<PAGE>

                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                  FORM 10-QSB

(Mark One)

(x)   Quarterly Report Under Section 13 pr 15(d) of the Securities Exchange Act
      of 1934 For Three Month Period Ended September 30, 1998,
Or

( )   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 For the Transition Period From _______to________.

                          Commission File No. 0-24362

                                INTERIORS, INC.
                                ---------------
       (Exact name of small business issuer as specified in its charter)


                 Delaware                              13-3590047
                 --------                              ----------
      (State or other Jurisduction of               (I.R.S. Employer
       Incorporation or organization)              Identification No.)


               320 Washington Street, Mt. Vernon, New York 10553
               -------------------------------------------------
              (Address of principal executive offices) (zip code)


                    Issuer's Telephone Number (914) 665-5400


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

The number of shares outstanding of the issuer's Class A Common Stock and Class
B Common Stock as of November 19, 1998 was 19,373,659 and 1,105,000
respectively


Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]

<PAGE>

                                INTERIORS, INC.

                               TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION


Item 1.  Consolidated Financial Statements.................................. 1


Consolidated Balance Sheet as of September 30, 1998......................... 2

Consolidated Statements of Operations -
         For the Three Months Ended September 30, 1998 and 1997............. 3

Consolidated Statement Changes in Stockholders' Equity -
         For the Three Months Ended September 30, 1998...................... 4

Consolidated Statements of Cash Flows -
         For the Three Months Ended September 30, 1998 and 1997............. 5

Notes to Consolidated Financial Statements.................................. 7

Item 2.  Management's Discussion and Analysis............................... 12


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.................................................. 14

Item 2. Changes in Securities............................................... 14

Item 3. Defaults Upon Senior Securities..................................... 14

Item 4. Submission of Matters to a Vote of  Security Holders................ 14

Item 5. Other Information................................................... 14

Item 6. Exhibits and Reports on Form 8-K.................................... 14

<PAGE>

                                     PART I

                             FINANCIAL INFORMATION


Item 1.  Consolidated Financial  Statements


The condensed financial statements included herein have been prepared by
Interiors, Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these
statements include all adjustments necessary to present fairly the financial
condition of the Company as of September 30, 1998 and the results of operations
for the three month period ended September 30, 1998 and 1997.

The Company's results of operations during the three months ended September 30,
1998 are not necessarily indicative of any future results. It is suggested that
the financial statements included in this report be read in conjunction with
the financial statements and notes thereto in the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1998.

                                       1
<PAGE>

                                INTERIORS, INC.
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1998

                                  (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                               <C>         
ASSETS

CURRENT ASSETS:
       Cash                                                       $  1,250,270
       Accounts receivable, net                                      7,991,596
       Inventories                                                   7,790,904
       Other current assets                                          3,263,860
                                                                  ------------

                          Total current assets                      20,296,630


INVESTMENT IN AFFILIATES                                             4,516,679


PROPERTY AND EQUIPMENT, net                                          1,658,381


OTHER ASSETS                                                        19,772,069
                                                                  ------------

                             Total assets                         $ 46,243,759
                                                                  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Notes payable and current maturities of long-term debt       13,003,739
       Accounts payable and accrued liabilities                      8,847,317
                                                                  ------------

                          Total current liabilities                 21,851,056

LONG TERM DEBT                                                       6,372,357

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
       Preferred stock, $.01 par value, 5,300,000 shares
          authorized, 579,438 shares issued and outstanding              5,790
       Class A common stock, $.001 par value, 60,000,000 shares
          authorized, 27,464,642 shares issued and outstanding          27,465
       Class B common stock, $.001 par value, 2,500,000 shares
          authorized, 2,480,000 shares issued and outstanding            2,480
       Additional paid-in-capital                                   27,225,501
       Accumulated deficit                                          (8,292,890)
       Notes receivable                                               (948,000)
                                                                  ------------

                          Total stockholders' equity                18,020,346
                                                                  ------------

Total liabilities and stockholders' equity                        $ 46,243,759
                                                                  ============
</TABLE>

The accompanying notes are ann integral part of this consolidated balance sheet.

                                       2
<PAGE>

                                INTERIORS, INC.

