U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                  Form 10-KSB/A
                                Amendment No.: 1


                     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
</TABLE>

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

                    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.


                               Yes _X_   No ___
<PAGE>


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>

                                 ROOM PLUS, INC.

                                  FORM 10-KSB/A

This Form 10-KSB/A amends the following items of the Company's Annual Report on
Form 10-KSB previously filed with the Securities and Exchange Commission on
April 3, 1998.

                                TABLE OF CONTENTS

                                                                        PAGE #

PART II
    Item 6 Management's Discussion and Analysis of
           Financial Condition and Results of Operations                  8
    Item 7 Financial Statements                                          12


SIGNATURES                                                               32



Forward-Looking Statements

This Report on Form 10-KSB/A 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>


PART II

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/A.

     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.

<TABLE>
<CAPTION>
                                                      Years ended December 31
                                                       1997             1996
                                                     --------         ------
<S>                                                    <C>           <C>   
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%
</TABLE>


     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.

                                      - 8 -

<PAGE>

     Cost of goods sold

     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.

                                      - 9 -
<PAGE>

     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' 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. In
     early-July 1998, the Company obtained an increase in its line of credit to
     $700,000 and utilized the additional $200,000 available. On July 31, 1998,
     the Company obtained a $1,500,000 loan from an individual investor. The
     Company repaid the $700,000 outstanding under its line of credit and repaid
     the balance due of $150,000 on two loans it negotiated in April 1998. The
     remaining available funds coupled with significant improvements in
     operations should, in management's opinion, provide sufficient capital to
     enable the Company 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 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

                                     - 10 -
<PAGE>

     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.

     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.

                                     - 11 -
<PAGE>

Item 7.  Financial Statements

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

<TABLE>
<CAPTION>
     Index to Financial Statements                                    Page No.
     -----------------------------                                    --------

<S>                                                                     <C>
         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
</TABLE>


                                     - 12 -
<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.

Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 30, 1998,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 19, has
obtained necessary financing totaling $1,500,000. Therefore, the conditions that
raised substantial doubt about whether the Company will continue as a going
concern no longer exist.

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.




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

EHRENKRANTZ STERLING & CO., LLC 
Certified Public Accountants 
Livingston, New Jersey 
March 30, 1998, except for Note 19, 
as to which the date is August 4, 1998




                                     - 13 -
<PAGE>



                                 ROOM PLUS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          December 31
                                                                   -------------------------
                                                                      1997           1996
                                                                   ----------     ----------
                                            ASSETS
<S>                                                               <C>           <C>
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
                                                                   ==========     ==========
</TABLE>


See notes to financial statements.


                                     - 14 -
<PAGE>



                                 ROOM PLUS, INC.
                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                      Years Ended December 31
                                                      1997              1996
                                                  -----------       -----------
<S>                                               <C>               <C>        
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)    $        --
                                                   ===========     ===========
</TABLE>







See notes to financial statements.


                                     - 15 -
<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.


                                     - 16 -
<PAGE>



                                 ROOM PLUS, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION> 
                                                       Years Ended December 31
                                                          1997         1996
                                                      -----------   -----------
<S>                                                   <C>           <C>
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 ..          --            -- 
                                                      -----------   -----------
    Net cash provided by financing activities .......     233,626     5,204,304
                                                      -----------   -----------

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

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

Cash, end of year ................................... $   185,843   $ 3,178,088
                                                      ===========   ===========
</TABLE>







See notes to financial statements.


                                     - 17 -
<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 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.



                                     - 18 -
<PAGE>


                                              ROOM PLUS, INC
                                      NOTES TO FINANCIAL STATEMENTS
                                               (Continued)



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:

<TABLE>
<CAPTION>

                                                              December 31
                                                           1997          1996
                                                        ----------    ----------
<S>                                                     <C>           <C>       
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
                                                        ==========    ==========
</TABLE>


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:
<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>

                                     - 19 -

<PAGE>


                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


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
                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, 13 and 14 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, 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.


                                     - 20 -
<PAGE>


                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



Note 8:  INCOME AND DEFERRED TAXES (Continued) 
         The deferred tax asset consists of the following:

<TABLE>
<CAPTION>

                                                             December 31
                                                         1997           1996
                                                      ----------      --------
             <S>                                      <C>             <C>     
             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
                                                      ==========      ========
</TABLE>

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


<TABLE>
<CAPTION>

                                                       Years Ended December 31
                                                          1997         1996
                                                      -----------    ---------  
         <S>                                          <C>            <C>
         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)
                                                      ==========     ========= 
</TABLE>

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.

         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.

                                     - 21 -
<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

         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.

                                     - 22 -
<PAGE>


                                              ROOM PLUS, INC
                                      NOTES TO FINANCIAL STATEMENTS
                                               (Continued)



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

<TABLE>
<CAPTION>

                                                                                    December 31
                                                                               -----------------------
                                                                                   1997         1996
                                                                                 -----------   -------
          <S>                                                                   <C>          <C>
           Cash paid during the year for:
             Interest..........................................                 $106,205     $  55,385
             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

</TABLE>

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.

                                     - 23 -
<PAGE>

                                 ROOM PLUS, INC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


Note 17:    PREPAID EXPENSES AND OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
                                                                            December 31
                                                                     ------------------------
                                                                        1997           1996
                                                                     ---------      ---------
            <S>                                                      <C>            <C>         
            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
                                                                     =========      =========
<CAPTION>
Note 18:    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                                            December 31
                                                                     ------------------------
                                                                        1997           1996
                                                                     ---------     ----------
            <S>                                                     <C>            <C>         
            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
                                                                    ==========     ==========
</TABLE>

Note 19:    SUBSEQUENT EVENTS

            On July 31, 1998, the Company entered into certain agreements with
            an individual pursuant to which the individual loaned the Company
            $1,500,000 for a two year term at an annual interest rate of 12% and
            received a Warrant to purchase 2,000,000 shares of the Company's
            Common Stock at an exercise price of $2.00 per share. The loan is
            secured by a pledge of substantially all of the Company's assets. On
            August 4, 1998, the Company repaid in full, its outstanding balance
            on its bank line of credit of approximately $700,000.


                                     - 24 -

<PAGE>


SIGNATURES

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

ROOM PLUS, INC.


Date:      August 14, 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                                August 14, 1998
           ---------------
           Name:  Marc Zucker
           Title: Chief Executive Officer and a Director

By:        /s/ David A. Belford                           August 14, 1998
           ---------------------
           Name:  David A. Belford
           Title: Chairman of the Board

By:        /s/ Allan Socher                               August 14, 1998
           ----------------
           Name:  Allan Socher
           Title: President and a Director

By:        /s/ Theodore Shapiro                           August 14, 1998
           --------------------
           Name:  Theodore Shapiro
           Title: Director

By:        /s/ Jay H. Goldberg                            August 14, 1998
           -------------------
           Name:  Jay H. Goldberg
           Title: Chief Financial Officer (Principal
                  Accounting and Financial Officer)

By:        /s/ Frank Terzo                                August 14, 1998
           ---------------
           Name:  Frank Terzo
           Title: Director

By:        /s/ Alan Hirschfeld                            August 14, 1998
           -------------------
           Name:  Alan Hirschfeld
           Title: Director

By:        /s/ Alan Granetz                               August 14, 1998
           ----------------
           Name:  Alan Granetz
           Title: Director


                                     - 32 -