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 nine months ended   December 31, 1998    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 December  31, 1998 there were  1,959,166  shares of common
stock outstanding.


<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
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INDEX
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                                                                  Page to Page

Item 1. Consolidated Financial Statements:

   Consolidated Balance Sheet as of December 31, 1998 [Unaudited]..... 1 .... 2

   Consolidated Statements of Operations for the three and nine months
   ended December 31, 1998 and 1997 [Unaudited]........................3 ....

   Consolidated Statements of Stockholders' Equity for the nine
   months ended December 31, 1998 [Unaudited]..........................4 ....

   Consolidated Statements of Cash Flows for the nine months ended
   December 31, 1998 and 1997 [Unaudited] ............................ 5 .... 6

   Notes to Consolidated Financial Statements......................... 7 ....18

Item 2: Management's Discussion and Analysis of Financial
        Condition and Results of Operations.......................... 19 ....24

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




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



<PAGE>



Item 1:

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


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
[UNAUDITED]
------------------------------------------------------------------------------

<TABLE>


Assets:
Current Assets:
<S>                                        <C>                          <C>        
  Accounts Receivable [Net of Allowance of $150,223]                    $   509,499
  Loan - Related Party                                                      196,259
  Non-Trade Receivable                                                       47,499
  Inventories [Net of Allowance of $76,640]                                 621,968
  Prepaid Expenses and Other Current Assets                                 112,582
  Loan Receivable - Windsor Art                                             300,000
                                                                        -----------

  Total Current Assets                                                    1,787,807

Property and Equipment [Net of Accumulated Depreciation of $478,254]         80,625
                                                                        -----------

Other Assets:
  Goodwill [Net of Accumulated Amortization of $224,273]                  1,603,033
  Other Assets                                                               20,078
                                                                        -----------

  Total Other Assets                                                      1,623,111

  Total Assets                                                          $ 3,491,543
                                                                        ===========





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


                                         1

</TABLE>

<PAGE>



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


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
[UNAUDITED]
------------------------------------------------------------------------------

<TABLE>



Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
<S>                                                                     <C>        
  Cash Overdraft                                                        $    52,063
  Accounts Payable and Accrued Expenses                                     517,390
  Accounts Payable - Related Party                                          125,000
  Accrued Indemnification - Interiors                                       300,000
  Due to Stockholders                                                       292,785
  Accrued Compensation and Benefits - Former Officer                         93,520
  Accrued Costs for Restructuring                                           645,000
  Line of Credit                                                            783,351
  Current Portion of Long-Term Debt                                         117,437
  Notes Payable - Interiors                                                 400,000
                                                                        -----------

  Total Current Liabilities                                               3,326,546

Long-Term Debt                                                              513,426

  Total Liabilities                                                       3,839,972

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,
   1,959,166 Issued and Outstanding                                             196

  Additional Paid-in Capital - Common Stock                               4,186,732

  Accumulated Deficit                                                    (6,884,216)

  Deferred Compensation                                                     (77,141)

  Total Stockholders' Equity [Deficit]                                     (348,429)

  Total Liabilities and Stockholders' Equity [Deficit]                  $ 3,491,543
                                                                        ===========



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

                                         2

</TABLE>

<PAGE>



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


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

<TABLE>



                                  Three months ended          Nine months ended
                                     December 31,               December 31,
                                     ------------               ------------
                                   1 9 9 8      1 9 9 7       1 9 9 8    1 9 9 7
                                   -------      -------       -------    -------

<S>                             <C>          <C>           <C>         <C>       
Revenues                        $1,194,518   $ 1,193,892   $3,520,313  $3,797,334

Cost of Revenues                   663,625       574,452    1,949,719   1,894,228
                                ----------   -----------   ----------  ----------

  Gross Profit                     530,893       619,440    1,570,594   1,903,106
                                ----------   -----------   ----------  ----------

Selling, General and Administrative
  Expenses:
  Selling Expense                  330,502       366,171      952,868   1,064,142
  General and Administrative
      Expense                      261,715       658,568    1,199,545   2,335,761
  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         592,217     1,024,739    2,871,074   3,399,903
                                ----------   -----------   ----------  ----------

