressers, including multi-functional bunk
   and storage modules. One of the most popular models for children is the loft
   bed that utilizes space more efficiently than conventional bedroom furniture.
   It is able to sleep one or two people and has a built-in desk and storage
   drawers. Since a child's room is often the smallest room in the house, the
   Company's children's furniture line is designed to save space through modular
   designs and filling space vertically, leading to the Company's motto "A LOT
   OF LIVING in a Little Space". See "Advertising and Promotion".

   In addition, a portion of the Company's sales relate to adult bedroom
   furniture and home office furniture. The Company offers, among other items,
   night tables, headboards, armoires, bookcases, computer stations and desks.
   Approximately 5% of the Company's sales are comprised of accessory
   furnishings such as lamps, bed coverings, bookends, picture frames and other
   small items that give the Company the ability to complete the design of the
   room in the showroom.

(e) Gallery/Specialty Format

   Two formats widely used by retailers of furniture to market their products
   are the gallery format and the specialty format. The gallery format displays
   products in complete room settings, including furnishings, wall decor,
   accents and accessories and typically feature the products of one
   manufacturer, such as Ethan Allen, La-Z-Boy, Thomasville and Drexel Heritage.
   The specialty format specializes in a category of merchandise such as
   bedding, sofas or lighting and is utilized by retailers such as Pier 1
   Imports, Sleepy's and The Bombay Company.

   The Company utilizes a combination gallery/specialty format as its
   high-pressure, mica-laminated furniture is displayed in settings designed to
   allow the consumers to envision the look of a complete room in their homes.
   Each retail showroom features approximately 10-12 settings. This presentation
   format encourages consumers to purchase an entire room of furniture and
   accessories from the Company, instead of individual pieces from different
   manufacturers and results in an average sale per customer of approximately
   $2,000. The Company believes that distributing its products through dedicated
   Company owned stores strengthens brand awareness, provides well-informed and
   focused sales personnel and encourages the purchase of multiple items per
   visit.

(f) Advertising and Promotion

   The Company marketing effort is supported by extensive advertising and
   promotion featuring the Company's slogan "Just Round the Corner" and "A LOT
   OF LIVING in a Little Space" motto. The Company has taken all necessary steps
   to register its slogan and motto. Management believes that advertising on
   broadcast and cable television has made the Company a household name in the
   area of children's furniture in the New York metropolitan area.

   For the year ended December 31, 1997, the Company's advertising budget was
   approximately $1,800,000 or 10.6% of revenues. The increase in advertising
   costs over the prior year is largely attributable to the Company's entry into
   metropolitan Philadelphia through the opening of three showrooms. The Company
   achieves savings in advertising costs through its use of an affiliated entity
   to purchase advertising at discounts and its strategy of making long-term
   advance purchases and purchasing time blocks in bulk to achieve discounted
   rates. The Company also advertises to a lesser extent in newspapers and on
   radio.



                                      -3-
<PAGE>

   The Company's primary target market is women in the 24 to 50 age bracket,
   since the Company believes they most strongly influence the buying decision
   for children's furniture. Much of the Company's advertising is also shown
   during programming for children because children may influence their parents'
   decision on what type of furniture to have in their rooms.

   Retail Media Plus, Inc. ("Retail Media Plus"), which is owned by three
   executive officers of the Company, places all of the Company's advertising
   and bills the Company only for the actual cost of such advertising, without
   any additional expenses or mark-ups. See "Certain Relationships and Related
   Transactions".

   Pursuant to an agreement with King Features, the Company utilizes the Dennis
   the Menace character as part of its corporate logo. The Company believes that
   this recognizable character has assisted in market recognition as the Company
   began its expansion in 1997 outside its traditional market areas.

(g) Expansion Strategy

   The Company's expansion strategy is primarily focused on opening additional
   retail showrooms in the existing markets of New York, New Jersey and greater
   Philadelphia, PA. In 1997, management opened two sites in the metropolitan
   New York area and three sites in greater Philadelphia. The Company does not
   plan to open new showrooms in 1998. The Company is supplementing its
   management information system in 1998 with point of sale equipment to permit
   on line order processing, and provide on demand sales and marketing
   information.

(h) Customer Satisfaction

   The Company is committed to providing high-quality customer service in all
   phases of its business, including offering instant store credit, a decorating
   service and professional delivery. The Company offers no interest, deferred
   payment plans to qualified purchasers, which the Company believes gives
   customers the flexibility to structure their purchases of the Company's
   furniture according to their budget.

   The Company is generally able to offer delivery and in-home set-up of its
   products within two to six weeks from the date of the order. Delivery is
   provided by an independent professional furniture delivery company whose
   delivery personnel are trained by the Company in the set-up of its products.
   The Company also offers free in-home decorating service with a minimum
   purchase of $1,000. A trained salesperson will travel to a customer's home
   with pictures of the Company's products, floor plans and charts of available
   colors and finishes, assist the customer in the selection of products and
   take measurements to ensure that the furniture selected will fit properly in
   the intended location.

   In addition to its sales personnel, skilled customer satisfaction
   representatives are available to answer customer questions during business
   hours. The Company believes that its commitment to customer service has
   contributed to the number of repeat purchases by the Company's customers.

(I) Government Regulation

   The Company's manufacturing operations are subject to a wide range of
   federal, state and local laws and regulations relating to the protection of
   the environment, workers' health and safety and the emission, discharge,
   storage, treatment and disposal of hazardous materials. These laws include
   the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery
   Act, the Federal Water Pollution Control Act and the Comprehensive
   Environmental, Response, Compensation and Liability Act. Certain of the
   Company's operations uses glues and coating materials that contain chemicals
   that are considered hazardous under various environmental laws. Accordingly,
   management closely monitors the Company's environmental performance at its
   manufacturing facility. The Company is also a voluntary participant in the
   Occupational Safety and Health Administration ("OSHA") Consultation Program
   in which OSHA periodically inspects the Company's facilities and makes
   recommendations on how to eliminate unsafe conditions in the manufacturing
   process before a complaint is filed. The cost to the 


                                      -4-
<PAGE>

   Company to comply with government regulation of its manufacturing process and
   the effect of such compliance on the Company's operations are not material.

   The Company's retail operations are not subject to material federal, state
   and local laws and regulations other than consumer protection laws.
   Management believes that the Company is in substantial compliance with all
   laws and regulations affecting its business.

(j) Competition

   The home furniture industry is a highly competitive and fragmented market
   with estimated annual U.S. sales of $49.6 billion in 1996 and estimated
   annual U.S. sales of $53 billion in 1997.

   The Company is the largest retailer of mica-laminated home furniture in the
   metropolitan New York and Philadelphia areas, where its 17 retail showrooms
   are located. Several small retailers such as Atlantic Furniture and Kids'
   Room, and large retailers, such as IKEA, also sell mica-laminated furniture
   similar to that sold by the Company in the same geographic region, but
   generally through only one or two retail outlets. The Company also competes
   with many companies, including much larger and diverse furniture companies,
   such as Huffmann Koos, Levitz, Thomasville and Drexel Heritage, that sell
   primarily wood furniture that is not mica-laminated.

(k) Employees

   All Company personnel are employees of Employee Solutions, Inc. ("ESI")
   successors to Corporate Management Group Recruiting, Inc. and their services
   are leased to the Company pursuant to an employee leasing agreement (the
   "Employee Leasing Agreement") between the Company and ESI. All references to
   employees herein refer to personnel whose services are leased by the Company
   from ESI under the Employee Leasing Agreement.

   Pursuant to the Employee Leasing Agreement, ESI is responsible for payment of
   all federal, state and local employment taxes and providing workers'
   compensation and disability coverage and other mandated employee benefits for
   the employees. The Company retains the right to make all decisions concerning
   the hiring and termination of employees. The Employee Leasing Agreement
   provides that it shall continue in full force and effect unless terminated by
   (i) either party for cause, as described in such agreement, (ii) the Company
   on thirty (30) days prior notice, or (iii) ESI on ninety (90) days prior
   notice.

   The Company provides intensive two-week, 100-hour training program to all
   sales personnel. Topics include merchandising, room layout, product knowledge
   and salesmanship and are taught by a full-time professional trainer. The
   Company believes that a well-trained sales force helps increase sales,
   encourages repeat customers and minimizes employee turnover. The Company
   attempts to select its retail managers from the pool of sales personnel
   employed by the Company. The average store manager has been with the Company
   for approximately seven years, and the vice president for sales has been with
   the Company for over 14 years.

   As of December 31, 1997, the Company had approximately 203 employees, of whom
   four were executive officers, 75 were engaged in sales, 97 were engaged in
   manufacturing and 27 were administrative staff. Approximately 60 of the
   Company's manufacturing employees are covered by a collective bargaining
   agreement with a local division of the International Union of Electronic,
   Electrical, Salaried, Machine and Furniture Workers, AFL-CIO (the "Union").
   The Company entered into a three-year collective bargaining agreement with
   the Union in September 1997. The Company has never experienced a material
   work stoppage and believes that its relationship with its employees is
   generally satisfactory.

