UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended December 31, 1997 Commission File Number 0-28960
DECOR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3911958
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Washington Street
Mt. Vernon, New York 10553
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (914) 665-5400
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. As of February 11, 1998 there were 1,709,176 shares of common
stock outstanding.
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
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INDEX
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Page to Page
Part I: Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 1997 [Unaudited].... 1....... 2
Consolidated Statements of Operations for the three and nine months
ended December 31, 1997 and 1996 [Unaudited]...................... 3.......
Consolidated Statement of Stockholders' Equity for the nine months
ended December 31, 1997 [Unaudited]............................... 4.......
Consolidated Statements of Cash Flows for the nine months ended
December 31, 1997 and 1996 [Unaudited]............................ 5....... 6
Notes to Consolidated Financial Statements [Unaudited]............ 7.......14
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................15.......19
Signature............................................................20.......
. . . . . . . . . . . . . . . . . .
<PAGE>
Item 1:
DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
[UNAUDITED]
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<TABLE>
Assets:
Current Assets:
<S> <C>
Cash $ 22,448
Accounts Receivable [Net of Allowance of $150,763] 789,392
Non-Trade Receivable 41,478
Inventories 884,004
Prepaid Expenses and Other Current Assets 152,904
-----------
Total Current Assets 1,890,226
-----------
Property and Equipment [Net of Accumulated Depreciation of $430,681] 102,323
-----------
Other Assets:
Goodwill [Net of Accumulated Amortization of $124,232] 1,653,104
Other Intangible Assets [Net of Accumulated Amortization of $53,199] 546,801
Other Assets 21,256
-----------
Total Other Assets 2,221,161
-----------
Total Assets $ 4,213,710
===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
1
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
[UNAUDITED]
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<TABLE>
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C>
Accounts Payable and Accrued Expenses $ 369,470
Due to Stockholders 431,201
Accrued Compensation and Benefits - Former Officer 184,916
Accrued Costs for Restructuring 230,375
Line of Credit 80,367
Current Portion of Long-Term Debt 30,336
Accrued Interest - Related Party 23,872
-----------
Total Current Liabilities 1,350,537
Long-Term Debt 622,839
-----------
Total Liabilities 1,973,376
-----------
Commitments and Contingencies [7] -
-----------
Stockholders' Equity:
Preferred Stock, $.0001 Par Value Per Share, 35,000,000 Blank Check Shares
Authorized of which 5,000,000 are Convertible Non-Voting Series A - 250,000
Shares Issued and Outstanding; 20,000,000 Non-Convertible Voting Series B -
20,000,000 Shares Issued and Outstanding; 10,000,000 Non-Voting Series C -
54,934 Issued and Outstanding 2,030
Additional Paid-in Capital - Preferred Stock 2,423,970
Common Stock - $.0001 Par Value, Authorized 20,000,000 Shares,
1,709,176 Issued and Outstanding 171
Additional Paid-in Capital - Common Stock 4,122,752
Accumulated Deficit (3,647,422)
-----------
Deferred Compensation (661,167)
-----------
Total Stockholders' Equity 2,240,334
-----------
Total Liabilities and Stockholders' Equity $ 4,213,710
===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
2
<PAGE>
DECOR GROUP, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended Nine months ended
December 31, December 31,
------------ ------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $1,193,892 $ 635,031 $3,797,334 $ 635,031
Cost of Revenues 574,452 347,387 1,894,228 347,387
---------- ----------- ---------- -----------
Gross Profit 619,440 287,644 1,903,106 287,644
---------- ----------- ---------- -----------
Selling, General and Administrative
Expenses:
Administrative Expenses 658,568 321,204 2,335,761 475,122
Selling Expense 366,171 92,433 1,064,142 92,433
---------- ----------- ---------- -----------
Total Selling, General and
Administrative Expenses 1,024,739 413,637 3,399,903 567,555
---------- ----------- ---------- -----------
[Loss] from Operations (405,299) (125,993) (1,496,797) (279,911)
---------- ----------- ---------- -----------
Other Income [Expense]:
Loss on Sale of Investment in
Related Party -- -- (1,112,873) --
Interest Income -- 1,974 - 3,529
Miscellaneous Expense (51,295) -- (51,295) --
Miscellaneous Income 24,916 -- 56,068 --
Interest Expense - Related Party (5,651) (2,560) (16,425) (4,060)
Interest Expense (26,034) (71,214) (61,217) (236,939)
---------- ----------- ---------- -----------
Other [Expense] - Net (58,064) (71,800) (1,185,742) (237,470)
---------- ----------- ---------- -----------
[Loss] Before Provision for
Income Taxes (463,363) (197,793) (2,682,539) (517,381)
Provision for Income Taxes 8,241 4,818 9,337 4,818
---------- ----------- ---------- -----------
Net [Loss] $ (471,604) $ (202,611) $(2,691,876) $ (522,199)
========== =========== =========== ===========
