DECOR GROUP INC, 10KSB, 1999-07-09

DECOR GROUP INC
10KSB, 1999-07-09
MISCELLANEOUS FURNITURE & FIXTURES

Previous: UNITED COMMUNITY HOLDINGS INC, 10QSB, 1999-07-09

Next: LIQUID AUDIO INC, 424B4, 1999-07-09

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

REPORT ON FORM 10-KSB

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the fiscal year ended March 31, 1999.

Commission File No. 0-28960

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

Delaware 13-3911958
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

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

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.0001 per share
(Title of Class)

Redeemable Class A Common Stock Purchase Warrants
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X]

Issuer's revenues for its most recent fiscal year were $4,943,837

The aggregate market value of the voting stock held by non- affiliates of the
Registrant, computed by reference to the closing price of such stock as of June
22, 1999, was approximately $753,000.

Number of shares outstanding of the Issuer's Common Stock as of June 22, 1999,
was 2,009,166 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Registrant's definitive proxy statement to be filed.

<PAGE>

PART I

Item 1. BUSINESS.

This Annual Report on Form 10-KSB and the documents incorporated herein
by reference of Decor Group, Inc. contain forward-looking statements that have
been made pursuant to the provisions of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on current expectations,
estimates and projections about the Company's industry , management's beliefs
and certain assumptions made by the Company's management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
or variations of such words and similar expressions, are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual results may differ materially from
those expressed or forecasted in any such forward- looking statements. Investors
are cautioned not to place undue reliance on these forward-looking statements,
which reflects management's analysis only as of the date hereof.

Decor Group, Inc., a Delaware corporation (the "Company" or "Decor"),
was incorporated in March 1996 and formed Artisan Acquisition Corporation as a
Delaware corporation wholly owned by the Company ("AAC"). AAC was incorporated
for the purpose of entering into that certain Asset Purchase Agreement dated
March 1996 with Artisan House, Inc. ("Artisan House") pursuant to which AAC
agreed to purchase substantially all of the operating assets, and to assume
certain liabilities, of Artisan House. In November 1996 immediately following
the closing of the initial public offering of the Company's securities, AAC and
Artisan House closed on the transactions contemplated by the Asset Purchase
Agreement (the "Artisan House Acquisition"). In January 1997, AAC changed its
name to Artisan House, Inc. ("AHI").

As a result of the Artisan House Acquisition, the Company, through AHI,
is engaged in designing, manufacturing and marketing of metal wall-mounted,
tabletop and freestanding sculptures. The primary goal of AHI is to supply a
broad spectrum of design driven sculpture and decorative accessories at moderate
prices. AHI markets its products through a network of independent commissioned
sales representatives, as well as through strategically located showrooms
servicing the home furnishing and decorative accessory industries. AHI maintains
showrooms located in High Point, North Carolina and San Francisco, California.

Typical customers of AHI include fine furniture stores, interior
decorators, Sears and Montgomery Wards, large furniture chains such as Wickes,
and catalogue houses such as Parke-Bell. For the fiscal year ended March 31,
1999, sales to Sears, Montgomery Wards, Parke-Bell and Wickes represented 7.3%,
7.2%, 7.2% and 2.3% respectively, of AHI's total sales.

The Company believes that the home furnishing and decorative accessory
supply industry will consolidate as major retailers attempt to increase their
"single-sourcing" in order to reduce distribution and related expenses.
Initially, the Company's objective was to capitalize on the fragmented nature of
the supply side of the home decorative accessory industry and the consolidation
of such industry by acquiring manufacturers and distributors of art-related
decorative accessories. The Company still believes this is the preferred way to
proceed in the industry as a whole, but believes this can best be accomplished
by merging the Company with and into Interiors, Inc., an affiliated Delaware
corporation ("Interiors") with Interiors remaining as the survivor (the
"Merger"). To accomplish that goal the Company began discussions with Interiors
in the fall of 1997 that resulted in both companies entering into an agreement
and plan of merger dated April 20, 1998 as amended on April 21, 1998 (together
"the Merger Agreement") pursuant to which Interiors will offer .5 shares of
Interiors Class A common stock for each share of common stock of the Company.
The Company's classes of convertible preferred stock will be treated as if
converted to common stock of the Company in accordance with their terms of
conversion; provided, however, that the 20,000,000 shares of Class B Preferred
Stock of the Company owned by Interiors will be cancelled without exchange and
without any other consideration at the closing of the Merger. The Merger
requires approval of the stockholders of the Company, and the Company is
cooperating with Interiors in the preparation of a Registration Statement on
Form S-4 to be distributed to the Company's stockholders in connection with a
special meeting of stockholders not yet scheduled. There can be no assurance
that the Merger will be completed and that the Company will recognize the
anticipated benefits that will flow therefrom. Within the terms of the merger
agreement, the period for

<PAGE>

effecting the contemplated merger has expired, however, the parties are in
continuing discussions with respect to the proposed merger.

