UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549


                                   FORM 10-QSB

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the three months ended   December 31, 1999
Commission File Number      0-28960

                                DECOR GROUP, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                     13-3911958
            (State or other jurisdiction 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)

Registrant's telephone number, including area code:       (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  and  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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock. As of February 1, 2000 there were 2,009,166 shares of common stock
outstanding.



<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


INDEX
------------------------------------------------------------------------------



                                                                   Page to Page

Item 1. Consolidated Financial Statements:


   Consolidated Balance Sheet as of December 31, 1999 [Unaudited]... 1.......2

   Consolidated Statements of Operations for the three and nine months
   ended December 31, 1999 and 1998 [Unaudited]..................... 3

   Consolidated Statements of Stockholders' Equity [Deficit] for the nine
   months ended December 31, 1999 [Unaudited] and the fiscal year ended
   March 31, 1999 [Audited]......................................... 4

   Consolidated Statements of Cash Flows for the nine months ended
   December 31, 1999 and 1998 [Unaudited] .......................... 5

   Notes to Consolidated Financial Statements....................... 6.......20

Item 2: Management's Discussion and Analysis of Financial
        Condition and Results of Operations.........................21.......24

Signature............................................................25




                      .   .   .   .   .   .   .   .   .   .




<PAGE>



Item 1:

DECOR GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999.
[UNAUDITED]
------------------------------------------------------------------------------



Assets:
Current Assets:
  Cash                                                              $   48,505
  Accounts Receivable [Net of Allowance of $137,928]                   422,437
  Loan - Related Party                                                   3,287
  Inventories [Net of Allowance of $60,340]                            321,887
  Prepaid Expenses and Other Current Assets                             22,817
                                                                    ----------

  Total Current Assets                                                 818,933
                                                                    ----------

Property and Equipment [Net of Accumulated Depreciation of $470,189]    53,192
                                                                    ----------

Other Assets:
  Goodwill [Net of Accumulated Amortization of $1,111,296]             716,010
  Other Assets                                                          19,866
                                                                    ----------

  Total Other Assets                                                   735,876
                                                                    ----------

  Total Assets                                                      $1,608,001
                                                                    ==========





The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.


                                        1

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999.
[UNAUDITED]
------------------------------------------------------------------------------



Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
  Notes Payable - Interiors                                         $  519,000
  Accounts Payable and Accrued Expenses                                575,825
  Accounts Payable - Related Party                                     125,000
  Non-Trade Payables                                                   215,724
  Due to Stockholders                                                  382,785
  Accrued Compensation and Benefits - Former Officer                     2,790
  Accrued Costs for Restructuring                                      356,237
  Line of Credit                                                       436,725
  Current Portion of Long-Term Debt                                    117,437
  Accrued Indemnification - Related Party                              300,000
                                                                    ----------

  Total Current Liabilities                                          3,031,523

Long-Term Debt                                                         388,211
                                                                    ----------

  Total Liabilities                                                  3,419,734
                                                                    ----------

Commitments and Contingencies [7]                                           --
                                                                    ----------

Stockholders' Equity [Deficit]:
  Preferred Stock, $.0001 Par Value Per Share,
   35,000,000 Blank Check Shares Authorized of
   which 5,000,000 are Convertible Non-Voting
   Series A - 250,000 Shares Issued and Outstanding;
   20,000,000 Non-Convertible Voting Series B - 20,000,000
   Shares Issued and Outstanding; 10,000,000 Convertible
   Non-Voting Series C - 54,934 Issued and Outstanding                   2,030

  Additional Paid-in Capital - Preferred Stock                       2,423,970

  Common Stock - $.0001 Par Value, Authorized 20,000,000
   Shares, 2,009,166 Issued and Outstanding                                201

  Additional Paid-in Capital - Common Stock                          4,196,732

  Accumulated Deficit                                               (8,417,525)

  Deferred Compensation                                                (17,141)
                                                                    ----------

  Total Stockholders' Equity [Deficit]                              (1,811,733)
                                                                    ----------

  Total Liabilities and Stockholders' Equity [Deficit]              $1,608,001
                                                                    ==========


The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.


                                        2

<PAGE>



DECOR GROUP, INC.
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
------------------------------------------------------------------------------



                                 Three months ended         Nine months ended
                                    December 31,              December 31,
                                    ------------              ------------
                                 1 9 9 9     1 9 9 8       1 9 9 9    1 9 9 8
                                 -------     -------       -------    -------

Revenues                      $   765,604  $ 1,194,518  $3,020,120  $ 3,520,313

Cost of Revenues                  492,862      663,625   1,766,678    1,949,719
                              -----------  -----------  ----------  -----------

  Gross Profit                    272,742      530,893   1,253,442    1,570,594
                              -----------  -----------  ----------  -----------

Selling, General and Administrative
  Expenses:
  Selling Expense                  94,974      330,502     613,611      952,868
  General and Administrative
   Expense                        272,275      261,715     756,715    1,199,545
  Consulting Services - Related
   Party                               --           --          --      125,000
  Bad Debt Writeoff - Related Party    --           --          --      193,661
  Indemnification Expense - Related
   Party                               --           --          --      300,000
  Compensation Expense - Related
   Party                               --           --          --      100,000

  Total Selling, General and
   Administrative Expenses        367,249      592,217   1,370,326    2,871,074
                              -----------  -----------  ----------  -----------

  Income [Loss] from Operations   (94,507)     (61,324)   (116,884)  (1,300,480)
                               ----------  -----------  ----------  -----------

Other Income [Expense]:
  Net Miscellaneous
   Income/Expense                  (1,290)       1,433      (5,651)       9,662
  Interest Expense                (26,794)     (36,835)    (91,836)     (88,118)
  Interest Expense - Related Party (7,790)      (6,170)    (22,155)     (11,935)
  Loss on Sale of Investment in
   Related Party                       --           --          --           --
                              -----------  -----------  ----------  -----------

  Other [Expense] - Net           (35,874)     (41,572)   (119,642)     (90,391)
                              -----------  -----------  ----------  -----------

  Income [Loss] Before Provision
   for Income Taxes              (130,381)    (102,896)   (236,526)  (1,390,871)

Provision for Income Taxes             --        3,330          --       10,566
                              -----------  -----------  ----------  -----------

  Net Income [Loss]           $  (130,381) $  (106,226) $ (236,526) $(1,401,437)
                              ===========  ===========  ==========  ===========

  Income [Loss] Per Share     $      (.06) $      (.05) $     (.12) $      (.72)
                              ===========  ===========  ==========  ===========

  Number of Common Shares       2,009,166    1,959,166   2,009,166    1,959,166
                              ===========  ===========  ==========  ===========


The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        3

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY [DEFICIT]
------------------------------------------------------------------------------

<TABLE>

                                  Preferred Stock               Common Stock                              Accumulated  Total
                                             Additional                  Additional                          Other Stockholders'
                                               Paid-in                     Paid-in   Accumulated DeferredComprehensiveEquity
                           Shares    Amount    Capital   Shares   Amount   Capital     Deficit Compensation Income   [Deficit]

<S>                       <C>        <C>     <C>        <C>       <C>    <C>        <C>          <C>        <C>      <C>
 Balance - March 31, 1998 20,304,934 $ 2,030 $2,423,970 1,759,166 $  176 $4,142,752 $(5,482,779) $(436,882) $     -- $   649,267
Issuance of Options for
 20,000 Shares of Common
 Stock to President               --      --         --        --     --     10,000          --         --        --      10,000
Exercise of Options               --      --         --    50,000      5         --          --         --        --           5
Amortization of Deferred
 Compensation                     --      --         --        --     --         --          --    381,167        --     381,167
Stock Issued for Service          --      --         --   200,000     20     43,980          --         --        --      44,000
 Comprehensive Income:
 Net [Loss] for the year
  ended March 31, 1999            --      --         --        --     --         --  (2,698,220)        --        --  (2,698,220)
                          ---------- -------  ---------   ------- ------  ---------  ----------  ---------  --------  ----------

 Balance - March 31, 1999 20,304,934   2,030  2,423,970 2,009,166    201  4,196,732  (8,180,999)   (55,715)       --  (1,613,781)
Amortization of Deferred
 Compensation                     --      --         --        --     --         --          --     12,858        --      12,858
Comprehensive Income:
 Net [Loss] for the
   three months
   ended June 30, 1999            --      --         --        --     --         --    (184,649)        --        --    (184,649)
                          ---------- -------  ---------   ------- ------  ---------  ----------  ---------  --------  ----------