Basic and Diluted Earnings Per Share:
[Loss] Per Share $ (.28) $ (.14) $ (1.58) $ (.30)
========== =========== ========== ===========
Number of Common Shares 1,709,176 1,496,833 1,708,343 1,873,944
========== =========== ========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
3
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
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<TABLE>
Preferred Stock Common Stock Unrealized
Additional Additional Holding Total
Paid-in Paid-in Accumulated Deferred Loss on Stockholders'
Shares Amount Capital Shares Amount Capital Deficit Compensation Investment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - April 1, 1997 20,304,934 $2,030 $2,423,970 1,707,510 $171 $4,035,252 $ (955,546) $(991,167) $(787,400) $3,727,310
Issuance of Common Shares to
Former Employee [7C] -- -- -- 1,666 -- 17,500 -- -- -- 17,500
Adjustment on Disposal of
Securities Available for Sale -- -- -- -- -- -- -- -- 787,400 787,400
Deferred Compensation in
Connection with Issuance of
Stock Options -- -- -- -- -- 70,000 -- (70,000) -- --
Amortization of Deferred
Compensation -- -- -- -- -- -- -- 400,000 -- 400,000
Net [Loss] for the nine months
ended December 31, 1997 -- -- -- -- -- -- (2,691,876) -- -- (2,691,876)
-------- ------ ---------- --------- ---- --------- ---------- -------- ------- ----------
Balance - December 31, 1997 20,304,934 $2,030 $2,423,970 1,709,176 $171 $4,122,752 $(3,647,422) $(661,167) $ -- $2,240,334
========== ====== ========== ========= ==== ========== ============ ========= ========= ==========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
4
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Nine months ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Operating Activities:
<S> <C> <C>
Net [Loss] $(2,691,876) $ (522,199)
Adjustment to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Loss on Sale of Investment in Related Party 1,112,873 --
Amortization of Deferred Compensation 400,000 60,083
Accrued Management Fees - Related Party 67,500 --
Bad Debt Expense 38,980 --
Amortization of Intangibles 85,983
Depreciation 29,938 24,502
Stock Issued for Services - Former Employee 17,500 --
Accrual Interest Payable 16,425 -
Accrued Interest Receivable - (953)
Interest - Cost of Bridge Warrants - 214,300
Amortization of Note Payable Discount - 2,058
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 289,203 (16,647)
Non-Trade Receivable (41,478) --
Inventory 76,014 --
Prepaid Expenses (47,231) (35,600)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (166,682) 134,876
Accrued Compensation and Benefit - Former Officer 184,916 --
Accrued Acquisition Costs (284,999) --
Accrued Costs for Restructuring 230,375 --
---------- -----------
Net Cash - Operating Activities - Forward (682,559) (139,580)
---------- -----------
Investing Activities:
Purchase of Fixed Assets (16,118) --
Proceeds from Sale of Investment in Related Party 487,127 --
Other Assets (19,802) (2,251)
Cash Paid for Acquisition of Artisan House - (2,250,000)
Advances to Related Party - (50,000)
Collections from Related Party - 100,250
---------- -----------
Net Cash - Investing Activities - Forward $ 451,207 $(2,202,001)
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
5
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Nine months ended
December 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (682,559) $ (139,580)
---------- -----------
Net Cash - Investing Activities - Forwarded 451,207 (2,202,001)
---------- -----------
Financing Activities:
Proceeds from Line of Credit 80,367 --
Proceeds from Stockholder Loans 184,916 201,238
Proceeds from Sale of Common Stock in Connection
with Initial Public Offering - 2,248,033
Proceeds from Sale of Preferred Stock - 826,000
Proceeds from Sale of Common Stock - 8,000
Payment of Notes and Leases Payable (130,991) (191,200)
Payment of Stockholder Loans (50,000) --
Payment of Bridge Loans - (250,000)
---------- -----------
Net Cash - Financing Activities - Forward 84,292 2,842,071
---------- -----------
Net [Decrease] Increase in Cash (147,060) 500,490
Cash - Beginning of Periods 169,508 47,000
---------- -----------
Cash - End of Periods $ 22,448 $ 547,490
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ 61,217 $ 315
Income Taxes $ 9,337 $ --
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the period ended March 31, 1996, the Company recorded a discount of
$214,300 on the bridge loan resulting from the issuance of warrants for the
$250,000 bridge loan. For the period ended March 31, 1997, the Company amortized
$214,300 as interest expense.
On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of
Class A Convertible Preferred Stock and an option to purchase 20,000,000 shares
of Class B Non-Convertible Preferred Stock in exchange for Interiors, Inc.
issuing to the Company 200,000 shares of Common Stock valued at $600,000 and
200,000 shares of Series A Convertible Preferred Stock valued at $1,000,000 and
a guarantee with respect to certain indebtedness [See Notes 6, Investment in
Interiors, Inc. and 12, Proposed Merger].
In March 1996, the Company issued 1,312,500 shares of common stock to seven
parties for $105,000 of which $103,000 was in cash and $2,000 was for the fair
value of services. At March 31, 1996, $8,000 was reflected as a stock
subscription receivable and was collected on May 21, 1996.