On November 18, 1996, the Company completed an initial public offering
(the "IPO") pursuant to which the Company sold 345,000 shares of Common Stock to
the public at $10 per share. The proceeds from the IPO were used primarily to
close on the Artisan House Acquisition and to repay certain indebtedness of the
Company. The Company's shares of Common Stock trade on the NASD OTC Bulletin
Board and on June 22, 1999 the closing bid price for the shares was $.375 per
share.

On May 6, 1997 the Company filed an application with The Nasdaq Stock
Market, Inc. for initial listing of the Company's Common Stock and Class A
Common Stock Purchase Warrants. The Company's application has been withdrawn.

The Company's executive offices are located at 320 Washington Street,
Mt. Vernon, New York 10553, and the offices of AHI are located at 14625 East
Clark Street, City of Industry, California 91745.

Manufacturing

AHI manufactures substantially all of its sculptures and decorative
pieces at its facility in City of Industry, California. Virtually all of the
products are made of assorted metals, such as brass, bronze, steel and aluminum
which are then formed and hand finished. Manufacturing operations include the
use of customized proprietary metal fabrication equipment and tools, jigs and
dies especially created for AHI. Production also includes finishing, which
involves hand painting and toning, and a finishing process which uses
proprietary techniques which AHI believes substantially improves the appearance
of the product.

AHI maintains an inventory of various metal such as brass, bronze and
stainless steel and other materials for use in its manufacturing processes.
AHI's tool and die inventory allows for the manufacturing of a broad range of
designs. These tools can be used to produce hundreds of styles of decorative
wall sculptures.

No single outside manufacturer supplies more than 10% of AHI's raw
materials except McDonald Packaging which supplies 12.7% (packaging) and
Industrias Montoya which supplies 18.4% (raw components) and AHI's management is
not aware at this time of any product or manufacturer which AHI cannot replace
with a comparable product from an alternative manufacturer.

Products

AHI's products include metal wall-mounted, tabletop and freestanding
sculpture. AHI's product styles range from contemporary to neoclassical, from
Americana to transitional. AHI also manufactures products based on popular
themes such as sports, music and nostalgia. In addition, AHI has several
licensing programs pursuant to which AHI produces sculptures with designs
derived from the popular 1940's movie entitled, "Casablanca," RCA's Little
Nipper, and Warner Bros. Looney Tunes characters. In total, AHI produces
hundreds of different styles within its product line.

License Agreements

AHI currently manufacturers products pursuant to license agreements for
(i) the cartoon character, "Betty Boop", (ii) the movie classic, "Casablanca"
and (iii) the "Nipper Dog" (the RCA dog). The "Betty Boop", "Casablanca," and
"Nipper Dog" licenses terminate on December 31, 1999, December 31, 1999, and
April 30, 1999, respectively.

On September 24, 1996, Artisan entered into a license agreement with
Warner Bros., a division of Time Warner Entertainment Company, L.P., pursuant to
which Artisan was granted the non-exclusive right to produce a number of Warner
Bros. "Looney Tunes" cartoon characters, including, but not limited to, Bugs
Bunny, Sylvester, Tweety, Porky Pig, Road Runner, Daffy Duck, Tasmanian Devil
and Yosemite Sam. The license was renewed and now terminates on December 31,
2000.

<PAGE>

Generally, all of the license agreements are non-exclusive, permit
sales in the United States and require AHI to make periodic royalty payments
based upon revenues from the sale of licensed works.

