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, 1996    Commission File Number  333-5553

                                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  13, 1997 there were  5,122,500  shares of common
stock outstanding.


<PAGE>



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


INDEX
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                                                                   Page to Page

Part I: Financial Information

Item 1. Financial Statements:

   Balance Sheet as of December 31, 1996 [Unaudited]..................  1.....

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

   Statement of Stockholders' Equity for the nine months ended
   December 31, 1996 [Unaudited]......................................  4.....

   Statement of Cash Flows for the nine months ended December 31, 1996
   [Unaudited]........................................................  5.....6

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

Item 2.Managements' Discussion and Analysis of the Financial Condition
       and Results of Operations......................................  15....17

Signature.............................................................  18....



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


<PAGE>


<TABLE>

Part I: Financial Information

Item 1: Financial Statements

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


BALANCE SHEET AS OF DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------




<S>                                                                    <C> 

Assets:
Current Assets:
  Cash                                                                  $   547,490
  Accounts Receivable [Net of Allowance of $72,387]                       1,122,309
  Inventories                                                               804,668
  Prepaid Expenses and Other Current Assets                                 139,491
                                                                        -----------

  Total Current Assets                                                    2,613,958

Property and Equipment - Net of Accumulated Depreciation of $2,114          123,522
                                                                        -----------

Non-Current Assets:
  Investment - Related Party                                              1,575,000
  Goodwill - Net                                                          1,501,180
  Other Intangible Assets - Net                                             595,332
  Other Assets                                                               16,013
                                                                        -----------

  Total Non-Current Assets                                                3,687,525

  Total Assets                                                          $ 6,425,005
                                                                        ===========



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

                                         1
</TABLE>

<PAGE>

<TABLE>


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


BALANCE SHEET AS OF DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------




<S>                                                                   <C>

Liabilities and Stockholders' Equity:
Current Liabilities:
  Accounts Payable and Accrued Expenses                                 $   495,618
  Accrued Costs of Acquisition                                              125,263
  Accrued Interest - Related Party                                            4,060
  Notes Payable                                                             196,223
  Due to Stockholder                                                        156,785
                                                                        -----------

  Total Current Liabilities                                                 977,949

Long-Term:
  Stockholders' Loans Payable                                                43,500
  Notes Payable                                                             697,089

  Total Long-Term                                                           740,589

Commitments and Contingencies [9]                                                --

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 at December 31, 1996                         2,030

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

  Common Stock - $.0001 Par Value, Authorized 20,000,000 Shares,
   Issued and Outstanding, 5,122,500 Shares at December 31, 1996                511

  Additional Paid-in Capital - Common Stock                               3,911,822

  Accumulated Deficit                                                      (621,949)

  Deferred Compensation                                                    (984,917)

  Unrealized Loss on Investment                                             (25,000)

  Total Stockholders' Equity                                              4,706,467

  Total Liabilities and Stockholders' Equity                            $ 6,425,005
                                                                        ===========


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

                                         2
</TABLE>

<PAGE>


<TABLE>

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


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



                                                          Three months   Nine months
                                                              ended         ended
                                                          December 31,  December 31,
                                                             1 9 9 6       1 9 9 6
<S>                                                        <C>          <C>  

Revenues                                                   $  635,031   $   635,031

Cost of Revenues                                              347,387       347,387
                                                           ----------   -----------

  Gross Profit                                                287,644       287,644
                                                           ----------   -----------

Acquisition Fees, Selling and Administrative Expenses:
  Acquisition Fees and Expenses                                    --        52,829
  Selling Expenses                                             92,433        92,433
  Administrative Expenses                                     321,204       422,293
                                                           ----------   -----------

  Total Acquisition Fees, Selling and Administrative
   Expenses                                                  413,637       567,555

  Loss from Operations                                       (125,993)     (279,911)
                                                           ----------   -----------

Other Expense [Income]:
  Interest Income                                              (1,453)       (2,576)
  Interest Income - Related Party                                (521)         (953)
  Interest Expense - Bridge Loans                              71,214       236,939
  Interest Expense - Related Party                              2,560         4,060
                                                           ----------   -----------