                            STATEMENT OF OPERATIONS

             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               1998           1997
                                                           -----------    ----------- 
<S>                                                        <C>            <C>        
NET SALES                                                  $10,406,470    $ 1,517,782

COST OF GOODS SOLD                                           6,842,734        956,203
                                                           -----------    ----------- 
         Gross profit                                        3,563,736        561,579

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                 2,791,944        341,169
                                                           -----------    ----------- 
         Income from operations                                771,792        220,410

OTHER EXPENSE (INCOME)
         Amortization of goodwill                               81,098           --
         Interest expense                                      429,983        112,502
         Financing charges - noncash                            90,150           --
         Consulting and management fees                        (97,500)          --
                                                           -----------    ----------- 
                            Total other expense (income)       503,731        112,502

         Income (loss) from operations
            before (benefit) provision for taxes               268,061        107,908

(BENEFIT) PROVISION FOR INCOME TAXES                           (14,914)             0
                                                           -----------    ----------- 

NET INCOME                                                 $   282,975    $   107,908 
                                                           ===========    =========== 
EARNINGS PER COMMON SHARE:
         (RESTATED FOR 1997)
         BASIC                                             $      0.00    $     (0.10)
                                                           ===========    =========== 
         DILUTED                                           $      0.00    $     (0.10)
                                                           ===========    =========== 
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION
         BASIC                                               9,467,209      4,780,991
                                                           ===========    =========== 
         DILUTED                                            10,378,752      4,780,991
                                                           ===========    =========== 
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements

                                       3
<PAGE>

                                INTERIORS, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     Series A             Class A            Class A
                                                                  Preferred Stock       Common Stock      Preferred Stock  
                                                                -----------------------------------------------------------
                                                                 Shares    Amount    Shares     Amount     Shares   Amount 
                                                                 ------    ------    ------     ------     ------   ------ 

<S>                                                              <C>       <C>     <C>         <C>       <C>        <C>    
BALANCE, June 30, 1998                                           679,438   $6,794  19,614,857  $19,615   2,105,000  $2,105 
     Class B Common Shares issued                                                                          375,000    $375 
     Conversion of Preferred to Class A Common                  (100,390) ($1,004)    301,170     $301                     
     Escrow Shares                                                                  5,000,000   $5,000                     
     Troy Lighting Acquisition                                                        650,000     $650                     
     Windsor Art Acquisition                                                        1,500,000   $1,500                     
     Exercise of Class WA Warrants                                                    240,517     $241                     
     Private Placement Shares                                                         122,700     $123                     
     Shares issued for services rendered                                               35,398      $35                     
     Warrants issued with convertible debentures                                                                           
     Warrants issued in connection with debt offerings                                                                     
     Net income through September 30, 1998                                                                                 
                                                                -----------------------------------------------------------
BALANCE, September 30, 1998                                      579,048   $5,790  27,464,642  $27,465   2,480,000  $2,480 
                                                                ===========================================================
<CAPTION>
                                                                 Additional
                                                                  Paid-In    Accumulated   Treasury    Note
                                                                  Capital     (Deficit)     Stock   Receivable      Total
                                                                  -------     ---------     -----   ----------      -----

<S>                                                             <C>          <C>              <C>   <C>          <C>        
BALANCE, June 30, 1998                                          $21,751,749  ($8,575,865)     $0    ($948,000)   $12,256,398
     Class B Common Shares issued                                  $397,125                                         $397,500
     Conversion of Preferred to Class A Common                         $703
     Escrow Shares                                                  ($5,000)
     Troy Lighting Acquisition                                     $974,350                                         $975,000
     Windsor Art Acquisition                                     $2,528,719                                       $2,530,219
     Exercise of Class WA Warrants                                 $360,535                                         $360,776
     Private Placement Shares                                       $99,877                                         $100,000
     Shares issued for services rendered                            $42,443                                          $42,478
     Warrants issued with convertible debentures                 $1,000,000                                       $1,000,000
     Warrants issued in connection with debt offerings              $75,000                                          $75,000
     Net income through September 30, 1998                                       282,975                             282,975
                                                                ------------------------------------------------------------
BALANCE, September 30, 1998                                     $27,225,501  ($8,292,890)     $0    ($948,000)   $18,020,346
                                                                ============================================================
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