On November 18, 1996, the Company's wholly owned subsidiary Artisan
Acquisition Corp., Inc. purchased substantially all of the assets and assumed
certain liabilities of Artisan House, Inc. for approximately $3,700,000, of
which $2,400,000 was paid in cash, $300,000 in shares of common stock and
$1,050,000 in notes. The Company primarily acquired accounts receivable of
approximately $1,100,000, inventory of approximately $800,000 and assumed
liabilities of approximately $578,000.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
6
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
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[1] Summary of Significant Accounting Policies
[A] Nature of Operations - Decor Group, Inc., a Delaware corporation [the
"Company" or "Decor"], was incorporated on March 1, 1996. The Company is a
subsidiary of Interiors, Inc. The Company was organized for the purpose of
acquiring Artisan House, Inc. ["Artisan"]. The acquisition was completed on
November 18, 1996. Artisan is engaged in the business of designing,
manufacturing, marketing, selling and distributing metal wall-mounted, tabletop
and freestanding sculptures. Artisan manufactures its products at one location
in southern California and sells through sales representatives and from its
regional showrooms to furniture retailers and department stores throughout the
United States and internationally. The transaction was recorded under the
purchase method. [See Notes 2 and 6].
[B] Basis of Reporting - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b)of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying statements
include all adjustments which are considered necessary in order to make the
interim financial statements not misleading.
[C] Cash Equivalents - The Company's policy is to classify all highly liquid
investments with maturity of three months or less when purchased to be cash
equivalents. There were no cash equivalents at December 31, 1997.
[D] Inventory - Inventory is stated at the lower of cost or market, is comprised
of materials, labor and factory overhead, and is determined on the first-in,
first-out ["FIFO"] basis.
[E] Property and Equipment - Property and equipment is stated at cost and is net
of accumulated depreciation. The cost of additions and improvements are
capitalized and expenditures for repairs and maintenance are expensed in the
period incurred. Depreciation of property and equipment is provided utilizing
the straight-line method over the estimated useful lives of the respective
assets as follows:
Vehicles 2 Years
Machinery and Equipment 1 - 5 Years
Furniture and Fixtures 5 Years
Leasehold improvements are amortized utilizing the straight-line method over the
shorter of the remaining term of the lease or the useful life of the
improvement.
[F] Marketable Securities - Statement of Financial Accounting Standards ["SFAS"]
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Those investments are to be classified into the following three
categories: held-to-maturity debt securities; trading securities; and
available-for-sale securities.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale,
along with the Company's investment in equity securities. Securities available
for sale are carried at fair value, with any unrealized holding gains and
losses, net of tax, reported in a separate component of shareholders' equity
until realized. Trading securities are securities bought and held principally
for the purpose of selling them in the near term and are reported at fair value,
with unrealized gains and losses included in operations for the current year.
Held-to-maturity debt securities are reported at amortized cost.
7
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
[G] Goodwill - Amounts paid in excess of the estimated value of net assets
acquired of Artisan House, Inc. were charged to goodwill. Goodwill is related to
revenues the Company anticipates realizing in future years. The Company has
decided to amortize its goodwill over a period of 10 years using the
straight-line method. Effective April 1, 1997 based upon operating management's
experienced understanding of the expected useful lives of the tangible and
intangible assets, the Company changed its period of amortization of goodwill to
twenty years. The effect of this change will be to reduce future annual
amortization of goodwill by $75,000. Goodwill and other intangible assets were
previously written off as of September 30, 1997. An amendment was filed in
February of 1998 for the September 1997 Form 10-QSB that reversed the writedown
of the goodwill based upon revised information obtained after the original
filing. The Company's policy is to evaluate the periods of goodwill amortization
to determine whether later events and circumstances warrant revised estimates of
useful lives. The Company also evaluates whether the carrying value of goodwill
has become impaired by comparing the carrying value of goodwill to the value of
projected undiscounted cash flows from acquired assets or businesses. Impairment
is recognized if the carrying value of goodwill is less than the projected
undiscounted cash flow from the acquired assets or business.
Goodwill and the other intangible assets have been amortized using the
straight-line method over fifteen to twenty years. In connection with the
acquisition of Artisan House, Inc. in November 1996, goodwill of $2,100,000 was
recorded using the purchase method. The covenant-not-to-compete is amortized
over fifteen years under the straight-line method.
[H] Stock Options and Similar Equity Instruments Issued to Employees - The
Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company adopted SFAS No. 123 on April 1, 1996 for financial note disclosure
purposes and will continue to apply APB Opinion No. 25 for financial reporting
purposes.
[I] Offering Costs - Such costs were recorded as a reduction of the net proceeds
of the offering.
[J] Earnings Per Share - The FASB issued SFAS No. 128 Earnings Per Share in
February 1997. SFAS No. 128 simplifies the earnings per share ["EPS"]
calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and
related interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and
diluted EPS by entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of an entity, similar to the fully diluted EPS of APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; and, accordingly, all
prior-period EPS data presented is restated.
The number of shares to be used for earnings per share calculation purposes for
June 30, 1996 was based on the 1,312,500 common shares issued since the initial
capitalization and, pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, on the 1,500,000 common shares assumed issued from
the warrants in connection with the bridge loan, as if they were outstanding
since inception to June 30, 1996 [the last period in the IPO Prospectus] and,
for December 31, 1997, the 1,709,176 shares outstanding from April 1, 1997.
Convertible preferred stock options and warrants are not included because the
effect would be anti-dilutive.
8
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
[K] Risk Concentrations - Financial instruments that potentially subject the
Company to concentrations of credit risk include cash and accounts receivable
arising from its normal business activities. The Company places its cash with a
high credit quality financial institution and periodically has cash balances
subject to credit risk beyond insured amounts. At December 31, 1997, the Company
had no cash in excess of insured amounts.