Item 2. Description of Property

   The Company distributes substantially all of its products through a network
   of Company-owned retail showrooms dedicated solely to the display of the
   Company's products. All of such showrooms are located in premises leased 


                                      -5-
<PAGE>

   by the Company. As of the date of this 10-KSB, the Company operates 17 retail
   showrooms in New York, New Jersey and Pennsylvania, which showrooms are set
   forth below:





                                      -6-
<PAGE>



                                Month and Year           Square Feet
   Location                        Opened               (Approximate)
   --------                     --------------          -------------
   Manhattan (3rd Ave.), NY     June 1981                   3,500
   Manhattan (Lexington Ave.),  November 1995               2,700
   Manhattan (Broadway between
     18th & 19th Sts.), NY      September 1996              5,000
   Scarsdale, NY                January 1982                3,500
   Farmingdale, NY              February 1995               3,700
   Carle Place, NY              August 1987                 4,400
   Forest Hills, NY             October 1987                2,000
   Staten Island, NY            March 1997                  4,000
   Brooklyn, NY                 January 1997                2,700
   Paramus, NJ (Rt.4)           March 1983                  5,000
   Paramus, NJ (Rt. 17)         February 1988               5,000
   East Hanover, NJ             August 1983                 4,000
   East Brunswick, NJ           August 1985                 4,800
   Union, NJ                    October 1995                3,900
   Cherry Hill, NJ              March 1997                  5,000
   Langhorne, PA                February 1997               3,200
   King of Prussia, PA          June 1997                   4,000

   The leases for the Company's retail showrooms have terms ranging from five to
   13 years and some leases contain optional renewal provisions for additional
   five-year periods. Certain leases require the Company to pay real estate
   taxes and insurance.

   The Company's retail showrooms are open seven days a week, generally from 10
   a.m. to 9 p.m. Monday through Saturday and 12 p.m. to 5 p.m. on Sundays. The
   two retail showrooms located in Paramus, New Jersey are closed on Sundays.

   In addition to its retail showrooms, the Company currently leases a 78,000
   square foot plan in Paterson, New Jersey, which houses its administrative
   offices, executive staff, sales and marketing staff and its manufacturing and
   shipping facilities. The Company leases the facility at a monthly rent of
   approximately $24,000, subject to annual adjustment as more fully set forth
   in such lease. The lease expires on May 31, 1999, and the Company has the
   option to renew the lease for an additional 15 year period on the same terms
   and conditions as the original lease, including annual adjustments in rent.
   The owner of the Paterson facility is M&S Realty Company, which is owned by
   Theodore Shapiro, the Company's Executive Vice President and Director of
   Manufacturing. See "Certain Relationships and Related Transactions".

Item 3. Legal Proceedings

   The Company is not a party to any material pending legal proceedings, nor, to
   the Company's knowledge is any material legal proceeding threatened.

Item 4. Submission of Matters to a Vote of Security Holders

   None during the fourth quarter of the year ended December 31, 1997.



                                      -7-
<PAGE>



PART II

Item 5. Market For Common Equity and Related Stockholder Matters

(a) Market Information

   The Company's Common Stock and Redeemable Common Stock Purchase Warrants are
   traded on the National Association of Securities Dealers Automated Quotation
   System (NASDAQ) SmallCap Market under the Symbols "PLUS" and "PLUSW"
   respectively, and on the Boston Stock Exchange under the symbols "RPF" and
   "RPF.WT", respectively. Set forth below are the range of reported high and
   low sales price information for the Company's Common Stock and Redeemable
   Common Stock Purchase Warrants for 1997 and the fourth quarter of 1996 (when
   the Company went public) as reported by NASDAQ. All over-the-counter market
   price quotations reflect inter-dealer prices, without retail mark-up,
   mark-down or commission, and may not represent actual transactions.

                                                              Price Per
                                   Price Per Share           Redeemable
                                     of Common              Common Stock
                                        Stock             Purchase Warrant
   Year ended December 31, 1996    ---------------        ----------------
   ----------------------------
   Fourth Quarter             High      8-7/8                   4
                              Low       4-5/8                   1-1/4

   Year ended December 31, 1997
   ----------------------------
   First Quarter              High      5-1/2                   2-7/8
                              Low       2-7/8                     21/32

   Second Quarter             High      6-1/4                   1-3/4
                              Low       3                         7/8

   Third Quarter              High      6-3/4                     11/2
                              Low       5-1/8                     3/4

   Fourth Quarter             High      8-1/4                     21/2
                              Low       2                         7/16

(b) Holders

    As of March 13, 1998, the Company had approximately 642 beneficial owners of
    its Common Stock and 447 record holders of its Redeemable Common Stock
    Purchase Warrants.

(c) Dividends

    The Company has not paid any dividends on its Common Stock in the last two
    fiscal year and does not anticipate paying dividends to its shareholders in
    the foreseeable future. The Company currently intends to reinvest earnings,
    if any, in the development and expansion of its business. The declaration
    and payment of dividends in the future will be at the election of the Board
    of Directors and will depend upon the Company's earnings, current and
    anticipated capital requirements, results of operations, financial position
    of the Company, plans for expansion, future prospects, general economic
    conditions, and restrictions under then existing credit and other debt
    instruments and arrangements, and other factors deemed pertinent by the
    Board.

(d) Recent Sales of Unregistered Securities

    Effective January 31, 1997, the Company issued warrants to acquire 25,000
    shares of common stock to each of three executive officers at an exercise
    price of $3.0625. Such warrants expire five years from the date of grant.


                                      -8-
<PAGE>


Item 6. Management's Discussion and Analysis of Financial Condition and Results 
of Operations

    The following discussion and analysis should be read in conjunction with the
    Company's Financial Statements (and the related notes thereto) included
    elsewhere in this Form 10-KSB.

    Description of Business

(a) General

    The Company is a New York corporation that was organized in 1982 under the
    name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
    mica-laminated furniture. From 1979 to 1982, the founders of the Company had
    engaged in the same business under other corporate names. In March 1995,
    Bunk Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the
    principal manufacturer of the furniture sold by RPF Holding, was merged into
    RPF Holding. The surviving entity in such merger, which was named TAM
    Industries, Inc., changed its name to Room Plus, Inc. in June 1995. The
    Company is a fully-integrated manufacturer and retailer of mica-laminated
    furniture for residential uses, primarily bedroom furniture for children
    ages three to 16 years old. The Company's products are of a modular design
    and are intended to be multi-functional, interchangeable and space-saving.

    In November 1996, the Company completed its initial public offering ("IPO")
    of 1,165,000 shares of its Common Stock and 2,530,000 Redeemable Common
    Stock Purchase Warrants. Net proceeds to the Company after underwriting
    commissions, related underwriting expenses, and additional expenses incurred
    in connection with the offering were approximately $4,600,000.

(b) Results of Operations -- Ratios

    The following tables set forth, for the periods indicated, certain items
    from the Company's Statements of Operations, presented as a percentage of
    revenues. The operating results for any period are not necessarily
    indicative of results that can be expected for any future period.

                                             Years ended December 31
                                             -----------------------
                                                 1997         1996
                                                 ----         ----
    Revenues                                    100.0%       100.0%
    Cost of goods sold                           44.0%        40.3%
    Gross profit                                 56.0%        59.7%
    Selling, general & administrative expenses   71.9%        59.7%
    Loss from operations                        (15.9)%        0.0%
    Other income (deductions)                    (1.3)%        0.0%
    Net loss                                    (11.3)%        0.0%


    1997 Compared with  1996

    Revenues
    Revenues for the year ended December 31, 1997 were $16,851,321, as compared
    to $14,427,108 for the year ended December 31, 1996, an increase of
    $2,424,213 or 16.8%. This increase is primarily the result of five new
    showrooms in 1997. The new showrooms contributed revenues of $3,078,696
    while revenues of existing showrooms decreased $654,483. Management believes
    that the opening of two showrooms in 1997 in the same geographic area of
    existing showrooms contributed to the decrease in existing showroom
    revenues, primarily as a result of the dilution of experienced sales
    personnel. The remaining three new showrooms were opened in a new geographic
    area for the Company and have required greater investments in personnel and
    advertising than anticipated to generate revenues.

    Cost of goods sold


                                      -9-
<PAGE>

    Cost of goods sold for the year ended December 31, 1997 was $7,418,128 or
    44.0% of revenues as compared to $5,814,485 or 40.3% of revenues for the
    same period in 1996. The increase in cost of goods sold was primarily the
    result of increased production cost (labor) in anticipation of increased
    volume from new showrooms. As these new showrooms have taken longer than
    anticipated to generate the expected revenues, costs as a percentage of
    revenues has increased. Inventory has increased approximately $450,000
    primarily due to the addition of the five aforementioned new showrooms.

    As a result of the foregoing, gross profit decreased in 1997 to 56.0% of
    revenues from 59.7%

    Selling, general and administrative expenses

    Selling, general and administrative expenses amounted to $12,110,370 or
    71.9% of revenues in 1997 as compared to $8,613,398 or 59.7% of revenues in
    1996. The increase of $3,496,972 is primarily due to expenses associated
    with the opening of one new showroom in late-1996 and five new showrooms in
    1997. Such expenses included payroll, rent and related showroom overhead
    costs of $1,950,000 and an increase in advertising of $400,000.