 Balance - June 30, 1999
   [Unaudited]            20,304,934   2,030  2,423,970 2,009,166    201  4,196,732  (8,365,648)   (42,857)       --  (1,785,572)
Amortization of Deferred
 Compensation                     --      --         --        --     --         --          --     12,858        --      12,858
Comprehensive Income:
 Net Income for the
   three months ended
   September 30, 1999             --      --         --        --     --         --      78,504         --        --      78,504
                           --------- -------  ---------   ------- ------  ---------  ----------  ---------  --------  ----------

 Balance - September 30,
   1999 [Unaudited]       20,304,934   2,030  2,423,970 2,009,166    201  4,196,732  (8,287,144)   (29,999)       --  (1,694,210)
Amortization of Deferred
 Compensation                     --      --         --        --     --         --          --     12,858        --      12,858
Comprehensive Income:
 Net Income for the
   three months
   ended December 31, 1999        --      --         --        --     --         --    (130,381)        --        --    (130,381)
                           --------- -------  ---------   ------- ------  ---------  ----------  ---------  --------  ----------

Balance - December 31,
 1999 [Unaudited]         20,304,934 $ 2,030 $2,423,970 2,009,166 $  201 $4,196,732 $(8,417,525) $ (17,141) $     -- $(1,811,733)
                          ========== ======= ========== ========= ====== ========== ===========  =========  ======== ===========


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

</TABLE>

                                               4

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------

                                                           Nine months ended
                                                             December 31,
                                                           1 9 9 9     1 9 9 8
                                                           -------     -------
Operating Activities:
  Net [Loss]                                           $  (236,526) $(1,401,437)
  Adjustment to Reconcile Net [Loss] to Net Cash
   [Used for] Operating Activities:
   Accounts Payable - Related Party                             --      125,000
   Bad Debt Expense - Related Party                             --      193,661
   Amortization of Deferred Compensation                    38,574      359,741
   Depreciation                                             25,848       36,330
   Amortization of Intangibles                              33,990       67,493
   Accrual for Returns and Allowances                       14,971      (10,752)
   Stock Issued for Services Performed                          --       43,980

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable - Trade                            66,119       37,947
     Accounts Receivable - Interiors                       (78,016)     (80,006)
     Inventory                                             (51,008)     (35,015)
     Accrued Costs for restructuring                       (98,308)          --

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses                 331,193     (349,100)
     Accrued Settlement - Former Officer                   (70,207)     (67,502)
     Accrued Indemnification - Related Party                    --      300,000
     Accrued Compensation Expense - Related Party               --      100,000

  Net Cash - Operating Activities                          (23,370)    (679,660)
                                                       -----------  -----------

Investing Activities:
  Purchase of Property and Equipment                       (19,947)     (19,834)
  Other Assets                                                (743)      (3,149)
                                                       -----------  -----------

  Net Cash - Investing Activities                          (20,690)     (22,983)
                                                       -----------  -----------

Financing Activities:
  Issuance of Stock                                             --           20
  Proceeds from Line of Credit                            (179,378)     519,923
  Loan from Stockholder                                     67,500       67,500
  Payment of Stockholder Loans                             (94,896)     (87,119)
  Loan from Related Party - Windsor Art                    298,763     (300,000)
  Loan from Related Party - Interiors                           --      400,000
                                                       -----------  -----------

  Net Cash - Financing Activities                           91,989      600,324
                                                       -----------  -----------

  Net Increase [Decrease] in Cash                           47,929     (102,319)

Cash - Beginning of Periods                                    576       50,256
                                                       -----------  -----------

  Cash - End of Periods                                $    48,505  $   (52,063)
                                                       ===========  ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                            $   113,991  $    88,118
   Income Taxes                                        $        --  $    10,566
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        5

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies

[A] Nature of  Operations  - Decor  Group,  Inc.,  a Delaware  corporation  [the
"Company"  or  "Decor"],  was  incorporated  on March 1, 1996.  The  Company was
organized for the purpose of acquiring  Artisan  House,  Inc.  ["Artisan"].  The
acquisition  was  completed  on  November  18,  1996.  Artisan is engaged in the
business of designing, manufacturing,  marketing, selling and distributing metal
wall-mounted,  tabletop and freestanding  sculptures.  Artisan  manufactures its
products  at one  location  in  southern  California  and  sells  through  sales
representatives  and from its  regional  showrooms to  furniture  retailers  and
department  stores  throughout  the  United  States  and  internationally.   The
transaction  was  recorded  under the  purchase  method.  The  Company  does not
maintain separate divisions, segments, or product lines for its business.
[See Notes 2 and 6].

[B] Cash  Equivalents  - The  Company's  policy is to classify all highly liquid
investments  with  maturity of three  months or less when  purchased  to be cash
equivalents. There were no cash equivalents at December 31, 1999.

[C] Inventory - Inventory is stated at the lower of cost or market, is comprised
of  materials,  labor and factory  overhead,  and is determined on the first-in,
first-out ["FIFO"] basis.

[D] Property and Equipment - Property and equipment is stated at cost and is net
of  accumulated  depreciation.  The  cost  of  additions  and  improvements  are
capitalized  and  expenditures  for repairs and  maintenance are expensed in the
period  incurred.  Depreciation of property and equipment is provided  utilizing
the  straight-line  method over the  estimated  useful  lives of the  respective
assets as follows:

Vehicles                              3 Years
Machinery and Equipment           1 - 5 Years
Furniture and Fixtures                5 Years

Leasehold improvements are amortized utilizing the straight-line method over the
shorter  of  the  remaining  term  of  the  lease  or  the  useful  life  of the
improvement.

[E]  Goodwill  - Amounts  paid in excess of the  estimated  value of net  assets
acquired of Artisan House, Inc. were charged to goodwill. Goodwill is related to
revenues the Company  anticipates  realizing in future years. In connection with
the  acquisition  of  Artisan  House,   Inc.  in  November  1996,   goodwill  of
approximately  $1,800,000 was originally recorded using the purchase method. The
Company had decided to amortize  its  goodwill  over a period of ten years using
the  straight-line  method.   Effective  April  1,  1997  based  upon  operating
management's  experienced  understanding  of the  expected  useful  lives of the
tangible and intangible  assets,  the Company changed its period of amortization
of  goodwill  to twenty  years.  The effect of this  change is to reduce  future
annual  amortization  of goodwill by $75,000.  This change  decreased the fiscal
1998 net loss by $75,000.  Goodwill and other intangible  assets were previously
written off as of September 30, 1997. An amendment was filed in February of 1998
for the  September  1997 Form 10-QSB that reversed the writedown of the goodwill
based upon revised information obtained after the original filing. The Company's
policy is to evaluate the periods of goodwill  amortization to determine whether
later events and  circumstances  warrant revised  estimates of useful lives. The
Company  also  evaluates  whether  the  carrying  value of  goodwill  has become
impaired by comparing  the carrying  value of goodwill to the value of projected
undiscounted  cash flows  from  acquired  assets or  businesses.  Impairment  is
recognized  if the  carrying  value of  goodwill is greater  than the  projected
undiscounted  cash flow from the acquired  assets or business.  Accordingly,  in
March of 1999, the Company  decided to write down the carrying value of goodwill
to $750,000 [See Note 2].



                                        6

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies [Continued]

[F] Stock  Options  and Similar  Equity  Instruments  Issued to  Employees - The
Financial  Accounting  Standards  Board ["FASB"]  issued  Statement of Financial
Accounting   Standards   ["SFAS"]   No.   123,   "Accounting   for   Stock-Based
Compensation,"  in October 1995.  SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic value based method of accounting  prescribed by Accounting  Principles
Board ["APB"]  Opinion No. 25,  "Accounting  for Stock Issued to Employees." The
Company  adopted  SFAS No. 123 on April 1, 1996 for  financial  note  disclosure
purposes and will continue to apply APB Opinion No. 25 for  financial  reporting
purposes.

[G] Loss  Per  Share - The  Financial  Accounting  Standards  Board  has  issued
Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,  "Earnings  per
Share";  which is effective for financial  statements  issued for periods ending
after December 15, 1997.  Accordingly,  earnings per share data in the financial
statements for the years ended March 31, 1999 and 1998,  have been calculated in
accordance  with SFAS No. 128.  Prior periods  earnings per share data have been
recalculated  as  necessary to conform  prior years data to SFAS No. 128.  Prior
periods'  earnings per share data have been restated to give retroactive  effect
for the one for three reverse stock split in October of 1997.

SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per  Share,"  and  replaces  its  primary  earnings  per share  with a new basic
earnings per share  representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period.  SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies  with complex  capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all dilutive  potential  common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent  issuance of securities that would have an antidilutive
effect on earnings  per share [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants and the Company reports income from operations.

Potential common shares of 50,000 are not currently dilutive,  but may be in the
future.

[H] Risk  Concentrations - Financial  instruments  that potentially  subject the
Company to  concentrations  of credit risk include cash and accounts  receivable
arising from its normal business activities.  The Company places its cash with a
high credit quality  financial  institution and  periodically  has cash balances
subject to credit risk beyond insured amounts. At December 31, 1999, the Company
had no cash in excess of insured amounts.

The Company  routinely  assesses the financial  strength of its  customers,  and
based upon factors surrounding the credit risk of its customers,  established an
allowance  for  uncollectible  accounts of $137,928 for the fiscal  period ended
December 31, 1999 and as a  consequence,  believes that its accounts  receivable
credit risk  exposure  beyond this  allowance  is limited.  The Company does not
require collateral to support financial instruments subject to credit risk.



                                        7

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
------------------------------------------------------------------------------


[1] Summary of Significant Accounting Policies [Continued]

[I] Use of Estimates - The  preparation  of financial  statements  in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period.
Actual results could differ from those estimates.

[J] Principles of Consolidation - The consolidated  financial statements include
the  accounts of the Company and its  subsidiaries.  All  material  intercompany
accounts and transactions are eliminated.

[K] License  Agreements - The Company currently  manufactures a small segment of
its  products  pursuant  to license  agreements.  Generally,  all of the license
agreements are non-exclusive,  permit sales in the United States and require the
Company to make periodic  royalty  payments based upon revenues from the sale of
licensed works.

[L]  Advertising  Expenses  -  The  Company  incurred  advertising  expenses  of
approximately  $30,000 and $30,000 for the three months ended  December 31, 1999
and 1998, respectively.

[2] Acquisition - Artisan

On November 18, 1996, the Company's wholly owned subsidiary Artisan  Acquisition
Corp.,  Inc.  purchased  substantially  all of the  assets and  assumed  certain
liabilities of Artisan for  $3,694,826,  of which a total of $2,400,000 was paid
in cash. A secured  promissory  note for $923,496 was issued to the seller.  The
note provides for the payment to the seller of the following: a) $100,000 within
90 days after the  closing,  b) beginning  120 days after the closing,  60 equal
monthly  payments of $13,989  bearing an  interest  rate of 8%, and c) a balloon
payment of $150,000 concurrent with the 60th installment.  The required payments
under (a) and (c) did not provide for interest and were  discounted at 8% giving
rise to a discount  of $48,387  which will be  amortized  to  interest  expense.
Separately,  the seller was issued  50,000  shares,  giving  effect to the stock
dividend and the reverse stock split, of Decor common stock, valued at $300,000.
Effective  September 8, 1997,  the Company,  pursuant to a settlement  agreement
arising  from  a  dispute  concerning  the  asset  purchase  agreement  paid  an
additional  $258,438  in  cash  and  recorded  goodwill  for  such  amount.  The
transaction was recorded under the purchase  method.  Goodwill of  approximately
$1,800,000  was recorded  and  amortized  over 20 years using the  straight-line
method.  Intangible  assets of $537,046 were written off in March of 1998.  Upon
the Company's  moving its operations in March of 1999,  the Company  reevaluated
its projected  future cash flows and recorded an  impairment  of $826,469  based
upon management's revised and updated operational plans and management's updated
projected  ability to generate  future  positive cash flows as of March 31, 1999
[See Note 1E].  The  remaining  carrying  value of goodwill of $750,000  will be
written  off over  the  remaining  17  years  under  the  straight-line  method.
Operations  of Artisan were  included  with the Company  from  November 19, 1996
onward.  The assets and  liabilities  of Artisan were combined with those of the
Company as of November 18, 1996 [See Note 12 - Restructuring Plan].

[3] Inventories

The components of inventory were as follows:

Raw Materials                         $  295,758
Work-in Process                           11,417
Finished Goods                            75,052
                                      ----------

  Totals                              $  382,227
  ------                              ==========

The Company has set up an allowance for slow moving products of $60.340 December
31, 1999.


                                        8

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
------------------------------------------------------------------------------


[4] Related Party Transactions

[A] Due to  Interiors  -  Management  Agreement - On May 28,  1996,  the Company
entered  into  a two  year  management  agreement  with  Interiors,  Inc.  which
specializes in the home furnishings and decorative accessories  industries.  The
agreement  calls  for a  management  fee of  $90,000  or  1.5% of  gross  sales,
whichever is greater,  per annum.  The annual  management fee of $90,000 will be
paid  quarterly  to the extent that there is excess cash flow  available  to the
Company as defined in the  agreement.  No payment in any quarter will exceed 50%
of excess  cash flow as  defined.  The  agreement  has a term of two years  with
renewal  options at the mutual  consent of both  parties  and is still in force.
Interest is accrued on the unpaid management fee.

At March 31,  1997,  the  Company  had amounts  due to  Interiors  of  $185,285,
consisting of $18,750 in management  fees and $166,535 of advances.  The Company
accrued  additional  management  fees of $90,000  [in  accordance  with  amended
agreement  dated February 1997] and paid $50,000 during the year ended March 31,
1998 and accrued the  management  fee of $90,000 during the year ended March 31,
1999.

On April 2, 1998,  the Board of Directors  amended the February 1997  management
services  agreement  in that it  allowed  the  Company to make  payments  deemed
warranted or necessary to Interiors or third parties on behalf of Interiors [See
Note 4C].

Commencing  December of 1998,  Artisan  incurred  costs  totaling  approximately
$180,000,  which remains  unpaid as of December 31, 1999,  for various  expenses
paid by Troy Lighting  primarily for moving costs of approximately  $120,000 and
payroll  costs of  approximately  $40,000.  Interiors  also paid  $119,000  as a
finders fee to the former owner of Artisan House [See Note 9].

The Company recorded a non-cash $125,000 management consulting fee due Interiors
on June 30, 1998,  relating to marketing and merchandising  services provided by
the related party to the Company.  In addition,  the Company received a $400,000
advance from  Interiors on July 23, 1998. As of March 30, 1999,  the Company has
an  outstanding  balance due to Interiors of  $1,079,494.  The Company  recorded
interest  expense  for the years  ended  March 31,  1999 and 1998 of $19,095 and
$16,116,  respectively, on the unpaid management fee. The outstanding balance at
December 31, 1999 was $1,026,785 consisting of $519,000 in advances and $507,785
in management fees.

[B] Stockholders'  Loans Payable - The Company received $35,500 in June 1996 and
$8,000 in July 1996 in loan  proceeds.  The notes bear interest at 12% per annum
and had a maturity  date of April 1998.  Interest  expense for the three  months
ended December 31, 1999 and 1998 was $1,305 and $1,305, respectively.

[C] Due from  Interiors - In March of 1998, the Company  advanced  approximately
$300,000 to Interiors, Inc., $200,000 of which carried interest at the Company's
borrowing  rate.  The  $200,000  was  repaid  with  interest  in  April of 1998.
Throughout  fiscal 1999,  Artisan also incurred  costs,  which were allocated to
Interiors,  totaling  approximately  $224,000 primarily for various employee and
consulting  expenses on behalf of Interiors.  In addition,  Artisan  reduced the
accounts receivable balance due from Interiors in exchange for product marketing
and  merchandising  costs being  incurred by the related  party on behalf of the
Company for $193,661,  which is  classified as consulting  services by a related
party.  As of  December  31,  1999,  the  balance  due  from  Interiors  on  the
intercompany charges was $209,647.

During fiscal 1999, the Company also incurred  additional costs for two entities
acquired by Interiors.  These receivable  transactions,  which have no impact on
the  statement of  operations,  with the  exception of finder's fees paid to the
seller of Artisan House [See Note 7A], are summarized as follows:

o   In fiscal 1999, Artisan incurred costs totaling approximately $35,000, which
    remains  unpaid as of March 31,  1999,  for  various  expenses  on behalf of
    Vanguard Studios primarily for shared employee and freight costs.