  Total Other Expense [Income]                                 71,800       237,470
                                                           ----------   -----------

  Loss Before Provision for Income Taxes                     (197,793)     (517,381)

Provision for Income Taxes                                      4,818         4,818
                                                           ----------   -----------

  Net Loss                                                 $ (202,611)  $  (522,199)
                                                           ==========   ===========

  Loss Per Share                                           $     (.05)  $      (.10)
                                                           ==========   ===========

  Weighted Average Number of Common Shares Outstanding      4,490,500     5,621,833
                                                           ==========   ===========



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

                                         3
</TABLE>

<PAGE>


<TABLE>

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


STATEMENTS OF STOCKHOLDERS' EQUITY
[UNAUDITED]
------------------------------------------------------------------------------







                                Preferred Stock            Common Stock                            Unrealized
                                          Additional               Additional                    Gain [Loss]  Total
                               Number of           Paid-inNumber of         Paid-inAccumulated Deferred     on   Stockholders'
                               Shares    Amount   Capital Shares  Amount   Capital  Deficit CompensationInvestment Equity
<S>                              <C>         <C>     <C>        <C>        <C>   <C>      <C>        <C>        <C>      <C>    
                              
  Balance - March 31, 1996         250,000 $      25 $1,599,975 3,937,5OO $ 393  $318,907 $(99,750)  $     --   $187,600 $2,007,150

54,934 Shares of Series C
 Convertible
  Non-Voting Preferred Stock       54,934       5     823,995      --     --       --       --          --        --        824,000

20,000,000 Shares of Series B      
  Non-Convertible Voting
  Preferred Stock                  20,000,000   2,000       --      --     --       --       --          --        --         2,000

Net Proceeds from Sale of
  Common Stock from Initial
  Public Offering                   --        --       --        1,035,000  103  2,247,930     --          --        --    2,248,033

Issuance of Stock in Connection
  with Acquisition                  --        --       --        150,000     15  299,985       --          --        --     300,000

Change in Unrealized Gain on
  Investment                        --        --       --      --     --       --       --          --           (212,600) (212,600)

Deferred Compensation in
  Connection With Issuance of
  Stock Options                    --        --       --      --     --          1,045,000     --    (1,045,000)     --        --

Amortization of Deferred
  Compensation                        --        --       --      --     --       --       --              60,083    --       60,083

Net Loss for  nine months ended
  December 31, 1996                 --        --       --      --     --       --         (522,199)        --        --     522,199)
                                   -------- --------- -------- ------- ------  -------  --------       --------    -------  --------

  Balance - December 31, 1996      20,304,934 2,030 2,423,970    5,122,500 511  $3,911,822 (621,949) $(984,917) $(25,000)$4,706,467
                                   ========== ====== ==========  ========== ===  ========= =========  =========  ======== ==========



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

                                           4

<PAGE>


<TABLE>

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


STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                    <C>   

Operating Activities:
  Net Loss                                                              $  (522,199)
  Adjustment to Reconcile Net Loss to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                                             24,502
   Amortization of Deferred Compensation                                     60,083
   Amortization of Notes Payable Discount                                     2,058
   Accrued Interest Receivable                                                 (953)
   Interest - Cost of Bridge Warrants                                       214,300

  Change in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                                    (16,647)
     Prepaid Expenses                                                       (35,600)
     Accounts Payable and Accrued Expenses                                  130,816
     Accrued Interest - Related Party                                         4,060
                                                                        -----------

  Net Cash - Operating Activities                                          (139,580)
                                                                        -----------

Investing Activities:
  Cash Paid for Acquisition of Artisan House                             (2,250,000)
  Advances to Related Party                                                 (50,000)
  Collections from Related Party                                            100,250
  Other Assets                                                               (2,251)
                                                                        -----------

  Net Cash - Investing Activities                                        (2,202,001)
                                                                        -----------