Marketing

AHI markets its products through a network of independent commissioned
sales representatives. Domestically, AHI has, as of June 1, 1999, 34
commissioned sales representatives. Internationally, AHI has distributors in
Taiwan, Australia, the United Kingdom, Belgium and Holland. In addition, AHI has
non-exclusive representation in the Middle East, and parts of Europe. AHI has
permanent showrooms located in High Point, North Carolina and San Francisco,
California. These showrooms are strategically located in an effort to
efficiently service the home furnishing and decorative accessory industries.

Suppliers

AHI purchases metal and other materials from a wide variety of sources,
and has at least two, and often more, suppliers for each item used in its
manufacturing process, and is not dependent upon any one supplier. AHI currently
purchases from a vendor base of more than 150 suppliers. While there are many
suppliers of most materials, AHI has chosen to limit the majority of its
purchases to the one or two vendors with whom it has developed long-term
relationships. Generally AHI does not need to enter into contracts with its
suppliers as most merchandise is readily available from multiple sources.

The suppliers for those decorative accessory products which are not
manufactured by AHI include items such as marble, glass, mirror, and wood. AHI
does not currently purchase more than 10% of any of these products from any one
outside supplier except McDonald Packaging which supplies 12.7% (packaging) and
Industrias Montoya which supplies 18.4% (raw components).

Competition

The sculpture and decorative accessory industry in the United States is
highly fragmented and consists primarily of small, local manufacturers and
assemblers. Only a few companies are basic manufacturers of metal wall hangings
and sculptures. However, there can be no assurance that AHI's position in this
industry will continue in this manner.

Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors.

AHI believes that its competitive advantage lies in its ownership of a
substantial number of models, tools, jigs and dies and its continuing ability to
manufacture quality products. Management also believes that AHI is further
protected by what AHI considers to be its excellent reputation with its customer
base and management's estimation that the cost to build tools, jigs, dies and
molds, make the entry of meaningful competition extremely difficult. Management
also believes that it would be difficult to establish a trained work force of
skilled crafts people. However, there can be no assurance that such assets will
continue to afford AHI any competitive advantage.

Trademark Protection

The trademarks "Artisan House", "C. Jere", "Sauteur", and "Glendale
Ironworks" have been registered with the United States Patent and Trademark
Office ("PTO"). AHI presently makes all appropriate filings and registrations
and takes all other actions necessary, to protect all of its intellectual
property rights. There can be no assurance, however, that AHI will be able to
effectively protect such property rights. The failure by AHI to protect such
rights from unlawful and improper appropriation may have a material adverse
effect on AHI. Although to date no claims have been brought against AHI alleging
that it infringes on the intellectual property rights of others, there can be no
assurance that such claims will not be brought against AHI in the future, or
that if made, such claims will not be successful. In addition to any potential
monetary liability for damage, AHI could be required to obtain a license in
order to continue to use the trademarks in question or could be enjoined from
using such trademarks if such license were not made available on acceptable
terms. If AHI becomes involved in such litigation, it may divert significant
Company resources, which could have a material adverse effect on AHI and its

<PAGE>

results or operations, and, if such a claim were successful, AHI's business
could be materially adversely affected.

The Company has been granted and currently maintains over 1,038
copyrights on written and visual product designs for metal wall hangings and
free-standing sculptures, from the United States Copyright Office.

Research and Development

AHI continually seeks to develop additional product designs and product
concepts and their related tooling, through product design proposals submitted
by independent commissioned artists. So long as AHI generates sufficient cash
flow, AHI expects to continue to increase its expenditures for product
development as it increases its in-house manufacturing to expand its finishing
and fabrication capabilities. However, there can be no assurance that such
product development will yield profitable growth.

Government Regulation

AHI's operations are subject to numerous Federal, state and local laws
and regulations relating to the environment and health and safety and other
regulatory matters. Certain materials used in the manufacturing of AHI's
products such as paints, solvents and other water-based related finishes may be
classified by Federal and certain state and local governments as "hazardous
materials." Control of those substances is regulated by the Environmental
Protection Agency ("EPA") and certain state and local environmental protection
agencies which require reports and inspect facilities to monitor compliance. In
addition, under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean up and remediation
costs required for such site in the event that the site is not properly closed
by the owner or operator, irrespective of the amount of waste sent to the site.
AHI's manufacturing facilities have been and will continue to be inspected by
the Occupational Safety and Health Administration and by certain state and local
inspection agencies and departments. AHI has obtained all permits and
anticipates that its facilities and operations will be in substantial compliance
with all material applicable laws and regulations. Nevertheless, no assurance
can be given that AHI will be able to obtain such permits in the future or that
future events, such as changes in or modified interpretations of existing laws
or regulations or enforcement policies, may give rise to additional compliance
costs that could have a material adverse effect on the Company.