                                INTERIORS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           THREE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                       --------------------------
                                                                                          1998           1997
                                                                                       -----------    -----------
<S>                                                                                    <C>            <C>        
CASH FLOW FROM OPERATING ACTIVITIES:
     Net Income                                                                        $   282,975    $         0
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
     Depreciation and amortization                                                         337,964        155,092
     Non-cash financing charge                                                              90,150
CHANGES IN ASSETS AND LIABILITIES:
     Decrease (increase) in accounts receivable, trade                                    (438,458)       (15,709)
     Decrease (increase) in inventories                                                   (728,371)      (101,717)
     Decrease (increase) in prepaid expenses and other current assets                      165,732        (20,576)
     Decrease (increase) in other assets                                                  (511,601)        16,720
     Increase (decrease) in notes payable and current maturities of long term debt       4,229,337        (20,936)
     Increase (decrease) in accounts payable and accrued expenses                           13,599       (145,063)
                                                                                       -----------    -----------
     Net cash used in operating activities                                               3,441,327       (132,189)
                                                                                       -----------    -----------
CASH FLOW FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                  (81,792)          --
     Acquisition of Bentley, International                                              (2,006,992)          --
     Acquisition of Troy Lighting                                                       (1,968,378)          --
                                                                                       -----------    -----------
     Net cash used in investing activities                                              (4,057,162)             0
                                                                                       -----------    -----------
CASH FLOW FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of debt                                                  2,737,500         61,051
     Repayments of debt and capitalized lease obligations                               (5,267,761)      (113,983)
     Net proceeds from exercise of common stock warrants                                   360,776           --
     Net proceeds from exercise of preferred stock options                                    --             --
                                                                                       -----------    -----------
     Net cash provided by financing activities                                          (2,169,485)       (52,932)
                                                                                       -----------    -----------
     Net increase (decrease) in cash                                                    (2,785,320)      (185,121)
CASH, beginning of period                                                                4,035,590        271,408
                                                                                       -----------    -----------
CASH, end of period                                                                    $ 1,250,270    $    86,287
                                                                                       ===========    ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for -
     Interest                                                                          $   212,522    $    20,725
     Taxes                                                                                   1,853            300
NON-CASH FINANCIAL ACTIVITIES:
Conversion of Series A Preferred Stock to Class A Common Stock                                 703           --
Stock issuance for services                                                                 42,478           --
Stock issuance in connection with acquisitions                                           3,505,219           --
Stock issuance for promissory notes                                                        100,000           --
Debt issuance in connection with acquisitions                                            2,000,000           --
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       5

<PAGE>

                                INTERIORS, INC.
              CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED SEPT. 30
                                                                    -------------------------------
                                                                         1998              1997
                                                                    -------------     -------------
<S>                                                                 <C>                  <C>
Supplemental disclosure of cash flows related to acquisitions:
 Fair value of assets acquired, excluding cash                       $  8,532,567        $      --
 Issuance of common stock                                              (3,505,219               --
 Issuance of notes payable                                             (2,000,000)              --
 Payments in connection with acquisitions, net of cash acquired        (4,096,230)              --
                                                                                                
   Liabilities assumed                                               $  7,043,778        $      --
                                                                                                
Supplemental disclosure of non cash items from investing and                                    
 financing activities:                                                                          
 Issuance of common stock in connection with acquisitions            $  3,505,219        $      --
 Issuance of warrants in connection with private placements          $     75,000               --
 Issuance of warrants in connection with convertible                                            
   debentures                                                        $  1,000,000               --
 Issuance of Class B common shares in connection with Laurie                                    
   Munn debt guarantees                                              $    397,500               --
 Issuance of debt in connection with acquisitions                    $  2,000,000        $      --
</TABLE>

             The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       6
<PAGE>

                                INTERIORS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
                               SEPTEMBER 30, 1998


1.  BASIS OF PRESENTATION

    The financial statements included herein have been prepared by the Company
    without audit, in accordance with generally accepted accounting principles,
    and pursuant to the rules and regulations of the Securities and Exchange
    Commission. All adjustments (of normal recurring nature) which are, in the
    opinion of management, necessary for a fair presentation of months ended
    September 30, 1998 are not necessarily indicative of those to be expected
    for the entire year. The Company, for the three months ended September 30,
    1998 and 1997 used the gross profit method to value inventory.

    For the year ended June 30, 1998, the Company adopted Statement of
    Financial Accounting Standards (`SFAS") No. 128, "Earnings Per Share" In
    accordance with SFAS No. 128, net earnings per common share amounts ("basic
    EPS") were computed by dividing net earnings by the weighted average number
    of common shares outstanding, and excluding any potential dilution. For
    purposes of this calculation, common shares include both Class A and B
    shares of common stock. Net earnings per common share amounts assuming
    "diluted EPS" were computed by reflecting potential dilution from the
    exercise of stock options and warrants. SFAS No. 128 requires the
    presentation of both basic EPS and diluted EPS on the income statement.
    Earnings per share amounts for the same prior-year periods have been
    restated to conform with the provision of SFAS No. 128. All periods
    presented include a deduction for the dividend requirement of the Company's
    Series A Preferred stock. EPS for the three months ended September 30, 1997
    has been restated to reflect the preferred dividend deduction.