  [Loss] from Operations           (61,324)     (405,299)  (1,300,480) (1,496,797)
                                ----------   -----------   ----------  ----------

Other Income [Expense]:
  Net Miscellaneous
      Income/Expense                 1,433       (26,379)       9,662       4,773
  Interest Expense                 (36,835)      (26,034)     (88,118)    (61,217)
  Interest Expense - Related
      Party                         (6,170)       (5,561)     (11,935)    (16,425)
  Loss on Sale of Investment in
   Related Party                        --            --           --  (1,112,873)
                                ----------   -----------   ----------  ----------

  Other [Expense] - Net            (41,572)      (58,064)     (90,391) (1,185,742)
                                ----------   -----------   ----------  ----------

  [Loss] Before Provision for
   Income Taxes                   (102,896)     (463,363)  (1,390,871) (2,682,539)

Provision for Income Taxes           3,330         8,241       10,566       9,337
                                ----------   -----------   ----------  ----------

  Net [Loss]                    $ (106,226)  $  (471,604)  $(1,401,437)$(2,691,876)
                                ==========   ===========   =========== ===========

  [Loss] Per Share              $     (.05)  $      (.28)  $     (.72) $    (1.57)
                                ==========   ===========   ==========  ==========

  Number of Common Shares        1,959,166     1,709,176    1,959,166   1,709,176
                                ==========   ===========   ==========  ==========


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

                                         3

</TABLE>


<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
------------------------------------------------------------------------------

<TABLE>



                                 Preferred Stock               Common Stock                               Unrealized   Total
                                             Additional                  Additional                         HoldingStockholders'
                                               Paid-in                     Paid-in  Accumulated Deferred    Loss on   Equity
                           Shares    Amount    Capital   Shares   Amount   Capital    Deficit CompensationInvestment [Deficit]



<S>               <C>      <C>        <C>     <C>         <C>       <C>     <C>        <C>          <C>        <C>       <C>      
  Balance - April 1, 1998  20,304,934 $ 2,030 $2,423,970  1,759,166 $  176  $4,142,752 $(5,482,779) $(436,882) $     --  $ 649,267

Amortization of Deferred
  Compensation                     --      --         --         --     --          --          --    359,741        --    359,741

Stock Issued for Service           --      --         --    200,000     20      43,980          --         --        --     44,000

Net [Loss] for the Nine months
  ended December 31, 1998          --      --         --         --     --          --  (1,401,437)        --        -- (1,401,437)
                           ---------- ------- ----------  --------- ------  ---------- -----------  ---------  --------  ---------

  Balance - December 31,
      1998                 20,304,934 $ 2,030 $2,423,970  1,959,166 $  196  $4,186,732 $(6,884,216) $ (77,141) $     --  $(348,429)
                           ========== ======= ==========  ========= ======  ========== ===========  =========  ========  =========


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

                                               4
</TABLE>

<PAGE>



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


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

<TABLE>

                                                              Nine months ended
                                                                December 31,
                                                             1 9 9 8      1 9 9 7
                                                             -------      -------
Operating Activities:
<S>                                                        <C>         <C>         
  Net [Loss]                                              $(1,401,437) $(2,691,876)
  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                      359,741      400,000
   Bad Debt Expense                                                --       38,980
   Depreciation                                                36,330       29,938
   Amortization of Intangibles                                 67,493       85,983
   Accrual for Returns and Allowances                         (10,752)          --
   Stock Issued for Services Performed                         43,980       17,500
   Loss on Sale of Investment in Related Party                     --    1,112,873
   Accrued Interest Payable - Related Party                        --       16,425

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable - Trade                               37,947      289,203
     Accounts Receivable - Interiors                          (80,006)     (41,478)
     Inventory                                                (35,015)      76,014
     Other Assets                                                  --      (47,231)
     Accrued Costs for Restructuring                               --      230,375
     Accrued Acquisition Costs                                     --     (284,999)

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses                   (349,100)    (166,682)
     Accrued Settlement - Former Officer                      (67,502)     184,916
     Accrued Indemnification - Related Party                  300,000           --
     Accrued Compensation Expense - Related Party             100,000           --
                                                           ----------   ----------