Employees

As of June 24, 1999, the Company had a total of 71 full-time employees,
12 of whom are engaged in performing administrative functions, and 59 of whom
are engaged in manufacturing and shipping. The Company and its employees are not
parties to any collective bargaining agreements. The Company believes its
relationship with all of its personnel is good.

Item 2. PROPERTIES.

The Company has its principal executive offices at 320 Washington
Street, Mt. Vernon, New York, 10553 where the Company has sub-leased
approximately 3,500 square feet of administrative offices from Interiors, Inc.,
a stockholder of the Company. AHI's principal offices, manufacturing and ware
housing facilities are located at 14625 East Clark Street, City of Industry,
California 91745. On November 18, 1996, AHI had entered into a five (5) year
lease with Henry Goldman, formerly President and Chief Executive Officer of AHI,
for a Los Angeles facility. The lease is for approximately 33,000 square feet
and requires a monthly rent payment of $14,203.

In March of 1999, AHI relocated its operations from Los Angeles to its
current City of Industry location. Commencing in April of 1999, the Company will
incur approximately $20,000 per month to a subsidiary of Interiors for building
and facility costs as a result of the March facility relocation.

<PAGE>

AHI also operates two (2) leased showrooms in San Francisco, California
and High Point, North Carolina.

Item 3. LEGAL PROCEEDINGS.

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Company's shares of Common Stock commenced trading on the NASD OTC
Bulletin Board on the effectiveness of the Company's initial public offering on
November 12, 1996, under the symbol "DECG".

The following table indicates the high and low bid prices for the
Company's Common Stock for the period from November 12, 1996 to December 31,
1996, fourth quarter 1997 and from April 1, 1998 to March 30, 1999 based upon
information supplied by the Nasdaq OTC Bulletin Board system. Prices represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions. The trading volume of
the Company's securities fluctuates and may be limited during certain periods.

Common Stock*

High Low

November 12, 1996 though
December 31, 1996 $18.00 $ 5.375
Fourth Quarter, 1997 $6.875 $ 2.125
First Quarter, 1998 $ 4.50 $ .375
Second Quarter, 1998 $ 1.00 $ .60
Third Quarter, 1998 $ .80 $ .35
Fourth Quarter, 1998 $ .80 $ .375
First Quarter, 1999 $ 1.50 $ .38

* Prices for the period after December 16, 1996 reflect the Company's 3- for- 1
stock split and the subsequent 1 for 3 reverse stock split in October 1997.

On June 22, 1999, the final quoted price as reported by The NASD OTC
Bulletin Board was $.375 for the Common Stock. As of June 22, 1999, there were
2,009,166 shares of Common Stock outstanding, held of record by approximately 73
record holders and approximately 1,400 beneficial owners.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

The discussion below contains forward-looking statements that involve risks and
uncertainties relating to the future financial performance of Decor Group, Inc.
[the "Company" or "Decor"], and actual events or results may differ materially.
In evaluating such statements, stockholders and investors should specifically
consider the various factors identified under the caption "Factors That May
Affect Future Operating Results" which could cause actual results to differ
materially from those indicated by such forward-looking statements. The Company
undertakes no obligation to publicly release the results of any revision to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrences of
unanticipated events.

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

<PAGE>

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

On April 21, 1998, the Company entered into a merger agreement with Interiors,
Inc. ["Interiors"] whereby each of the issued and outstanding shares of Decor
common stock shall be converted into the right to receive a one half share [the
"Exchange Ratio"] of validly issued, fully paid and nonassessable shares of
Class A common stock of Interiors. The Company has received a fairness opinion
of a qualified investment banking firm, to the effect that, the Exchange Ratio
for the conversion of Decor common stock into Interiors' Class A common stock is
fair from a financial point of view to holders of shares of Decor common stock.
All options and warrants outstanding for Decor common stock will be subject to
the same Exchange Ratio for Interiors' Class A common stock. This merger has not
been finalized as of June 23, 1999.