                                        9

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
------------------------------------------------------------------------------


[4] Related Party Transactions [Continued]

[C] Due from Interiors [Continued] -

o   In  September of 1998,  Artisan used  $300,000  from its  financial  line of
    credit for an Interior's  acquisition.  An  additional  $2,050 of costs were
    incurred  by  Artisan  in  February  and March of 1999 for the  entity.  The
    balance due Artisan from that entity as of March 31, 1999 was  $302,050,  of
    which $300,000 was repaid in April 1999.

[D]  Indemnification  Agreement - Interiors - In September of 1998,  the Company
recorded  a  $300,000  indemnification  expense  resulting  from  the  Company's
indemnification  of up to $300,000 to United Credit Corporation for an abandoned
acquisition  by Interiors as a result of a business  failure  experienced by the
potential  acquisition  candidate.  The Company believes that it could be liable
for up to  $300,000  as a  result  of their  indemnification  of  United  Credit
Corporation. The Company also believes that this matter will be settled sometime
in fiscal 2000.

[E] Insurance  Allocations - The Company pays an allocated  premium for property
liability and workmens' compensation insurance as a part of the master policy of
Interiors.  The master policy consolidates the various Interiors  entities,  and
produces a lower premium. The Company is allocated the premium based upon sales,
property value and payroll.  The allocated insurance expense for the nine months
ended December 31, 1999 was approximately $40,000.

[5] Property and Equipment

Property and equipment consisted of the following:

Machinery and Equipment               $  175,862
Leasehold Improvements                   131,217
Furniture and Fixtures                   150,244
Office and Computer Equipment             66,058
                                      ----------

Total - At Cost                          523,381
Less: Accumulated Depreciation           470,189
                                      ----------

  Net                                 $   53,192
  ---                                 ==========

Depreciation expense was approximately $13,401 and $12,062, respectively for the
three months ended December 31, 1999 and 1998.

[6] Investment in Interiors, Inc. - Related Party

On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting  Convertible  Preferred Stock and an option to purchase  20,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors,  Inc. issuing to the Company 66,666 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000. This option was exercised in September of 1996. On May 28, 1996, the
Company  entered  into a  management  agreement  with  Interiors,  Inc.  whereby
Interiors,  Inc.  will  provide the Company  certain  marketing  and  management
services  [See  Note 4A].  The  exchange  of  shares  between  the  Company  and
Interiors,  Inc. was pursuant to the Company's  intentions to secure the ongoing
and long-term  availability  of these  services.  In September 1997, the Company
sold all of the common and preferred  shares of Interiors  stock to an unrelated
party for gross  proceeds  of  $487,127  and,  accordingly,  realized  a loss of
$1,112,873. As of March 31, 1999, Interiors, Inc. owned approximately 78% of the
Company's total voting stock outstanding  assuming no conversion of the Series A
and Series C Preferred Stock.


                                       10

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
------------------------------------------------------------------------------



[7] Commitments and Contingencies

[A] Employment Agreement - Seller - On October 30, 1997, the Seller's employment
agreement  dated  November  18, 1996 was amended to provide for the  issuance of
options to purchase  50,000 shares of the Company's  common stock on each of the
first and second anniversaries of the agreement.  The options are exercisable at
$.0001 per share  commencing the date of issuance and expiring in four years. In
December  of 1997,  the seller  exercised  options  for 50,000  shares of common
stock.  Henry  Goldman  pursuant to the terms of the AHI  acquisition  agreement
received  options for an  additional  50,000  shares of common  stock in January
1999.  The Company  recorded  deferred  compensation  cost for the fair value of
options  for  100,000  shares of the  Company's  common  stock in the  amount of
$1,000,000  as of November  18,  1996 and  amortized  $178,233  as  compensation
expense  for the year ended March 31,  1997.  For the years ended March 31, 1999
and 1998, the Company amortized $381,167 and $500,000, respectively, as deferred
compensation.

In July 1997, there was an attempt to terminate Artisan's  employment  agreement
with the seller. In connection with a settlement  agreement reached in September
1997 with CIDCOA  International,  Inc.  ["CIDCOA"],  formerly  known, as Artisan
House, Inc. [See Note 9], the Company  reinstated the employment  agreement with
the seller and recorded  additional  monies owed to the seller of  approximately
$290,000.  There are no monies  outstanding  at March 31, 1999  pursuant to this
agreement. The employment agreement also provides for finder's fees to be earned
by the seller pursuant to certain  acquisitions made by the Company,  its parent
or  affiliates.  The  Company  expensed  $64,000  representing  an  estimate  of
compensation earned by the seller as a consequence of the Vanguard and Artmaster
acquisitions  made by  Interiors,  Inc. in March of 1998.  The Company  expensed
$119,000 in fiscal 1999, which is the compensation due the seller resulting from
Interiors' acquisition in fiscal 1999, which was paid by Interiors [See Notes 4A
and 9].

[B]  Consulting  Agreements  - On January 1, 1997,  the Company  entered  into a
consulting  agreement  with a now former  Director of the Company to provide the
Company with such consulting  services as requested by the Company in connection
with strategic planning, marketing and management issues. The Company has agreed
to pay  $150,000  over three [3] years.  At March 31,  1999,  the  Company  owed
$50,000 to the  director as monies due upon his  resignation,  which was paid in
April of 1999.

[C]  Termination  Agreement  -  Under  a  termination  agreement  with a  former
employee,  the Company was required to pay severance in the amount of $3,889 per
month for 18 months beginning April 1997. In addition,  the Company was required
to provide various other minimal  benefits to the former  employee.  The Company
recorded a liability for the total compensation payments of $70,000 at March 31,
1997.

In June 1997,  the Company  ceased paying the severance pay required  under this
termination  agreement.  In August 1997,  the Company  entered into a settlement
agreement  with the former  employee which called for the payment of $45,000 and
the  issuance of 1,666 shares of the  Company's  common  stock,  with a value of
$17,500.  The stock shall be restricted  for a period of twelve months after the
date of issuance.

[D] Line of Credit - On  September  15,  1998,  Artisan  obtained  an  increased
accounts  receivable and inventory  based line of credit for up to $950,000 with
interest at prime plus 5.5% secured by all of Artisan's assets and guaranteed by
Decor and  Interiors,  Inc.  The  amount  available  under the line of credit at
December 31, 1999 was $38,095.  At December 31, 1999, Artisan had an outstanding
balance of $436,725. The line of credit has an expiration date of June 30, 1999.
The term of the credit line  automatically  renews  each year  unless  notice is
given by either the Company or the lender to the other,  respectively,  within a
period not less than 60 days prior to expiration.  No such notice has been given
or  received  by the  Company.  The  Company is not in  violation  of any of the
covenants of the loan.  Interest expense for the three months ended December 31,
1999 was $15,966.  On July 1, 1999,  the loan  agreement  was renewed with a new
interest rate of prime plus 2%.


                                       11

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
------------------------------------------------------------------------------



[7] Commitments and Contingencies [Continued]

[D]  Line of  Credit  [Continued]  - The line of  credit  includes  a term  loan
originating  in the amount of  $100,000  as of  September  30,  1998.  Principal
payments of $5,000 per month are due on the loan.

The Company is contingently  liable as guarantor of the debts owed to the lender
of the line of credit by  related  parties  with  aggregate  indebtedness  up to
$14,400,000.

[E] Leases - The Company  leases  manufacturing  and office space in  California
from the seller of Artisan,  which  expires  November  30, 2001 and is currently
used for storage.  The lease provides for additional  rent based on increases in
the Consumer Price Index [See Note 12 - Restructuring Plan].

Commencing in April of 1999,  the Company will incur  approximately  $20,000 per
month to a  subsidiary  of Interiors  for all  building and facility  costs on a
month to month basis as a result of the March facility relocation.

Future  minimum  lease  payments  under all  operating  leases are as follows at
December 31, 1999:

Year ended
December 31,
  2000                                $  256,678
  2001                                   220,707
  2002                                    45,406
  2003                                    45,406
  2004                                    15,135
  Thereafter                                  --
                                      ----------

  Total                               $  583,332
  -----                               ==========

Artisan  also  rents  showroom  space  in High  Point,  North  Carolina  and San
Francisco,  California.  The High Point lease  expires April of 2004 and the San
Francisco  lease expires in July of 2001. The current monthly lease payments are
$3,784 for High Point and $1,538 for San Francisco.