Financing Activities:
  Proceeds from Sale of Preferred Stock                                     826,000
  Proceeds from Sale of Common Stock                                          8,000
  Proceeds from Sale of Common Stock in Connection
   with Initial Public Offering                                           2,248,033
  Proceeds from Bridge Loans                                                     --
  Proceeds from Stockholder Loans                                           201,238
  Repayment of Bridge Loans                                                (250,000)
  Repayment of Notes Payable                                               (191,200)
                                                                        -----------

  Net Cash - Financing Activities                                         2,842,071
                                                                        -----------

  Net Increase in Cash                                                      500,490

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

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


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

                                         5
</TABLE>

<PAGE>


<TABLE>

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


STATEMENTS OF CASH FLOW FOR THE NINE MONTHS ENDED DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                    <C> 

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                                             $       315
   Income Taxes                                                         $        --
</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 nine months ended December 31, 1996, the Company
amortized $214,300 as interest expense.

   On November 18, 1996, the Company  purchased  substantially all of the assets
and  assumed  certain  liabilities  of Artisan  House,  Inc.  for  approximately
$3,750,000,  of which $2,400,000 was paid in cash,  $300,000 in shares of common
stock and $1,050,000 in notes and liabilities.  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 Financial Statements.


                                         6

<PAGE>



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


[1] Summary of Significant Accounting Policies

[A] Nature of  Operations  - Decor  Group,  Inc.,  a Delaware  corporation  [the
"Company"  or  "Decor"],  was  incorporated  on March 1, 1996.  The  Company was
organized for the purpose of acquiring the Artisan House, Inc. ["Artisan"] which
was  completed  on  November  18,  1996.  Artisan is engaged in the  business of
manufacturing,  marketing, selling and distributing wall hanging sculptures. The
transaction was recorded under the purchase method.  The Company is a subsidiary
of Interiors, Inc. ["Interiors"] [See Note 7].

[B] Cash  Equivalents  - The  Company's  policy is to classify all highly liquid
investments  purchased  with an initial  maturity of three  months or less to be
cash equivalents. There were $547,490 cash equivalents at December 31, 1996.

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

[D] Property and Equipment - Property and equipment is stated at cost and is net
of  accumulated  depreciation.  The  cost  of  additions  and  improvements  are
capitalized  and  expenditures  for repairs and  maintenance are expensed in the
period  incurred.  Depreciation  and  amortization  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             5 - 10 Years
Furniture and Fixtures                   7 Years

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

[E]  Marketable   Securities  -  The  Company  adopted  Statement  of  Financial
Accounting  Standards ["SFAS"] No. 115,  "Accounting for Certain  Investments in
Debt and Equity  Securities,"  on March 3,  1996.  SFAS No.  115  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 an 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.

[F]  Goodwill  - Amounts  paid in excess of the  estimated  value of net  assets
acquired of Artisan House, Inc. was charged to goodwill.  Goodwill is related to
revenues  the  Company  anticipates  realizing  in  future  years.  The  Company
amortizes its goodwill  over a period of up to 10 years using the  straight-line
method.  The amount of  amortization  charged to operations for the period ended
December 31, 1996 was $17,720.  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.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies [Continued]

[G]  Other  Intangible  Assets - Other  intangible  assets  include  trademarks,
copyrights and artwork,  customer  lists,  and covenants  not-to-compete.  These
costs are being amortized over a 15 year life using the straight-line method.

A summary is as follows:
                                   Accumulated
                                            Cost     Amortization       Net

Customer Lists                          $   200,000   $     1,556  $   198,444
Covenants Not-to-Compete                    100,000           778       99,222
Trademarks                                  150,000         1,167      148,833
Copyrights and Artworks                     150,000         1,167      148,833
                                        -----------   -----------  -----------

  Total                                 $   600,000   $     4,668  $   595,332
  -----                                 ===========   ===========  ===========

The amount of  amortization  charged to operations for the period ended December
31, 1996 was $4,668.

[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 number of shares to be used for earnings per share
calculation  purposes was based on a) the  3,937,500  common shares issued since
the initial  capitalization  and on the 4,500,000  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) after the IPO: the 3,937,500 shares  outstanding from July 1,
1996 through  December 31, 1996 and the  1,035,000  shares  issued in connection
with the initial  public  offering and the 150,000  shares  issued in connection
with the acquisition of the Artisan House.  Convertible  preferred stock options
and  warrants are not included  because the effect would be  anti-dilutive  [See
Note 8].

