<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 Six month Period Ended December 31, 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 February 18, 1999 was 21,075,071 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 December 31, 1998.......................  2

Consolidated Statements of Operations -
        For the Three Months Ended December 31, 1998 and 1997............  3

Consolidated Statements of Operations -
        For the Six Months Ended December 31, 1998 and 1997..............  4

Consolidated Statement Changes in Stockholders' Equity For the 
        Six months Ended December 31, 1998...............................  5

Consolidated Statements of Cash Flows -
        For the Six months Ended December 31, 1998 and 1997..............  6

Notes to Consolidated Financial Statements...............................  8

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings................................................ 16

Item 2. Changes in Securities............................................ 16

Item 3. Defaults Upon Senior Securities.................................. 16

Item 4. Submission of Matters to a Vote of Security Holders.............. 16 

Item 5. Other Information................................................ 16

Item 6. Exhibits and Reports on Form 8-K................................. 16


<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 December 31, 1998 and the results of operations
for the six month period and three month period ended December 31, 1998 and
1997.

The Company's results of operations during the six months ended December 31,
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.

<PAGE>
                                INTERIORS, INC.
                           CONSOLIDATED BALANCE SHEET

                               DECEMBER 31, 1998

                                  (UNAUDITED)

ASSETS

CURRENT ASSETS:
       Cash                                                       $   673,031
       Accounts receivable, net                                     6,946,326
       Inventories                                                  8,399,446
       Other current assets                                         6,214,300
                                                                  ------------
                          Total current assets                     22,233,103

INVESTMENT IN AFFILIATES                                            4,466,679

PROPERTY AND EQUIPMENT, net                                         1,513,375

OTHER ASSETS                                                       21,092,966
                                                                  ------------
                          Total assets                            $49,306,123
                                                                  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Notes payable and current maturities of long-term debt      12,665,106
       Accounts payable and accrued liabilities                     8,190,979
                                                                  ------------
                          Total current liabilities                20,856,085

LONG TERM DEBT                                                      5,287,530

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
       Preferred stock, $.01 par value, 5,300,000 shares
          authorized, 596,711 shares issued and outstanding             5,967
       Class A common stock, $.001 par value, 60,000,000 shares
          authorized, 19,756,007 shares issued, 18,256,007 
          shares outstanding                                           19,756
       Class B common stock, $.001 par value, 2,500,000 shares
          authorized, 1,105,000 shares issued and outstanding           1,105
       Treasury stock                                              (1,317,023)
       Additional paid-in-capital                                  32,946,079
       Accumulated deficit                                         (7,545,376)
       Notes receivable                                              (948,000)
                                                                  ------------
                          Total stockholders' equity               23,162,508
                                                                  ------------
Total liabilities and stockholders' equity                        $49,306,123
                                                                  ============


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


                                      -2-

<PAGE>

                                INTERIORS, INC.

                            STATEMENT OF OPERATIONS

             FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      1998          1997
                                                                                  ------------   -----------
<S>                                                                               <C>            <C>       
NET SALES                                                                         $12,856,276    $2,318,083

COST OF GOODS SOLD                                                                  8,117,754     1,441,213
                                                                                  ------------   -----------
         Gross profit                                                               4,738,522       876,870

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                        4,169,810       547,923
                                                                                  ------------   -----------
         Income from operations                                                       568,712       328,947

OTHER EXPENSE (INCOME)
         Amortization of goodwill                                                     111,486         -
         Interest expense                                                             554,445       113,312
         Financing charges - noncash                                                  347,191         -
         Consulting and management fees                                               (22,500)        -
         Gain on legal settlement                                                     (82,488)        -
                                                                                  ------------   -----------
                            Total other expense (income)                              908,134       113,312

         Income (loss) from operations
            before (benefit) provision for income taxes and extraordinary item       (339,422)      215,635

(BENEFIT) PROVISION FOR INCOME TAXES                                                   24,903        13,000
                                                                                  ------------   -----------
         Income (loss) from operations before extraordinary item                     (364,325)      202,635

EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF DEBT                                1,370,542         -
                                                                                  ------------   -----------
NET INCOME                                                                        $ 1,006,217    $  202,635
                                                                                  ------------   -----------
EARNINGS PER COMMON SHARE:
         (RESTATED FOR 1997)
         BASIC
         Income from continuing operations                                           (364,325)      202,635
         Preferred dividends                                                          (68,339)     (143,383)
                                                                                  ------------   -----------
         Net income from continuing operations attributable to 
            common shares before extraordinary item                                  (432,664)       59,252
         Extraordinary gain from early extinguishment of debt                       1,370,542         -
                                                                                  ------------   -----------
         Net income                                                                   937,878        59,252
                                                                                  ============   ===========
         Net Earnings Per Common Share - Basic:
         Earnings from continuing operations                                            (0.02)         0.01
         Extraordinary gain from early extinguishment of debt                            0.07          0.00
                                                                                  ------------   -----------
         Net Earnings Per Common Share - Basic:                                          0.05          0.01
                                                                                  ============   ===========
         DILUTED
         Income from continuing operations                                           (364,325)      202,635
         Preferred dividends                                                          (68,339)     (143,383)
                                                                                  ------------   -----------
         Net income from continuing operations attributable to 
            common shares before extraordinary item                                  (432,664)       59,252
         Extraordinary gain from early extinguishment of debt                       1,370,542         -
                                                                                  ------------   -----------
         Net income                                                                   937,878        59,252
                                                                                  ============   ===========
         Net Earnings Per Common Share - Diluted:
         Earnings from continuing operations                                            (0.02)         0.01
         Extraordinary gain from early extinguishment of debt                            0.07          0.00
                                                                                  ------------   -----------
         Net Earnings Per Common Share - Diluted:                                        0.05          0.01
                                                                                  ============   ===========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION
         BASIC                                                                     17,402,571     5,560,991
         DILUTED                                                                   18,278,266     5,560,991
</TABLE>





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


                                      -3-

<PAGE>

                                INTERIORS, INC.

                            STATEMENT OF OPERATIONS

              FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      1998          1997
                                                                                  ------------   -----------
<S>                                                                               <C>            <C>       
NET SALES                                                                         $23,262,746    $3,835,865

COST OF GOODS SOLD                                                                 14,960,488     2,397,416
                                                                                  ------------   -----------
         Gross profit                                                               8,302,258     1,438,449

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                        6,961,754       889,092
                                                                                  ------------   -----------
         Income from operations                                                     1,340,504       549,357

OTHER EXPENSE (INCOME)
         Amortization of goodwill                                                     192,584         -
         Interest expense                                                             984,428       225,814
         Financing charges - noncash                                                  437,341         -
         Consulting and management fees                                              (120,000)        -
         Gain on legal settlement                                                     (82,488)        -
                                                                                  ------------   -----------
                            Total other expense (income)                            1,411,865       225,814

         Income (loss) from operations
            before (benefit) provision for income taxes and extraordinary item        (71,361)      323,543

(BENEFIT) PROVISION FOR INCOME TAXES                                                    9,989        13,000
                                                                                  ------------   -----------
         Income (loss) from operations before extraordinary item                      (81,350)      310,543

EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF DEBT                                1,370,542             0
                                                                                  ------------   -----------

NET INCOME                                                                        $ 1,289,192    $  310,543
                                                                                  ------------   -----------
EARNINGS PER COMMON SHARE:
         (RESTATED FOR 1997)
         BASIC
         Income from continuing operations                                            (81,350)      310,543
         Preferred dividends                                                         (136,678)     (286,765)
                                                                                  ------------   -----------
         Net income from continuing operations attributable to 
            common shares before extraordinary item                                  (218,028)       23,778
         Extraordinary gain from early extinguishment of debt                       1,370,542         -
                                                                                  ------------   -----------
         Net income                                                                 1,152,514        23,778
                                                                                  ============   ===========
         Net Earnings Per Common Share - Basic:
         Earnings from continuing operations                                            (0.02)         0.00
         Extraordinary gain from early extinguishment of debt                            0.10          0.00
                                                                                  ------------   -----------
         Net Earnings Per Common Share - Basic:                                          0.08          0.00
                                                                                  ============   ===========
         DILUTED