Rental expense was $18,464 and $58,012 , respectively for the three months ended
December 31, 1999 and 1998.

[F] Employment  Agreement - President/Chief  Financial Officer - On December 31,
1996,  Artisan  entered into a three year  employment  agreement  with Artisan's
Chief Operating Officer and Treasurer for (i) an annual salary of $100,000; (ii)
a cash  bonus  equal to ten  percent  [10%] of the  annual  salary,  based  upon
Artisan's net profit before taxes ["NPBT"]; and (iii) a cash bonus equal to five
percent  [5%] of the  increase in NPBT over the  previous  fiscal  year,  not to
exceed 40% of the base salary.  The agreement also provides  options to purchase
10,000  shares  of the  Company's  common  stock  per year for each  year of the
agreement at an exercise price equal to $.0003 per share  exercisable  after one
year for a period of five years. The Company recorded  deferred  compensation of
$180,000  for the  options.  For the years ended  March 31,  1999 and 1998,  the
Company amortized $60,000 and $64,285, respectively, as compensation expense. In
March  1997,  the officer  was  elected to the  offices of  President  and Chief
Financial Officer of the Company.

The agreement also provides  additional  performance  options to purchase 10,000
shares of the Company's common stock  exercisable for a period of one year at an
exercise price equal to the average closing price of the Company's stock for the
20 days  ending  two days  prior to date of grant for each of the  years  ending
March 31, 1998, 1999 and 2000.  Continued  employment by the Company is required
and the Company must meet or exceed 115% of the prior year's NPBT.


                                       12

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
------------------------------------------------------------------------------



[7] Commitments and Contingencies [Continued]

[F] Employment  Agreement - President/Chief  Financial Officer  [Continued] - In
December of 1997, the officer  received  20,000 options,  which  represented the
additional 10,000 options due on January 1, 1998 under the employment  agreement
and an additional 10,000 options.  The Company recorded  compensation expense of
$90,000 on January 1, 1998.

On January 2, 1999, pursuant to an incentive stock option agreement, the officer
received  20,000  options  under the  employment  agreement  whereby the Company
recorded  compensation  expense of $10,000 on January 2, 1999.  The options vest
immediately  and not more than 20% per year are available for exercise at $.0001
per share until January 2000. The options will expire January 2005.

In March of 1999, the Company accrued a bonus of $35,000 to the  President/Chief
Financial Officer.

[8] Debt
                                        December 31,
                                          1 9 9 9

Acquisition Loan                        $  526,506
Less:  Discount                             20,858
                                        ----------

Total                                      505,648
Less: Current Portion of Long-Term Debt    117,437
                                        ----------

  Long-Term Portion                     $  388,211
  -----------------                     ==========

Annual maturities of notes payable are as follows:

Twelve months ended
  December 31,
   2000                               $  117,437
   2001                                  146,532
   2002                                  241,679
   Thereafter                                 --
                                      ----------

   Total                              $  505,648
   -----                              ==========

On November 18, 1996, the Company issued a secured promissory note in the amount
of $923,496 to the seller of Artisan House of which $100,000 was due in February
of 1997 and the balance will be paid in 60 equal monthly installments of $13,989
bearing interest at 8% with a final payment of $150,000 at maturity. The note is
collateralized  by  a  second  interest  on  all  assets  of  the  Company.  The
non-interest  bearing  portion  for  the  $150,000  was  discounted  at 8%.  The
amortization  on this  discount  for the years ended March 31, 1999 and 1998 was
approximately  $10,000 and  $10,000,  respectively,  and has been  amortized  as
interest  expense.  Interest expense for the years ended March 31, 1999 and 1998
was approximately $50,000 and $50,000, respectively, on the note payable.



                                       13

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[UNAUDITED]
------------------------------------------------------------------------------


[9] Legal Proceedings

In March 1997,  CIDCOA  brought an arbitration  proceeding  against the Company,
currently  settled,  alleging that it had failed to pay CIDCOA  additional  sums
owed to it in connection  with the  Company's  purchase of all of the assets and
assumption of  substantially  all of the liabilities of Artisan.  CIDCOA alleged
that  it  was  owed  a  purchase  price  adjustment.   The  Company  denied  the
allegations,  and  brought  counterclaims  against  CIDCOA  alleging  breach  of
contract,  breach of warranty,  misrepresentation and fraud by CIDCOA. In August
1997, CIDCOA filed a motion seeking to enforce an alleged  settlement  agreement
made by the parties.  In September  1997, the Company  entered into a settlement
agreement with CIDCOA  included in which was the payment of (i) a purchase price
adjustment  of  approximately  $100,000  and  (ii)  $158,438  in lieu of  10,000
registered shares of the Company which were never issued to CIDCOA. In addition,
the  settlement  confirms  that the original  amount of the  promissory  note is
$926,400 and confirms that the monthly payments under the note shall be $13,989,
reinstates the terminated  employment agreement with Henry Goldman [See Note 7A]
and provides for the Company to bring current all disputed  payments and amounts
due Goldman and CIDCOA under the original  purchase and  employment  agreements.
Further,  the  settlement  agreement  provides  that  obligations  to CIDCOA and
Goldman under the promissory note, the employment  agreement and Artisan House's
real  property  lease for its  operating  facilities  will be  guaranteed by the
Company and Interiors, Inc.

The Company  entered  into an  arbitration  with the seller  concerning  various
financial  compensation  claims on October 29, 1998. A settlement was reached in
January  1999,  that  provides  for (i) payment of a finder's  fee on  companies
purchased by Interiors of $119,000,  which was paid by Interiors,  [See Notes 4A
and 7A], (ii) the removal of the restrictive legend on the stock issued pursuant
to a H. Goldman  exercise of options in 1997 and (iii) the issuance of stock due
in 1998.

[10] Capital Stock

[A] Public Offering - On November 18, 1996, the Company  successfully  completed
its initial  public  offering and sold 345,000 shares of Common Stock at $10 per
share  [giving  effect to the reverse  stock split See Note 10D]. As a result of
this  offering,  the  Company  received  net  proceeds  of  $2,236,123  [net  of
$1,240,204 offering expense].

[B] Stock  Dividends - On December 3, 1996,  the Board of  Directors  declared a
dividend on its shares of Common Stock,  distributable to stockholders of record
of the Company as of December 16, 1996 on the basis of two additional  shares of
Common  Stock for each one share of common  stock  previously  outstanding.  All
share data in the financial statements have been adjusted for this dividend.

[C] Series B Preferred Stock Dividend - In January of 1997, the Company issued a
dividend on its Series B Preferred Stock payable to the stockholder of record as
of December  16,  1996 on the basis of 1 share of Series B  Preferred  Stock for
each share of Series B  Preferred  Stock  outstanding.  All share data have been
adjusted for this dividend. In addition,  the resolution was made that if at any
time the Company's  Board of Directors and  stockholders  approve an increase in
the number of  authorized  shares of Series B  Preferred  Stock to not less than
30,000,000  shares,  then the Series B Preferred  stockholder shall be issued an
additional 10,000,000 shares of Series B Preferred.

[D] Reverse Stock Split - Effective October 8, 1997, the Company completed a one
share for three shares  reverse stock split of its common stock.  All shares and
per share amounts have been restated  retroactively.  Any fractional shares were
purchased by the Company at the average  closing bid and ask price of the common
stock of the Company as of October 8, 1997.




                                       14

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
[UNAUDITED]
------------------------------------------------------------------------------


[10] Capital Stock

[E] Additional Stock Issued - In March of 1998, the Company retained a financial
consulting  firm to  provide  merger and  acquisition  consulting  and  advisory
services in connection  with the pending merger with  Interiors,  Inc. and other
acquisition  candidates.  In May 1998,  the Board of  Directors  of Decor issued
200,000  shares of the  Company's  common stock in exchange  for these  services
valued at $44,000. In July 1998, the Company paid the financial  consulting firm
$200,000  for these  services  performed in fiscal 1999. A total of $244,000 was
expensed in the year ended March 31, 1999.