[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, 1996, $357,489 of
cash exceeds insured amounts.

The Company  routinely  assesses the financial  strength of its  customers,  and
based upon factors surrounding the credit risk of its customers, has established
an  allowance  for  uncollectible  accounts  of  $72,387  and as a  consequence,
believes that its accounts receivable credit risk exposure beyond this allowance
is limited. The Company does not obtain collateral on its accounts receivable.

                                        8

<PAGE>



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



[1] Summary of Significant Accounting Policies [Continued]

[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] Basis of Presentation - The accompanying  interim  financial  statements are
unaudited  and  have  been  prepared  in  accordance  with the  requirements  of
Regulation S-B and Form 10-QSB and,  therefore,  do not include all  information
and footnotes required by generally accepted accounting principles;  however, in
the opinion of the management of the Company,  the interim financial  statements
include  all  adjustments  which  are  necessary  in order  to make the  interim
financial  statements not misleading.  The results of operations for any interim
period are not  necessarily  indicative of the results for the full year.  These
financial statements should be read in conjunction with the financial statements
and  notes,  thereto,  contained  in the Form SB-2 that was  declared  effective
November 12, 1996.

[2] Acquisition - Artisan House

On November 18, 1996, the Company purchased  substantially all of the assets and
assumed certain  liabilities of Artisan House,  Inc. 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 $13,656 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 $53,933  which
will be amortized to interest expense.  Separately, the seller was issued 50,000
shares  of  Decor  common  stock,  valued  at  $300,000.  The  Company  recorded
additional  accrued costs of the acquisition of  approximately  $125,263,  which
represents  the excess fair value as  presently  estimated  over the  prescribed
contract  amounts.  This  liability  could be  subject  to  further  adjustment.
Goodwill  and  other  intangibles  totaling  approximately  $2,119,000  will  be
amortized  between 10 - 15 years using the straight-line  method.  Operations of
Artisan are included with the Company from November 19, 1996 onward.  The assets
and  liabilities of Artisan House,  Inc. were combined with those of the Company
as of November 18, 1996.

The following  unaudited pro forma combined  results of operations  accounts 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.

                                For the period April 1,      Year ended
                                  through December 31,        March 31,
                                   1 9 9 6      1 9 9 5        1 9 9 6
                                   -------      -------        -------

Total Revenues                   $4,207,052  $3,674,319     $ 4,809,422
                                 ==========  ==========     ===========

Net Loss                         $(718,614)  $ (895,810)    $  (520,054)
                                 =========   ==========     ===========

Net Loss Per Common Share        $    (.12)  $     (.15)    $      (.06)
                                 =========   ==========     ===========

Weighted Average Number of
  Shares Outstanding             5,887,500    5,887,500       8,587,500
                                 =========   ==========     ===========

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.

                                        9

<PAGE>



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



[2] Acquisition - Artisan House [Continued]

Employment  Agreement  -  Seller  - 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. The Seller will 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 the  Company's  sales and 5% of the  Company'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,
and (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.

On October 30, 1996,  the Seller's  employment  agreement was amended to provide
for the issuance of options to purchase  150,000 shares of the Company's  common
stock on each of the first and second anniversary 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  $58,333 on a proforma  basis as  compensation  expense for the period
ended December 31, 1996.

[3] Inventories

The components of inventory were as follows at December 31, 1996:

Raw Materials                           $  286,279
Work-in Process                            186,970
Finished Goods                             331,419
                                        ----------

  Totals                                $  804,668
  ------                                ==========

[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 [See Note 6].

[B] Management Agreements - On May 28, 1996, the Company entered into a two year
management  agreement with Interiors which  specializes in the home  furnishings
and decorative accessories industries.  The agreement calls for a management fee
of  $75,000  or 1.5% of gross  sales,  whichever  is  greater,  per  annum.  The
management  fee will be accrued  quarterly and 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.