  Net Cash - Operating Activities - Forward                  (679,660)    (750,059)
                                                           ----------   ----------

Investing Activities:
  Cash Paid for Acquisition of Artisan House                       --           --
  Purchase of Property and Equipment                          (19,834)     (16,118)
  Other Assets                                                 (3,149)     (19,802)
  Proceeds from Sale of Investment in Related Party                --      487,127
                                                           ----------   ----------

  Net Cash - Investing Activities - Forward                   (22,983)     451,207
                                                           ----------   ----------

Financing Activities:
  Issuance of Stock                                                20           --
  Proceeds from Line of Credit                                519,923       80,367
  Loan from Stockholder                                        67,500      252,416
  Payment of Stockholder Loans                                (87,119)    (180,991)
  Loan to Related Party - Windsor Art                        (300,000)          --
  Loan from Related Party - Interiors                         400,000           --
                                                           ----------   ----------

  Net Cash - Financing Activities - Forward                $  600,324   $  151,792

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

                                         5
</TABLE>

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------

<TABLE>

                                                              Nine months ended
                                                                December 31,
                                                             1 9 9 8      1 9 9 7
                                                             -------      -------

<S>                                                        <C>         <C>        
  Net Cash - Operating Activities - Forwarded              $ (679,660) $ (750,059)

  Net Cash - Investing Activities - Forwarded                 (22,983)    451,207

  Net Cash - Financing Activities - Forwarded                 600,324     151,792
                                                           ----------  ----------

  Net [Decrease] in Cash                                     (102,319)   (147,060)

Cash - Beginning of Periods                                    50,256     169,508
                                                           ----------  ----------

  Cash - End of Periods                                    $  (52,063) $   22,448
                                                           ==========  ==========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                                $   88,118  $   61,217
   Income Taxes                                            $   10,566  $    9,337




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

                                         6

</TABLE>

<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 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, 1998.

[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                                 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.

[F]  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 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.  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.



                                        7

<PAGE>



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



[1] Summary of Significant Accounting Policies [Continued]

[F] Goodwill  [Continued] - Goodwill has been amortized using the  straight-line
method over twenty years.  In connection  with the acquisition of Artisan House,
Inc. in November 1996,  goodwill of approximately  $1,800,000 was recorded using
the purchase method.

[G] 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.

[H] 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 nine months ended December 31, 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.

Potential common shares of 80,000 are not currently dilutive,  but may be in the
future.

For the year ended March 31, 1997,  the number of shares to be used for earnings
per share  calculation  purposes  was based on a) 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 b) for after the IPO: the 1,312,500 shares outstanding from July
1, 1996 through  November 18, 1996 and the  1,707,500  shares  outstanding  from
November 18, 1996 to March 31, 1997.



                                        8

<PAGE>



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




[1] Summary of Significant Accounting Policies [Continued]

[I] 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, 1998, 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  approximately  $150,000 for the nine
months ended December 31, 1998 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.

[J] 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.

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

[2] Acquisition - Artisan

On November 18, 1996, the Company's wholly owned subsidiary Artisan  Acquisition
Co. 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 is being amortized over 20
years using the straight-line method. Intangible assets of $537,046 were written
off in March 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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
------------------------------------------------------------------------------


[3] Inventories

The components of inventory as of December 31, 1998 were as follows:

Raw Materials                           $  237,297
Work-in Process                            229,340
Finished Goods                             155,331
                                        ----------

  Totals                                $  621,968
  ------                                ==========

[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 management fee of $90,000 has been accrued
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.

[B] Due to  Interiors  - 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 and paid
$50,000  during the year ended March 31, 1998. As of March 31, 1998, the Company
has an outstanding  balance due to Interiors of $225,285.  The Company  recorded
interest expense for the year ended March 31, 1998 of $16,116 on this obligation
[Note 16A].  The Company  recorded  $125,000 of management  consulting  fees due
Interiors on June 30, 1998,  relating to marketing  and  merchandising  services
provided by the related party to the Company.

The outstanding balance at December 31, 1998 was $292,785 consisting of $116,435
in advances and $176,350 in management fees.

[C] 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 nine months ended December 31, 1998 was $3,915.