[F] Preferred Stock - Series A Convertible - Each share shall not have the right
to vote nor to receive  dividends and the liquidation  rate is $.0001 per share.
Each share is  convertible  into one share of Common  Stock,  subject to certain
anti-dilution  provisions.  Series B  Non-Convertible  - Each  share  shall  not
receive  dividends,  but will have the right to vote and the liquidation rate is
$.0001 per share.  Series C Convertible - Each share shall not have the right to
vote nor receive dividends. The liquidation rate is $.0001 per share. Each share
is convertible  commencing  September 1, 1997,  subject to adjustment,  into one
share of common stock, subject to certain anti-dilution provisions.

[11] Going Concern

The  accompanying  financial  statements  have been  prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities and commitments in the normal course of business.

Since the  Company's  operations  commenced in April of 1996,  revenues have not
been sufficient to cover the Company's fixed  administrative  costs resulting in
operating losses of $2,582,290 and $3,346,712 for the years ended March 31, 1999
and 1998, respectively.  The Company had a working capital deficit of $2,010,712
and an  accumulated  deficit of  $8,180,999  at March 31, 1999.  The Company was
primarily  funded for the year ended March 31, 1999 by proceeds from the line of
credit and monies advanced by Interiors. Management believes that as a result of
the Company's move in March of 1999 it will be able to continue its  expenditure
reductions  as a  result  of  sharing  many  costs  with  entities  acquired  by
Interiors.

There can be no assurances that management's  plans to reduce operating expenses
and  obtain  additional  financing  to fund its  working  capital  needs will be
successful.  The financial statements do not include any adjustments relating to
the  recoverability  and  classification  of recorded assets, or the amounts and
classification  of liabilities  that might be necessary in the event the Company
cannot continue in existence.

[12] Restructuring Plan

In September of 1997, the Company commenced and approved an exit plan to satisfy
its  various  investor   constituencies   by  improving  the  manufacturing  and
administrative   operations   of  the  Company  for  growth   through   improved
competitiveness,  quality and  effectiveness.  Such  efforts  have  included the
retention  of various  advisors  and  analysis  by  management  to  improve  the
manufacturing and administrative operations of the Company. The Company has been
concentrating on strategies for growth through improved competitiveness, quality
and  effectiveness.  Accordingly,  Artisan  finalized  its planned move into the
facilities of Interior's  subsidiary,  Troy  Lighting,  Inc.,  and began sharing
common facilities with Troy in March 1999 [See Note 4C].

As of March 31,  1998,  management  believed  that the  restructuring  costs and
charges for the cost of shutting down the operations were approximately  $20,000
and the projected remaining lease obligations on the premises were $625,000. The
restructuring  reserve through December 1997 had included an offset for sublease
income.  However,  since there had not been any  successful  commitment  in this
endeavor since September of 1997,  management decided to increase the reserve by
approximately  $435,000.  This  represented  management's  previous  estimate of
attainable  sublease  income for the remaining term of 44 months,  and leasehold
improvements.

                                       15

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
[UNAUDITED]
------------------------------------------------------------------------------



[12] Restructuring Plan [Continued]

During the year  ended  March 31,  1999,  the  Company  reduced  the  reserve by
$170,454 which represented the annual lease payments.  Therefore,  the Company's
restructuring  reserve  as of  December  31,  1999 of  $356,237  represents  the
remaining 23 months on the lease term.

[13] Income Taxes

The Company and its consolidated  subsidiaries apply the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".

The Company has net operating loss carry forwards of approximately $4,600,000 of
which approximately  $100,000 will expire in 2011,  approximately  $600,000 will
expire in 2012,  approximately $2,400,000 will expire in 2013, and approximately
$1,500,000 will expire in 2014.

The major components of deferred income tax assets and liability are as follows:

Deferred Tax Liability
  Depreciation and Amortization       $   20,000
                                      ==========
Deferred Tax Asset
  Reserves and allowances             $  352,000
  Stock based compensation               152,000
  Net Operating loss carry forwards    1,840,000
                                      ----------

  Total Deferred Tax Assets           $2,344,000
                                      ==========

  Net Deferred Tax Asset Before
   Valuation Allowance                $2,324,000
   Valuation Allowance                (2,324,000)
                                      ----------

   Net                                $       --
   ---                                ==========

Due to the  uncertainty  whether the Company will generate  income in the future
sufficient to fully or partially  utilize the net operating loss  carryforwards,
the Company  recorded a valuation  allowance of $2,324,000.  This  represents an
increase in its valuation  allowance of $735,000 over the allowance at March 31,
1998.

[14] Stock Options

In  March  1996,  the  Board  of  Directors  of the  Company  adopted,  and  the
stockholders  of the  Company  approved  the  adoption  of,  the 1996 Stock Plan
[hereinafter called the "1996 Plan"]. The purpose of the 1996 Plan is to provide
an incentive and reward for those executive  officers and other key employees in
a position  to  contribute  substantially  to the  progress  and  success of the
Company,  to closely align  employees with the interests of  stockholders of the
Company by linking  benefits to stock  performance and to retain the services of
such employees,  as well as to attract new key employees. In furtherance of that
purpose,  the 1996  Plan  authorizes  the  grant to  executives  and  other  key
employees of the Company stock options,  restricted stock, deferred stock, bonus
shares,   performance  awards,   dividend  equivalents  rights,   limited  stock
appreciation  rights and other stock-based  awards, or any combination  thereof.
The maximum number of shares of common stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially  250,000 shares.  No options were
granted under the 1996 Plan.



                                       16

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
[UNAUDITED]
------------------------------------------------------------------------------


[14] Stock Options [Continued]

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued to  Employees,"  and related  interpretations,  for stock  options
issued to employees in  accounting  for its stock option  plans.  Pursuant to an
employment agreement and incentive stock option plan entered into December 1996,
compensation   expense  has  been  recognized  for  the  Company's   stock-based
compensation in the amounts of $10,000 and $90,000 for the years ended March 31,
1999 and 1998.  The  exercise  price for all stock  options  issued to employees
during  fiscal years 1999 and 1998 were below the market price of the  Company's
stock at the date of grant.

A summary of the activity under the plan is as follows:
                                                                      Weighted
                                                             Weighted  Average
                                                              Average Remaining
                                Seller/   President          ExerciseContractual
                                Others    [Note 7F]   Shares   Price    Life

  Outstanding - March 31, 1997  100,000    10,000    110,000  $ .0001
  ----------------------------

Granted                              --    20,000     20,000    .0003
Exercised                       (50,000)       --    (50,000)  (.0001)
Forfeited/Expired                    --        --         --       --
                              ---------  --------  ---------  -------

  Outstanding - March 31, 1998   50,000    30,000     80,000    .0002
  ----------------------------

Granted                          50,000    20,000     70,000    .0001
Exercised                       (50,000)       --    (50,000)  (.0001)
Forfeited/Expired               (50,000)       --    (50,000)  (.0001)
                              ---------  --------  ---------  -------

  Outstanding - March 31, 1999       --    50,000     50,000  $  0002
  ----------------------------=========  ========  =========  =======

  Outstanding - June 30, 1999        --    50,000     50,000  $ .0002
  --------------------------- =========  ========  =========  =======

  Exercisable - March 31, 1999       --     8,000      8,000  $ .0002  3 Years
  ----------------------------=========  ========  =========  =======  =======

  Exercisable - June 30, 1999        --     8,000      8,000  $ .0002  3 Years
  --------------------------- =========  ========  =========  =======  =======

  Exercisable - September 30, 1999   --     8,000      8,000  $ .0002  3 Years
  --------------------------------=====  ========  =========  -------  =======

  Exercisable - December 31, 1999    --     8,000      8,000  $ .0002  3 Years
  -------------------------------======  ========  =========  =======  =======

Weighted  average fair value of options  granted during fiscal 1999 and 1998 was
$.50 and $4.50, respectively.

Had  compensation  cost been  determined on the basis of fair value  pursuant to
SFAS No. 123, for the shares under employee  options [See Note 7F] for the years
ended  March 31,  1999 and 1998,  net loss and loss per share would have been as
follows:
                                         1 9 9 8     1 9 9 7
                                         -------     -------
Net Loss:
  As Reported                         $(2,698,220)$(4,527,233)
  Pro Forma                           $(2,698,218)$(4,527,228)

Basic Earnings Per Share:
  As Reported                         $    (1.37) $    (2.65)
                                      ==========  ==========
  Pro Forma                           $    (1.37) $    (2.65)
                                      ==========  ==========

                                       17

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
[UNAUDITED]
------------------------------------------------------------------------------



[14] Stock Options [Continued]

The fair  value  used in the pro  forma  data was  estimated  by using an option
pricing model which took into account as of the grant date,  the exercise  price
and the expected life of the option,  the current price of the underlying  stock
and its expected  volatility,  expected dividends on the stock and the risk-free
interest rate for the expected term of the option.  The following is the average
of the data used for the following items.