    Other income and expenses

    Other income and expenses was a net expense of $219,679 in 1997 as compared
    to a net expense of $21,487 in 1996. The increase is the result of costs
    accrued in anticipation of closing one showroom, increased interest expense
    caused by the Company's use of its line of credit and the costs associated
    with a proposed acquisition which was terminated in 1998.

    Income before income taxes

    The preceding factors combined to produce a loss before income taxes of
    $2,896,856 as compared to a loss before income taxes of $22,262 in 1996.


    1996 Compared with 1995

    Revenues

    Revenues for the year ended December 31, 1996 were $14,427,108, as compared
    to $13,149,018 for the year ended December 31, 1995, an increase of
    $1,278,090 or 9.7%. This increase is primarily the result of four new
    showroom openings during late-1995 and 1996, which increased revenues by
    approximately $1,391,382. Revenues from existing showrooms also increased by
    $399,687. Such increases were partially offset by the closing of one
    showroom in 1996.

    Cost of goods sold

    Cost of goods sold for the year ended December 31, 1996 were $5,814,485 or
    40.3% of revenues as compared to $6,881,282 or 52.3% of revenues for the
    same period in 1995. This decrease is due to changes in the manufacturing
    processes and sale of inventory, including a reduction of direct labor, and
    manufacturing overhead of $264,197 and $120,422, respectively, as compared
    to the same period for 1995. In addition, inventory was reduced from
    $1,739,995 in January 1995 to $1,229,561 in December 1995. The inventory was
    sold at the Paramus, New Jersey showroom, which was used as a Clearance
    Center for several months in 1995. At December 31, 1996 inventory increased
    by $220,846 to $1,450,407, primarily due to the addition of four showrooms
    in late- 1995 and 1996.

    As a result of the foregoing, the Company realized an increase in gross
    profit in 1996 as compared to 1995, with a gross profit of $8,612,623 or
    59.7% of revenues in the year ended December 31, 1996, as compared to
    $6,267,736 or 47.7% of revenues achieved during the same period in 1995.

    Selling, general and administrative expenses

    Selling, general and administrative expenses amounted to $8,613,398 or 59.7%
    of revenues in 1996 as compared to $7,932,515 or 60.3% of revenues in 1995.
    The increase of $680,883 is primarily due to expenses associated with the
    opening of four new showrooms in late-1995 and 1996. Such expenses included
    payroll, rent and related showroom overhead expenses of $588,231 and an
    increase in advertising of $300,000 over the 1995 levels. These additional
    expenses were partially offset by a reduction in employee benefits and
    related Workers' 


                                      -10-
<PAGE>



    Compensation insurance premiums achieved when the Company entered into an
    employee leasing agreement with ESI, Inc. in January of 1996.

    Operating income

    Operating loss for the year ended December 31, 1996 was $775 as compared to
    an operating loss of $1,664,779 or 12.7% of revenues during the year ended
    December 31, 1995. See "Liquidity and Capital Resources."

    Other income and expenses

    Other income and expenses for the year ended December 31, 1996 was a net
    expense of $21,487 as compared to a net expense of $159,572 in the year
    ended December 31, 1995. The primary reasons for the $126,900 net decrease
    in other expenses were a reduction in interest expenses and proceeds from an
    insurance claim for water damage.

    Income before income taxes

    The preceding factors combined to show an increase in net income totaling
    $1,802,089 in the year ended December 31, 1996 as compared to the year ended
    December 31, 1995. There was a net loss of $22,262 in 1996 as compared to a
    net loss of $1,824,351 or 13.9% of revenues in 1995.


    Liquidity and Capital Resources

    The Company had a working capital deficit of $315,361 at December 31, 1997
    which represented a decrease in working capital of $3,089,849 from the
    working capital surplus of $2,774,488 at December 31, 1996. The decrease in
    the surplus is primarily caused by the Company's program to establish new
    showrooms and to re-merchandise and refurbish existing showrooms. The
    Company has substantially depleted its cash reserves and will need to seek
    additional capital in the near term. The Company has received several
    financing proposals and is currently considering such proposals and other
    possible financing alternatives. While there can be no assurances as to the
    ultimate availability or terms of such additional financing, the Company
    believes that sufficient financing will be available to fund its operations
    for at least the next twelve months.

    The Company's operating activities used cash of $2,711,402 and $989,274 for
    the years ended December 31, 1997 and 1996, respectively. The principal use
    of the cash in 1997 was to finance operating expenses and inventory
    associated with the opening of one showroom in late-1996 and five new retail
    showrooms in 1997, a $453,919 increase in inventory, a provision for closing
    one showroom and a $100,000 deposit in connection with a proposed
    acquisition. In February 1998, the Company terminated its letter of intent
    to acquire The Baby's Room, Inc. and Baby's Room USA, Inc. Upon such
    termination, the Company's deposit of $100,000 was returned.

    The Company's investing activities used cash of $514,469 and $975,506 for
    the years ended December 31, 1997 and 1996, respectively. The principal use
    of cash in 1997 and 1996 was the money expended on leasehold improvements as
    well as the purchase of fixtures and inventory for new showrooms and the
    purchase of equipment to improve manufacturing efficiency. In management's
    opinion, all such assets are adequately insured.

    The Company's financing activities provided cash of $233,626 and $5,204,304
    for the years ended December 31, 1997 and 1996, respectively. Utilization of
    the Company's line of credit and borrowing for equipment acquisitions was
    the primary source of cash in 1997. The cash provided by the Company's
    financing activities for the year 1996 primarily resulted from the proceeds
    of the sale of common stock and warrants of $6,478,000 which was partially
    offset by $1,273,344 of charges connected with the IPO.

    In August 1997, the Company increased its line of credit facility from
    $350,000 to $500,000. Such line bears interest at the prime rate plus 2% per
    annum and matures in August 1998. In June 1996, the Company also obtained a
    bank loan in the amount of $50,000, which bore interest at prime rate plus
    2% per annum. The Company repaid all outstanding balances on the bank loan
    and the 1996 line of credit with a portion of the net proceeds from the IPO.



                                      -11-
<PAGE>



    In June 1996, a bridge loan in the amount of $150,000 was obtained from four
    investors. The loan bore interest at the rate of 13% per annum and was due
    on June 18, 1997. In connection with this bridge loan, the Company issued an
    aggregate of 20,000 shares of Common Stock to the investors.

    In July 1996, a private placement of 500,000 shares of Common Stock at a
    purchase price of $.80 per share was completed by the Company (the "1996
    Private Placement"). The Company received net proceeds of $332,500 from the
    1996 Private Placement and such proceeds were utilized for expenses relating
    to the IPO, repayment of a portion of the Company's bank borrowings and
    working capital.




                                      -12-
<PAGE>



Item 7. Financial Statements

    The following financial statements are furnished as part of this Annual
Report on Form 10-KSB:

    Index to Financial Statements                        Page No.
    -----------------------------                        --------
        Independent Auditors' Report                        13

        Balance Sheets as of December 31, 1997 and 1996     14

        Statements of Operations
         Years Ended December 31, 1997 and 1996             15

        Statements of Stockholders' Equity
         Years Ended December 31, 1997 and 1996             16

        Statements of Cash Flows
         Years Ended December 31, 1997 and 1996             17

        Notes to Financial Statements                       18






                                      -13-
<PAGE>






INDEPENDENT AUDITORS' REPORT

 Board of Directors and
   Shareholders of Room Plus, Inc.
Paterson, New Jersey

We have audited the accompanying balance sheets of Room Plus, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of December
31, 1997 and 1996, and the results of its operations and cash flows the years
then ended in conformity with generally accepted accounting principles.

Certain conditions indicate that the Company may be unable to continue as a
going concern. As discussed in Note 20 to the financial statements, the Company
has suffered recurring losses from operations and has a working capital
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management's
plans with regard to this matter are discussed in Note 20.