[D] 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.  The
Company wrote off the $193,661 balance of accounts receivable due from Interiors
on June 30, 1998, in exchange for product marketing and merchandising cost being
incurred by the related party on behalf of the Company. As of December 31, 1998,
the balance due was $196,259.

[5] Property and Equipment

Property and equipment as of December 31, 1998 consisted of the following:

Machinery and Equipment                 $  175,862
Leasehold Improvements                     166,715
Furniture and Fixtures                     150,244
Office and Computer Equipment               66,058
                                        ----------

Total - At Cost                            558,879
Less: Accumulated Depreciation            (478,254)

  Net                                   $   80,625
  ---                                   ==========


                                       10

<PAGE>



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



[5] Property and Equipment [Continued]

Depreciation expense was approximately $36,330 and $29,938, respectively for the
nine months ended December 31, 1998 and 1997.

[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 December 31, 1998, Interiors, Inc. owned approximately 67% of
the  Company's  total voting stock  outstanding  assuming no  conversion  of the
Series A and Series C Preferred Stock [See Note 15A - Pending Merger].

[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. 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. For the year
ended March 31, 1998, the Company  amortized  $500,000 as deferred  compensation
and amortized $321,167 for the nine months ended December 31, 1998.

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  whereby  $139,177 is  outstanding  at June 30,  1998  pursuant to this
agreement.  The employment  agreement  also provides for  additional  fees to be
earned by the seller pursuant to certain  acquisitions made by the Company,  its
parent or affiliates.  The Company has expensed  $64,000 in accrued  liabilities
representing an estimate of  compensation  earned by the seller as a consequence
of the two  acquisitions  already made by Interiors,  Inc. in March of 1998. The
Company also expensed $100,000 which is an adequate estimate of compensation due
the seller resulting from a July 1998 acquisition.

[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.  At December 31, 1998,  the Company  accrued
$50,000 to the director as monies due upon his resignation.



                                       11

<PAGE>



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



[7] Commitments and Contingencies [Continued]

[C] Line of Credit - On September 15,1998,  Artisan increased its line of credit
from  $600,000  to  $950,000.  The  asset  based  loan is  secured  by  accounts
receivable,  inventory and a $100,000  promissory note. The interest on the loan
is 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, 1998 was $736,000 and the outstanding balance at that date was $689,471. The
$100,000 note is to be repaid in twenty equal  installments of $5,000 commencing
January 5, 1999.  The line of credit was renewed for an additional  year on June
30, 1998 and expires  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. The Company is not in violation of any of the covenants of the loan.
Interest expense for the nine months ended December 31, 1998 was $47,076.

[D] Leases - The Company  leases  manufacturing  and office space in  California
from the seller of Artisan.  This operating  lease,  which expires  November 30,
2001 is for Artisan's  operations.  The lease provides for additional rent based
on increases in the Consumer Price Index [See Note 11 - Restructuring Plan].

Future  minimum  lease  payments  under all  operating  leases are as follows at
December 31, 1998:

Twelve months ended
  December 31,
     1999                           $ 250,152
     2000                             252,386
     2001                             216,966
     2002                              44,220
     Thereafter                        58,960
                                    ---------

     Total                          $ 822,684
     -----                          =========

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
$3,126 for High Point and $1,465 for San Francisco.

[E] 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 10,000 options.  For the year ended March 31, 1998, the Company
amortized  $54,285 as compensation  expense.  The Company  amortized  $12,858 as
compensation  expense for each of the quarters  ended June 30 and  September 30,
and December  31,1998.  In March 1997, the officer was elected to the offices of
President and Chief Financial Officer of the Company.




                                       12

<PAGE>



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



[7] Commitments and Contingencies [Continued]

[E] 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.

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.

[8] Debt
                                       December 31,
                                          1 9 9 8

Acquisition Loan                        $  649,097
Less:  Discount                             30,867
                                        ----------

Total                                      618,230
Less: Current Portion of Long-Term Debt    117,437

  Long-Term Portion                     $  500,793
  -----------------                     ==========

Annual maturities of notes payable are as follows:

Twelve months ended
  December 31,
      1999                    $ 135,302
      2000                      146,532
      2001                      158,695
      2002                      177,701
      Thereafter                     --
                              ---------

      Total                   $ 618,230
      -----                   =========

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 nine months ended  December 31, 1998 was
approximately  $7,508  and has been  amortized  as  interest  expense.  Interest
expense  for the nine  months  ended  December  31, 1998 was $31,276 on the note
payable.