    In June 1997, the Financial Accounting Standards Board (FASB) issued
    Statement of Financial Accounting Standards No. 131 (SFAS No. 131)"
    Disclosures About Segment of an Enterprise and Related," which is effective
    for fiscal years beginning after December 15, 1997. This Statement requires
    that a public business enterprise report certain financial and descriptive
    information about its operating segments. At September 30, 1998 the
    adoption of SFAS 131 No. would not have a material effect on the Company's
    financial statements.

                                       7
<PAGE>

2.  ACQUISITIONS AND STRATEGIC ALLIANCES

    On July 7, 1998, the Company entered into Stock Purchase Agreement (the
    "Bentley Agreement"), with Bentley International, Inc. a Missouri
    corporation ("Bentley") and on July 30, 1998, the Company consummated the
    transaction contemplated by the Agreement. Pursuant to the Agreement, the
    Company purchased all the issued and outstanding shares (the "Shares") of
    Windsor Art, Inc., a Missouri corporation and a wholly-owned subsidiary of
    Bentley ("Windsor"). As a result of the purchase of the Shares, Windsor is
    now a wholly-owned subsidiary of the Company. Windsor manufacturers and
    distributes decorative mirrors and framed prints to furniture stores, mass
    merchants, hotels and designers throughout the United States.

    The assets acquired pursuant to the Bentley Agreement included, among other
    things (I) fixed assets owned, leased or used by Windsor, including
    equipment (ii) accounts receivable, (iii) inventory and (iv) contracts,
    agreements, and leases of read and personal property. For the foreseeable
    future, the Company intends to utilize such assets in connection with the
    operation of the business of Windsor.

    The purchase price paid to Bentley for the Shares consisted of a cash
    payment of $1,706,992 (financed by $2,250,000 in convertible promissory
    notes issued by the Company) and the delivery of two secured, subordinated
    promissory notes in the aggregate principal amount of $5,300,000 (the
    "Notes"). As a condition precedent to the Bentley Agreement, the Company
    and Bentley entered into and consummated a pledge agreement on July 30,
    1998 (the "Pledge Agreement"). Pursuant to the Pledge Agreement, the
    Company pledged the Shares as collateral for the Notes and security for the
    obligation of the Company under the Agreement. Until the debt is repaid by
    the Company, the former shareholder and the President and CEO of the
    Company have agreed to vote the shares as a block. Concurrently with the
    Closing, the Company entered into and consummated, a securities Purchase
    and Registration Rights Agreement (the "Securities Purchase Agreement") by
    and between the Company and Bentley. Pursuant to the Securities Purchase
    Agreement, the Company purchased 150,000 shares of common stock of Bentley
    and a warrant to purchase 300,000 shares of common stock of Bentley
    (collectively, the "Bentley Shares"). The purchase price paid to Bentley
    for the Bentley Shares consisted of 1,500,000 shares of the Company's Class
    A Common Stock (the "Interiors Shares") issued by the Company. The Interior
    shares will be held in escrow for one year from the Closing as security for
    the obligations of Bentley to the Company.

    The former owner of Bentley entered into a consulting agreement with the
    Company aggregating $782,000 over a four-year period, and was granted a
    warrant to purchase 50,000 Class A Shares.

    On August 14, 1998, the Company consummated the transaction contemplated by
    that certain Agreement and Plan or Merger (the "Troy Merger Agreement")
    dated July 2, 1998 by and among the Company, Troy Acquisition Corp.
    ("Newco"), Troy Lighting, Inc. ("Troy"), and certain shareholders of Troy.
    Pursuant to the Troy Merger Agreement, Newco Merger with and into Troy,
    with Troy continuing as the surviving corporation and as a wholly-owned
    subsidiary of the Company. Troy manufactures and distribute portable and
    installed lighting and light fixtures.

    The purchase price paid by the Company consisted of $250,000 in cash and
    Class A Common Stock of the Company ("Class A Shares") with a fair market
    value of $975,000 (the "Troy Merger Shares"). In addition, the Company
    agreed to repay $1,700,000 to extinguish obligations of Newco to certain
    former shareholders of Troy. The Troy Merger Shares are to be held in
    escrow as collateral for certain obligations of the former shareholders of
    Troy. If the Troy merger Shares are worth less than $1,053,000 as of July
    2, 1999, less amounts in the escrow account and amounts paid for any
    resolved claims, the Company is required to issue additional Class A Shares
    to the former Troy shareholders equal in value to such deficiency. If the
    Troy Merger Shares are worth more than $1,053,000 as of July 2, 1999, the
    former Troy shareholders are required to return Class A Shares to be
    Company equal in value to such excess amount.