         Income from continuing operations                                            (81,350)      310,543
         Preferred dividends                                                         (136,678)     (286,765)
                                                                                  ------------   -----------
         Net income from continuing operations attributable to 
            common shares before extraordinary item                                  (218,028)       23,778
         Extraordinary gain from early extinguishment of debt                       1,370,542         -
                                                                                  ------------   -----------
         Net income                                                                 1,152,514        23,778
                                                                                  ============   ===========
         Net Earnings Per Common Share - Diluted:

         Earnings from continuing operations                                            (0.01)         0.00
         Extraordinary gain from early extinguishment of debt                            0.09          0.00
                                                                                  ------------   -----------
         Net Earnings Per Common Share - Diluted:                                        0.08          0.00
                                                                                  ============   ===========

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION
         BASIC                                                                     14,037,887     5,560,991
         DILUTED                                                                   14,927,519     5,560,991
</TABLE>

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


                                      -4-

<PAGE>

                                INTERIORS, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Series A               Class A                 Class B           
                                                           Preferred Stock         Common Stock           Common 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 Class B to Class A Common                                    125,000       125      (125,000)    (125)
      Conversion of Preferred to Class A Common          (142,727)  (1,427)      428,181       428                          
      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                          
      Warrants issued with convertible debentures                                                                           
      Warrants issued for services rendered                                                                                 
      Shares issued for services rendered                                         35,398        35                          
      Shares issued in connection with settlement          10,000      100                                                  
      Escrow shares issued to outside investor                                 1,250,000     1,250    (1,250,000)  (1,250)  
      Shares issued, employment agreement                                        100,000       100                          
      Discount incurred, convertible notes                                                                                  
      Class A shares issued, convertible notes                                   646,484       647                          
      Preferred shares subscribed to by outside investor   50,000      500                                                  
      Stock Dividend                                                             165,570       165                          
      Windsor Art extinguishment of debt                                                                                    
      Shares reissued to outside investor                                      2,500,000     2,500                          
      Retirement of escrow shares                                            (12,500,000)  (12,500)                         
      Net income through December 31, 1998                                                                                  
                                                         ========   ======   ===========   =======    ==========   ======   
BALANCE, December 31, 1998                                596,711   $5,967    19,756,007   $19,756     1,105,000   $1,105   
                                                         ========   ======   ===========   =======    ==========   ======   
</TABLE>

<TABLE>
<CAPTION>
                                                            
                                                           Additional    Retained
                                                            Paid-In      Earnings       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 Class B to Class A Common            
      Conversion of Preferred to Class A Common                   999
      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                           362,785                                                 363,026
      Warrants issued with convertible debentures           1,000,000                                               1,000,000
      Warrants issued for services rendered                    75,000                                                  75,000
      Shares issued for services rendered                      42,443                                                  42,478
      Shares issued in connection with settlement              34,900                                                  35,000
      Escrow shares issued to outside investor              1,200,020                                               1,200,020
      Shares issued, employment agreement                     130,900                                                 131,000
      Discount incurred, convertible notes                    159,717                                                 159,717
      Class A shares issued, convertible notes                999,354                                               1,000,001
      Preferred shares subscribed to by outside investor      249,500                                                 250,000
      Stock Dividend                                          258,538      (258,703)
      Windsor Art extinguishment of debt                                               (1,317,023)                 (1,317,023)
      Shares reissued to outside investor                   2,772,480                                               2,774,980
      Retirement of escrow shares                              12,500
      Net income through December 31, 1998                                1,289,192                                 1,289,192
                                                          ===========   ===========   ===========    =========    ===========
BALANCE, December 31, 1998                                $32,946,079   ($7,545,376)  ($1,317,023)   ($948,000)   $23,162,508
                                                          ===========   ===========   ===========    =========    ===========
</TABLE>
                                                                            
   The accompanying notes are an integral part of these financial statements.