[C] Due to  Stockholder - Interiors - During the nine months ended  December 31,
1996, the Company was charged  $56,250 in management fees in accordance with its
agreement with Interiors. On November 15, 1996, the Company was advanced $50,238
from Interiors.  On December 15, 1996, Interiors loaned an additional $60,000 to
the Company.

                                       10

<PAGE>



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



[4] Related Party Transactions [Continued]

[D] Employment  Agreement - President - In June 1996, the Company entered into a
three year  employment  contract  with the President of the Company for which an
initial base salary of $117,500 per annum will take effect upon the  acquisition
of Artisan  House,  Inc. In addition,  the  agreement  calls for the granting of
options to purchase  15,000 shares of common stock of the Company at an exercise
price of $1.67 per share for each full year of  employment  under the  agreement
and an annual bonus equal to 2% of the amount by which the  Company's  net sales
exceed the net sales for the year ended June 30, 1997. On November 18, 1996, the
Company  recorded  deferred  compensation  of $45,000  and  amortized  $1,750 as
compensation expense for the period ended December 31, 1996.

[E]  Stockholders'  Loans  Payable  - On June 21,  1996,  the  Company  received
commitments from stockholders for a total of $50,000 in loan proceeds.  However,
the Company received $35,500 in June 1996 and $8,000 in July 1996. The remaining
commitment for $6,500 was not required. The notes bear interest at 12% per annum
and have a maturity  date in April 1998.  Interest  expense for the period ended
December 31, 1996 was $2,909.

[F] Leases - Commencing November 19, 1996, the Company leases  manufacturing and
office space in  California  from the seller of Artisan House and is used by the
Company in Artisan Houses'  continuing  operation under an operating lease which
expires  November 20, 2001.  The lease  provides  for  additional  rent based on
increases in operating costs. The monthly rental is $14,000.

[5] Notes Payable
                                           As of
                                       December 31,
                                          1 9 9 6

Bridge Loans [A]                        $       --
Acquisition Loans [B]                      923,496
Assumed Notes [C]                           21,691
                                        ----------

Total                                      945,187
Less:  Discount [B]                         51,875

Total                                      893,312
Less: Current Portion                      196,223

  Long-Term Portion                     $  697,089
  -----------------                     ==========

The prime rate at December 31, 1996 was approximately 8%.

[A] Bridge  Loans - On March 31,  1996,  the Company  borrowed an  aggregate  of
$250,000  from nine [9] lenders [the "Bridge  Lenders"].  In exchange for making
loans to the Company, each Bridge Lender received a promissory note [the "Bridge
Note"].  The Bridge Notes were due and payable upon the earlier of (i) March 18,
1997 or (ii) the  closing  of an initial  underwritten  public  offering  of the
Company's  securities with interest of 8% per annum.  The Company used a portion
of the proceeds of the initial public offering to repay the Bridge Lenders.  The
Bridge  Lenders  received a total of 1,500,000  Class A Warrants  for  4,500,000
shares of common stock,  which were  registered  in the  Company's  registration
statement that was declared effective by the Securities and Exchange  Commission
on November  12, 1996 [See Note 8]. The Class A Warrants  are  exercisable  at a
price of $5.25 per warrant  commencing  two years from the effective date of the
initial  public  offering  and expire six years from the  effective  date of the
offering.  The Company recorded a discount on the bridge notes at March 31, 1996
of $214,300,  which was  amortized  over the life of the bridge  loans.  For the
period ended  December 31, 1996,  the Company  amortized the entire  discount of
$214,300 as interest expense.

                                       11

<PAGE>



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



[5] Notes Payable [Continued]

[B]  Acquisition  Loans - On November  18,  1996,  the Company  issued a secured
promissory  note in the amount of $923,496 to the seller of which  $100,000 will
be due in  February  of 1997 and the  balance  will be paid in 60 equal  monthly
installments  of $13,656  with a final  payment of $150,000 at maturity  bearing
interest at 8%. The note is secured by a second interest on furniture,  fixtures
and equipment and inventory of the Company.  The non-interest bearing portion of
the note was discounted at 8% which gives rise to a discount of $51,875.

