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 quarter ended     December 31, 1997    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  11, 1998 there were  1,709,176  shares of common
stock outstanding.


<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
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INDEX
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                                                                    Page to Page


Part I: Financial Information

Item 1. Consolidated Financial Statements:

   Consolidated Balance Sheet as of December 31, 1997 [Unaudited].... 1....... 2

   Consolidated Statements of Operations for the three and nine months
   ended December 31, 1997 and 1996 [Unaudited]...................... 3.......

   Consolidated Statement of Stockholders' Equity for the nine months
   ended December 31, 1997 [Unaudited]............................... 4.......

   Consolidated Statements of Cash Flows for the nine months ended
   December 31, 1997 and 1996 [Unaudited]............................ 5....... 6

   Notes to Consolidated Financial Statements [Unaudited]............ 7.......14

Item 2: Management's Discussion and Analysis of Financial
        Condition and Results of Operations..........................15.......19

Signature............................................................20.......




                        . . . . . . . . . . . . . . . . . .



<PAGE>



Item 1:

DECOR GROUP, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


Assets:
Current Assets:
<S>                                                                     <C>        
  Cash                                                                  $    22,448
  Accounts Receivable [Net of Allowance of $150,763]                        789,392
  Non-Trade Receivable                                                       41,478
  Inventories                                                               884,004
  Prepaid Expenses and Other Current Assets                                 152,904
                                                                        -----------

  Total Current Assets                                                    1,890,226
                                                                        -----------
Property and Equipment [Net of Accumulated Depreciation of $430,681]        102,323
                                                                        -----------

Other Assets:
  Goodwill [Net of Accumulated Amortization of $124,232]                  1,653,104
  Other Intangible Assets [Net of Accumulated Amortization of $53,199]      546,801
  Other Assets                                                               21,256
                                                                        -----------

  Total Other Assets                                                      2,221,161
                                                                        -----------
  Total Assets                                                          $ 4,213,710
                                                                        ===========





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

</TABLE>
                                        1

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>




Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                                     <C>        
  Accounts Payable and Accrued Expenses                                 $   369,470
  Due to Stockholders                                                       431,201
  Accrued Compensation and Benefits - Former Officer                        184,916
  Accrued Costs for Restructuring                                           230,375
  Line of Credit                                                             80,367
  Current Portion of Long-Term Debt                                          30,336
  Accrued Interest - Related Party                                           23,872
                                                                        -----------

  Total Current Liabilities                                               1,350,537

Long-Term Debt                                                              622,839
                                                                        -----------
  Total Liabilities                                                       1,973,376
                                                                        -----------
Commitments and Contingencies [7]                                                 -
                                                                        -----------
Stockholders' Equity:
  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 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,
   1,709,176 Issued and Outstanding                                             171

  Additional Paid-in Capital - Common Stock                               4,122,752

  Accumulated Deficit                                                    (3,647,422)
                                                                        -----------
  Deferred Compensation                                                    (661,167)
                                                                        -----------    
  Total Stockholders' Equity                                              2,240,334
                                                                        -----------
  Total Liabilities and Stockholders' Equity                            $ 4,213,710
                                                                        ===========



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         2

<PAGE>



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


CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>




                                   Three months ended          Nine months ended
                                      December 31,                December 31,
                                      ------------                ------------
                                 1 9 9 7        1 9 9 6      1 9 9 7       1 9 9 6
                                 -------        -------      -------       -------

<S>                             <C>          <C>           <C>          <C>        
Revenues                        $1,193,892   $   635,031   $3,797,334   $   635,031

Cost of Revenues                   574,452       347,387    1,894,228       347,387
                                ----------   -----------   ----------   -----------

  Gross Profit                     619,440       287,644    1,903,106       287,644
                                ----------   -----------   ----------   -----------

Selling, General and Administrative
  Expenses:
  Administrative Expenses          658,568       321,204    2,335,761       475,122
  Selling Expense                  366,171        92,433    1,064,142        92,433
                                ----------   -----------   ----------   -----------

  Total Selling, General and
   Administrative Expenses       1,024,739       413,637    3,399,903       567,555
                                ----------   -----------   ----------   -----------