                                      -5-

<PAGE>

                                INTERIORS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

              FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                               SIX MONTHS ENDED
                                                                                                 DECEMBER 31,
                                                                                        -------------------------
                                                                                             1998          1997
                                                                                        -------------------------
<S>                                                                                     <C>             <C>      
CASH FLOW FROM OPERATING ACTIVITIES:
      Net Income                                                                        $  1,289,192    $ 310,543
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
      Depreciation and amortization                                                          705,209      312,058
      Provision for losses on accounts receivable                                            (20,507)       -
      Non-cash financing charge                                                              437,341        -
      Provision for issuance of stock                                                         77,478        -
CHANGES IN ASSETS AND LIABILITIES:
      Decrease (increase) in accounts receivable, trade                                      627,319     (731,119)
      Decrease (increase) in inventories                                                  (1,336,914)      30,814
      Decrease (increase) in prepaid expenses and other current assets                    (3,066,669)     (64,423)
      Decrease (increase) in other assets                                                 (1,325,143)      12,691
      Increase (decrease) in accounts payable and accrued expenses                          (383,538)    (245,516)
                                                                                        --------------------------
      Net cash used in operating activities                                               (2,996,232)    (374,952)
                                                                                        --------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
      Capital expenditures                                                                  (137,430)      (1,039)
      Acquisition of Bentley International                                                (2,106,767)       -
      Acquisition of Troy Lighting                                                        (2,190,513)       -
                                                                                        --------------------------
      Net cash used in investing activities                                               (4,434,710)      (1,039)
                                                                                        --------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of debt                                                   7,250,180      787,761
      Repayments of debt and capitalized lease obligations                                (7,623,593)    (354,917)
      Net proceeds from exercise of common stock warrants                                    363,026        -
      Net proceeds from sale of common and preferred stock                                 4,225,000        -
                                                                                        --------------------------
      Net cash provided by financing activities                                            4,214,613      432,844
                                                                                        --------------------------
      Net increase (decrease) in cash                                                     (3,216,329)      56,853
CASH, beginning of period                                                                  3,889,360      271,408
                                                                                        --------------------------
CASH, end of period                                                                     $    673,031    $ 328,261
                                                                                        ==========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid during the period for -
      Interest                                                                          $    733,347    $ 159,388
      Taxes                                                                                    1,853        -
NON-CASH FINANCIAL ACTIVITIES:
Conversion of Series A Preferred Stock to Class A Common Stock                                   999        -
Stock issuance for promissory notes                                                        1,000,000
Stock issuance for services                                                                   42,478        -
Stock issuance in connection with acquisitions                                               975,000        -
Stock issuance in connection with legal settlement                                            35,000
Stock issuance per employment agreement                                                      131,000
Common Stock issued for preferred dividends                                                  258,703        -
Class A Common Stock repurchased in conjunction with early extinguishment of debt        (1,317,023)
</TABLE>

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

                                       6
<PAGE>

                                INTERIORS, INC.
               CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
              FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                  (UNAUDITED)

                                                           SIX MONTHS ENDED
                                                              DECEMBER 31
                                                         ----------------------
                                                              1998       1997
                                                         ----------------------
Supplemental disclosure of cash flows related
      to acquisitions:
      Fair value of assets acquired,
         excluding cash                                  $ 8,532,567    $    -
      Issuance of common stock                              (750,000)        -
      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                               $   750,000    $    -
      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         -

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

                                       7


<PAGE>

                                INTERIORS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
                               DECEMBER 31, 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 the results of the interim period have been
         included. The results of operations for the six months ended December
         31, 1998 are not necessarily indicative of those to be expected for
         the entire year. The Company, for the six months and three months
         ended December 31, 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 six months and three months ended December 31, 1997
         have 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
         December 31, 1998 the adoption of SFAS 131 No. would not have a
         material effect on the Company's financial statements.


                                       8
<PAGE>

2.       ACQUISITIONS AND STRATEGIC ALLIANCES

         On August 27, 1998, the Company entered into a Stock Purchase
         Agreement with the shareholders of Stylecraft, Inc., a portable lamp
         manufacturer, to purchase all issued and outstanding shares of that
         company's common stock. The transaction is scheduled to close on
         February 22, 1999. Pursuant to the Stock Purchase Agreement, the
         purchase price paid to the shareholders of Stylecraft, Inc. will
         consist of a cash payment of $10,319,000. On January 29, 1999, the
         Company paid $500,000 of the purchase price to the shareholders of
         Stylecraft, Inc., to be applied against the cash payment at the
         closing of the purchase.