                                       8
<PAGE>

    The cash portion of the purchase price paid pursuant to the Troy Merger
    Agreement and the repayment of certain Troy indebtedness was financed by
    unsecured borrowing $1,500,000 from an asset based lender and from cash on
    hand.

    On August 27, 1998, the Company entered into a Stock Purchase Agreement
    with the shareholders of a certain portable lamp manufacturer to purchase
    all issued and outstanding shares of that Company's Common Stock. There can
    be no assurance that this proposed transaction will close.

    In connection with the above acquisitions, goodwill of approximately
    $11,169,000 was recorded to reflect the excess of purchase price paid over
    the fair market value of the net assets acquired.

3.  NOTES PAYABLE

    At September 30, 1998, the Company has aggregate notes payable of
    approximately $20,376,000. The major components of this position follow:

    The Company has outstanding secured formula based financing for the
    operations of Windsor Art, Inc. with an asset based lender totalling
    approximately $2,455,000 on September 30, 1998. Interest is determined at
    an annual rate of prime plus 5.5 % (13.5% as of the date of this filing)

    The Company has outstanding secured formula based financing for the
    operations of Troy Lighting, Inc. with an asset based lender totalling
    approximately $1,659,000 on September 30, 1998. Interest is determined at
    an annual rate of prime plus 5.59 (13.5% as of the date of this file.

    The Company has outstanding secured formula based financing with an asset
    based lender totalling approximately $3,018,000 on September 30, 1998.
    Interest is determined at an annual rate of 10.25% plus related fees.

    The Company has outstanding secured financing with a New York based bank,
    totalling approximately $253,000 on September 30, 1998. Interest is
    determined at an annual rate of prime plus 1.0%. (9.0% as of the date of
    this filing).

    During November 1997 the Company received a $250,000 loan from an overseas
    lender. The loan is due December 31, 1998 and bears 12% interest.

    During April 1998, the Company received $250,000 from a loan from an
    overseas lender. The loan is due April 16, 2001 and bears 15% interest.

    During March 1998, the Company issued convertible notes in the amount of
    $1,700,000. These notes are due March 19, 2000 and bear interest at 6%. per
    annum payable quarterly. On March 19, 2000, the holder must convert into
    Class A Shares. Any default in payment of interest triggers a default
    interest rate of 16% per annum. The Holders have the right 180 days after
    the issuance of the notes to convert up to one-half of the outstanding
    unpaid principle portion of the notes into Class A shares. At September 30,
    1998, $100,000 of these notes had converted , reducing the outstanding
    balance to $1,600,000.

    In conjunction with Interiors recent acquisition of Henlor, Inc., the
    Company caused its subsidiary to issue $794,379 in 8% subordinated
    promissory notes to the former shareholders. On December 1, 1998, Henlor
    will make a of principal payment of $294,879. On March 1, 1999 and every
    three months thereafter Henlor will make a principal repayment of $62,500.

                                       9
<PAGE>

    In conjunction with Interior's recent acquisition of Merchandise Sales
    Inc., the Company issued a total of $810,000 in 10%. subordinated
    promissory notes to the former shareholders due March 15, 1999. On July 31,
    1998, a payment of $350,000 plus accrued interest was made. The balance of
    $460,000 plus accrued interest due March 15, 1999 is outstanding at
    September 30, 1998.

    In conjunction with Interiors purchase of all the issued and outstanding
    shares of Windsor Art, Inc., a wholly owned subsidiary of Bentley
    International, Inc., Interiors delivered to the seller, as partial payment
    of the purchase price, two secured subordinated promissory notes in the
    aggregate principal amount of $5,300,000. On September 30, 1998, $2,000,000
    of principle remained unpaid together with accrued interest at 8% from July
    7, 1998. Principal payments of approximately $166,667 together with accrued
    interest on the unpaid principal balance commence on July 1, 1999, and
    thereafter equal quarterly principal payments continue, commencing October
    1, 1999 together with accrued interest until the principal balance of the
    note is paid in full on April 1, 2002. The Company is currently negotiating
    with the Owner of Bentley International, Inc., the seller of Windsor Art,
    Inc., to settle this and all remaining obligations of the Company that
    resulted from the purchase of Windsor Art, Inc. for a cash payment of
    $2,500,000.