  [Loss] from Operations          (405,299)     (125,993)  (1,496,797)     (279,911)
                                ----------   -----------   ----------   -----------

Other Income [Expense]:
  Loss on Sale of Investment in
   Related Party                        --            --   (1,112,873)           --
  Interest Income                       --         1,974            -         3,529
  Miscellaneous Expense            (51,295)           --      (51,295)           --
  Miscellaneous Income              24,916            --       56,068            --
  Interest Expense - Related Party  (5,651)       (2,560)     (16,425)       (4,060)
  Interest Expense                 (26,034)      (71,214)     (61,217)     (236,939)
                                ----------   -----------   ----------   -----------

  Other [Expense] - Net            (58,064)      (71,800)  (1,185,742)     (237,470)
                                ----------   -----------   ----------   -----------

  [Loss] Before Provision for
   Income Taxes                   (463,363)     (197,793)  (2,682,539)     (517,381)

Provision for Income Taxes           8,241         4,818        9,337         4,818
                                ----------   -----------   ----------   -----------

  Net [Loss]                    $ (471,604)  $  (202,611)  $(2,691,876) $  (522,199)
                                ==========   ===========   ===========  ===========

Basic and Diluted Earnings Per Share:

  [Loss] Per Share              $     (.28)  $      (.14)  $    (1.58)  $      (.30)
                                ==========   ===========   ==========   ===========

  Number of Common Shares        1,709,176     1,496,833    1,708,343     1,873,944
                                ==========   ===========   ==========   ===========



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         3

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>




                                       Preferred Stock            Common Stock                                Unrealized
                                                 Additional                 Additional                         Holding     Total
                                                  Paid-in                    Paid-in   Accumulated  Deferred   Loss on Stockholders'
                                 Shares   Amount  Capital   Shares   Amount  Capital     Deficit  Compensation Investment  Equity

<S>                            <C>        <C>    <C>        <C>       <C>  <C>           <C>        <C>        <C>        <C>       
 Balance - April 1, 1997       20,304,934 $2,030 $2,423,970 1,707,510 $171 $4,035,252  $  (955,546) $(991,167) $(787,400) $3,727,310

Issuance of Common Shares to 
 Former Employee [7C]                  --     --         --     1,666   --     17,500           --         --         --      17,500

Adjustment on Disposal of 
 Securities Available for Sale         --     --         --        --   --         --           --         --    787,400     787,400

Deferred Compensation in 
 Connection with Issuance of 
 Stock Options                         --     --         --        --   --     70,000           --    (70,000)        --          --
 
Amortization of Deferred 
 Compensation                          --     --         --        --   --         --           --    400,000         --     400,000

Net [Loss] for the nine months
 ended December 31, 1997               --     --         --        --   --         --   (2,691,876)        --         -- (2,691,876)
                                 -------- ------ ---------- --------- ----   ---------  ----------   --------    -------  ----------

 Balance - December 31, 1997   20,304,934 $2,030 $2,423,970 1,709,176 $171  $4,122,752 $(3,647,422) $(661,167) $      --  $2,240,334
                               ========== ====== ========== ========= ====  ========== ============ =========  =========  ==========



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                               4

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


                                                               Nine months ended
                                                                  December 31,
                                                              1 9 9 7       1 9 9 6
                                                              -------       -------
Operating Activities:
<S>                                                        <C>          <C>         
  Net [Loss]                                               $(2,691,876) $  (522,199)
  Adjustment to Reconcile Net [Loss] to Net Cash
   [Used for] Operating Activities:
   Loss on Sale of Investment in Related Party              1,112,873            --
   Amortization of Deferred Compensation                      400,000        60,083
   Accrued Management Fees - Related Party                     67,500            --
   Bad Debt Expense                                            38,980            --
   Amortization of Intangibles                                 85,983
   Depreciation                                                29,938        24,502
   Stock Issued for Services - Former Employee                 17,500            --
   Accrual Interest Payable                                    16,425             -
   Accrued Interest Receivable                                      -          (953)
   Interest - Cost of Bridge Warrants                               -       214,300
   Amortization of Note Payable Discount                            -         2,058