         The purchase of Stylecraft, Inc. will be financed by $5,250,000 of
         asset based debt, $2,000,000 raised from a private placement of equity
         in the form of preferred stock, $2,319,000 of cash from Interiors and
         a $750,000 secured term loan.

         On December 11, 1998, the Company entered into a Purchase Agreement
         with the majority shareholders of Petals, Inc., a manufacturer and
         catalog retailer of silk botanicals and other decorative accessories,
         and DMB Property Ventures Limited Partnership (collectively with the
         shareholders, the "Sellers"). Pursuant to the Purchase Agreement and
         in consideration for the conveyance of the acquired shares and
         subordinated debt, the Company will pay to the majority shareholders
         $3,560,000 in cash for their outstanding capital stock. Additionally,
         the Company will pay DMB $440,000 in cash and deliver to DMB a
         convertible debenture in the principal amount of $2,000,000 for the
         outstanding principal balance of DMB's Subordinated Debt. On December
         14, 1998, the Company paid $100,000 of the purchase price to be
         applied against the cash payment at the closing of the purchase and
         sale of the acquired shares and the subordinated debt.

         In January 1999, the minority stockholders of Petals, Inc. filed two
         actions in the Supreme Court of the State of New York claiming, among
         other things, that the majority stockholders (the Sellers) had
         breached the terms of a Shareholders' Agreement between the parties.
         The court has granted temporary restraining orders prohibiting the
         Sellers from transferring their interest to the Company. On or about
         February 19, 1999, two of the four minority stockholders settled all
         of their claims and received approximately $1,800,000 from Petals,
         Inc. in exchange for all of the Petals, Inc. shares of stock which
         they owned. The remaining minority stockholders (owners of
         approximately 16.2% of the outstanding stock of Petals, Inc.) on
         February 22, 1999 have agreed in principal to sell all of their
         Petals, Inc. stock for approximately $2,000,000 in cash, at which
         point the Company can then close on the above acquisition. However,
         there can be no assurance that the transaction will be consummated in
         accordance with its current terms or otherwise.

         On September 9, 1998 Interiors announced the formation of a new
         subsidiary, Habitat Solutions, Inc. for the purpose of acquiring and
         consolidating regional firms that provide merchandising and design
         services to the homebuilding, lodging and hospitality industries. On
         January 7, 1999 Interiors, through Habitat Solutions, Inc., formed MHI
         Acquisitions Corp. and signed an agreement of merger between MHI
         Acquisition Corp. and Model Home Interior, Inc. (MHI) a Bellesville,
         Maryland based provider of design, merchandising and leasing services
         to the homebuilding industry. Under the terms of the merger agreement,
         Interiors, through its subsidiary, will pay the former shareholders of
         MHI $2,000,000 in cash, between $2,300,000 and $4,300,000 in common
         stock of Interiors over the next three years based on MHI achieving
         certain earning targets and will assume $231,766 of short term debt.
         The transaction is expected to close on or about February 28, 1999.

         The Company has established basic electronic linking arrangements with
         Internet search engines and portals designed to potentially drive
         Internet traffic to the Interiors.com web site which is currently
         under development.

3.        NOTES PAYABLE

         At December 31, 1998, the Company has aggregate notes payable of
         approximately $17,953,000. The major components of this position
         follow:


                                       9
<PAGE>

         The Company has outstanding secured formula based financing for the
         operations of Windsor Art, Inc. with an asset based lender totalling
         approximately $2,387,000 on December 31, 1998. Interest is determined
         at an annual rate of prime plus 5.5% (13.25% 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 $1,446,000 on December 31, 1998. Interest is determined
         at an annual rate of prime plus 5.5% (13.25% as of the date of this
         filing).

         The Company has outstanding secured formula based financing for the
         operations of its Vanguard Studios, Inc. subsidiary with an asset
         based lender totalling approximately $2,814,000 on December 31, 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 $214,000 on December 31, 1998. Interest
         is determined at an annual rate of prime plus 1.0%. (8.75% as of the
         date of this filing).