The Company routinely assesses the financial strength of its customers, and
based upon factors surrounding the credit risk of its customers, established an
allowance for uncollectible accounts of $150,763 and as a consequence, believes
that its accounts receivable credit risk exposure beyond this allowance is
limited. The Company does not require collateral on its accounts receivable.
[L] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[M] License Agreements - The Company currently manufactures a small segment of
its products pursuant to license agreements. Generally, all of the license
agreements are non-exclusive, permit sales in the United States and require the
Company to make periodic royalty payments based upon revenues from the sale of
licensed works.
[N] Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiary. All material intercompany
accounts and transactions are eliminated.
[2] Acquisition - Artisan
On November 18, 1996, the Company's wholly owned subsidiary Artisan Acquisition
Corp., Inc. purchased substantially all of the assets and assumed certain
liabilities of Artisan for $3,694,826, of which a total of $2,400,000 was paid
in cash. A secured promissory note for $923,496 was issued to the seller. The
note provides for the payment to the seller of the following: a) $100,000 within
90 days after the closing, b) beginning 120 days after the closing, 60 equal
monthly payments of $13,989 bearing an interest rate of 8%, and c) a balloon
payment of $150,000 concurrent with the 60th installment. The required payments
under (a) and (c) did not provide for interest and were discounted at 8% giving
rise to a discount of $48,387 which will be amortized to interest expense.
Separately, the seller was issued 50,000 shares, giving effect to the stock
dividend and the reverse stock split, of Decor common stock, valued at $300,000.
The Company recorded additional costs of the acquisition of approximately
$25,263 and $258,437 at March 31, 1997 and September 30, 1997, respectively,
which represented the excess fair value over the prescribed contract amounts
[See Note 8]. The transaction was recorded under the purchase method. Goodwill
and other intangibles totaling approximately $2,199,905 will be amortized
between 15-20 years using the straight-line method. Goodwill and other
intangible assets which were previously written down have been reversed by an
amendment filed in February of 1998. Operations of Artisan are included with the
Company from November 19, 1996 onward. The assets and liabilities of Artisan are
combined with those of the Company as of November 18, 1996.
9
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
- ------------------------------------------------------------------------------
[2] Acquisition - Artisan [Continued]
The following unaudited pro forma combined results of operations account for the
acquisition as if it had occurred at the beginning of the periods presented. The
pro forma results give effect to amortization of goodwill and other intangible
assets, interest expense, employment contracts, consulting agreements, and
options issued.
Nine months ended
December 31,
1 9 9 6
Total Revenues $3,674,319
Net [Loss] $ (944,378)
==========
Net [Loss] Per Common Share $ (.17)
Weighted Average Number of Common Shares
Outstanding 1,873,944
These pro forma amounts may not be indicative of results that actually would
have occurred if the combination had been in effect on the date indicated or
which may be obtained in the future.
[3] Inventories
The components of inventory were as follows:
Raw Materials $ 356,971
Work-in Process 186,562
Finished Goods 340,471
----------
Totals $ 884,004
------ ==========
During September 1997, the Company wrote-off obsolete inventory of $67,330
resulting from lack of market demand. This write off is included in the cost of
revenues.
[4] Related Party Transactions
[A] Note Receivable - Interiors - On March 5, 1996, the Company advanced $50,000
with 8% interest to a firm that renders management services to the Company. The
Company was repaid on April 16, 1996. Interest income of $250 was recorded as of
March 31, 1996. On August 29, 1996 and September 13, 1996, the Company advanced
an additional $50,000 with 10% interest. The Company was repaid on November 15,
1996.
[B] Management Agreements - On May 28, 1996, the Company entered into a two year
management agreement with Interiors, Inc. which specializes in the home
furnishings and decorative accessories industries. The agreement calls for a
management fee of $90,000 or 1.5% of gross sales, whichever is greater, per
annum. The management fee has been accrued quarterly and will be paid quarterly
to the extent that there is excess cash flow available to the Company as defined
in the agreement. No payment in any quarter will exceed 50% of excess cash flow
as defined. The agreement has a term of two years with renewal options at the
mutual consent of both parties [See Note 12 - Proposed Merger]
10
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
- ------------------------------------------------------------------------------
[4] Related Party Transactions [Continued]
[C] Due to Stockholder - Interiors - Interest at 8%, or approximately $12,510,
has been accrued on the outstanding balance due to Interiors of $202,785 for the
nine months ended December 31, 1997 [See Note 12 - Proposed Merger].
[D] Stockholders' Loans Payable - The Company received $35,500 in June 1996 and
$8,000 in July 1996 in loan proceeds. The notes bear interest at 12% per annum
and have a maturity date in April 1998.
Interest expense for the nine months ended December 31, 1997 was $3,915.
[5] Commitment Letter - Secured Loan Agreement
On May 31, 1996, the Company received a commitment letter for a revolving credit
agreement for a maximum loan amount of $1,100,000. The agreement requires the
satisfaction of a number of conditions prior to funding including the completion
of a due diligence review. The terms of the loan include an annual interest rate
of prime plus 4%, a management fee of 3% of sales, a security interest in all of
the Company's accounts receivable, inventory, and equipment, and any proceeds
therefrom, a personal guaranty by the Company's Chairman of the Board, and a
prepayment fee of $25,000. In the event that the Company is unable to satisfy
such conditions, the Company will not receive the proceeds from such loan. Due
to the consummation of a new agreement in July 1997, the Company allowed this
commitment letter to expire.