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                      289,203       (16,647)
     Non-Trade Receivable                                     (41,478)           --
     Inventory                                                 76,014            --
     Prepaid Expenses                                         (47,231)      (35,600)

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses                   (166,682)      134,876
     Accrued Compensation and Benefit - Former Officer        184,916            --
     Accrued Acquisition Costs                               (284,999)           --
     Accrued Costs for Restructuring                          230,375            --
                                                           ----------   -----------

  Net Cash - Operating Activities - Forward                  (682,559)     (139,580)
                                                           ----------   -----------

Investing Activities:
  Purchase of Fixed Assets                                    (16,118)           --
  Proceeds from Sale of Investment in Related Party           487,127            --
  Other Assets                                                (19,802)       (2,251)
  Cash Paid for Acquisition of Artisan House                        -    (2,250,000)
  Advances to Related Party                                         -       (50,000)
  Collections from Related Party                                    -       100,250
                                                           ----------   -----------

  Net Cash - Investing Activities - Forward                $  451,207   $(2,202,001)



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                         5

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


                                                               Nine months ended
                                                                  December 31,
                                                              1 9 9 7       1 9 9 6
                                                              -------       -------

<S>                                                        <C>          <C>         
  Net Cash - Operating Activities - Forwarded              $ (682,559)  $  (139,580)
                                                           ----------   -----------

  Net Cash - Investing Activities - Forwarded                 451,207    (2,202,001)
                                                           ----------   -----------

Financing Activities:
  Proceeds from Line of Credit                                 80,367            --
  Proceeds from Stockholder Loans                             184,916       201,238
  Proceeds from Sale of Common Stock in Connection
   with Initial Public Offering                                     -     2,248,033
  Proceeds from Sale of Preferred Stock                             -       826,000
  Proceeds from Sale of Common Stock                                -         8,000
  Payment of Notes and Leases Payable                        (130,991)     (191,200)
  Payment of Stockholder Loans                                (50,000)           --
  Payment of Bridge Loans                                           -      (250,000)
                                                           ----------   -----------

  Net Cash - Financing Activities - Forward                    84,292     2,842,071
                                                           ----------   -----------

  Net [Decrease] Increase in Cash                            (147,060)      500,490

Cash - Beginning of Periods                                   169,508        47,000
                                                           ----------   -----------

  Cash - End of Periods                                    $   22,448   $   547,490
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                                $   61,217   $       315
   Income Taxes                                            $    9,337   $        --
</TABLE>

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
  During the period  ended March 31,  1996,  the Company  recorded a discount of
$214,300  on the bridge loan  resulting  from the  issuance of warrants  for the
$250,000 bridge loan. For the period ended March 31, 1997, the Company amortized
$214,300 as interest expense.

  On March 3, 1996,  the Company  issued to Interiors,  Inc.  250,000  shares of
Class A Convertible  Preferred Stock and an option to purchase 20,000,000 shares
of Class B  Non-Convertible  Preferred  Stock 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 and
a guarantee  with respect to certain  indebtedness  [See Notes 6,  Investment in
Interiors, Inc. and 12, Proposed Merger].

  In March 1996,  the Company issued  1,312,500  shares of common stock to seven
parties for  $105,000 of which  $103,000 was in cash and $2,000 was for the fair
value  of  services.  At  March  31,  1996,  $8,000  was  reflected  as a  stock
subscription receivable and was collected on May 21, 1996.

  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 House,  Inc. for  approximately  $3,700,000,  of
which  $2,400,000  was paid in cash,  $300,000  in shares  of  common  stock and
$1,050,000  in notes.  The Company  primarily  acquired  accounts  receivable of
approximately  $1,100,000,  inventory  of  approximately  $800,000  and  assumed
liabilities of approximately $578,000.

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

                                         6

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARY
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 is a
subsidiary  of  Interiors,  Inc.  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. [See Notes 2 and 6].

[B] Basis of Reporting - The accompanying  unaudited  financial  statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim financial  information and with the instructions to Form 10-QSB and Item
310(b)of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting  principles for complete
financial statements. In the opinion of management,  the accompanying statements
include all  adjustments  which are  considered  necessary  in order to make the
interim financial statements not misleading.