    In July and August 1998, the company issued redeemable convertible
    debentures (the "redeemable Convertible Debentures") in the aggregate
    principal amount of $3,000,000, and warrants to purchase an aggregate of
    1,451,786 Class A Shares in a private placement to three accredited
    investors. The issuance was exempt from registration under Section 4(2) of
    the Securities Act, as a transaction by the issuer not involving any public
    offering. All proceeds received by the Company pursuant to this private
    placement were applied toward the working capital of the Company. On
    September 10, 1998, the Company filed a registration statement on Form S-3
    with the Securities and Exchange Commission in order to, among other
    things, register the Class A Shares underlying the redeemable Convertible
    Debentures and related warrants.

    The redeemable Convertible Debentures bear interest at the rate of 7% per
    annum, payable quarterly beginning October 1, 1998, and mature in July and
    August, 2001, three years after their respective issuance dates. Any or all
    portion of the Convertible Debentures may be converted to Class A Shares
    any time after 240 days from their respective dates of issuance based upon
    market prices. The redeemable Convertible Debentures may be redeemed at
    face value (plus any accrued interest) by The Company at any time (in part
    or in whole) until they are converted.

    In conjunction with the issuance of the redeemable Convertible Debentures,
    the Company issued Common Stock Purchase Warrants ("B Warrants") to a
    finder. The B Warrants expire five years from their respective dates of
    issue and allow the holder to purchase 112,500 Class A Shares in the
    aggregate at an exercise price of $2.10 per Class A Share. If 50% or more
    of the voting power of the Company is disposed of in an exchange other than
    an exchange solely for cash the B Warrants may be used to purchase whatever
    assets or securities that the holder of the B Warrants would have been able
    to acquire had the B Warrants been previously used to purchase Class A
    Shares.

    Warrants, at fair market value, have been recorded as a debt discount to be
    amortized over the term of the obligation.

    In connection with Interiors recent acquisition of Troy Lighting Inc., the
    Company issued $1,500,000 24.5% promissory notes on July 2, 1998 to an
    asset based lender. The entire principal balance together with accrued
    interest remained unpaid on September 30, 1998. Accrued interest is payable
    on the last day of every month during the term with the entire principal
    and accrued interest due on December 31, 1998.

    In connection with Interiors recent acquisition of Windsor Art Inc. the
    Company has outstanding approximately $1,000,000 in secured formula based
    financing with an asset based lender. Interest is determined at the annual
    rate of prime plus 8% (16.0% as of the date of this filing)

                                      10
<PAGE>

    During March 1998, the Company issued convertible subordinated notes in the
    aggregate principal amount of $1,270,000. These notes are due March 17,
    2001, and bear interest at 15% per annum payable quarterly. As of June 30,
    1998, $695,000 of these notes were converted into Class A Shares and
    warrants to purchase 286,000 shares of Series A Preferred Stock and 27,000
    shares of Class A common stock were issued in connection with these notes.
    On September 30, 1998, $575,000 of these notes remain unconverted with
    $375,000 of this amount classified as debt.

    On August 14, 1998, the Company entered into a five year Employment
    Agreement with Todd R. Langer, the Former President and Chief Operating
    Officer of Troy Lighting and currently the Company's Executive Vice
    President of Sales and Marketing. The aggregate obligation of the Company
    on September 30, 1998 based on this agreement is $1,000,000 over five
    years.

    On July 30, 1998, the Company entered into a consulting agreement with the
    former owner of Bentley. The remaining aggregate obligation of the Company
    on September 30, 1998, based on the agreement is $655,000.

4.  SHAREHOLDERS' EQUITY

    On August 14, 1998, the Company consummated the transactions contemplated
    by an Agreement and plan of merger dated July 2, 1998 by and among the
    Company, Troy Lighting, Inc. and others, pursuant to which a wholly owned
    subsidiary at the Company merger with and into Troy, with Troy continuing
    as the surviving corporation and a wholly owned subsidiary of the Company.
    The merger consideration paid by the company consist of a cash payment of
    $250,000 and the issuance of $650,000 Class A shared to the former
    shareholders of Troy with a fair market value of $974,000.

    The issuance of the Troy merger Shares was exempt from registration under
    Section 4(2) of the Securities Act, as a transaction by the issue not
    involving any public offering. On September 10, 1998, the Company filed a
    registration statement on Form S-3 with the Securities and Exchange
    Commission in order to, among other things, register the Troy Merger
    Shares.

    No underwriters were engaged by the Company in connection with any of the
    issuance described above and, accordingly, no underwriting discounts or
    commissions were paid.