         The Company has outstanding secured formula based financing for the
         operations of APF Master Framemakers totalling $538,000 on December
         31, 1998. Interest is determined at the annual rate of prime plus 8.0%
         (15.75% 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, 1999 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 December 31, 1998, $1,000,000 of these notes had
         converted , reducing the outstanding balance to $700,000. The full
         balance had converted in January 1999. (See Changes to Stockholders
         Equity, Discount Incurred with Convertible Notes and Class A Shares
         Issued, Convertible Notes).

         In conjunction with Interiors acquisition of Henlor, Inc. (the name
         was subsequently changed to Vanguard Studios, Inc.), the Company
         caused its subsidiary to issue $794,379 in 8% subordinated promissory
         notes to the former shareholders. The Company renegotiated the terms
         of the principal payment of $294,379 due December 1, 1998 to four
         payments including $100,000 on December 16, 1998 and three equal
         installments due January 15, 1999, February 15, 1999 and March 15,
         1999. Additionally, Vanguard is scheduled to make principal payments
         on March 1, 1999 and every three months thereafter in the amount of
         $62,500. A balance of $694,379 plus accrued interest was due on
         December 31, 1998.

         In conjunction with Interior's 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
         December 31, 1998.

         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 

                                      10
<PAGE>

         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% demand notes on July 2, 1998 to an
         asset based lender. The entire principal balance together with accrued
         interest remained unpaid on December 31, 1998. Accrued interest is
         payable on the last day of every month.

         In connection with Interiors acquisition of Windsor Art Inc. the
         Company has outstanding approximately $532,000 in secured formula
         based financing plus accrued interest with an asset based lender.
         Interest is determined at the annual rate of prime plus 8.0% (15.75%
         as of the date of this filing)

         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 December 31, 1998, $575,000 of these
         notes remain unconverted with $375,000 of this amount classified as
         debt. In February, 1999 the noteholders requested the conversion of
         the balance of this debt.

         In conjunction with the Company's repurchase of its obligations from
         the Seller arising from its purchase of Windsor Art, Inc., the Company
         issued on December 1, 1998 a promissory note for the principal amount
         of $2,500,000. On December 31, 1998, $2,500,000 of the principal
         balance remained outstanding. Interest is determined at the annual
         rate of prime plus 4% (11.75%) as of the date of this filing.

4.        SHAREHOLDERS' EQUITY

         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 transaction contemplated by this Agreement. The
         Purchase price paid to Bentley for the Bentley shares included
         1,500,000 shares of the Company's Class A Common Stock. In conjunction
         with the Company's repurchase of all its remaining obligations to the
         Seller, the Company on 


                                      11
<PAGE>

         December 1, 1998, repurchased the 1,500,000 shares. These shares, with
         a market value of approximately $1,965,000, a promissory note with
         unpaid principal and accrued interest of approximately $2,053,000 and
         a consulting agreement with the Seller for approximately $848,000
         represented the value of outstanding obligations of the Company to the
         Seller for the purchase of the Bentley shares. On December 1, 1998,
         for approximately $2,580,000 in cash and other consideration totalling
         approximately $2,634,000 the Company extinguished its entire debt to
         the Seller of the Bentley shares. After accounting adjustments, the
         early extinguishment of this debt resulted in an extraordinary gain to
         the Company of approximately $1,371,000.

         In a transaction related to the purchase of the Company's obligations
         from the Seller of the Bentley shares, the Company assumed an
         obligation of Bentley, under a Bentley Bonus Agreement, to convey to a
         former Bentley employee, now employed by the Company, 100,000 shares
         of Interiors Class A common stock.

         On October 30, 1998 the Company eliminated all obligations incurred
         under the Stevens Settlement for a cash payment to the Stevens
         principals of $500,000. This payment was financed by a $330,000 10%
         Demand Loan from an outside investor which was paid in full by the
         Company on November 18, 1998 and a $170,000 payment to the Stevens
         principals by the same outside investor. As collateral for this
         transaction, the outside investor received 3,750,000 shares of
         Interiors Class A Common Stock and agreed to pay Interiors the
         transaction date fair market value for this collateral in future
         installments. These installments included proceeds used by the Company
         to pay in full the 10% demand loan. Among other things, this
         transaction caused 3,750,000 Stevens Settlement escrow shares
         (1,250,000 Class B Common converted to Class A Common and 2,500,000
         Class A Common) to be issued to the outside investor and another
         10,000,000 Class A Common shares that were escrowed in the Stevens
         Settlement to be retired. At the date of this transaction, the Company
         had reserves for all remaining obligations under the Stevens
         Settlement of approximately $248,000. The Company's $330,000 portion
         of the settlement payment created a charge to earnings of $82,000.