                                       13

<PAGE>



DECOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[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  proves  for (i)  payment  of a  finders  fee on  companies
purchased by Interiors,  (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 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.

[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 #9
[UNAUDITED]
------------------------------------------------------------------------------



[10] Capital Stock [Continued]

[E] Additional Stock Issued - In March of 1998, the Company retained a financial
consulting  firm to  provide  meager and  acquisition  consulting  and  advisory
services in connection  with the pending merger with  Interiors,  Inc. [See Note
16A]. 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.

[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] 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 is
concentrating on strategies for growth through improved competitiveness, quality
and   effectiveness.   In  order  for  the  restructure  plan  to  be  completed
successfully,  Artisan  will begin  moving  into the  facilities  of an Interior
subsidiary  Troy  Lighting,  Inc. and  operationally  merge into that company in
March 1999.

As of December 31, 1998,  Artisan  House will be moving to another  location and
operationally merge into a subsidiary of Interiors by February 1999.

Management  believes  that the  restructuring  costs and charges for the cost of
shutting down the current operations are approximately $20,000 and the projected
remaining  lease   obligations  on  the  current  premises  are  $645,000.   The
restructuring  reserve through December 1997 had included an offset for sublease
income.  However,  since there has not been any  successful  commitment  in this
endeavor since September of 1997, management has decided to increase the reserve
by approximately $435,000.  This had represented  management's previous estimate
of attainable sublease income for the remaining term of 35 months, and leasehold
improvements..

[12] 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 $3,100,000 of
which approximately  $100,000 will expire in 2011,  approximately  $600,000 will
expire in 2012, and approximately $2,400,000 will expire in 2013.

                                       15

<PAGE>



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



[12] Income Taxes [Continued]

The major  components of deferred  income tax assets and liabilities as of March
31, 1998 are as follows:

Deferred Tax Liability
  Depreciation and Amortization          $   20,000
                                         ==========

Deferred Tax Asset
  Reserves and allowances                 $ 144,000
  Stock based compensation                  225,000
  Net Operating loss carry forwards       1,240,000

  Total Deferred Tax Assets              $1,609,000

  Net Deferred Tax Asset Before
   Valuation Allowance                   $1,589,000
   Valuation Allowance                   (1,589,000)
                                         ----------

   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 $1,589,000.  This  represents an
increase in its valuation  allowance of $937,000 over the allowance at March 31,
1997.

[13] 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.

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.  Compensation
expense has been  recognized for the Company's  stock-based  compensation in the
amount of $359,741 and $400,000 for the nine months ended  December 31, 1998 and
1997. The exercise price for all stock options issued to employees during fiscal
years 1998 and 1997 were below the market  price of the  Company's  stock at the
date of grant.

                                       16

<PAGE>



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


[13] Stock Options [Continued]

A summary of the activity under the plan is as follows:
                                                             Weighted
                                                 Weighted     Average
                                                  Average    Remaining
                                                 Exercise   Contractual
                                       Shares      Price       Life

  Outstanding - April 1, 1996                -- $      --
  ---------------------------

Granted                                 125,000     .0001
Exercised                               (15,000)    .0001
Forfeited/Expired                            --        --
                                     ---------- ---------

  Outstanding - March 31, 1997          110,000     .0001     4 Years
  ----------------------------                               ========

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

  Outstanding - March 31, 1998           80,000 $   .0002
  ----------------------------       ========== =========

  Exercisable - March 31, 1998           52,000     .0001     3 Years
  ----------------------------       ========== =========    ========

  Exercisable - December 31, 1998        56,000     .0001
  -------------------------------    ========== =========