[C] 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, 1997.

[D] 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.

[E] 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                                 2 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.

[F] Marketable Securities - Statement of Financial Accounting Standards ["SFAS"]
No. 115,  "Accounting  for Certain  Investments in Debt and Equity  Securities",
addresses the accounting and reporting for investments in equity securities that
have  readily   determinable  fair  values  and  for  all  investments  in  debt
securities.  Those  investments  are to be classified  into the following  three
categories:   held-to-maturity   debt  securities;   trading   securities;   and
available-for-sale securities.

Management determines the appropriate  classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date.  Debt securities for which the Company does not have
the intent or ability to hold to maturity are  classified as available for sale,
along with the Company's  investment in equity securities.  Securities available
for sale are  carried  at fair  value,  with any  unrealized  holding  gains and
losses,  net of tax,  reported in a separate  component of shareholders'  equity
until realized.  Trading  securities are securities  bought and held principally
for the purpose of selling them in the near term and are reported at fair value,
with  unrealized  gains and losses  included in operations for the current year.
Held-to-maturity debt securities are reported at amortized cost.



                                        7

<PAGE>



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


[1] Summary of Significant Accounting Policies [Continued]

[G]  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.  The Company has
decided  to  amortize  its  goodwill  over  a  period  of  10  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  will be to  reduce  future  annual
amortization of goodwill 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 less than the  projected
undiscounted cash flow from the acquired assets or business.

Goodwill  and  the  other  intangible  assets  have  been  amortized  using  the
straight-line  method  over  fifteen to twenty  years.  In  connection  with the
acquisition of Artisan House, Inc. in November 1996,  goodwill of $2,100,000 was
recorded using the purchase  method.  The  covenant-not-to-compete  is amortized
over fifteen years under the straight-line method.

[H] 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 valued 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.

[I] Offering Costs - Such costs were recorded as a reduction of the net proceeds
of the offering.

[J]  Earnings  Per Share - The FASB  issued SFAS No. 128  Earnings  Per Share in
February  1997.   SFAS  No.  128  simplifies  the  earnings  per  share  ["EPS"]
calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and
related  interpretations,  by replacing the  presentation  of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual  presentation of basic and
diluted EPS by entities with complex capital  structures.  Basic EPS includes no
dilution and is computed by dividing income available to common  stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS  reflects  the  potential  dilution  of  securities  that could share in the
earnings of an entity,  similar to the fully  diluted EPS of APB Opinion No. 15.
SFAS No. 128 is effective for  financial  statements  issued for periods  ending
after  December 15, 1997,  including  interim  periods;  and,  accordingly,  all
prior-period EPS data presented is restated.

The number of shares to be used for earnings per share calculation  purposes for
June 30, 1996 was based on the 1,312,500  common shares issued since the initial
capitalization  and,  pursuant  to  Securities  and  Exchange  Commission  Staff
Accounting  Bulletin No. 83, on the 1,500,000  common shares assumed issued from
the warrants in  connection  with the bridge loan,  as if they were  outstanding
since  inception to June 30, 1996 [the last period in the IPO  Prospectus]  and,
for December 31, 1997,  the  1,709,176  shares  outstanding  from April 1, 1997.
Convertible  preferred  stock options and warrants are not included  because the
effect would be anti-dilutive.

                                        8

<PAGE>



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



[1] Summary of Significant Accounting Policies [Continued]

[K] 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, 1997, 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 $150,763 and as a consequence,  believes
that its  accounts  receivable  credit risk  exposure  beyond this  allowance is
limited. The Company does not require collateral on its accounts receivable.

[L] 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.

[M] 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.

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

[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.
The  Company  recorded  additional  costs of the  acquisition  of  approximately
$25,263 and $258,437 at March 31, 1997 and  September  30,  1997,  respectively,
which  represented  the excess fair value over the prescribed  contract  amounts
[See Note 8]. The transaction was recorded under the purchase  method.  Goodwill
and  other  intangibles  totaling  approximately  $2,199,905  will be  amortized
between  15-20  years  using  the  straight-line  method.   Goodwill  and  other
intangible  assets which were  previously  written down have been reversed by an
amendment filed in February of 1998. Operations of Artisan are included with the
Company from November 19, 1996 onward. The assets and liabilities of Artisan are
combined with those of the Company as of November 18, 1996.