         On December 30, 1998 the Company received $250,000 from a private
         investor in exchange for a subscription to the Company's Series A
         Preferred Stock.

         On December 31, 1998, the Company declared a 0.75 cent dividend on its
         Series A Preferred Stock for holders of record at September 30, 1998.
         This dividend was paid in approximately 166,000 shares of the
         Company's Class A Common.

         During the three month period ending December 31, 1998, Holders of the
         $1,700,000 in convertible notes issued by the Company in March 1998,
         converted $1,000,000 of the unpaid principal portion of these notes
         into approximately 646,000 shares of the Company's Class A Common.

         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

         Six months ending December 31, 1998 as compared to six months ending
         December 31, 1997.

         The Company's net sales from operations for the six months ending
         December 31, 1998 totaled $23,262,746; an increase of $19,426,881 or
         506% from $3,835,865 for the six month period ending December 31,
         1997. The 


                                      12
<PAGE>

         revenue growth has resulted from executing the Company's business plan
         and acquiring and consolidating independent companies that design,
         manufacture and distribute decorative accessories

         The Company's cost of goods sold as a percentage of net sales
         increased 1.8 percentage points from 62.5% for the six months ending
         December 31, 1997 to 64.3% for the six months ending December 31,
         1998. Cost of goods for the current period was approximately
         $14,960,000 compared to approximately $2,397,000 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 29.9% for the six months ending
         December 31, 1998 compared to 23.2% for the same period last year. SG
         & A for the period ending December 31, 1998 was approximately
         $6,962,000 compared to $889,000 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.

         On November 23, 1998 the Company signed 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. In January of 1999 the Company moved the operations of Windsor
         Art, Inc. to the new facility. 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 $759,000 to
         approximately $984,000 during the six months ending December 31, 1998
         from approximately $226,000 for the same interval last year.
         Additionally, for the six months ending December 31, 1998, the Company
         incurred non cash financing charges of approximately $437,000.

         For the six months ending December 31, 1998, the Company's net income
         was $1,289,192 or 0.08 per share compared to $310,543 or 0.00 per
         share for the same period last year. EPS data for continuing
         operations attributable to common shares before extraordinary items
         for the six months ending December 31, 1998 reflect a deduction of
         preferred stock dividends and last year's EPS data is restated to
         reflect the deduction of preferred stock dividends. Basic net earnings
         per common share from continuing operations for the six months ending
         December 31, 1998 was (0.02) compared to 0.00 per share for the same
         period last year. Basic net earnings per common share from gain on the
         early extinguishment of debt for the six months ending December 31,
         1998 was 0.10 compared to 0.00 per share for the same period last
         year. Diluted net earnings per common share from continuing operations
         for the six months ending December 31, 1998 was (0.01) compared to
         0.00 per share for the same period last year. Diluted net earnings per
         common share from gain on the early extinguishment of debt for the six
         months ending December 31, 1998 was 0.09 per share compared to 0.00
         per share for the same period last year. Six month income from
         operations before interest and provisions for income taxes was
         $1,340,504 this year versus $549,357 last year.

         For the three months ending December 31, 1998, the Company's net
         income was $1,006,217 or 0.05 per share compared to $202,635 or 0.01
         per share for the same period last year. EPS data for continuing
         operations attributable to common shares before extraordinary items
         for the three months ending December 31, 1998 reflect a deduction of
         preferred stock dividends and last year's EPS data is restated to
         reflect the deduction of preferred stock dividends. Basic and Diluted
         net earnings per common share from continuing operations for the three
         months ending December 31, 1998 was (0.02) compared to 0.01 per share
         for the same period last year. Basic and Diluted net earnings per
         common share from gain on the early extinguishment of debt for the
         three months ending December 31, 1998 was 0.07 compared to 0.00 per
         share for the same period last year. Three month income from
         operations before interest and provisions for income taxes was
         $568,712 this year versus $328,947 last year.