On July 1, 1997, Artisan obtained an accounts receivable based line of credit
for up to $600,000 with interest at prime plus 5.5% secured by all of Artisan's
assets and guaranteed by Decor and Interiors, Inc. The amount available under
the line of credit at December 31, 1997 was $508,091.
[6] Investment in Interiors, Inc. - Related Party
On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting Convertible Preferred Stock and an option to purchase 20,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors, Inc. issuing to the Company 200,000 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000. This option was exercised in September of 1996. On May 28, 1996, the
Company entered into a management agreement with Interiors, Inc. whereby
Interiors, Inc. will provide the Company certain marketing and management
services [See Note 4B]. The exchange of shares between the Company and
Interiors, Inc. was pursuant to the Company's intentions to secure the ongoing
and long-term availability of these services. In September 1997, the Company
sold all of the common and preferred shares of Interiors stock to an unrelated
party for gross proceeds of $487,127 and, accordingly, realized a loss of
$1,112,873. As of December 31, 1997, Interiors, Inc. owned approximately 79% of
the Company's total voting stock outstanding assuming no conversion of the
Series A and Series C Preferred Stock [See Note 12 - Proposed Merger].
[7] Commitments and Contingencies
[A] Employment Agreement - Seller - Artisan's employment agreement with the
seller was terminated effective July 8, 1997. In connection with the settlement
agreement in September 1997 with CIDCOA International, Inc. ["CIDCOA"], formerly
known, as Artisan House, Inc. [See Note 8], the Company reinstated the
employment agreement with the seller. Accordingly, the Company recorded all
salary and benefits owed to the seller in the amount of $217,379 as of September
30, 1997.
11
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
- ------------------------------------------------------------------------------
[7] Commitments and Contingencies [Continued]
[A] Employment Agreement - Seller - On October 30, 1996, the Seller's employment
agreement was amended to provide for the issuance of options to purchase 50,000
shares of the Company's common stock on each of the first and second
anniversaries of the agreement. The options are exercisable at $.0001 per share
commencing the date of issuance and expiring in four years. The Company recorded
deferred compensation cost for the fair value of options in the amount of
$1,000,000 as of November 18, 1996 and amortized $178,233 as compensation
expense for the year ended March 31, 1997 and $375,000 for the nine months ended
December 31, 1997.
[B] Consulting Agreements - On January 1, 1997, the Company entered into a
consulting agreement with a Director of the Company to provide the Company with
such consulting services as requested by the Company in connection with
strategic planning, marketing and management issues. The Company has agreed to
pay $150,000 over three [3] years.
On March 1, 1997, Artisan entered into a consulting agreement to provide Artisan
with such consulting services as requested in connection with the stabilization,
updating and transition of Artisan's accounting systems. The Company has agreed
to pay $11,500 per month for the term of the Consulting Agreement. The initial
term of the Consulting Agreement is three [3] months with two, one month
extensions. This agreement expired in July 1997.
[C] Termination Agreement - Under a termination agreement with a former
employee, the Company was required to pay severance in the amount of $3,889 per
month for 18 months beginning April 1997. In addition, the Company was required
to provide various other minimal benefits to the former employee. The Company
recorded a liability for the total compensation payments of $70,000 at March 31,
1997.
In June 1997, the Company ceased paying the severance pay required under this
termination agreement. In August 1997, the Company entered into a settlement
agreement with the former employee which called for the payment of $45,000 and
the issuance of 1,666 shares of the Company's common stock, with a value of
$17,500. The stock shall be restricted for a period of twelve months after the
date of issuance.
[8] Legal Proceedings
In March 1997, CIDCOA brought an arbitration proceeding against the Company,
currently settled, alleging that it had failed to pay CIDCOA additional sums
owed to it in connection with the Company's purchase of all of the assets and
assumption of substantially all of the liabilities of Artisan. CIDCOA alleged
that it was owed a purchase price adjustment. The Company denied the
allegations, and brought counterclaims against CIDCOA alleging breach of
contract, breach of warranty, misrepresentation and fraud by CIDCOA. In August
1997, CIDCOA filed a motion seeking to enforce an alleged settlement agreement
made by the parties. In September 1997, the Company entered into a settlement
agreement with CIDCOA included in which was the payment of (i) a purchase price
adjustment of approximately $100,000 and (ii) $158,438 representing the market
value as of June 13, 1997 of 10,000 registered shares of the Company which were
never issued to CIDCOA. In addition, the settlement confirms that the original
amount of the promissory note is $926,400 and confirms that the monthly payments
under the note shall be $13,989, reinstates the terminated employment agreement
with Henry Goldman [See Note 7A] and provides for the Company to bring current
all disputed payments and amounts due Goldman and CIDCOA under the original
purchase and employment agreements. Further, the settlement agreement provides
that obligations to CIDCOA and Goldman under the promissory note, the employment
agreement and Artisan House's real property lease for its operating facilities
will be guaranteed by the Company and Interiors, Inc.