Pursuant to the merger agreement, the outstanding Decor Series A preferred stock
will be converted into Decor common stock and the Decor Series B nonconvertible
preferred stock will be canceled. If the agreement is terminated by Decor, Decor
is required to pay a $250,000 termination fee to Interiors subject to certain
conditions. Within the terms of the merger agreement, the period for effecting
the contemplated merger has expired, however, the parties are in continuing
discussions with respect to the proposed merger. The Company has not accrued the
$250,000 termination fee.

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

RESULTS OF OPERATIONS - MARCH 31, 1999

The Company had revenues and cost of revenues for the year ended March 31, 1999
of $4,943,837 and $3,361,253, respectively. This represents Artisan's sales and
cost of sales transactions for the year then ended which resulted in a gross
profit of $1,582,584 to the Company.

Revenue reduction is attributable to the move from the old facility to the City
of Industry location. The gross profit decrease is due largely to an effort to
reduce the inventory prior to the move in March 1999 and the made to order
manufacturing system installed at Artisan House. The Company believes it will be
able to improve its revenues in fiscal 2000 by a forecasted volume increase and
to also improve its gross profit in fiscal 2000 by the sharing of manufacturing
expenses with Troy Lighting, an Interior's subsidiary, and the improved
efficiency of the new Troy facility with the reduction in factory personnel.

The Company had selling, general and administrative expenses for the year ended
March 31, 1999 of $4,164,874 of which approximately $2,957,000 represented
Artisan's expenses for the year then ended. The selling, general and
administrative expenses of the Company for the year ended March 31, 1999 include
four related party transactions with Interiors: $215,000 was recorded for
consulting and management services, $193,661 was recorded for marketing and
merchandising costs, a $300,000 indemnification expense was recorded for a loan
from United Credit Corp. to Lance Corporation on September 30, 1998 and a
finders fee of $119,000 was paid Henry Goldman, the former owner of AHI.

For the year ended March 31, 1999, Artisan had an operating loss of $1,369,238
which includes a write-down of goodwill of $826,469. For the year ended March
31, 1999, the Company reduced its operating expenses by approximately
$1,319,000. A reduction of manpower and operating expenses related to the
Company's administrative and sales functions was implemented in fiscal 1999. The
cost reduction process should continue throughout 1999 in conjunction with the
Company's relocation to the facilities of Troy Lighting, Inc. in March 1999.
Management believes that in fiscal 2000 by outsourcing its products to vendors
outside the United States an improved gross profit can be achieved. In addition,
the minimum wage increases in the United States has created a favorable
environment for choosing outsourcing as a means of reducing labor costs. Artisan
House has placed its first containerload order with a foreign

<PAGE>

vendor who will deliver packaged, ready-to-sell versions of several of Artisan's
existing line of products, the result of which is to reduce costs on the items
affected by between 32% and 43%. Should the quality and delivery be acceptable,
Artisan will expand this outsourcing process to additional items and reduce the
cost of goods sold further.

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

The Company incurred a net loss of $2,698,220 for the year ended March 31, 1999
of which Artisan House had a net loss of approximately $1,300,000 and Decor
incurred a net loss of approximately $1,400,000. The net loss included noncash
expenses of approximately $1,800,000.

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

LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1999

At March 31, 1999, Decor had a working capital deficit of $2,010,712. For the
year ended March 31, 1999, the Company used $297,393 for operating activities,
used $30,490 for investing activities and generated $278,127 from financing
activities. The cash overdraft balance at March 31, 1999 was approximately
$35,000. Management believes that its short and long-term cash requirements will
be generated from operations in fiscal 2000 resulting from its forecasted
improved gross profit and reduction of selling, general and administrative
expenses.

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

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

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

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

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

<PAGE>

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

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

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

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

On September 15, 1998, Artisan obtained an increased accounts receivable based
line of credit for up to $950,000 with interest at prime plus 5.5% secured by
all of Artisan's assets and guaranteed by Decor and Interiors, Inc. The
unborrowed amount available under the line of credit at March 31, 1999 was
$85,545. At March 31, 1999, Artisan had an outstanding balance of $610,121. The
line of credit has an expiration date of June 30, 1999. The term of the credit
line automatically renews each year unless notice is given by either the Company
or the lender to the other, respectively within a period not less than 60 days
prior to expiration. No such notice has been given or received by the Company.
The Company is not in violation of any of the covenants of the loan. Interest
expense and collection and processing fees for the year ended March 31, 1999 was
$61,736 and $8,831, respectively.