                                        9

<PAGE>



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



[2] Acquisition - Artisan [Continued]

The following unaudited pro forma combined results of operations account for the
acquisition as if it had occurred at the beginning of the periods presented. The
pro forma results give effect to amortization  of goodwill and other  intangible
assets,  interest expense,  employment  contracts,  consulting  agreements,  and
options issued.
                                              Nine months ended
                                                December 31,
                                                   1 9 9 6

Total Revenues                                   $3,674,319

Net [Loss]                                       $ (944,378)
                                                 ==========

Net [Loss] Per Common Share                      $     (.17)
Weighted Average Number of Common Shares
  Outstanding                                     1,873,944

These pro forma amounts may not be  indicative  of results that  actually  would
have  occurred if the  combination  had been in effect on the date  indicated or
which may be obtained in the future.

[3] Inventories

The components of inventory were as follows:

Raw Materials                           $  356,971
Work-in Process                            186,562
Finished Goods                             340,471
                                        ----------

  Totals                                $  884,004
  ------                                ==========

During  September  1997,  the Company  wrote-off  obsolete  inventory of $67,330
resulting from lack of market demand.  This write off is included in the cost of
revenues.

[4] Related Party Transactions

[A] Note Receivable - Interiors - On March 5, 1996, the Company advanced $50,000
with 8% interest to a firm that renders management services to the Company.  The
Company was repaid on April 16, 1996. Interest income of $250 was recorded as of
March 31, 1996. On August 29, 1996 and September 13, 1996, the Company  advanced
an additional $50,000 with 10% interest.  The Company was repaid on November 15,
1996.

[B] Management Agreements - 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 management fee has been accrued  quarterly and 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 [See Note 12 - Proposed Merger]



                                       10

<PAGE>



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



[4] Related Party Transactions [Continued]

[C] Due to Stockholder - Interiors - Interest at 8%, or  approximately  $12,510,
has been accrued on the outstanding balance due to Interiors of $202,785 for the
nine months ended December 31, 1997 [See Note 12 - Proposed Merger].

[D] 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 have a maturity date in April 1998.
Interest expense for the nine months ended December 31, 1997 was $3,915.

[5] Commitment Letter - Secured Loan Agreement

On May 31, 1996, the Company received a commitment letter for a revolving credit
agreement for a maximum loan amount of  $1,100,000.  The agreement  requires the
satisfaction of a number of conditions prior to funding including the completion
of a due diligence review. The terms of the loan include an annual interest rate
of prime plus 4%, a management fee of 3% of sales, a security interest in all of
the Company's accounts receivable,  inventory,  and equipment,  and any proceeds
therefrom,  a personal  guaranty by the Company's  Chairman of the Board,  and a
prepayment  fee of  $25,000.  In the event that the Company is unable to satisfy
such  conditions,  the Company will not receive the proceeds from such loan. Due
to the  consummation  of a new agreement in July 1997, the Company  allowed this
commitment letter to expire.

On July 1, 1997,  Artisan  obtained an accounts  receivable based line of credit
for up to $600,000  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, 1997 was $508,091.

[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 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. 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 4B].  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 December 31, 1997, Interiors, Inc. owned approximately 79% of
the  Company's  total voting stock  outstanding  assuming no  conversion  of the
Series A and Series C Preferred Stock [See Note 12 - Proposed Merger].

[7] Commitments and Contingencies

[A]  Employment  Agreement - Seller - Artisan's  employment  agreement  with the
seller was terminated  effective July 8, 1997. In connection with the settlement
agreement in September 1997 with CIDCOA International, Inc. ["CIDCOA"], formerly
known,  as  Artisan  House,  Inc.  [See  Note 8],  the  Company  reinstated  the
employment  agreement  with the seller.  Accordingly,  the Company  recorded all
salary and benefits owed to the seller in the amount of $217,379 as of September
30, 1997.