    On July 7, 1998 the Company entered into a Stock Purchase Agreement with
    Bentley International, Inc., and on July 30, 1998, the Company consummated
    the transactions contemplated by the Agreement. Pursuant to the Agreement,
    the Company purchased all the issuing and outstanding shares of Windsor
    Art, Inc., a wholly owned Subsidiary of Bentley. As a result of the
    purchase of the shares, Windsor is now a wholly-owned subsidiary of the
    Company. Concurrently with the closing, the Company entered into and
    consummated a Securities Purchase and Regulations Rights Agreement by and
    between the Company and Bentley. Pursuant to this agreement, the Company
    purchasing 150,000 Shares of Common stock of Bentley and a warrant to
    purchase 300,000 shares of Common Stock of Bentley. The purchase price paid
    to Bentley for the Bentley Shares consisted of 1,500,000 shares of the
    Company's Class A Common Stock issuing by the Company with a fair market
    value of $2,525,000. The Interior's Shares will be held in escrow for one
    year from the closing as security for the obligations of Bentley to the
    Company.

    On August 14, 1998, The Company consummated an Employment Agreement with
    Todd R. Langner, the Former President and Chief Operating Officer, Troy
    Lighting and currently the Company's Executive Vice President of Sales and
    Marketing. Pursuant to the term of this agreement, the Company issued
    35,398 Shares of Class A Common on September 11, 1998. The Company has
    expensed this obligation in the period.

                                      11
<PAGE>

    On September 14, 1998, the Company issued an aggregate of 375,000 Class B
    Shares, to Laurie Munn, wife of Max Munn in consideration for the guarantee
    by Ms. Munn of certain obligations of the Company to certain creditors of
    the Company. The Company has recorded this obligation as a deferred
    financing cost to be amortized over the life of the related debt
    guarantees.

    See Notes Payable for warrants issued in conjunction with Convertible Debt

    ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following discussion should be made in conjunction with the information
    contained in the financial statement of the company and the Notes thereto
    appearing elsewhere herein and in conjunction with Management's Discussion
    and analysis set forth in the Company's Form 10-KSB for the fiscal year
    ended June 30, 1998, which discussion is incorporated herein by reference.

    RESULTS OF OPERATIONS

    Three months ending September 30, 1998 as compared to three months ending
    September 30, 1997.

    The Company's net sales from operations for the three months ending
    September 30, 1998 totaled $10,406,470; an increase of $8,888,688 or 586%
    from $1,517,782 for the period ending September 30, 1997. The revenue
    growth has resulted from executing the Company's business plan that
    requires acquiring and consolidating independent companies that design,
    manufacture and distribute decorative accessories. In March 1998 the
    Company acquired Henlor, Inc. and Merchandise Sales, Inc. and in August
    1998 the Company acquired Windsor Art, Inc. and Troy Lighting, Inc.

    The Company's cost of goods sold as a percentage of net sales increased 2.8
    percentage points from 63% for the three months ending September 30, 1997
    to 65.8% for the three months ending September 30, 1998. Cost of goods for
    the current quarter was approximately $6,843,000 compared to approximately
    $956,000 for the same period last year. The increase in the cost of goods
    percentage year-to-year is primarily the result of acquiring new product
    lines with alternative margin structures.

    The Company's selling, general and administrative expenses as a percentage
    of net sales totaled 26.8% for the three months ending September 30, 1998
    compared to 22.5% for the same period last year. SG & A for the period
    ending September 30, 1998 was approximately $2,792,000 compared to $341,000
    for the same period last year. The Company has begun to execute its
    strategy of consolidation to overcome redundancies in the expense structure
    by combining Henlor, Inc. and Merchandise Sales, Inc. in one facility in
    June of 1998 under the name Vanguard Studios, Inc.

    The Company is preparing to sign a lease on a 216,000 square foot
    manufacturing and distribution facility. This facility will be used to
    consolidate the operations of Windsor Art, Inc., and Vanguard Inc.
    Additionally, expense redundancies at Troy Lighting, Inc. will be overcome
    with management from the new facility. Further reductions in overhead are
    planned from a systems integration program that is already underway.

    Interest expense, primarily from financing activities associated with the
    acquisitions, has increased approximately $317,000 to $430,000 during the
    three months ending September 30, 1998 from approximately $113,000 for the
    same interval last year

    For the three months ending September 30, 1998, the Company `s net income
    was $282,975 or 0.0 per share compared to $107,908 or (0.10) per share for
    the same last year interval. EPS data for the three months ending

                                      12
<PAGE>

    September 30, 1998, reflects a deduction of preferred stock dividend and
    last years EPS data is restated to reflect the deduction of preferred stock
    dividends. Income from operations before interest and provisions for income
    taxes was $698,000 this year versus $220,410 last year.