[C] Assumed Notes of Artisan House,  Inc. - 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.

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

On March 3, 1996,  the Company  issued to Interiors  250,000  shares of Series A
Non-Voting  Convertible  Preferred  Stock and an option to  purchase  10,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors  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  whereby  Interiors
will provide the Company  certain  marketing and  management  services [See Note
4B]. The exchange of shares between the Company and Interiors is pursuant to the
Company's  intentions to secure the ongoing and long-term  availability of these
services.  Accordingly,  the  Company's  intention  is to  maintain a  long-term
position  in its  investment  in  Interiors.  The  Company  has  classified  its
investment  as available  for sale.  As of March 31, 1996,  the per share market
value of Interior's  common stock and Series A Convertible  Preferred  Stock was
$3.063 and $5.875, respectively.  Accordingly, gross unrealized holding gains of
$12,600 and $175,000  existed at March 31, 1996 on the common stock and Series A
Convertible  Preferred  Stock,  respectively.  As of December 31, 1996,  the per
share market value of Interior's common stock and Series A Convertible Preferred
Stock was $1.938 and $5.938,  respectively.  Therefore,  the  carrying  value at
December 31, 1996 was $1,575,000.  Accordingly,  a gross unrealized holding loss
and gain of $212,500  and  $187,500  existed at December  31, 1996 on the common
stock and Series A Convertible Preferred Stock, respectively. As of December 31,
1996,  Interiors owned  approximately  80% of the total voting stock outstanding
assuming no conversion of the Series A and Series C Preferred Stock.

[7] Deferred Taxes

Deferred  income taxes reflect the net tax effect of (i)  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax  purposes,  and (ii) tax  operating
loss  carryforwards.  The Company had a deferred  tax asset of $141,700  arising
from loss  carryforwards  and the net unrealized  loss on marketable  securities
which is offset by a 100% valuation allowance.

The Company has tax loss  carryforwards  at December  31, 1996 of  approximately
$304,000 which will expire in 2012.

                                       12

<PAGE>



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



[8] Capital Stock Transactions

[A] Public Offering - On November 12, 1996, the Company  successfully  completed
its initial  public  offering and sold 370,000 shares of common stock at $10 per
share of which  25,000  shares of common  stock  are  owned and  offered  by the
stockholders. As a result of this offering, the Company received net proceeds of
$2,248,033 [net of $1,228,294 offering expenses].

[B] Common Stock - In March 1996, the Company issued  3,937,500 shares of common
stock to seven parties for a total of $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, which was received May 21, 1996.

[C]  Reverse  Stock  Split  - On  October  16,  1996,  the  Company  effected  a
one-for-two  reverse  split of the Company's  preferred  and common  stock.  The
financial  statements  have been  restated to give  effect to the reverse  stock
split. The reverse stock split did not change the number of shares authorized or
the par value of any class of capital stock.

[D] Warrants - The Company issued  representative  stock warrants with rights to
purchase up to 30,000 shares at a purchase price of $15.75 per share exercisable
commencing November 12, 1998 and expiring November 12, 2001.

[E] Stock  Options - A summary  of the  status of the  Company's  options  as of
December 31, 1996 and changes  during the period April 1, 1996 through  December
31, 1996 is presented below:

                                                   Shares         Price

Outstanding at Beginning of Period                       --   $       --

  Granted During the Period                         345,000   .0001-1.67
  Exercised During the Period                            --           --
  Forfeited During the Period                            --           --
  Expired During the Period                              --           --
                                                -----------   ----------

Outstanding at End of Period                        345,000   $.0001-1.67
                                                ===========   ===========

  Exercisable at End of Period                           --   $       --
  ----------------------------                  ===========   ==========

[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.

[G]  Common  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.

                                       13

<PAGE>



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



[8] Capital Stock Transactions [Continued]

[H] 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.

[9] Commitments and Contingencies

Leases - The Company leases  manufacturing  and office space in California  from
the  seller of  Artisan  House and is used by the  Company  in  Artisan  Houses'
continuing  operation under an operating lease which expires  November 20, 2001.
The lease  provides for additional  rent based on increases in operating  costs.
The monthly rental is $14,000.