                                       11

<PAGE>



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



[7] Commitments and Contingencies [Continued]

[A] Employment Agreement - Seller - On October 30, 1996, the Seller's employment
agreement 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. The Company recorded
deferred  compensation  cost for the fair  value of  options  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 and $375,000 for the nine months ended
December 31, 1997.

[B]  Consulting  Agreements  - On January 1, 1997,  the Company  entered  into a
consulting  agreement with a 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.

On March 1, 1997, Artisan entered into a consulting agreement to provide Artisan
with such consulting services as requested in connection with the stabilization,
updating and transition of Artisan's  accounting systems. The Company has agreed
to pay $11,500 per month for the term of the Consulting  Agreement.  The initial
term of the  Consulting  Agreement  is three  [3]  months  with  two,  one month
extensions. This agreement expired in July 1997.

[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.

[8] 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  representing the market
value as of June 13, 1997 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.



                                       12

<PAGE>



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



[9] Capital Stock

[A] 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.

[B] 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 1 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.

[C] 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 will
be  purchased  by the  Company at the  average  closing bid and ask price of the
common stock of the Company as of October 8, 1997.

[10] New Authoritative Pronouncements

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."  SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.  
Earlier application is permitted.  Reclassification of financial statements for 
earlier periods provided for comparative purposes is required.  SFAS No. 130 is 
not expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise 
and Related Information."  SFAS No. 131 changes how operating segments are 
reported in annual financial statements and requires the reporting of selected 
information about operating segments in interim financial reports issued to 
shareholders.  SFAS No. 131 is effective for periods beginning after 
December 15, 1997, and comparative information for earlier years is to be 
restated.  SFAS No. 131 need not be applied to interim financial statements in 
the initial year of its application.  SFAS No. 131 is not expected to have a 
material impact on the Company.

[11] Restructuring Plan

In September of 1997, the Company commenced and finalized efforts to formulate a
restructuring plan to satisfy its various investor constituencies.  Such efforts
have  included the  retention of various  advisors and analysis by management to
develop an exit plan and strategy to address the Company's  financial  situation
and disappointing financial performance.

In  September  1997,  the  Company's  management  approved  an exit  plan  which
addresses the above concerns by improving the manufacturing  and  administrative
operations of the Company for growth through improved  competitiveness,  quality
and effectiveness [See Note 1].

Accrued  restructuring  costs and charges  include the cost of shutting down the
current  operations  and moving  expenses to a new  location  for  approximately
$20,000 and the  projected  cost  differential  between the  projected  sublease
income and the lease  obligations on the current  premises  subject to Artisan's
House move in the amount of $210,375.  The restructuring costs are classified on
the statement of operations as administrative expenses.

                                       13

<PAGE>



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



[12] Proposed Merger

On October 20, 1997, the Company received a letter of intent from Interiors,
Inc. whereby Interiors, Inc. will acquire the remaining shares of Decor Group, 
Inc. it does not currently own. Interiors, Inc. would be the surviving 
corporation and all the outstanding shares of Decor would be canceled.  The 
merger consideration to be delivered by Interiors, Inc. to the stockholders of 
Decor Group, Inc. for the shares of Decor common stock outstanding at the date 
of closing of the proposed transaction will be shares of common stock of 
Interiors, Inc. based upon a fair market value evaluation.  There can be no 
assurance that the proposed transaction will be completed [See Note 6].





                    .   .   .   .   .   .   .   .   .   .   .

                                       14

<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 acquisition of Artisan House, Inc. 
["Artisan"] on November 18, 1996 for approximately $3,700,000, 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 Note 4B]. 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 December 31,  1997,  Interiors,  Inc.  owned  approximately  79% of the total
voting stock  outstanding  assuming no  conversion  of the Series A and Series C
Preferred Stock.

On October 20, 1997, the Company received a letter of intent from Interiors, 
Inc. whereby Interiors, Inc. will acquire the remaining shares of Decor Group, 
Inc. it does not currently own. Interiors, Inc. would be the surviving 
corporation and all the outstanding shares of Decor would be canceled.  The 
merger consideration to be delivered by Interiors, Inc. to the stockholders of 
Decor Group, Inc. for the shares of Decor common stock outstanding at the date 
of closing of the proposed transaction will be shares of common stock of 
Interiors, Inc. based upon a fair market value evaluation.  There can be no 
assurance that the proposed transaction will be completed.