                                      13
<PAGE>

         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 December 31, 1998, the Company had cash balances of
         approximately $673,000 compared to cash balances of approximately
         $4,036,000 at June 30, 1998, a decrease of approximately $3,363,000.
         Net cash used in operating activities was approximately $2,996,000 for
         the six months ended December 31, 1998 compared to a net use of cash
         of approximately $375,000 for the same period last year. The increase
         in use of cash for the six months ended December 31, 1998 included
         acquisition related inventory growth of approximately $1,337,000, an
         increase in Prepaid Expenses and Other Current Assets of approximately
         $3,067,000 primarily from receivables incurred in the resolution of
         the Stevens Settlement and an increase in Other Assets of
         approximately $1,325,000 from acquisition related growth.

         Net cash used in investing activities during the six months ending
         December 31, 1998 totaled $4,435,000 There were no material 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 December 31, 1998, accounting for almost all of the
         Company's investing activities for the period.

         As of December 31, 1998 financing activities provided approximately
         $4,215,000 in cash compared to approximately $433,000 for the same
         period last year. Net cash provided by financing activities includes
         among other things, the total cash payments receivable from an
         investor's sale of collateral as part of resolving the Stevens
         Settlement.

         As of December 31, 1998, the Company's financial position reflected a
         working capital surplus of approximately $1,377,000 compared to a
         working capital surplus of approximately $1,114,000 at June 30, 1998
         and a working capital surplus of approximately $195,000 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.

         SALES VARIATIONS


                                      14
<PAGE>

         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 December 31) 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 has hired a consultant and initiated the process of
         conversion.

         The costs to address the Company's Year 2000 issues are currently
         estimated at $1,800,000 for the businesses the Company currently owns.
         Stylecraft and Petals have initiated Year 2000 compliancy measures and
         are not expected to materially add to the Company's cost of
         conversion.

         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.

                                      15
<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

On November 1, 1998, the Company's Board of Directors entered into a ten-year
extendable employment agreement between the Company and its President and Chief
Executive Officer. The agreement provides for an annual salary of $375,000,
with annual increases of 8%. Such increases will be subject to the attainment
of profitable results of operations by the Company. In addition, the agreement
grants the President and Chief Executive Officer an option to purchase at any
time during the term of the agreement 250,000 shares of the Company's Series A,
10% Cumulative Convertible Preferred Stock at the market price as of November
2, 1998. In addition, the Agreement grants the President and Chief Executive
Officer options to purchase 2,500,000 shares of the Company's common stock at
the end of the above ten-year term; such options are priced at the fair market
value on November 2, 1998. The exercise rights may be accelerated if certain
performance measures, as defined, are met.

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.


                                      16

<PAGE>



                                   SIGNATURES

         Pursuant to the requirements of the Securities 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.


FEBRUARY 22, 1999

                                          BY:     RICHARD P. BELENSKI
                                                  EXECUTIVE VICE PRESIDENT
                                                  FINANCE AND ADMINISTRATION,
                                                  CHIEF FINANCIAL OFFICER

                                       17

<PAGE>

EXHIBIT 11

INTERIORS, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                             (000)     (000)        (000)       (000)
                                                            COMMON   SHARES VS.   WEIGHTED     WEIGHTED
                                                             A & B    NOTE REC.     BASIC      DILUTED
<S>                                                        <C>         <C>        <C>           <C>   
Total shares outstanding at June 30, 1998                   21,257
Escrow shares at June 30, 1998                              (6,250)
Shares vs. Note Receivable at June 30, 1998                   (980)
                                                            ------

Basic Common A & B shares for EPS at June 30, 1998          14,027      980        12,072        12,072

Additional Basic Shares                                      4,354                  1,966         1,966
Additional Shares vs. Note Receivable 
Stock options and warrants                                                                          890
                                                            -------------------------------------------
Basic Common A & B shares for EPS at December 31, 1998      18,381      980        14,038        14,928                       
                                                                                   ====================
Shares vs. Note Receivable at December 31, 1998                980      
Escrow shares at December 31, 1998                               0
                                                            ------
Total shares outstanding December 31, 1998                  19,361
                                                            ======
</TABLE>