Had  compensation  cost for the Company's stock options issued to employees been
determined  based upon the fair value at the grant date for stock options issued
under these plans  pursuant to the  methodology  prescribed  under SFAS No. 123,
Accounting  for  Stock-Based  Compensation,  the Company's net loss and loss per
share would not have  changed on a proforma  basis.  The  weighted  average fair
value of stock options  granted to employees used in  determining  the pro forma
amounts  is  estimated  at $4.50 for the year  ended  March 31,  1998  using the
Black-Scholes  option-pricing model for the pro forma amounts with the following
weighted average assumptions:

                                   March 31,
                                    1 9 9 8

Risk-free Interest Rate              5.73%
Expected Life                       5 Years
Expected Volatility                 149.41%
Expected Dividends                   None

If compensation  cost had been determined on the basis of fair value pursuant to
SFAS No. 123,  net income and net  earnings  per share as reported  would not be
materially affected.



                                       17

<PAGE>



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



[14] Fair Value of Financial Instruments

At September 30, 1998 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.

[15] Subsequent Events

[A]  Pending  Merger - 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 has
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 will be subject to the same Exchange Ratio for Interiors'
Class A common stock.

Pursuant to the merger agreement, the outstanding Decor Series A preferred stock
will be converted into Decor common stock and the Decor Series B  nonconvertible
preferred stock will be canceled. If the agreement is terminated by Decor, Decor
is required to pay a $250,000  termination  fee to Interiors  subject to certain
conditions.

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..  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.

[B] Loan Repayment - On April 2, 1998, the Company received $200,000,  including
interest,  from  Interiors  as  repayment  for  the  advances  of  approximately
$300,000.

[16] 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 has not had
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 does not have a  material
impact on the Company.




                    .   .   .   .   .   .   .   .   .   .   .

                                       18

<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 4A]. 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,  1998,  Interiors,  Inc.  owned  approximately  67% 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 has 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 will be subject to
the same Exchange Ratio for Interiors' Class A common stock.

Pursuant to the merger agreement, the outstanding Decor Series A preferred stock
will be converted into Decor common stock and the Decor Series B  nonconvertible
preferred stock will be canceled. If the agreement is terminated by Decor, Decor
is required to pay a $250,000  termination  fee to Interiors  subject to certain
conditions.

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, 1998 of $3,520,313 and $1,949,719,  respectively.  This represents Artisan's
sales and cost of sales transactions for the period then ended which resulted in
a gross profit of $1,570,594 to the Company.

The Company had selling, general and administrative expenses for the nine months
ended December 31, 1998 of $2,871,074 of which $1,676,511  represented Artisan's
expenses  for the period then ended.  The  selling,  general and  administrative
expenses  of the  Company  for the  nine  months  include  three  related  party
transactions with Interiors: $125,000 was accrued for consulting services, a bad
debt writeoff of $193,661 was recorded on June 30, 1998, and  indemnification of
a loan from United Credit Corp. to Lance  Corporation was recorded in the amount
of $300,000 as of September 30, 1998.



                                       19

<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, 1998,  Artisan had an operating  loss of
$105,917  after a bad debt write-off of $193,661.  Management  believes that for
the year ended March 31, 1999,  the Company can reduce its losses by  increasing
its gross profit by approximately  $300,000,  and by reducing operating expenses
by  approximately  $600,000.  A reduction  of manpower  and  operating  expenses
related to the Company's  administrative  and sales functions is currently being
implemented.  The process will continue  throughout the year in conjunction with
the Company's  anticipated  relocation to the facilities of Troy Lighting,  Inc.
metal lighting  fixtures  manufacturing  business.  Management  believes that in
fiscal 2000 by outsourcing  its products to vendors outside the United States an
improved  gross profit can be achieved.  In  addition,  the recent  minimum wage
increases in the United States has created a favorable  environment for choosing
outsourcing  as a means of reducing  labor costs.  Artisan House is currently in
negotiations with two vendors to pursue this plan.

Management also believes that in fiscal 1999,  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 Troy Lighting, Inc.

Management believes the planned restructuring and relocation of its headquarters
and  manufacturing  operations,  together  with the  subletting  of its  present
facilities, will occur by March 1999 in conjunction with space that will be made
available to it as a result of Interiors,  Inc.'s  acquisition of Troy Lighting,
Inc.