12
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
- ------------------------------------------------------------------------------
[9] Capital Stock
[A] Stock Dividends - On December 3, 1996, the Board of Directors declared a
dividend on its shares of Common Stock, distributable to stockholders of record
of the Company as of December 16, 1996 on the basis of two additional shares of
Common Stock for each one share of common stock previously outstanding. All
share data in the financial statements have been adjusted for this dividend.
[B] Series B Preferred Stock Dividend - In January of 1997, the Company issued a
dividend on its Series B Preferred Stock payable to the stockholder of record as
of December 16, 1996 on the basis of 1 share of Series B Preferred Stock for
each 1 share of Series B Preferred Stock outstanding. All share data have been
adjusted for this dividend. In addition, the resolution was made that if at any
time the Company's Board of Directors and stockholders approve an increase in
the number of authorized shares of Series B Preferred Stock to not less than
30,000,000 shares, then the Series B Preferred stockholder shall be issued an
additional 10,000,000 shares of Series B Preferred.
[C] Reverse Stock Split - Effective October 8, 1997, the Company completed a one
share for three shares reverse stock split of its common stock. All shares and
per share amounts have been restated retroactively. Any fractional shares will
be purchased by the Company at the average closing bid and ask price of the
common stock of the Company as of October 8, 1997.
[10] New Authoritative Pronouncements
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130 is
not expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
[11] Restructuring Plan
In September of 1997, the Company commenced and finalized efforts to formulate a
restructuring plan to satisfy its various investor constituencies. Such efforts
have included the retention of various advisors and analysis by management to
develop an exit plan and strategy to address the Company's financial situation
and disappointing financial performance.
In September 1997, the Company's management approved an exit plan which
addresses the above concerns by improving the manufacturing and administrative
operations of the Company for growth through improved competitiveness, quality
and effectiveness [See Note 1].
Accrued restructuring costs and charges include the cost of shutting down the
current operations and moving expenses to a new location for approximately
$20,000 and the projected cost differential between the projected sublease
income and the lease obligations on the current premises subject to Artisan's
House move in the amount of $210,375. The restructuring costs are classified on
the statement of operations as administrative expenses.
13
<PAGE>
DECOR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
- ------------------------------------------------------------------------------
[12] Proposed Merger
On October 20, 1997, the Company received a letter of intent from Interiors,
Inc. whereby Interiors, Inc. will acquire the remaining shares of Decor Group,
Inc. it does not currently own. Interiors, Inc. would be the surviving
corporation and all the outstanding shares of Decor would be canceled. The
merger consideration to be delivered by Interiors, Inc. to the stockholders of
Decor Group, Inc. for the shares of Decor common stock outstanding at the date
of closing of the proposed transaction will be shares of common stock of
Interiors, Inc. based upon a fair market value evaluation. There can be no
assurance that the proposed transaction will be completed [See Note 6].
. . . . . . . . . . .
14
<PAGE>
Item 2.
DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
OVERVIEW
Decor Group, Inc. [the "Company" or "Decor"] was formed in March of 1996. The
primary activities of Decor prior to the acquisition of Artisan House, Inc.
["Artisan"] on November 18, 1996 for approximately $3,700,000, was investing and
financing activities. Artisan is engaged in the design, manufacturing and
marketing of metal wall-mounted, tabletop and freestanding sculptures.
On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting Convertible Preferred Stock and an option to purchase 20,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors, Inc. issuing to the Company 200,000 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000. This option was exercised in September of 1996. The exchange of
shares between the Company and Interiors, Inc. was pursuant to the Company's
intentions to secure the ongoing and long-term availability of these services.
On May 28, 1996, the Company entered into a management agreement with Interiors,
Inc. whereby Interiors, Inc. will provide the Company certain marketing and
management services [See Note 4B]. In September 1997, the Company sold all of
the common and preferred shares of Interiors stock to an unrelated party for
gross proceeds of $487,127 and, accordingly, realized a loss of $1,112,873. As
of December 31, 1997, Interiors, Inc. owned approximately 79% of the total
voting stock outstanding assuming no conversion of the Series A and Series C
Preferred Stock.
On October 20, 1997, the Company received a letter of intent from Interiors,
Inc. whereby Interiors, Inc. will acquire the remaining shares of Decor Group,
Inc. it does not currently own. Interiors, Inc. would be the surviving
corporation and all the outstanding shares of Decor would be canceled. The
merger consideration to be delivered by Interiors, Inc. to the stockholders of
Decor Group, Inc. for the shares of Decor common stock outstanding at the date
of closing of the proposed transaction will be shares of common stock of
Interiors, Inc. based upon a fair market value evaluation. There can be no
assurance that the proposed transaction will be completed.
The financial statements consolidate the results of Artisan House with the
Company commencing November 18, 1996, the date of acquisition.
RESULTS OF OPERATIONS
The Company had revenues and cost of revenues for the nine months ended December
31, 1997 of $3,797,334 and $1,894,228, respectively. This represents Artisan's
sales and cost of sales transactions for nine months ended December 31, 1997.
For the quarter December 31, 1997, Artisan's sales were approximately
$1,193,892, representing approximately $39,144 more than the September 30, 1997,
or 3.4%. This increase is primarily attributable to the fall High Point market
and the purchase of new product introductions.