        Risk-Free                        Expected         Expected
      Interest Rate     Expected Life   Volatility        Dividends

           6%              2 Years         188%             None

[15] Fair Value of Financial Instruments

At December 31, 1999,  financial  instruments include cash, accounts receivable,
accounts payable, loans to and from related parties and debt. The fair values of
cash,  accounts  receivable,  accounts  payable  and  loans to and from  related
parties  approximates  carrying value because of the short-term  nature of these
instruments.  The fair  value of debt  approximates  carrying  value  since  the
interest rates approximates the Company's cost of capital.

[16] Subsequent Events

Termination of Merger  Agreement - On April 21, 1998, the Company entered into a
merger agreement with Interiors,  Inc.  ["Interiors"] whereby each of the issued
and  outstanding  shares of Decor common stock shall be converted into the right
to receive a one half share [the "Exchange Ratio"] of validly issued, fully paid
and  nonassessable  shares of Class A common  stock of  Interiors.  The  Company
received a fairness  opinion of a  qualified  investment  banking  firm,  to the
effect that,  the Exchange  Ratio for the  conversion of Decor common stock into
Interiors'  Class A  common  stock  is fair  from a  financial  point of view to
holders of shares of Decor common  stock.  All options and warrants  outstanding
for Decor common stock were subject to the same  Exchange  Ratio for  Interiors'
Class A common stock.

On August 4, 1999, this merger agreement was terminated by Interiors, Inc.

[17] New Authoritative Pronouncements

In June  1998,  The  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.



                                       18

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
[UNAUDITED]
------------------------------------------------------------------------------



[17] New Authoritative Pronouncements [Continued]

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of  Position  ["SOP"]  98-5,  "Reporting  on the  Costs  of  Start-Up
Activities." SOP 98-5 provides  guidance on the financial  reporting of start-up
costs and  organization  costs,  and requires  that such costs to be expensed as
incurred.  SOP 98-5  applies to all  nongovernmental  entities  and is generally
effective  for  fiscal  years  beginning   after  December  15,  1998.   Earlier
application is encouraged in fiscal years for which annual financial  statements
previously  have not been  issued.  The  adoption of SOP 98-5 is not expected to
have a material  impact on results of operations,  financial  position,  or cash
flows of the  Company  as the  Company's  current  policy  is  substantially  in
accordance with SOP 98-5.

The  Financial  Accounting  Standards  Board  ["FASB"]  has had on its  agenda a
project to address certain practice issues regarding Accounting Principles Board
["APB"]  Opinion No. 25,  "Accounting  for Stock Issued to Employees."  The FASB
plans on issuing various  interpretations of APB Opinion No. 25 to address these
practice issues. The proposed effective date of these  interpretations  would be
the  issuance  date of the  final  Interpretation,  which is  expected  to be in
September 1999. If adopted,  the Interpretation  would be applied  prospectively
but would be applied to plan  modification  and grants that occur after December
15, 1998. The FASB's tentative interpretations are as follows:

*   APB Opinion No. 25 has been applied in practice to include in its definition
    of  employees,  outside  members of the board or directors  and  independent
    contractors.  The FASB's interpretation of APB Opinion No. 25 will limit the
    definition of an employee to individuals  who meet the common law definition
    of an  employee  [which  also  is the  basis  for  the  distinction  between
    employees and nonemployees in the current U.S. tax code]. Outside members of
    the board of directors and  independent  contractors  would be excluded from
    the scope of APB  Opinion  No. 25 unless  they  qualify as  employees  under
    common law. Accordingly,  the cost of issuing stock options to board members
    and  independent  contractors  not meeting the common law  definition  of an
    employee will have to be determined  in accordance  with FASB  Statement No.
    123,  "Accounting for Stock-Based  Compensation," and usually recorded as an
    expense in the period of the grant [the service period could be prospective,
    however, see EITF 96-18].

*   Options  [or  other  equity  instruments]  of a  parent  company  issued  to
    employees of a subsidiary should be considered  options,  etc. issued by the
    employer  corporation  in  the  consolidated   financial  statements,   and,
    accordingly,  APB  Opinion  No. 25 should  continue  to be  applied  in such
    situations. This interpretation would apply to subsidiary companies only; it
    would not apply to equity method investees or joint ventures.



                                       19

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
[UNAUDITED]
------------------------------------------------------------------------------



[17] New Authoritative Pronouncements [Continued]

*   If the terms of an option  [originally  accounted for as a fixed option] are
    modified during the option term to directly  change the exercise price,  the
    modified option should be accounted for as a variable option. Variable grant
    accounting  should be applied to the  modified  option  from the date of the
    modification until the date of exercise. Consequently, the final measurement
    of  compensation   expense  would  occur  at  the  date  of  exercise.   The
    cancellation  of an option and the  issuance  of a new  option  with a lower
    exercise price shortly  thereafter  [for example,  within six months] to the
    same  individual  should be  considered  in substance a modified  [variable]
    option.

*   Additional  interpretations will address how to measure compensation expense
    when a new measurement date is required.






                    .   .   .   .   .   .   .   .   .   .   .



                                       20

<PAGE>



Item 2

DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


OVERVIEW

Decor Group,  Inc. [the  "Company" or "Decor"] was formed in March of 1996.  The
primary  activities  of Decor  prior to the  $3,700,000  acquisition  of Artisan
House,  Inc.  ["Artisan"]  on November 18, 1996,  was  investing  and  financing
activities.  Artisan is engaged in the design,  manufacturing  and  marketing of
metal wall-mounted, tabletop and freestanding sculptures.

On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting  Convertible  Preferred Stock and an option to purchase  20,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors, Inc. issuing to the Company 200,000 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000.  This option was  exercised in  September  of 1996.  The exchange of
shares  between the Company and  Interiors,  Inc. was pursuant to the  Company's
intentions to secure the ongoing and long-term  availability  of these services.
On May 28, 1996, the Company entered into a management agreement with Interiors,
Inc.  whereby  Interiors,  Inc. will provide the Company  certain  marketing and
management  services [See Notes 4]. In September  1997,  the Company sold all of
the common and  preferred  shares of Interiors  stock to an unrelated  party for
gross proceeds of $487,127 and, accordingly,  realized a loss of $1,112,873.  As
of March 31, 1999,  Interiors,  Inc. owned approximately 90% of the total voting
stock outstanding  assuming no conversion of the Series A and Series C Preferred
Stock.

On April 21, 1998, the Company  entered into a merger  agreement with Interiors,
Inc.  ["Interiors"]  whereby each of the issued and outstanding  shares of Decor
common stock shall be converted  into the right to receive a one half share [the
"Exchange  Ratio"] of validly  issued,  fully paid and  nonassessable  shares of
Class A common stock of Interiors.  The Company received a fairness opinion of a
qualified  investment  banking firm, to the effect that,  the Exchange Ratio for
the  conversion  of Decor common stock into  Interiors'  Class A common stock is
fair from a financial  point of view to holders of shares of Decor common stock.
All options and warrants  outstanding for Decor common stock were subject to the
same Exchange Ratio for Interiors' Class A common stock.

On August 4, 1999, this merger agreement was terminated by Interiors, Inc.

The  financial  statements  consolidated  the results of Artisan  House with the
Company commencing November 18, 1996, the date of acquisition.

RESULTS OF OPERATIONS

The  Company  had  revenues  and cost of  revenues  for the three  months  ended
December  31, 1999 of  $765,604  and  $492,862,  respectively.  This  represents
Artisan's sales and cost of sales  transactions for the quarter then ended which
resulted in a gross profit of $272,742 to the Company.

The  Company had  selling,  general and  administrative  expenses  for the three
months  ended  December  31, 1999 of $367,249  of which  approximately  $329,641
represented Artisan's expenses for the period then ended.