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 for growth through
improved competitiveness, quality and effectiveness. Essential to the success of
the  restructuring  plan  was  Interiors  acquisition  of Troy  Lighting,  Inc.,
providing the opportunity for Artisan House to move its facility and improve the
manufacturing process.

Management  believes  that the  restructuring  costs and charges for the cost of
shutting down the current operations are approximately $20,000 and the projected
remaining  lease   obligations  on  the  current  premises  are  $625,000.   The
restructuring  reserve through December 1997 had included an offset for sublease
income,  however,  since  March  31,  1998,  there  had not been any  successful
commitment  in this endeavor  management  has decided to increase the reserve by
approximately  $435,000,  which  represents  management's  previous  estimate of
attainable sublease income.

The Company incurred a net loss of $1,401,437 for the nine months ended December
31,  1998 of  which  Artisan  House  had a loss  of  $139,152  after a bad  debt
write-off of $193,661 and Decor incurred a loss of $1,262,285.

The Company's  auditors  rendered a going concern report as of March 31, 1998 as
the Company has suffered recurring losses from operations.

                                       20

<PAGE>



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



LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, Decor had a working capital deficit of $1,538,739. For the
nine months ended  December 31, 1998,  the Company used  $679,660 for  operating
activities,  utilized  $22,983 for investing  activities and generated  $600,324
from financing activities.  The cash balance at December 31, 1998 was $(52,063).
Management believes that its long-term cash needs will be provided by operations
and additional debt and/or equity financing.

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 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 of
$90,000 has been accrued 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.  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 and paid $50,000 during
the year  ended  March  31,  1998.  As of March 31,  1998,  the  Company  has an
outstanding balance due to Interiors of $225,285.  The Company recorded interest
expense  for  the  nine  months  ended  December  31,  1998 of  $11,935  on this
obligation.

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 September 30, 1998, Interiors,
Inc. owned  approximately  67% of the Company's  total voting stock  outstanding
assuming no conversion of the Series A and Series C Preferred Stock.

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.

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.

                                       21

<PAGE>



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



LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

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 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.
For the year ended March 31, 1998,  the Company  amortized  $500,000 as deferred
compensation  and  $321,167  for each of the three  months  ended June 30, 1998,
September 30, 1998 and December 31, 1998.

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 7], the Company  reinstated the employment  agreement with
the seller and recorded  additional  monies owed to the seller of  approximately
$290,000  whereby  $139,177 is  outstanding  at June 30,  1998  pursuant to this
agreement.  The employment  agreement  also provides for  additional  fees to be
earned by the seller pursuant to certain  acquisitions made by the Company,  its
parent or affiliates.  The Company has expensed  $64,000 in accrued  liabilities
representing an estimate of  compensation  earned by the seller as a consequence
of the two acquisitions made in March of 1998 by Interiors, Inc.

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 for each of the years of
the contract 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 10,000 options.  For the year ended March 31, 1998 amortized
approximately  $55,000 as  compensation  expense and $38,574 for the nine months
ended December 31, 1998.

In March 1997,  the officer  was elected to the offices of  President  and Chief
Financial Officer of the Company.

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.

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 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 the seller  concerning  various
financial  compensation  claims on October 29, 1998. A settlement was reached in
January  1999,  that  proves  for (i)  payment  of a  finders  fee on  companies
purchased by Interiors,  (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.

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.

The Company  expects to spend the  necessary  funds  through  1999 to modify its
computer information systems enabling proper processing of transactions relating
to the year 2000 ["Y2K"] and beyond.  The Company will install both new hardware
and software that is Y2K compliant. The hardware will be purchased and installed
in the  first  quarter  of 1999,  the  software  implementation  will  encompass
financial,  customer service and distribution and  manufacturing.  At this time,
the Company  believes that there will be no disruption  of their  business.  The
funding for the project will be coordinated  with the Interior  Companies and is
expected  to have no  material  effect on its  financial  position or results of
operations.

NEW AUTHORITATIVE PRONOUNCEMENTS

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 does not have a  material
impact on the Company.

                                       23

<PAGE>



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



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 15, 1999             By: /s/ Dennis D'Amore                    
                                       ---------------------------------------
                                        Dennis D'Amore,
                                        President and Chief Financial Officer

                                       25

<PAGE>