The  financial  statements  consolidate  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 nine months ended December
31, 1997 of $3,797,334 and $1,894,228,  respectively.  This represents Artisan's
sales and cost of sales  transactions  for nine months ended  December 31, 1997.
For  the  quarter  December  31,  1997,   Artisan's  sales  were   approximately
$1,193,892, representing approximately $39,144 more than the September 30, 1997,
or 3.4%.  This increase is primarily  attributable to the fall High Point market
and the purchase of new product introductions.

The Company had selling, general and administrative expenses for the nine months
ended  December  31,  1997  of  $3,399,903  of  which  approximately  $1,760,000
represented  Artisan's  expenses  for the nine months  ended  December 31, 1997.
Selling, general and administrative expenses decreased approximately $475,000 in
the quarter ended December 1997 over the quarter ended September 1997.



                                       15

<PAGE>



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



RESULTS OF OPERATIONS [CONTINUED]

For the nine months ended December 31, 1997, Artisan had losses before interest,
taxes, depreciation and amortization of approximately $320,000.

During  September  1997,  the Company  wrote-off  obsolete  inventory of $67,330
resulting from lack of market demand.  This write off is included in the cost of
revenues.

In  September  of 1997,  the  Company  commenced  and  finalized  its efforts to
formulate a restructuring  plan to satisfy its various investor  constituencies.
Such efforts have  included  the  retention of various  advisors and analysis by
management  to  develop  an exit plan and  strategy  to  address  the  Company's
financial situation and disappointing financial performance.

In  September  1997,  the  Company's  management  approved  an exit  plan  which
addresses the above concerns by improving the manufacturing  and  administrative
operations of the Company for growth through improved  competitiveness,  quality
and effectiveness.

Accrued  restructuring  costs and charges  include the cost of shutting down the
current  operations  and moving  expenses to a new  location  for  approximately
$20,000 and the  projected  cost  differential  between the  projected  sublease
income and the lease  obligations on the current  premises  subject to Artisan's
House move in the amount of $210,375.

The Company incurred a net loss of $2,691,876 for the nine months ended December
31, 1997.  This includes a net loss generated by Artisan House of  approximately
$465,000 for the nine months ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, Decor had working capital of $539,689. For the nine months
ended  December 31, 1997,  the Company used $682,559 for  operating  activities,
generated  $451,207  from  investing   activities  and  generated  $84,292  from
financing  activities.  The cash  balance  at  December  31,  1997 was  $22,448.
Management believes that in the next twelve months cash requirements will be met
by cash provided from operations and the asset based line of credit.  Management
believes  that its  long-term  cash needs will be  provided  by  operations  and
additional debt and/or equity financing.

In May 1996,  the Company  entered into a management  agreement  with  Interiors
which specializes in the home furnishings and decorative accessories industries.
The  agreement  calls for a  management  fee of $90,000  or 1.5% of excess  cash
flows,  whichever is greater, per annum. The management fee is accrued quarterly
and will be paid  quarterly  to the  extent  that  there  is  excess  cash  flow
available to the Company.  Excess cash flow is defined in the  agreement to mean
cash flow from  operations  adjusted  to reflect  changes  in  working  capital,
interest payments, principal repayments and capital expenditures.  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.

On June 21, 1996, the Company received  commitments from its stockholders for an
additional  $50,000 in loan proceeds.  However,  the Company received $35,500 in
June 1996 and  $8,000 in July 1996.  The  remaining  balance  for $6,500 was not
required. The notes bear interest at 12% per annum.



                                       16

<PAGE>



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



LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

On August 9, 1996,  the Company  agreed to issue to Interiors  28,334  shares of
Series C  Non-Voting,  Convertible,  Preferred  Stock for cash of  $425,000.  On
August 23, 1996, the Company  agreed to issue to Interiors an additional  18,750
shares  of  Series  C  Non-Voting,  Convertible,  Preferred  Stock  for  cash of
$281,250.  On September 6 and 13, 1996, the Company agreed to issue to Interiors
an  additional  aggregate  7,850  shares  of Series C  Non-Voting,  Convertible,
Preferred Stock for cash of $117,750.