The Company had selling, general and administrative expenses for the nine months
ended December 31, 1997 of $3,399,903 of which approximately $1,760,000
represented Artisan's expenses for the nine months ended December 31, 1997.
Selling, general and administrative expenses decreased approximately $475,000 in
the quarter ended December 1997 over the quarter ended September 1997.
15
<PAGE>
DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS [CONTINUED]
For the nine months ended December 31, 1997, Artisan had losses before interest,
taxes, depreciation and amortization of approximately $320,000.
During September 1997, the Company wrote-off obsolete inventory of $67,330
resulting from lack of market demand. This write off is included in the cost of
revenues.
In September of 1997, the Company commenced and finalized its efforts to
formulate a restructuring plan to satisfy its various investor constituencies.
Such efforts have included the retention of various advisors and analysis by
management to develop an exit plan and strategy to address the Company's
financial situation and disappointing financial performance.
In September 1997, the Company's management approved an exit plan which
addresses the above concerns by improving the manufacturing and administrative
operations of the Company for growth through improved competitiveness, quality
and effectiveness.
Accrued restructuring costs and charges include the cost of shutting down the
current operations and moving expenses to a new location for approximately
$20,000 and the projected cost differential between the projected sublease
income and the lease obligations on the current premises subject to Artisan's
House move in the amount of $210,375.
The Company incurred a net loss of $2,691,876 for the nine months ended December
31, 1997. This includes a net loss generated by Artisan House of approximately
$465,000 for the nine months ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Decor had working capital of $539,689. For the nine months
ended December 31, 1997, the Company used $682,559 for operating activities,
generated $451,207 from investing activities and generated $84,292 from
financing activities. The cash balance at December 31, 1997 was $22,448.
Management believes that in the next twelve months cash requirements will be met
by cash provided from operations and the asset based line of credit. Management
believes that its long-term cash needs will be provided by operations and
additional debt and/or equity financing.
In May 1996, the Company entered into a management agreement with Interiors
which specializes in the home furnishings and decorative accessories industries.
The agreement calls for a management fee of $90,000 or 1.5% of excess cash
flows, whichever is greater, per annum. The management fee is accrued quarterly
and will be paid quarterly to the extent that there is excess cash flow
available to the Company. Excess cash flow is defined in the agreement to mean
cash flow from operations adjusted to reflect changes in working capital,
interest payments, principal repayments and capital expenditures. No payment in
any quarter will exceed 50% of excess cash flow as defined. The agreement has a
term of two years with renewal options at the mutual consent of both parties.
On June 21, 1996, the Company received commitments from its stockholders for an
additional $50,000 in loan proceeds. However, the Company received $35,500 in
June 1996 and $8,000 in July 1996. The remaining balance for $6,500 was not
required. The notes bear interest at 12% per annum.
16
<PAGE>
DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]
On August 9, 1996, the Company agreed to issue to Interiors 28,334 shares of
Series C Non-Voting, Convertible, Preferred Stock for cash of $425,000. On
August 23, 1996, the Company agreed to issue to Interiors an additional 18,750
shares of Series C Non-Voting, Convertible, Preferred Stock for cash of
$281,250. On September 6 and 13, 1996, the Company agreed to issue to Interiors
an additional aggregate 7,850 shares of Series C Non-Voting, Convertible,
Preferred Stock for cash of $117,750.
On August 29, 1996 and September 13, 1996, the Company advanced an aggregate
$50,000 with 10% interest to a firm that renders management services to the
Company. The Company was repaid on November 16, 1996.
On November 12, 1996, the Company realized net proceeds of $2,248,033 from the
initial public offering of the Company's common stock.
On November 18, 1996, the Company issued a secured promissory note in the amount
of $923,496 to the seller of Artisan House of which $100,000 was paid in
February of 1997 and the balance will be paid in 60 equal monthly installments
of $13,989 with a final payment of $150,000 at maturity bearing interest at 8%.
The note is secured by a second interest on all of Artisan's assets. The
non-interest bearing portion of the note was discounted at 8% which gave rise to
a discount of $48,387.
In connection with the acquisition, the Company assumed notes payable in the
aggregate amount of $212,891 of which approximately $190,000 was paid off in
connection with the closing of the acquisition and the remaining notes of
approximately $23,000 bear interest ranging from 9.5% to 13.4% maturing through
2001. Such notes are collateralized by various equipment of the Company.
The Company, entered into a three year employment agreement with the Seller to
be effective as of the closing of the acquisition of Artisan House, Inc. which
was subsequently modified as a result of the below settlement. The original
agreement called for the Seller to be employed on a part time basis with (i) an
annual salary of $75,000, (ii) a signing bonus of $70,000, $30,000 of which was
paid at closing and $40,000 of which is to be paid in twelve equal monthly
installments of $3,333 during the first year of the employment agreement, (iii)
reimbursement of expenses incurred by the Seller for lease and insurance
payments with respect to an automobile, (iv) an annual performance bonus equal
to 1% of Artisan's sales and 5% of the Artisan's export sales in excess of those
achieved by Artisan House, Inc. for the twelve months ended June 30, 1996,
payable within 60 days after the end of the fiscal year, with the first and last
payments being calculated on a pro rated basis, (v) 2.5% of the consideration
paid by the Company in connection with an acquisition of an unrelated third
party introduced to the Company or its affiliates by the Seller subject to
certain restrictions as defined in the employment agreement, and (vi) options to
purchase 50,000 shares of the Company's common stock on each of the first and
second anniversaries of the agreement.