[10] Fair Value of Financial Instruments

The carrying  amount of cash,  notes  receivable  and notes payable  included in
current  liabilities  approximates fair value because of their short maturities.
The carrying  amount of notes payable and loans payable - stockholders  included
in  non-current  liabilities  approximates  their fair value  because  they bear
interest at a rate that approximates the Company's cost of capital.

[11] New Authoritative Pronouncements

The FASB has also issued SFAS No. 125,  "Accounting  for Transfers and Servicing
of  Financial  Assets  and  Extinguishment  of  Liabilities."  SFAS  No.  125 is
effective for transfers and servicing of financial assets and  extinguishment of
liabilities  occurring  after  December 31,  1996.  Earlier  application  is not
allowed.  The  provisions  of  SFAS  No.  125  must  be  applied  prospectively;
retroactive  application  is  prohibited.  Adoption  on  January  1, 1997 is not
expected  to have a  material  impact on the  Company.  The FASB  deferred  some
provisions of 125, which are not expected to be relevant to the Company.







                    .   .   .   .   .   .   .   .   .   .   .

                                       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  $3,750,000  have  been
investing and financing  activities  [See  "Liquidity  and Capital  Resources"].
Artisan is engaged in the design,  manufacturing  and  marketing  of metal wall,
table and freestanding sculptures.

On March 3, 1996, the Company issued to Interiors,  Inc.  ["Interiors"]  250,000
shares  of  Series A  NonVoting  Convertible  Preferred  Stock  and an option to
purchase 10,000,000 shares of Series B NonConvertible Voting Preferred Stock for
$2,000 in exchange for Interiors 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
whereby  Interiors  will provide the Company  certain  marketing and  management
services.  The exchange of shares  between the Company and Interiors is pursuant
to the Company's intentions to secure the ongoing and long-term  availability of
these services.  Accordingly, the Company's intention is to maintain a long-term
position  in its  investment  in  Interiors.  The  Company  has  classified  its
investment  as available  for sale.  As of March 31, 1996,  the per share market
value of Interior's  common stock and Series A Convertible  Preferred  Stock was
$3.063 and $5.875, respectively.  Accordingly, gross unrealized holding gains of
$12,600 and $175,000  existed at March 31, 1996 on the common stock and Series A
Convertible  Preferred  Stock,  respectively.  As of December 31, 1996,  the per
share market value of Interior's common stock and Series A Convertible Preferred
Stock was $1.938 and $5.938,  respectively.  Therefore,  the  carrying  value at
December 31, 1996 was $1,575,000.  Accordingly,  a gross unrealized holding loss
and gain of $212,500  and  $187,500  existed at December  31, 1996 on the common
stock and Series A Convertible Preferred Stock, respectively. As of December 31,
1996,  Interiors owned  approximately  80% of the total voting stock outstanding
assuming no conversion of the Series A and Series C Preferred Stock.

On November 12, 1996, the Company  realized net proceeds of $2,248,033  from the
initial public offering of the Company's common stock. The financial  statements
included with this filing include the  transactions  pursuant to the acquisition
of Artisan House and the Company's public offering of securities.  The financial
statements  consolidate the results of Artisan House with the Company commencing
November 18, 1996, the date of acquisition.

RESULTS OF OPERATIONS

Decor had  revenues  and cost of revenues  for the period  April 1, 1996 through
December  31, 1996 of  $635,031  and  $347,387,  respectively.  This  represents
Artisan's sales and cost of sales  transactions for the period November 19, 1996
through  December 31, 1996 based  primarily with Looney Toons  characters  under
license with Warner Brothers.

Decor had acquisition fees, selling and  administrative  expenses for the period
April  1,  1996  through  December  31,  1996  of  $567,555  of  which  $233,464
represented Artisan's expenses for the period November 19, 1996 through December
31, 1996.