For the three months ended  December 31, 1999,  Artisan had an operating loss of
$56,899. The minimum wage increases in the United States has created a favorable
environment  for  choosing  outsourcing  as a means  of  reducing  labor  costs.
Management believes that in fiscal 2000 by outsourcing its products from vendors
outside the United  States an improved  gross  profit can be  achieved.  Artisan
House is currently  purchasing  from a foreign  vendor  packaged,  ready-to-sell
versions of several of Artisan's existing line of products,  the result of which
will  reduce  costs on the items  affected  by between  32% and 43%.  Artisan is
expanding  this  outsourcing  process to additional  items to further reduce the
cost of goods sold.


                                       21

<PAGE>



DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


RESULTS OF OPERATIONS [CONTINUED]

The Company  produced net loss of $130,381  for the three months ended  December
31, 1999 of which  Artisan House had a loss of  approximately  $84,947 and Decor
incurred a net loss of  approximately  $45,434.  The net loss  included  noncash
expenses of approximately $35,358.

Management  believes that in fiscal 2000,  administrative and sales expenses can
be  decreased  by the  installation  of a new  computer  system and  merging the
administrative and sales functions with those of entities acquired by Interiors,
Inc.  The  restructuring  and  relocation  of  the  Company's  headquarters  and
manufacturing operations that occurred in March 1999 is the result of Interiors,
Inc.'s acquisition of various  companies.  The new computer system was installed
in December 1999.

The Company's  auditors  rendered a going concern report as of March 31, 1999 as
the Company has suffered recurring losses from operations.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, Decor had a working capital deficit of $2,212,590. For the
nine months  ended  December 31,  1999,  the Company used $23,370 for  operating
activities,  used $20,690 from investing  activities and generated  $91,989 from
financing  activities.  The cash balance at December 31, 1999 was  approximately
$49,000. Management believes that its short and long-term cash requirements will
be  generated  from  operations  in fiscal 2000  resulting  from its  forecasted
improved  gross  profit and  reduction  of selling,  general and  administrative
expenses.

On November 18, 1996, the Company issued a secured promissory note in the amount
of  $923,496  to the  seller  of  Artisan  House of which  $100,000  was paid in
February of 1997 and the balance will be paid in 60 equal  monthly  installments
of $13,989 with a final payment of $150,000 at maturity  bearing interest at 8%.
The note is  secured  by a  second  interest  on all of  Artisan's  assets.  The
non-interest bearing portion of the note was discounted at 8% which gave rise to
a discount of $48,387.

In connection  with the  acquisition,  the Company  assumed notes payable in the
aggregate  amount of $212,891 of which  approximately  $190,000  was paid off in
connection  with the  closing  of the  acquisition  and the  remaining  notes of
approximately  $18,000 bear interest ranging from 9.5% to 13.4% maturing through
2001. Such notes are collateralized by various equipment of the Company.

On December 31, 1996,  Artisan  entered into a three year  employment  agreement
with  Artisan's  Chief  Operating  Officer and  Treasurer  for (i) a base annual
salary of $100,000;  (ii) a cash bonus equal to ten percent  [10%] of the annual
salary, based upon Artisan's net profit before taxes ["NPBT"];  and (iii) a cash
bonus  equal to five  percent  [5%] of the  increase  in NPBT over the  previous
fiscal year,  not to exceed 40% of the base salary.  The agreement also provides
options to purchase  10,000  shares of the  Company's  common stock per year for
each year of the  agreement  at an  exercise  price  equal to  $.0003  per share
exercisable  after one year for a period of five  years.  The  Company  recorded
deferred  compensation  of $180,000  for the options in the year ended March 31,
1997. For the years ended March 31, 1999 and 1998, the Company amortized $60,000
and $64,285, respectively, as compensation expense. Amortization of compensation
expense was $12,858 for the three months ended December 31, 1999.

The agreement also provides  additional  performance  options to purchase 10,000
shares of the Company's common stock  exercisable for a period of one year at an
exercise price equal to the average closing price of the Company's stock for the
20 days  ending  two days  prior to date of grant for each of the  years  ending
March 31, 1998, 1999 and 2000.  Continued  employment by the Company is required
and the Company must meet or exceed 115% of the prior year's NPBT.


                                       22

<PAGE>



DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

In December of 1997, the officer received 20,000 options,  which represented the
additional 10,000 options due on January 1, 1998 under the employment  agreement
and an additional 10,000 options.  The Company recorded  compensation expense of
$90,000 on January 1, 1998.

On January 2, 1999, the officer received an additional  20,000 options under the
employment  agreement  whereby  the  Company  recorded  compensation  expense of
$10,000 on January 2, 1999. The options vest  immediately  and are not available
for exercise until January 2000 and will expire January 2005.

In March of 1999, the Company accrued a bonus of $35,000 to the  President/Chief
Financial Officer.

In March 1997,  CIDCOA  brought an arbitration  proceeding  against the Company,
currently  settled,  alleging that it had failed to pay CIDCOA  additional  sums
owed to it in connection  with the  Company's  purchase of all of the assets and
assumption of  substantially  all of the liabilities of Artisan.  CIDCOA alleged
that  it  was  owed  a  purchase  price  adjustment.   The  Company  denied  the
allegations,  and  brought  counterclaims  against  CIDCOA  alleging  breach  of
contract,  breach of warranty,  misrepresentation and fraud by CIDCOA. In August
1997, CIDCOA filed a motion seeking to enforce an alleged  settlement  agreement
made by the parties.  In September  1997, the Company  entered into a settlement
agreement with CIDCOA  included in which was the payment of (i) a purchase price
adjustment  of  approximately  $100,000  and  (ii)  $158,438  in lieu of  10,000
registered shares of the Company which were never issued to CIDCOA. In addition,
the  settlement  confirms  that the original  amount of the  promissory  note is
$926,400 and confirms that the monthly payments under the note shall be $13,989,
reinstates the terminated  employment agreement with Henry Goldman [See Note 7A]
and provides for the Company to bring current all disputed  payments and amounts
due Goldman and CIDCOA under the original purchase and employment agreements. In
addition,  the  settlement  modifies  certain  compensation  provisions  of  the
employment   agreement.   Further,   the  settlement   agreement  provides  that
obligations  to CIDCOA and Goldman under the  promissory  note,  the  employment
agreement and Artisan  House's real property lease for its operating  facilities
will be guaranteed by the Company and Interiors, Inc.

The Company entered into an arbitration with  Goldman/CIDCOA  concerning various
financial  compensation  claims on October 29, 1998. A settlement was reached in
January  1999,  that  provided  for (i)  payment of a finders fee of $119,000 on
companies  purchased by Interiors [See Notes 4A and 7A], (ii) the removal of the
restrictive  legend on the stock  issued  pursuant  to H.  Goldman  exercise  of
options in 1997 and (iii) the issuance of stock due in 1998. Goldman/CIDCOA also
withdrew their claims.

On September 15, 1998, Artisan obtained an increased  accounts  receivable based
line of credit for up to $950,000  with  interest at prime plus 5.5%  secured by
all of  Artisan's  assets  and  guaranteed  by Decor  and  Interiors,  Inc.  The
unborrowed  amount  available  under  the line of  credit  at June 30,  1999 was
$24,220. At June 30, 1999, Artisan had an outstanding  balance of $585,036.  The
line of credit has an expiration  date of June 30, 1999.  The term of the credit
line automatically renews each year unless notice is given by either the Company
or the lender to the other,  respectively  within a period not less than 60 days
prior to  expiration.  No such notice has been given or received by the Company.
The Company is not in  violation of any of the  covenants of the loan.  Interest
expense and collection  and processing  fees for the three months ended June 30,
1999 was $21,384 and $8,102,  respectively.  On July 1, 1999, the loan agreement
was renewed with a new interest rate of prime plus 2%.

The line of credit includes a term loan originating in the amount of $100,000 as
of  December  31,  1998.  Principal  payments of $5,000 per month are due on the
loan.

The Company is contingently  liable as guarantor of the debts owed to the lender
of the line of credit by  related  parties  with  aggregate  indebtedness  up to
$14,400,000.


                                       23

<PAGE>



DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



NEW AUTHORITATIVE PRONOUNCEMENTS

In June  1998,  The  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

IMPACT OF INFLATION

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




                                       24

<PAGE>


SIGNATURES
------------------------------------------------------------------------------




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

                                    DECOR GROUP, INC.




Date:  February 14, 2000            By:/s/ Max Munn
                                       ---------------------------------
                                         Max Munn,
                                         Chief Executive Officer




                                       25

<PAGE>