Artisan's employment agreement with the seller was terminated effective July 8,
1997. In connection with the settlement agreement in September 1997 with CIDCOA
International, Inc. ["CIDCOA"], formerly known, as Artisan House, Inc. [See Note
8], the Company reinstated the employment agreement with the seller.
Accordingly, the Company accrued all salary and benefits owed to the seller in
the amount of $217,379 as of September 30, 1997.
17
<PAGE>
DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]
On December 31, 1996, Artisan entered into a three year employment agreement
with Artisan's Chief Operating Officer and President for (i) an annual salary of
$100,000; (ii) a cash bonus equal to ten percent [10%] of the annual salary,
based upon the Artisan's net profit before taxes ["NPBT"]; and (iii) a cash
bonus equal to five percent [5%] of the increase in NPBT over the previous
fiscal year, not to exceed 40% of the base salary. The agreement also provides
options to purchase 30,000 shares of the Company's Common Stock at an exercise
price of equal to $.0001 per share exercisable for a period of six years for
each of the next three years. For each of the three years ended March 31, 1998,
1999 and 2000 additional options to purchase 30,000 shares of the Company's
Common Stock exercisable for a period of one year at an exercise price equal to
the average closing price of the Company's stock for the 20 days ending two days
prior to date of grant. Continued employment by Artisan is required and Artisan
must meet or exceed 115% of the prior year's NPBT. In March 1997, the officer
was elected to the offices of President and Chief Financial Officer of the
Company.
In March 1997, CIDCOA brought an arbitration proceeding against the Company,
currently settled, alleging that it had failed to pay CIDCOA additional sums
owed to it in connection with the Company's purchase of all of the assets and
assumption of substantially all of the liabilities of Artisan. CIDCOA alleged
that it was owed a purchase price adjustment. The Company denied the
allegations, and brought counterclaims against CIDCOA alleging breach of
contract, breach of warranty, misrepresentation and fraud by CIDCOA. In August
1997, CIDCOA filed a motion seeking to enforce an alleged settlement agreement
made by the parties. In September 1997, the Company entered into a settlement
agreement with CIDCOA included in which was the payment of (i) a purchase price
adjustment of approximately $100,000 and (ii) $158,438 representing the market
value as of June 13, 1997 of 10,000 registered shares of the Company which were
never issued to CIDCOA. In addition, the settlement confirms that the original
amount of the promissory note is $926,400 and confirms that the monthly payments
under the note shall be $13,989, reinstates the terminated employment agreement
with Henry Goldman [See Note 7A] and provides for the Company to bring current
all disputed payments and amounts due Goldman and CIDCOA under the original
purchase and employment agreements. In addition, the settlement modifies certain
compensation provisions of the employment agreement. Further, the settlement
agreement provides that obligations to CIDCOA and Goldman under the promissory
note, the employment agreement and Artisan House's real property lease for its
operating facilities will be guaranteed by the Company and Interiors, Inc.
Under a termination agreement with a former employee, the Company was required
to pay severance in the amount of $3,889 per month for 18 months beginning April
1997. In addition, the Company was required to provide various other minimal
benefits to the former employee. The Company recorded a liability for the total
compensation payments of $70,000 at March 31, 1997. In June 1997, the Company
ceased paying the severance pay required under this termination agreement. In
August 1997, the Company entered into a settlement agreement with the former
employee which called for the payment of $45,000 and the issuance of 1,666
shares of the Company's common stock, with a value of $17,500. The stock shall
be restricted for a period of twelve months after the date of issuance.
On July 1, 1997, Artisan obtained a line of credit for up to $600,000 with
interest at prime plus 5.5% secured by all of Artisan's assets and guaranteed by
Decor and Interiors, Inc. The amount available under the line of credit at
December 31, 1997 was $508,091.
18
<PAGE>
DECOR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
NEW AUTHORITATIVE PRONOUNCEMENTS
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
19
<PAGE>
SIGNATURES
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Decor Group, Inc.
Date: February 13, 1997 By:/s/ Dennis D'Amore
Dennis D'Amore
President and Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Dec-31-1997
<CASH> 22,448
<SECURITIES> 0
<RECEIVABLES> 789,392
<ALLOWANCES> 0
<INVENTORY> 884,004
<CURRENT-ASSETS> 1,890,226
<PP&E> 102,323
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,213,710
<CURRENT-LIABILITIES> 1,973,376
<BONDS> 0
0
2,030
<COMMON> 171
<OTHER-SE> 2,238,133
<TOTAL-LIABILITY-AND-EQUITY> 4,213,710
<SALES> 3,797,334
<TOTAL-REVENUES> 3,797,334
<CGS> 1,894,228
<TOTAL-COSTS> 3,399,903
<OTHER-EXPENSES> (1,124,525)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,217
<INCOME-PRETAX> (2,682,539)
<INCOME-TAX> 9,337
<INCOME-CONTINUING> (2,691,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,691,876)
<EPS-PRIMARY> (1.58)
<EPS-DILUTED> (1.58)
</TABLE>