/s/ EHRENKRANTZ STERLING & CO., LLC
-----------------------------------

EHRENKRANTZ STERLING & CO., LLC
Certified Public Accountants
Roseland, New Jersey
March 30, 1998




                                      -14-
<PAGE>



                                 ROOM PLUS, INC.
                                 BALANCE SHEETS

                                                             December 31
                                                        ---------------------
                                                         1997          1996
                                                        ------        -------

                                    ASSETS
Current Assets
  Cash and cash equivalents...........................$  185,843   $3,178,088
  Accounts receivable.................................    67,685       38,888
  Inventories......................................... 1,904,326    1,450,407
  Notes receivable, officers..........................    12,400       48,600
  Prepaid expenses and other current assets...........   492,555      375,538
  Deferred income taxes...............................   134,500       67,329
                                                      -----------  ----------
   Total Current Assets............................... 2,797,309    5,158,850
                                                      -----------  ----------

Property and Equipment, at cost....................... 3,745,196    2,820,083
  Less accumulated depreciation....................... 1,940,893    1,752,099
                                                      -----------  ----------
                                                       1,804,303    1,067,984
                                                      -----------  ----------
Other Assets
  Security deposits...................................   165,183      159,549
  Deferred charges....................................    84,291      240,780
  Deferred income taxes............................... 1,038,500      106,048
  Notes receivable, officers..........................   177,965     177,092
                                                      -----------  ----------
                                                       1,465,939      683,469
                                                      -----------  ----------
                                                      $6,067,551   $6,910,303
                                                      ===========  ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Current portion of long-term debt...................$  212,791   $  190,869
  Notes payable.......................................   400,070       75,000
  Due to related company..............................   258,770      135,514
  Accounts payable and accrued expenses............... 1,604,047    1,384,803
  Sales taxes payable.................................   108,475      122,772
  Customer deposits and other advances................   528,517      475,404
                                                      -----------  ----------
   Total Current Liabilities.......................... 3,112,670    2,384,362
                                                      -----------  ----------

Long-term Debt, less current portion..................   447,857      118,866
                                                      -----------  ----------

Commitments and Contingency...........................        --           --

Stockholders' Equity
  Capital stock
   Authorized, 10,000,000 shares at $.00133 par value, 
   4,385,000 shares issued and outstanding............     5,832        5,832
  Additional paid-in capital.......................... 6,512,645    6,512,645
  Deficit.............................................(4,011,453)  (2,111,402)
                                                      -----------  ----------
                                                       2,507,024    4,407,075
                                                      -----------  ----------
                                                      $6,067,551   $6,910,303
                                                      ===========  ==========


See notes to financial statements.



                                      -15-
<PAGE>



                               ROOM PLUS, INC.
                           STATEMENTS OF OPERATIONS




                                                      Years Ended December 31
                                                    ----------------------------
                                                       1997             1996
                                                    -----------     ------------
Revenues ......................................     $16,851,321     $14,427,108

Cost of goods sold ............................       7,418,128       5,814,485
                                                   ------------     -----------

  Gross Profit ................................       9,433,193       8,612,623
                                                   ------------     -----------

Expenses
  Selling .....................................       9,979,319       7,062,219
  General and administrative ..................       2,131,051       1,551,179
                                                   ------------     -----------
                                                     12,110,370       8,613,398
                                                   ------------     -----------

Loss from operations ..........................      (2,677,177)           (775)
                                                   ------------     -----------

Other Income (Deductions)
  Interest expense ............................        (106,205)        (65,135)
  Proposed acquisition costs ..................        (104,003)             --
  Provision for store closing .................        (100,000)             --
  Interest and other income ...................          90,529          43,648
                                                   ------------     -----------
                                                       (219,679)        (21,487)

Loss before income taxes (benefits) ...........      (2,896,856)        (22,262)

Income taxes (benefits) .......................        (996,805)        (19,177)
                                                   ------------     -----------

  Net Loss ....................................    $ (1,900,051)    $    (3,085)
                                                   ============     ===========

Weighted average common shares outstanding ....       4,385,000       3,896,875
                                                   ============     ===========

Basic and diluted net loss per share ..........    $      (0.43)    $        --
                                                   ============     ===========







See notes to financial statements.



                                      -16-
<PAGE>



                                ROOM PLUS, INC.
                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    YEARS ENDED DECEMBER 31, 1997 AND 1996




<TABLE>
<CAPTION>
                                          Issued and             Issued and
                             Authorized   Outstanding            Outstanding                Additional
                               Common       Common                  Common                    Paid-in
                               Shares       Shares      Amount     Warrants       Amount      Capital       Deficit        Total
                              ----------   ---------    ------   -----------     --------   ----------   -----------   ------------
<S>                           <C>          <C>          <C>        <C>           <C>        <C>          <C>           <C>         
Balance, December 31, 1995    10,000,000   2,325,000    $3,092            --     $     --   $1,310,729   $(2,108,317)  $  (794,496)
                                                                                            
   Issuance of common stock                  300,000       399            --           --      240,000            --       240,399
                                                                                            
   Issuance of common stock                   20,000        27            --           --       16,000            --        16,027
                                                                                            
   Issuance of common stock                   75,000       100            --           --           --            --           100
                                                                                            
   Issuance of common stock                  500,000       665            --           --      331,499            --       332,164
                                                                                            
   Initial Public Offering                 1,165,000     1,549     2,530,000      253,000    4,361,417            --     4,615,966
                                                                                            
   Net loss                                       --        --            --           --           --        (3,085)       (3,085)
                              ----------   ---------    ------   -----------     --------   ----------   -----------   ------------
                                                                                            
Balance, December 31, 1996    10,000,000   4,385,000     5,832     2,530,000      253,000    6,259,645    (2,111,402)    4,407,075
                                                                                            
   Net loss                                       --        --            --           --           --    (1,900,051)   (1,900,051)
                              ----------   ---------    ------   -----------     --------   ----------   -----------   ------------
                                                                                            
Balance, December 31, 1997    10,000,000   4,385,000    $5,832     2,530,000     $253,000   $6,259,645   $(4,011,453)   $2,507,024
                              ----------   ---------    ------   -----------     --------   ----------   -----------   ------------
</TABLE>

See notes to financial statements.



                                      -17-
<PAGE>



                                 ROOM PLUS, INC.
                            STATEMENTS OF CASH FLOWS


                                                     Years Ended December 31
                                                    --------------------------
                                                        1997             1996
                                                    -----------    -----------
Cash Flows from Operating Activities
Net loss........................................... $(1,900,051)   $    (3,085)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Depreciation ....................................     250,200        134,901
  Reserve for bad debts ...........................        --          (77,412)
  Deferred income taxes ...........................    (999,623)       (18,877)
  Loss on store closing ...........................     100,000           --
(Increase) decrease in operating assets
    Accounts receivable ...........................     (28,797)       203,687
  Inventories .....................................    (453,919)      (220,846)
  Prepaid expenses ................................    (117,017)      (230,694)
  Deferred charges ................................     156,489       (237,476)
Increase (decrease) in operating liabilities
  Accounts payable and accrued expenses ...........     295,613       (480,631)
  Sales taxes payable .............................     (14,297)       (64,159)
  Cash surrender value of officers' life insurance         --            5,318
                                                    -----------    -----------
    Net cash used in operating activities .........  (2,711,402)      (989,274)
                                                    -----------    -----------

Cash  Flows from Investing Activities
Purchases of property and equipment ...............    (544,162)      (816,210)
Net loans (to) from executive officers ............      35,327       (106,747)
Increase in security deposits and deferred charges       (5,634)       (52,549)
                                                    -----------    -----------
    Net cash used in investing activities .........    (514,469)      (975,506)
                                                    -----------    -----------

Cash Flows from Financing Activities
Net proceeds of short-term debt ...................     325,070         75,000
Repayment of long-term debt .......................     (91,444)       (75,352)
Proceeds from issuance of common stock ............        --        6,478,000
Charges in connection with initial public offering         --       (1,273,344)
                                                    -----------    -----------
    Net cash provided by financing activities .....     233,626      5,204,304
                                                    -----------    -----------

  Net Increase (Decrease) in Cash .................  (2,992,245)     3,239,524








See notes to financial statements.


                                      -18-
<PAGE>

Cash (Overdraft), beginning of year ...............   3,178,088        (61,436)
                                                    -----------    -----------

Cash, end of year.................................. $   185,843    $ 3,178,088
                                                    ===========    ===========







See notes to financial statements.



                                      -19-
<PAGE>


                                    ROOM PLUS, INC.
                             NOTES TO FINANCIAL STATEMENTS



Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Organization

        The Company is located in Paterson, New Jersey, and manufactures high
        quality mica furniture. The Company distributes substantially all of its
        products through a network of 17 Company-owned retail showrooms
        dedicated solely to the display of the Company's products. The retail
        showrooms are located in New York, New Jersey and Pennsylvania under the
        trade name of Room Plus Furniture.

        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 disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

        Inventories

        Inventories are stated at the lower of cost determined by the first-in,
        first-out method or market.

        Depreciation and Amortization

        Depreciation is computed by the straight-line and various accelerated
        methods over the estimated useful lives of the related assets, which
        range between five and ten years. Amortization of leasehold improvements
        is computed by the straight-line method over the estimated useful lives
        of the related assets or the lease term, if shorter.

        Guaranty and Warranty Policies

        The Company maintains a limited lifetime defective product warranty for
        products that are manufactured by the Company to ultimate retail
        customers. Product warranty expense is not significant in relation to
        the product sale and is expensed when incurred. The effect of this
        accounting treatment is not material to the financial position or the
        results of operations for any period presented.

        Fair Value of Financial Instruments

        The fair value of the Company's assets and liabilities which constitute
        financial instruments as defined in Statement of Financial Accounting
        Standards No. 107 approximate their recorded value.

        Advertising

        The Company expenses the production costs of advertising the first time
        the advertising takes place. Advertising expense was $1,780,380 and
        $1,295,839 in 1997 and 1996, respectively.