The Company  incurred a net loss of $522,199 for the nine months ended  December
31, 1996. This includes net income  generated by Artisan House of  approximately
$42,000 for the period November 19, 1996 through December 31, 1996.


                                       15

<PAGE>



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



LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996,  Decor had a working  capital of $1,636,009.  For the nine
months  ended  December  31,  1996,  the Company  used  $139,580  for  operating
activities.  For the nine months ended December 31, 1996,  investing  activities
utilized cash of $2,202,001  primarily  comprising  $2,250,000  utilized for the
acquisition  of Artisan  House,  Inc. For nine months  ended  December 31, 1996,
financing  activities  generated  $2,842,071  primarily  from the sale of common
stock in connection with the initial public  offering for  $2,248,033.  The cash
balance at December 31, 1996 was $547,490.

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  will be due in
February of 1997 and the balance will be paid in 60 equal  monthly  installments
of $13,656 with a final payment of $150,000 at maturity  bearing interest at 8%.
The note is secured by a second  interest on  furniture,  fixtures and equipment
and inventory of the Company.  The non-interest  bearing portion of the note was
discounted at 8% which gives rise to a discount of $51,875.

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.

In March  1996,  the  Company  issued  to  Interiors  250,000  shares of Class A
Non-Voting  Convertible  Preferred  Stock and an option to  purchase  10,000,000
shares  of  Class B  Non-Convertible  Voting  Preferred  Stock in  exchange  for
Interiors  issuing  to the  Company  200,000  shares of Common  Stock  valued at
$600,000 at March 31, 1996 and 200,000 shares of Series A Convertible  Preferred
Stock valued at $1,000,000  at March 31, 1996. As of December 31, 1996,  the per
share market value of Interior's common stock and Series A Convertible Preferred
Stock was $1.938 and $5.938,  respectively.  Therefore,  the  carrying  value at
December 31, 1996 was $1,575,000.  Accordingly,  a gross unrealized holding loss
and gain of $212,500  and  $187,500  existed at December  31, 1996 on the common
stock and Series A Convertible Preferred Stock, respectively.

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 $75,000 or 1.5% of gross  sales,
whichever is greater,  per annum.  The management fee will be accrued  quarterly
and 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.

In June 1996, the Company entered into an employment contract with the President
of the  Company for which an initial  base  salary of $117,500  will take effect
upon the close of the acquisition of Artisan House.  In addition,  the agreement
calls for the  granting of options to purchase  5,000  shares of common stock of
the  Company  at an  exercise  price of $5.00  per  share  for each full year of
employment  under the agreement and an annual bonus equal to 2% of the amount by
which the  Company's net sales exceed the Company's net sales for the year ended
June 30, 1997.

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.

During the nine months ended December 31, 1996, the Company was charged  $56,250
in management fees in accordance with its agreement with Interiors.  On November
15, 1996, the Company was advanced $50,238 from Interiors. On December 15, 1996,
Interiors loaned an additional $60,000 to the Company.

Management  believes  that the net  proceeds of the  offering  of  approximately
$2,200,000 and the cash  generated  from operating  activities of Artisan House,
Inc. will provide the Company with sufficient capital to fund ongoing operations
for at least 12 months.  Management believes that capital requirements  relating
to  research  and  development  and  capital  expenditures  will be met by funds
derived from operations.

NEW AUTHORITATIVE PRONOUNCEMENTS

The FASB has also issued SFAS No. 125,  "Accounting  for Transfers and Servicing
of  Financial  Assets  and  Extinguishment  of  Liabilities."  SFAS  No.  125 is
effective for transfers and servicing of financial assets and  extinguishment of
liabilities  occurring  after  December 31,  1996.  Earlier  application  is not
allowed.  The  provisions  of  SFAS  No.  125  must  be  applied  prospectively;
retroactive  application  is  prohibited.  Adoption  on  January  1, 1997 is not
expected  to have a  material  impact on the  Company.  The FASB  deferred  some
provisions of 125, which are not expected to be relevant to 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.

                                       17

<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 17, 1997             By:/s/ Donald Feldman
                                        Donald Feldman,
                      Chief Executive and Financial Officer

                                       18

<PAGE>