On August 29, 1996 and  September  13, 1996,  the Company  advanced an aggregate
$50,000  with 10%  interest to a firm that  renders  management  services to the
Company. The Company was repaid on November 16, 1996.

On November 12, 1996, the Company  realized net proceeds of $2,248,033  from the
initial public offering of the Company's common stock.

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  $23,000 bear interest ranging from 9.5% to 13.4% maturing through
2001. Such notes are collateralized by various equipment of the Company.

The Company,  entered into a three year employment  agreement with the Seller to
be effective as of the closing of the  acquisition of Artisan House,  Inc. which
was  subsequently  modified as a result of the below  settlement.  The  original
agreement  called for the Seller to be employed on a part time basis with (i) an
annual salary of $75,000, (ii) a signing bonus of $70,000,  $30,000 of which was
paid at  closing  and  $40,000  of which is to be paid in twelve  equal  monthly
installments of $3,333 during the first year of the employment agreement,  (iii)
reimbursement  of  expenses  incurred  by the  Seller  for lease  and  insurance
payments with respect to an automobile,  (iv) an annual  performance bonus equal
to 1% of Artisan's sales and 5% of the Artisan's export sales in excess of those
achieved by Artisan  House,  Inc.  for the twelve  months  ended June 30,  1996,
payable within 60 days after the end of the fiscal year, with the first and last
payments being  calculated on a pro rated basis,  (v) 2.5% of the  consideration
paid by the Company in  connection  with an  acquisition  of an unrelated  third
party  introduced  to the  Company or its  affiliates  by the Seller  subject to
certain restrictions as defined in the employment agreement, and (vi) options to
purchase  50,000 shares of the  Company's  common stock on each of the first and
second anniversaries of the agreement.

Artisan's  employment agreement with the seller was terminated effective July 8,
1997. In connection with the settlement  agreement in September 1997 with CIDCOA
International, Inc. ["CIDCOA"], formerly known, as Artisan House, Inc. [See Note
8],  the  Company   reinstated  the   employment   agreement  with  the  seller.
Accordingly,  the Company  accrued all salary and benefits owed to the seller in
the amount of $217,379 as of September 30, 1997.

                                       17

<PAGE>



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



LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

On December 31, 1996,  Artisan  entered into a three year  employment  agreement
with Artisan's Chief Operating Officer and President for (i) an annual salary of
$100,000;  (ii) a cash bonus  equal to ten percent  [10%] of the annual  salary,
based upon the  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  30,000 shares of the Company's  Common Stock at an exercise
price of equal to  $.0001  per share  exercisable  for a period of six years for
each of the next three years.  For each of the three years ended March 31, 1998,
1999 and 2000  additional  options to purchase  30,000  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.  Continued employment by Artisan is required and Artisan
must meet or exceed 115% of the prior  year's NPBT.  In March 1997,  the officer
was  elected to the  offices of  President  and Chief  Financial  Officer of the
Company.

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  representing the market
value as of June 13, 1997 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.

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.

On July 1,  1997,  Artisan  obtained a line of credit  for up to  $600,000  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, 1997 was $508,091.

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<PAGE>



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

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."  SFAS No. 
130 is effective for fiscal years beginning after December 15, 1997.  Earlier 
application is permitted.  Reclassification of financial statements for earlier 
periods provided for comparative purposes is required.  SFAS No. 130 is not 
expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise 
and Related Information."  SFAS No. 131 changes how operating segments are 
reported in annual financial statements and requires the reporting of selected 
information about operating segments in interim financial reports issued to 
shareholders.  SFAS No. 131 is effective for periods beginning after 
December 15, 1997, and comparative information for earlier years is to be 
restated.  SFAS No. 131 need not be applied to interim financial statements in 
the initial year of its application.  SFAS No. 131 is not expected to have a 
material impact on the Company.

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.

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<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 13, 1997           By:/s/ Dennis D'Amore
                                        Dennis D'Amore
                                        President and Chief Financial Officer


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