    LIQUIDITY AND CAPITAL RESOURCES

    Management believes that future cash flows from operations will be
    sufficient to support the Company's operation. Company management continues
    to implement what it believes is necessary to insure positive cash flow and
    profitability. Specific actions taken as of the date of this filing include
    seeking acquisition or strategic alliances with unrelated companies in the
    decorative accessory industries. The Company continues to seek new sources
    of financing to fund it's acquisitions. No assurances can be given that
    these measures will generate the fiscal improvement sought by the Company.

    As of September 30, 1998, the Company had cash balances of approximately
    $1,250,000 compared to cash balances of approximately $4,036,000 at June
    30, 1998, a decrease of approximately $2,786,000. Net cash provided by
    operating activities was $2,736,545 for the three months ended September
    30, 1998 compared to a net use of cash of $24,281 for the same period last
    year. Net cash provided by operating activities was primarily the result of
    asset based borrowings which are included in Notes Payables and Current
    Maturities of Long Term Debt.

    Net cash used in investing activities during the three months ending
    September 30, 1998 totaled $4,057,162. There were no investing, activities
    during the same period last year. The Company completed the acquisition of
    Windsor Art, Inc. and Troy Lighting, Inc. during the period ending
    September 30, 1998 accounting for almost all of the company's investing
    activities for the period.

    As of September 30, 1998 financing activities used $1,464,703 in cash
    compared to $52,352 for the same period last year. Net cash usage from
    financing activities was primarily the result of satisfying debt
    obligations associated with the acquisition of Windsor Art, Inc.

    As of September 30, 1998, the Company's financial position reflected a
    working capital deficit of approximately $1,554,000 compared to a working
    capital surplus of approximately $1,114,000 at June 30, 1998 and a working
    capital surplus of approximately $144,000 for the same period end last
    year. Change in the Company's working capital position resulted in large
    part from acquisition activity.

    Except as otherwise set forth here in, the Company has no commitments for
    capital expenditures.

    In order to fund growth over the long term the Company anticipates possible
    future issuance of its securities resulting in further dilution to the
    security holders

    The Company operates pursuant to a policy that generally precludes
    acceptance of goods or non-cash basis (Sometimes known as barter
    transaction)

    IMPACT OF INFLATION

    The Company does not believe that inflation has had a material adverse
    effect on sales or income during the past several years. Increases in
    supplied and other operating costs could adversely affect the Company's
    operations. However, the Company believes it could increase prices to
    offset increases in cost of goods sold or other operating costs.

                                      13
<PAGE>

    SALES VARIATIONS

    Although the Company's net sales are not subject to seasonal fluctuations
    experienced by certain retailers, the Company experiences some minor
    variations in the level of sales during the year. The first quarter of the
    fiscal year (i.e., July 1 through September 30) is generally the Company's
    slowest sales period due to the fact that the summer period is typically
    the period when art galleries are at their slowest purchasing period.
    During this period, the Company's warehouse and factory closes for three to
    five days to take the annual physical inventory and to consolidate vacation
    periods for the Company's employees.

    YEAR 2000 COMPLIANCE

    The Company is currently in the process of evaluating and implementing
    changes to computer programs necessary to address the year 2000 issue. The
    Company does not anticipate any material additional costs with regard to
    its year 2000 compliance.

    The Year 2000 issue is expected to affect the systems of various entities
    with which the Company interacts. However, there can be no assurance that
    the systems of other companies on which the Company's systems rely will be
    timely converted, or that a failure by another company's systems to be Year
    2000 compliant would not have a material adverse effect on the Company.

                                      14
<PAGE>

                                    PART II

                               OTHER INFORMATION


    ITEM 1 - LEGAL PROCEEDINGS

    The Company is subject to other claims and litigation in the ordinary
    course of business in Management's opinion, such claims are not material to
    the Company's financial position or its results of operations.

    ITEM 2. CHANGES IN SECURITIES

                   None in addition to those disclosed herein.

    ITEM 3. DEFAULTS UPON SENIOR SECURITIES

                   None

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

                   None

    ITEM 5. OTHER INFORMATION

                   None

    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

              (a)  Exhibits

                        None

              (b)  Reports on Form 8-K

    Windsor Acquisitions on July 30,1998 filed August 10, 1998, Troy
    Acquisitions on August 14, 1998 filed October 9, 1998.

                                      15
<PAGE>

                                   SIGNATURES


    Pursuant to the requirements of the Security and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                             INTERIORS, INC.

NOVEMBER  20, 1997
                                             BY: MAX MUNN, PRESIDENT AND
                                                 CHIEF EXECUTIVE, FINANCIAL
                                                 AND ACCOUNTING OFFICER

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