        Earnings per Common Share

        In the fourth quarter of 1997, the Company adopted Statement of
        Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128),
        which supersedes Accounting Principles Board Opinion No. 15. Under FAS
        128, earnings per common share is computed by dividing net income (loss)
        available to common shareholders by the weighted-average number of
        common shares outstanding during the period. Diluted earnings per share
        reflects the potential dilution that could occur if securities 


                                      -20-
<PAGE>



                                     ROOM PLUS, INC
                             NOTES TO FINANCIAL STATEMENTS
                                      (Continued)


        or other contracts to issue common shares were exercised or converted
        into common shares or resulted in the issuance of common shares.
        Prior-period amounts have been restated, where appropriate, to conform
        to the requirements of FAS 128.

        For 1996, pro forma net loss per common share has been computed by
        dividing pro forma net loss by the pro forma number of common shares
        outstanding. As required by the Securities and Exchange Commission
        rules, all warrants, options and shares issued within one year of the
        public offering at less than the public offering price are assumed to be
        outstanding for each year presented for purposes of the per share
        calculation. Such incremental shares were determined utilizing the
        treasury stock method as if they were outstanding for all periods
        presented.



Note 2: INVENTORIES

        Inventories consist of the following:
                                                          December 31
                                                     ----------------------
                                                       1997         1996
                                                     ----------  ----------
           Showrooms and warehouse.................  $1,451,814  $1,151,107
           Raw materials...........................     427,254     290,498
           Work-in-process.........................      25,258       8,802
                                                     ----------  ----------
                                                     $1,904,326  $1,450,407
                                                     ==========  ==========

Note 3: PROPERTY AND EQUIPMENT

        Property and equipment consist of the following:
                                                          December 31
                                                     ----------------------
                                                       1997         1996
                                                     ----------  ----------
        Automobiles................................  $  109,723  $   20,304
        Office furniture, fixtures and equipment...     460,283     426,149
        Factory machinery and equipment............   1,448,194   1,009,612
        Leasehold improvements.....................   1,726,996   1,364,018
                                                     ----------  ----------
                                                     $3,745,196  $2,820,083
                                                     ==========  ==========

Note 4:  LINE OF CREDIT AND BANK LOAN

        The Company has a line of credit of $500,000 from BSB Bank and Trust
        Company bearing interest at prime plus 2% per annum (10 1/2% at December
        31, 1997) and expires in August 1998. Substantially all of the Company's
        assets collateralize the loan, along with personal guarantees by three
        executive officers of the Company.


Note 5: LONG-TERM DEBT

        Long-term debt consists of the following:


                                      -21-
<PAGE>

<TABLE>
<CAPTION>
                                                                           December 31
                                                                       -------------------
                                                                         1997       1996
                                                                       --------   --------
<S>                                                                    <C>        <C>     
Obligations under capital leases are payable in monthly
installments of $15,877 maturing in 2002 and bear interest
at rates between 4.5% and 23.18%.  The obligations are
collateralized by machinery and equipment and guaranteed by
certain executive officers (see Note 6) ............................   $542,532   $ 86,558

Notes payable in monthly installments of $1,543 maturing in 2001 and
bearing interest at rates between 8.74% and 9.15%, collateralized by
transportation equipment with a book value of $46,400 ..............     41,756       --

Unsecured obligation payable to a landlord which matured
in January 1998 ....................................................     10,660     91,667

Non-interest bearing note due a spouse of an executive
officer (paid in 1997) .............................................       --        9,909

Note due a finance company relating to Directors and
Officers insurance requiring monthly payments of $5,289
including interest at 7.85% and maturing in January 1999 ...........     65,700    121,601
                                                                       --------   --------
                                                                        660,648    309,735
Less current portion, including obligations under capital
leases of $126,264 and $33,391 in 1997 and 1996 ....................    212,791    190,869
                                                                       --------   --------
                                                                       $447,857   $118,866
                                                                       ========   ========
</TABLE>


Note 5: LONG-TERM DEBT (Continued)

        Annual payments of long-term debt are as follows:

           Years ending
           December 31                                   Amount
           -----------                                   ------
             1998..................................    $212,791
             1999..................................     148,426
             2000..................................     135,205
             2001..................................     131,579

                                      -22-
<PAGE>

                                     ROOM PLUS, INC
                             NOTES TO FINANCIAL STATEMENTS
                                      (Continued)


             2002..................................      32,647
                                                       --------
                                                       $660,648
                                                       ========

Note 6: OBLIGATIONS UNDER CAPITAL LEASES

        The Company leases certain machinery and equipment under capital leases
        with a capitalized cost of $689,275 less accumulated depreciation of
        $98,525.

        The following is a schedule of future minimum payments required under
        the leases together with their present value as of December 31, 1997:

           Years Ending
           December 31                                 Amount
           -----------                                 ------
             1998..................................  $187,371
             1999..................................   171,298
             2000..................................   157,969
             2001..................................   140,414
             2002..................................    33,531
                                                     --------
                                                      690,583
        Less amount representing interest..........   148,051
                                                     --------
                                                     $542,532
                                                     ========

Note 7: RELATED PARTY TRANSACTIONS

        The aggregate balance due from certain executive officers was $190,365
        and $225,692 at December 31, 1997 and 1996, respectively, which is
        represented by promissory notes bearing interest at 8% per annum and
        matures in January 1999.

        During the years ended December 31, 1997 and 1996, the Company incurred
        advertising costs of approximately $1,780,000 and $1,069,000,
        respectively, with a related company.

        The Company had a consulting agreement with a former director pursuant
        to which he made recommendations aimed at reducing the Company's
        operating costs which resulted in payments of approximately $91,000
        during 1996.

        See Notes 4, 5, 9, 12 and 13 for other related party transactions.

Note 8: INCOME AND DEFERRED TAXES

        A deferred tax asset results from timing differences in the recognition
        of depreciation for tax and financial reporting purposes and the
        recognition of net operating loss carryforwards for financial statement
        purposes in 1997 and 1996 of approximately $2,946,000 and $198,000 for
        Federal income taxes. These net operating loss carryforwards expire in
        2010 to 2012. In addition, net operating loss carryforwards of
        approximately $1,816,000, $3,010,000 and $109,000 for the States of New
        York, 


                                      -23-
<PAGE>


                                     ROOM PLUS, INC
                             NOTES TO FINANCIAL STATEMENTS
                                      (Continued)


        New Jersey and Pennsylvania, respectively, expire between 2002 and 2012.
        The Company has provided a valuation reserve of approximately $460,000
        and $39,000 in 1997 and 1996, respectively, against the future benefits
        of the net operating loss carryforwards.



                                      -24-
<PAGE>


                                     ROOM PLUS, INC
                             NOTES TO FINANCIAL STATEMENTS
                                      (Continued)



Note    8: INCOME AND DEFERRED TAXES (Continued) 

        The deferred tax asset consists of the following:

                                                 December 31
                                           ----------------------
                                              1997        1996
                                           ----------   ---------
           Federal                         $1,093,000    $107,707
           State                              540,000     104,670
                                           ----------   ---------
                                            1,633,000     212,377
           Valuation allowance               (460,000)    (39,000)
                                           ----------   ---------
                                           $1,173,000    $173,377
                                           ==========    ========


        The provision (benefit) for Federal and State income taxes is comprised
        of the following:

                                                  Years Ended December 31
                                                  -----------------------
                                                      1997         1996
                                                  ----------   ---------
        Current income taxes (benefits)
           Federal                                $       --   $      --
           State                                       2,818        (300)
                                                  ----------   ---------
                                                       2,818        (300)
        Deferred income taxes (benefits)
           Federal                                  (735,293)    (28,307)
           State                                    (264,330)      9,430
                                                  -----------  ---------
                                                    (999,623)    (18,877)
                                                  ----------   ---------
                                                  $ (996,805)  $ (19,177)
                                                  ==========   =========

Note 9: COMMITMENTS AND CONTINGENCY

        Leasing Activities

        Leases for retail showrooms in New York, Pennsylvania and New Jersey
        expire at various dates through May 2009. The leases require the Company
        to pay various operating expenditures including real estate taxes, while
        certain leases contain provisions for rent escalations.

        The Company leases its corporate office and manufacturing facility from
        M & S Realty Company, a related party, under a lease which expires May
        31, 1999 at an annual rental of approximately $292,000. The lease
        requires the Company to pay certain operating expenses of the facility,
        including real estate taxes and insurance. In addition, the lease
        contains provisions for rent escalations and an optional renewal term of
        fifteen years.



                                      -25-
<PAGE>



                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



        In 1998, the Company entered into a capital lease totaling $180,000 for
        equipment that will be operational in 1998. The lease will require
        monthly payments of approximately $4,200 including interest through
        maturity in the year 2003.

        Rent expense for retail showrooms and the manufacturing facility totaled
        $2,489,086 and $1,600,919 in 1997 and 1996, respectively.

        The Company has automotive and other equipment leases expiring through
        December 2000 with future minimum lease payments of approximately
        $76,000. Rent expense for these leases totaled approximately $40,000 and
        $49,000 in 1997 and 1996, respectively.