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

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

RESULTS OF OPERATIONS - MARCH 31, 1998

The Company had revenues and cost of revenues for the year ended March 31, 1998
of $5,186,334 and $3,167,620, respectively. This represents Artisan's sales and
cost of sales transactions for the year then ended which resulted in a gross
profit of $2,018,714 to the Company.

The Company had selling, general and administrative expenses for the year ended
March 31, 1998 of $5,365,426 of which approximately $4,104,000 represented
Artisan's expenses for the year then ended.

For the year ended March 31, 1998, Artisan had an operating loss of
approximately $2,086,000. Management believed that for the year ended March 31,
1999, the Company could reduce its losses by increasing its gross profit by
approximately $300,000, and by reducing operating expenses by approximately
$600,000. A reduction of manpower and operating expenses related to the
Company's administrative and sales functions was being implemented. The process
continued throughout the year

<PAGE>

in conjunction with the Company's anticipated relocation to the facilities of an
imminent Interiors, Inc. metal fabrication manufacturing business acquisition.
Management believes that in fiscal 1999 by outsourcing its products to vendors
outside the United States an improved gross profit can be achieved. In addition,
the recent minimum wage increases in the United States has created a favorable
environment for choosing outsourcing as a means of reducing labor costs. Artisan
House is currently in negotiations with two vendors to pursue this plan.

In September of 1997, the Company commenced and approved an exit plan to satisfy
its various investor constituencies by improving the manufacturing and
administrative operations of the Company for growth through improved
competitiveness, quality and effectiveness. Such efforts have included the
retention of various advisors and analysis by management, to improve the
manufacturing and administrative operations of the Company for growth through
improved competitiveness, quality and effectiveness. Essential to the success of
the restructuring plan is Interiors acquisitions of other companies. This could
provide the opportunity for Artisan House to move its facility and improve the
manufacturing process.

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

The Company incurred a net loss of $4,527,233 for the year ended March 31, 1998
of which approximately $2,100,000 was from the Artisan House operation and
$2,400,000 was from the Decor operation.

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

LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1998

At March 31, 1998, Decor had a working capital deficit of $578,263. For the year
ended March 31, 1998, the Company used $54,100 for operating activities,
generated $190,983 from investing activities and utilized $256,135 from
financing activities. The cash balance at March 31, 1998 was $50,256. Management
believed that in the next twelve months cash requirements would 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.

On May 28, 1996, the Company entered into a two year management agreement with
Interiors, Inc. which specializes in the home furnishings and decorative
accessories industries. The agreement calls for a management fee of $90,000 or
1.5% of gross sales, whichever is greater, per annum. The management fee of
$90,000 has been accrued and will be paid quarterly to the extent that there is
excess cash flow available to the Company as defined in the agreement. No
payment in any quarter will exceed 50% of excess cash flow as defined. The
agreement has a term of two years with renewal options at the mutual consent of
both parties. At March 31, 1997, the Company had amounts due to Interiors of
$185,285, consisting of $18,750 in management fees and $166,535 of advances. The
Company accrued additional management fees of $90,000 and paid $50,000 during
the year ended March 31, 1998. As of March 31, 1998, the Company has an
outstanding balance due to Interiors of $225,285. The Company recorded interest
expense for the year ended March 31, 1998 of $16,116 on this obligation.

In September 1997, the Company sold all of the common and preferred shares of
Interiors stock to an unrelated party for gross proceeds of $487,127 and,
accordingly, realized a loss of $1,112,873. As of

<PAGE>

March 31, 1998, 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.

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

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

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

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

On October 30, 1996, the Seller's employment agreement was amended to provide
for the issuance of options to purchase 50,000 shares of the Company's common
stock on each of the first and second anniversaries of the agreement. The
options are exercisable at $.0001 per share commencing the date of issuance and
expiring in four years. The Company recorded deferred compensation cost for the
fair value of options in the amount of $1,000,000 as of November 18, 1996 and
amortized $178,233 as compensation expense for the year ended March 31, 1997.
For the year ended March 31, 1998, the Company amortized $500,000 as deferred
compensation.