                                      -26-
<PAGE>


                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



Note 9: COMMITMENTS AND CONTINGENCY (Continued)

        Approximate future minimum rentals under all operating lease
        arrangements are due as follows:

                  Years Ending
                   December 31             Amount
                   -----------            --------
                      1998               $2,118,000
                      1999                1,754,900
                      2000                1,396,600
                      2001                1,305,000
                      2002                  995,500
                   Thereafter             2,394,300
                                         ----------
                                         $9,964,300
                                         ==========

        Litigation

        The Company is subject to routine litigation that is incidental to the
        business. In the opinion of management, the amount of ultimate liability
        with respect to these actions will not materially affect the financial
        position or the results of operations of the Company.

        Employment Contracts

        Employment contracts between the Company and three executive officers
        through 2000 each provide for minimum annual salaries of $125,000,
        adjusted for incentives based on the Company's attainment of specified
        levels of revenues or gross profit. In addition, the executive officers
        receive an allowance for certain expenses.

Note 10: PENSION PLANS

        The Company funds a union sponsored defined contribution pension plan
        which covers its leased union personnel. Contributions totaled $17,792
        in 1997 and $13,523 in 1996.

        The Company had a deferred compensation plan under section 401(k) of the
        Internal Revenue Code. The plan was terminated in August 1996. No
        contributions were made by the Company in 1996.

Note 11: ACQUISITION TRANSACTIONS

        In 1997, the Company signed a letter of intent to acquire and/or merge
        with two unrelated companies in the furniture industry located in
        Chicago, Illinois. In February 1998, the proposed transactions were
        terminated and escrow funds were returned to the Company.

Note 12: OUTSTANDING WARRANTS


                                      -27-
<PAGE>



                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



        At December 31, 1997 and 1996, the Company had outstanding warrants to
        purchase 4,576,250 and 4,441,250 shares of its common stock,
        respectively, at prices ranging from $1.20 to $8.25 per share. The
        warrants expire at various dates through 2001. At December 31, 1997 and
        1996, 4,576,250 and 4,441,250 shares of common stock, respectively, were
        reserved for that purpose.

Note 13: CAPITAL TRANSACTIONS

         1. In June 1996, the Company entered into a three year consulting
            agreement with a Director which included a $25,000 cash payment and
            250,000 shares of common stock issued at $.80 per share. In
            addition, the Company issued 50,000 shares of common stock at $.80
            per share to an unrelated individual under a one year consulting
            agreement.

         2. In June 1996, the Company received four bridge loans totaling
            $150,000 from unrelated parties and a Director in the form of
            promissory notes which bore interest at 13% and matured in June
            1997. In addition, the Company issued 20,000 shares of common stock
            to the holders of the notes. The effective price of $.80 per share
            for such common stock represents a cost of financing and was
            amortized over the term of the promissory notes as interest expense.
            The proceeds of the bridge loans were used to finance costs of
            opening a new retail showroom.

Note 13: CAPITAL TRANSACTIONS (Continued)

         3. On July 1, 1996, the Board of Directors and the shareholders
            approved a 4 for 3 reverse stock split of the Company's common stock
            with an increase in par value to $.00133.

         4. In July 1996, the Company completed an additional private placement
            of 500,000 shares of common stock which raised approximately
            $332,000 in capital, net of expenses. The proceeds were utilized for
            the payment of fees incurred in connection with the public offering
            and to provide for working capital.

         5. On November 1, 1996, the Company sold to the public in an initial
            public offering 1,000,000 shares of the Company's common stock at a
            price of $5.00 per share as well as 2,200,000 redeemable common
            stock purchase warrants (the "warrants") at a price of $.10 per
            warrant. In addition, 165,000 shares of the Company's common stock
            and 330,000 of the Company's warrants were issued upon the exercise
            of an over-allotment option granted to the underwriters of the
            initial public offering. Net proceeds to the Company after
            underwriting expenses and additional expenses were approximately
            $4,616,000.

         6. During 1997, warrants were granted to executive officers to purchase
            85,000 shares of common stock at prices ranging from $3.00 to $6.00.
            In addition, warrants were granted to a consultant to purchase
            50,000 shares of the Company's common stock at $5.75.

Note 14: SUPPLEMENTAL CASH FLOW INFORMATION
                                                              December 31
                                                         -------------------
                                                           1997        1996
                                                         --------   ---------
         Cash paid during the year for:
           Interest..................................    $106,205   $  55,385


                                      -28-
<PAGE>



                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



           Income taxes (benefits)...................       2,818        (300)


         Non Cash Investing Activity

         During 1997, the Company financed the acquisition of certain equipment
         through capital leases. The cost of such equipment and the related debt
         incurred was $389,765. In addition, the Company purchased
         transportation equipment in 1997 at a cost of $52,592 and incurred a
         like amount of debt.


         Non Cash Financing Activity

         Issuance of 300,000 common shares at $.80
         per share to a Director and a consultant....          --     240,000

         Issuance of 20,000 common shares to unrelated 
         parties and a Director at $.80 per share for 
         fees in connection with receiving four bridge
         loans.......................................          --      16,000


Note 15: CONCENTRATION OF CREDIT RISK

         The Company maintains cash balances at a financial institutions located
         in New Jersey and New York. Accounts at these institutions are secured
         by the Federal Deposit Insurance Corporation up to $100,000.

Note 16: RECLASSIFICATIONS

         Certain reclassifications have been reflected on the 1996 financial
         statements to conform to 1997 classifications.



                                      -29-
<PAGE>


                                     ROOM PLUS, INC
                             NOTES TO FINANCIAL STATEMENTS
                                      (Continued)



Note 17:  PREPAID EXPENSES AND OTHER CURRENT ASSETS

                                                            December 31
                                                      ---------------------
                                                         1997        1996
                                                      ---------   ---------
          Proposed acquisition deposit.............   $ 100,000   $      --
          Prepaid advertising......................     161,115     120,000
          Prepaid insurance........................      80,168     127,791
          Prepaid consulting fees..................     140,884     112,308
          Other....................................      10,388      15,439
                                                      ---------   ---------
                                                      $ 492,555   $ 375,538
                                                      =========   =========



Note 18:  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                            December 31
                                                       ----------------------
                                                         1997        1996
                                                       ----------  ----------
          Trade payables...........................    $1,063,349  $1,057,627
          Accrued leased personnel expenses........       108,334     172,329
          Accrued professional fees................       178,148      40,000
          Accrued rent.............................       127,956      41,511
          Accrued store closing costs..............       100,000          --
          Other....................................        26,260      73,336
                                                       ----------  ----------
                                                       $1,604,047  $1,384,803
                                                       ==========  ==========


Note 19:  SUBSEQUENT EVENT

          In March 1998, the Company obtained a commitment from a financial
          institution for an asset-based credit facility of $1,500,000 at the
          prime rate plus 2%, based upon 55% to 65% of eligible inventory, as
          defined. In addition, a commitment for a two year term loan totaling
          $200,000 at the prime rate plus 2-1/2% was obtained and is based upon
          the liquidation value of machinery and equipment. The agreements
          contain a covenant on minimum net worth, as defined.

Note 20:  GOING CONCERN

          The financial statements have been prepared assuming the Company will
          continue as a going concern. The Company has had recurring losses
          before taxes of approximately $2,900,000, $22,000 and $1,800,000 for
          the years ended December 31, 1997, 1996 and 1995, respectively, and
          has a working capital deficiency of approximately $315,000 at December
          31, 1997, which raises substantial doubt about the Company's ability
          to continue as a going concern. As described in Note 19 to the
          financial statements, the Company intends to raise additional capital
          through long and short term borrowings in connection with asset-based
          financing. The Company believes upon successful completion of the
          financing, which is expected to be completed by May 1998, the
          substantial doubt about the Company's ability to continue as a going
          concern will be eliminated.


                                      -30-
<PAGE>



Item 8.   Changes In and Disagreements with Accountants on Accounting and 
          Financial Disclosure

          None

Part III.

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act

          The directors, executive officers and significant employees of the
          Company are as follows:

<TABLE>
<CAPTION>
           Name            Age            Position with Company
           ----            ---            ---------------------
<S>                         <C>           <C>                                              
         Marc Zucker        49            Chairman of the Board and Chief Executive Officer
         Allan Socher       47            President, Director of Marketing and Director
         Theodore Shapiro   63            Executive Vice President, Director of Manufacturing and Director
         Alan Hirschfeld    46            Director
         Alan Granetz       53            Director
         Frank Terzo        38            Director
         Jay  Goldberg      52            Secretary and Chief Financial Officer
</TABLE>

         Marc Zucker has been the Chairman of the Board and Chief Executive
         Officer of the Company since March 1995. He was co-founder of RPF
         Holding and was its president from 1982 until its merger with Bunk
         Trunk in March 1995. In addition, he was Vice President and General
         Manager of Bunk Trunk from its inception in 1984 until the merger with
         RPF Holding. Prior to that, Mr. Zucker worked in other areas of the
         retail furniture business for 10 years.

         Allan Socher has been the President, Director of Marketing and a
         Director of the Company since March 1995. Mr. Socher is also the
         Company's spokesperson in its extensive television commercials. He was
         a Vice-President, Secretary and co-founder of RPF Holding from 1982
         until its merger with Bunk Trunk in March 1995 and was a Vice-President
         and Secretary of Bunk Trunk from its inception in 1984 until the merger
         with RPF Holding. Prior to that, Mr. Socher worked in other areas of
         the retail furniture business for 10 years.

         Theodore Shapiro has been the Executive Vice President, Director of
         Manufacturing and a Director of the Company since March 1995. He was
         one of the original founders of Bunk Trunk in 1982 and was its
         President from inception until the merger with RPF Holding in March
         1995. Mr. Shapiro had worked in the retail furniture business for over
         12 years before founding his own retail furniture chain, Mr. Sandman
         Furniture, in 1960.

         Alan Hirschfeld has been a Director of the Company since December 1996.
         Since 1987 he has been the Executive Vice President, Chief Financial
         Officer and a Director of IVC Industries, Inc., a public traded company
         that manufactures and distributes vitamins and nutritional supplements.
         Prior to that, Mr. Hirschfeld was a partner in Grossman, Brown,
         Weinberg & Lawson, certified public accountants.



                                       31
<PAGE>

         Alan Granetz has been a Director of the Company since December 1996.
         Since 1968 he has been the Vice President of Granetz Group, a holding
         company for real estate ventures and retail and commercial furniture
         sales. From 1988 to the present, Mr. Granetz has also been the
         Executive Director of the Metropolitan Furnishings Association of New
         Jersey.

         Frank Terzo has been a Director of the Company since December 1996. He
         was founder of the New York retail clothing chain, Nicholas Flynn Men's
         Club, from 1983 until 1988. From 1987 to May 1996 Mr. Terzo was a
         registered representative with a number of different NASD member firms.
         Mr. Terzo is a Partner of The Thornwater Company, L.P. (the Company's
         underwriter). He is also President of Small Cap. Consulting
         International, Inc., a consulting and investment advisory company which
         also invests in small capital market companies. Mr. Terzo was elected a
         member of the Board pursuant to the right of the underwriter for the
         Company's IPO to designate one member of the Board until November 1999,
         subject to the Company's good faith approval.

         Jay Goldberg, CPA, has been the Chief Financial Officer of the Company
         since September 1997 and Secretary since March 1998. Mr. Goldberg was a
         director in Ehrenkrantz Sterling & Co., LLC, certified public
         accountants and a partner in Sterling, Nappen, Chavkin & Co., L.L.C.,
         its predecessor firm, from February 1989 to September 1997. Prior to
         that, he was a partner of Touche Ross & Co., a predecessor to Deloitte
         & Touche LLP, from 1982 to 1989. He holds a B.S. degree in accounting
         from Seton Hall University.

         Mr. Zucker and Mr. Socher are brothers-in-law and Mr. Shapiro is the
         uncle of their spouses.

         Directors are elected to serve until the next meeting of stockholders
         and until their successors are elected and qualified. Meetings of
         stockholders of the Company are expected to be held on an annual basis.
         However, if at any time a meeting is not held for the election of
         directors, the then current directors will continue to serve until
         their successors are elected and qualified. Officers serve at the
         discretion of the Board.

         Section 16(a) Beneficial Ownership Reporting Compliance

         The Securities Exchange Act of 1934 requires that the Company's
         executive officers, Directors, and any persons owning more than 10% of
         a class of the Company's stock to file certain reports of ownership and
         changes in ownership with the Securities and Exchange Commission (the
         "SEC"). Copies of these reports must also be furnished to the Company.

         Based solely on a review of copies of all reports filed with the SEC
         and representations of certain officers, directors and shareholders
         holding more than 10% of the Company's Common Stock, the Company
         believes that the directors and officers are not delinquent in their
         16(a) reporting obligations.

Item 10.   Executive Compensation

         The following table sets forth the cash compensation paid by the
         Company to, as well as any other compensation paid to or earned by, the
         Chairman and Chief Executive Officer of the Company and those executive
         officers compensated at or greater than $100,000 for services rendered
         to the Company in all capacities during the years ended December 31,
         1997 and 1996.

<TABLE>
<CAPTION>
                               Summary Compensation Table

                                                                             Long Term
                                            Annual Compensation        Compensation Awards
                                            -------------------        -------------------
         Name of Individual                                           Securities Underlying
         and Principal Position         Year     Salary      Bonus          Warrants
         ----------------------        ------   --------    -------    -------------------


                                       32
<PAGE>

<S>                                     <C>      <C>        <C>              <C>   
Marc Zucker                             1997     $125,000   $119,250             --
  Chairman, Chief Executive Officer     1996      125,000     42,500         25,000

Allan Socher                            1997     $125,000   $119,250             --
  President and Director of Marketing   1996      125,000     43,159         25,000

Theodore Shapiro
  Executive Vice President and          1997     $125,000   $ 93,577             --
  Director of Manufacturing             1996      125,000     42,800         25,000
</TABLE>


         Warrants

         The following table sets forth certain information concerning
         individual issues of warrants made during the year ended December 31,
         1997 to the Company's executive officers. These warrants were issued in
         lieu of compensation for the year ended December 31, 1996.

<TABLE>
<CAPTION>
                                                Individual Grants as % of Total
                          Number of Securities     Warrants Issued to Personnel     Exercise or Base     Expiration
           Name            Underlying Warrants           in Fiscal Year             Price per Share         Date
           ----            -------------------           --------------             ---------------         ----
<S>                              <C>                        <C>                         <C>              <C>
           Marc Zucker           25,000                     29.4%                       $3.0625          1/31/02
           Allan Socher          25,000                     29.4%                       $3.0625          1/31/02
           Theodore Shapiro      25,000                     29.4%                       $3.0625          1/31/02
</TABLE>




                                       33
<PAGE>


           Compensation of Directors

           Outside Directors of the Company are currently entitled to receive 
           $500 for attendance at each Board meeting.

           Employment Agreements

           The Company has entered into employment agreements effective June 30,
           1995, as amended on August 1, 1996, with each of Marc Zucker, Allan
           Socher and Theodore Shapiro (the "Principals"). Pursuant to each
           employment agreement, Messrs. Zucker, Socher and Shapiro will act as
           Chairman and Chief Executive Officer, President and Director of
           Marketing, and Executive Vice President and Director of
           Manufacturing, respectively, and each will be entitled to receive,
           among other things, (a) a salary of $125,000 per annum, (b) such
           further sum by way of bonus or otherwise as determined by the
           Compensation Committee of the Board, or if no such committee is
           established by the Board, the entire Board, in each year of the
           employment agreement, and (c) pension contributions as set forth in
           any future plan adopted by the Company.

           In addition, pursuant to their employment agreements, Allan Socher is
           entitled to a performance bonus of .75% of revenues and Marc Zucker
           and Theodore Shapiro are each entitled to a performance bonus of 1.5%
           of gross profit. For the year ended December 31, 1997, each of the
           officers has agreed to a reduced bonus.

           Each employment agreement shall continue unless terminated by the
           Company for cause, as described in such employment agreement, or
           terminated by not less than three (3) years written notice if given
           by the Company or not less than three (3) months written notice if
           given by the respective Principal.

           In the event any person shall become beneficially entitled to 50%
           plus one share or more of the issued and outstanding Common Stock of
           the Company pursuant to an offer, the terms of which are not
           recommended by the Board, each of the Principals shall be permitted
           to terminate his employment agreement within one week of the
           completion of the change in control or such later date as may be
           agreed upon by such Principal and the Company. In the event of such
           termination, the Principal shall be entitled to payment from the
           Company of an amount calculated in accordance with the provisions of
           his employment agreement.

           For a period of one year following the termination of each employment
           agreement, such Principal shall not solicit or endeavor to entice
           away any employee, director or agent of the Company or any entity
           affiliated with the Company. In addition, such Principal may not, at
           any time after the termination of the employment agreement, use the
           names or slogans "Room Plus", "Just 'Round the Corner" or "A LOT OF
           LIVING in a Little Space" or any similar name for the purpose of a
           business competing with the Company or any entity affiliated with the
           Company.


Item 11.   Security Ownership of Certain Beneficial Owners and Management

           The following table sets forth certain information regarding the
           beneficial ownership of the Company's Common Stock by each person or
           group that is known by the Company to be the beneficial owner of more
           than 5% of its outstanding Common Stock, each Director of the
           Company, each person named in the Summary Compensation Table, and all
           Directors and executive officers of the Company as a group as of
           March 13, 1997. Unless otherwise indicated, the Company believes that
           the persons named in the table below, based on information furnished
           by such owners, have sole voting and investment power with respect to
           the Common Stock beneficially owned by them, subject to community
           property laws, where applicable.




                                       34
<PAGE>


Principal Stockholders

<TABLE>
<CAPTION>
                                        Number of Shares of
                                           Common Stock           Percent Ownership of
Name and Address of Beneficial Owner     Beneficially Owned     Common Stock Outstanding
------------------------------------     ------------------     ------------------------
<S>                                         <C>                         <C>  
Marc Zucker                                 697,501 (1)                 15.0%
91 Michigan Avenue                                                  
Paterson, NJ 07503                                                  
                                                                    
Allan Socher                                697,500 (2)                 15.0%
91 Michigan Avenue                                                  
Paterson, NJ 07503                                                  
                                                                    
Theodore Shapiro                            773,266 (3)                 16.5%
91 Michigan Avenue                                                  
Paterson, NJ 07503                                                  
                                                                    
Frank Terzo                                 358,000 (4)                  7.8%
107A East 37th Street                                               
New York, NY 10016                                                  
                                                                    
All Directors and Officers as a Group     2,533,366 (5)                 46.5%
         (7 Persons)                                            
</TABLE>

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

(1) Includes currently exercisable warrants to purchase 275,000 shares of Common
    Stock.

(2) Includes currently exercisable warrants to purchase 275,000 shares of Common
    Stock.

(3) Includes currently exercisable warrants to purchase 315,000 shares of Common
    Stock.

(4) Includes currently exercisable warrants to purchase 190,000 shares of Common
    Stock.

(5) Includes an aggregate of 1,060,000 shares of Common Stock issuable upon
    exercise of outstanding options and warrants.




Item 12. Certain Relationships and Related Transactions

         The Company leases its manufacturing facility located in Paterson, New
         Jersey from M&S Realty Company, which is owned by Theodore Shapiro, a
         director and the Executive Vice President and Director of Manufacturing
         of the Company. The leases for the facility expire May 31, 1999
         (subject to extension at the option of the Company) and provide for an
         annual rental of approximately $292,000.

         In 1996, the Company advanced $106,747 on open account to three
         executive officers of the Company, Marc Zucker, Allan Socher and
         Theodore Shapiro. Such advances increased the total net amount
         receivable to the Company from these executive officers to $225,692.
         Such increase consisted of additional advances to the 


                                       35
<PAGE>

         executive officers in the amount of $90,711 and accrued interest in the
         amount of $16,036. In 1997, the Company advanced $14,373 to the
         executive officers consisting of additional advances of $296 and
         accrued interest of $14,077. The executive officers made repayments of
         $49,700 in 1997, resulting in a balance of $190,365 at December 31,
         1997. Such balance bears interest at the rate of 8% per annum and
         matures in January 1999.

         Retail Media Plus (which is owned by three executive officers of the
         Company) places all of the Company's advertising and passes through any
         cost savings to the Company. For 1997 and 1996, the Company reimbursed
         Retail Media Plus approximately $1,780,000 and $1,069,000,
         respectively, for advertising costs.

         In July 1996, Frank Terzo became a consultant to the Company. Under his
         consulting agreement, which is for a term of three years, Mr. Terzo
         received a cash payment of $25,000 and 250,000 shares of Common Stock,
         which shares were valued at $.80 per share (the price of the stock sold
         in the 1996 Private Placement) for financial accounting purposes.
         Mr. Terzo became a director of the Company in December 1996.

         All future transactions and/or loans between the Company and officers
         and directors will be on terms no less favorable than could be obtained
         from independent, third parties and will be approved by a majority of
         the directors of the Company disinterested in such transactions and/or
         loans.

Item 13. Exhibits, List and Reports on Form 8-K

    (a)  Exhibits to Form 10-KSB
         Additional exhibits filed herewith are as follows:

EXHIBIT INDEX

Exhibit
  No.
------

1     Form of Underwriting Agreement among the Company, the holders of the
      Directors Shares and The Thornwater Company, L.P. (1)

3.1   Certification of Incorporation of the Company, as amended (1)

3.2   Restated and Amended By-laws of the Company (1)

4.1   Form of Representative Warrant Agreement between the Company and The
      Thornwater Company, L.P., with form of Warrant attached (1)

4.2   Form of Warrant Agreement between the Company and American Stock Transfer
      & Trust Company, with form of Warrant attached (1)

4.3   Form of Warrant issued by Company to Allan J. Socher, Theodore Shapiro,
      Marc I. Zucker and Kirlin Securities Corp. (1)

4.4   Form of Warrant issued by the Company to Mark Rubin (1)

5     Opinion of Wilentz, Goldman & Spitzer, P.A. (1)

10.1  Employment Agreement dated June 16, 1995 between the Company and Allan J.
      Socher (1)

10.2  Employment Agreement dated June 16, 1995 between the Company and Theodore
      Shapiro (1)

10.3  Employment Agreement dated June 16, 1995 between the Company and Marc I.
      Zucker (1)

10.4  Lease dated June 1, 1984 between M&S Realty Company and Bunk Trunk
      Manufacturing Company, Inc., as amended on December 1, 1988 and January 2,
      1996 (1)

10.5  Lease dated June 6, 1996 between Milford Management Corp., as agent, and
      the Company (1)

10.6  Lease dated November 1, 1991 between Dilstan Realty Corporation and Room
      Plus Furniture of Westchester, Inc. (1)

10.7  Indenture of Lease dated October 1, 1988 between Daper Realty, Inc. and
      RPF Holding Corporation (1)

10.8  Lease dated June 1, 1983 between Hannon's and the Company, as modified by
      and Extension of Lease dated July 31, 1993 (1)

10.9  Agreement of Lease dated August 9, 1985 between Patrician Equities Corp.
      and Room Plus Furniture of East Brunswick, as modified by a Lease
      Extension Agreement dated August 25, 1995 (1)



                                       36
<PAGE>

10.10 Lease dated August 26, 1987 between Country Glen Associates and Room Plus
      Furniture, Inc. (1)

10.11 Agreement of Lease between Austin Mall Associates and Room Plus Furniture
      of Forest Hills, Inc. (1)

10.12 Sublease Agreement dated February 5, 1988 between NYNEX Business
      Information Systems Company and RPF Holding Corporation, as modified by a
      letter agreement dated March 25, 1993 (1)

10.13 Shopping Center Agreement of Lease dated October 1, 1995 between Alexander
      Carpet Company and the Company (1)

10.14 Lease dated November 21, 1995 between 205/215 Lexington Limited
      Partnership and the Company (1)

10.15 Assignment of Lease dated June 26, 1996 between Reliable Broadway, Inc.
      and the Company (1)

10.16 Lease dated January 11, 1996 between Comalgri Holding Corp. and the
      Company (1)

10.17 Form of Financial Advisory and Investment Banking Agreement between the
      Company and The Thornwater Company, L.P. (1)

10.18 Lease dated September 20, 1996, between Heartland Shopping Center LLC and
      Room Plus, Inc. (2)

10.19 Sublease and Assumption Agreement dated October 11, 1996 between Bedding
      Discount Center, Inc. and Room Plus, Inc. (2)

10.20 Lease dated December 19, 1996 between Ackrik Associates, and Room Plus,
      Inc. (3)

10.21 Lease dated December 2, 1996 between Pitrock Realty Corp. and Room Plus,
      Inc. (*)

10.22 Lease dated March 20, 1997 between CMW Investments, Ltd. and Room Plus,
      Inc. (*)

10.23 Lease modification agreement dated July 22, 1997 between Austin Mall
      Associates and Room Plus, Inc. (*)

10.24 Extension of lease dated January 26, 1998 between Hannon's and Room Plus,
      Inc. (*)

11    Calculation of Net Income (Loss) per Common Share (*)

27    Financial Data Schedule (*)

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

(1)   Incorporated by reference to the exhibit of the same number filed as part
      of the Registration Statement on Form SB-2 (File No. 333-10483).

(2)   Incorporated by reference to the exhibit of the same number filed as part
      of the Quarterly Report on Form 10-QSB for the period ended September 30,
      1996 (File No. 1-14478).

(3)   Incorporated by reference to the exhibit of the same number filed as part
      of the Annual Report on Form 10-KSB for the period ended December 31, 1996
      (File No. 1-14478).

(*)   Exhibit filed with this Form 10-KSB.



(b)      Reports on Form 8-K

         The Company filed a report on Form 8-K on October 24, 1997 announcing
         the naming of a new chief financial officer and the signing of a letter
         of intent to acquire the Baby's Room, Inc. and Baby's Room USA, Inc.
         Such letter of intent was subsequently terminated in February 1998.




                                       37
<PAGE>


SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

ROOM PLUS, INC.


Date:    April 3, 1998       By:/s/ Marc Zucker
                                 ---------------
                                 Marc Zucker, Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

         Signature and Title                    Date
         -------------------                    ----

By:      /s/ Marc Zucker                        April 3, 1998
         ---------------
         Name:  Marc Zucker
         Title: Chairman of the Board, 
                Chief Executive Officer 
                and a Director

By:      /s/ Allan Socher                       April 3, 1998
         ----------------
         Name:  Allan Socher
         Title: President and a Director

By:      /s/ Theodore Shapiro                   April 3, 1998
         --------------------
         Name:  Theodore Shapiro
         Title: Executive Vice President 
                and a Director

By:      /s/ Jay H. Goldberg                    April 3, 1998
         -------------------
         Name:  Jay H. Goldberg
         Title: Chief Financial Officer and
                Chief Accounting Officer

By:      /s/ Frank Terzo                        April 3, 1998
         ---------------
         Name:  Frank Terzo
         Title: Director

By:      /s/ Alan Hirschfeld                    April 3, 1998
         -------------------
         Name:  Alan Hirschfeld
         Title: Director



                                       38
<PAGE>

By:      /s/ Alan Granetz                       April 3, 1998
         ----------------
         Name:  Alan Granetz
         Title: Director











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