In July 1997, there was an attempt to terminate Artisan's employment agreement
with the seller. In connection with a settlement agreement reached in September
1997 with CIDCOA International, Inc. ["CIDCOA"], formerly known, as Artisan
House, Inc. [See Note 7], the Company reinstated the employment agreement with
the seller and recorded additional monies owed to the seller of approximately
$290,000 whereby $161,022 is due to the seller at March 31, 1998 pursuant to
this agreement. The employment agreement also provides for additional fees to be
earned by the seller pursuant to certain acquisitions made by the Company, its
parent or affiliates. The Company has expensed $64,000 in accrued liabilities
representing an estimate of compensation earned by the seller as a consequence
of the two acquisitions made in March of 1998 by Interiors, Inc.

On December 31, 1996, Artisan entered into a three year employment agreement
with Artisan's Chief Operating Officer and Treasurer for (i) an annual salary of
$100,000; (ii) a cash bonus equal to ten percent [10%] of the annual salary,
based upon Artisan's net profit before taxes ["NPBT"]; and (iii) a cash bonus
equal to five percent [5%] of the increase in NPBT over the previous fiscal
year, not to exceed 40% of the base salary. The agreement also provides options
to purchase 10,000 shares of the Company's common stock for each of the years of
the contract at an exercise price equal to $.0003 per share exercisable after
one year for a period of five years. The Company recorded deferred compensation
of $180,000 for the 10,000 options. For the year ended March 31, 1998 amortized
approximately $55,000 as compensation expense. In March 1997, the officer was
elected to the offices of President and Chief Financial Officer of the Company.

<PAGE>

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 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 March 31, 1998 was $255,511. At March 31, 1998, Artisan
has an outstanding balance of $263,427. The line of credit has an expiration
date of June 30, 1998. The term of the credit line automatically renews each
year unless notice is given by either the Company or the lender to the other,
respectively within a period not less than 60 days prior to expiration. No such
notice has been given or received by the Company. The Company is not in
violation of any covenants of the loan. Interest expense for the year ended
March 31, 1998 was $19,627.

NEW AUTHORITATIVE PRONOUNCEMENTS

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

<PAGE>

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

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

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

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

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

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

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

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than one year, computer systems and
software used by many companies may need to be upgraded to comply with Year 2000
requirements.

<PAGE>

Decor and Artisan House will employ the same computer system ["software"] as the
group of Interiors companies.

Interior's has begun a full evaluation of its Year 2000 compliance needs with
respect to its computer system and has authorized funding and contracted with a
Year 2000 consulting service to meet those needs. The Company is currently in
the process of restructuring its computer systems in order to prevent
disruptions in operations involving the transition of dates from 1999 to 2000
and expects to be fully Year 2000 compliant by such time. If due to an unforseen
circumstance, the Company cannot achieve complete Year 2000 compliance by the
year 2000, the Company is prepared to institute temporary computer modifications
which will allow it to transition from the year 1999 to the year 2000 with only
minor disruptions. These disruptions are not anticipated to have any material
effect on Company operations. Under a worst case scenario, however, system
failure or miscalculation could result in an inability to process transactions,
send invoices, accept customer orders, provide customers with products and
services, or engage in similar normal business activity. The Company has not
completed its assessment of potential Year 2000 related problems among third
parties upon which it relies, including its suppliers and customers. Substantial
business interruptions at key suppliers or major customers could have a material
adverse effect on the Company.

Decor and Artisan House originally planned on having the computer system
installed and in the process of being implemented by the third quarter of 1999.
The rapid growth of Interiors has forced management to reevaluate the type of
software necessary to satisfy a variety of company needs.

As Year 2000 preparations continue, the Company may discover additional Year
2000 problems, may not be able to develop, implement or test remediation or
contingency plans, or may find that the costs of these activities exceed current
expectations and become material. The foregoing factors, individually or in the
aggregate, could materially adversely affect the Company's operating results and
could make comparison of historic operating results and balances difficult or
not meaningful.

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.

Item 7. CONSOLIDATED FINANCIAL STATEMENTS

The financial statements and schedules are attached to this report beginning
on page F-1.

<PAGE>

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

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

Page to Page

Item 7. Consolidated Financial Statements:

Independent Auditor's Report....................................F-1.....

Consolidated Balance Sheet as of March 31, 1999.................F-2.....F-3

Consolidated Statements of Operations for the years ended
March 31, 1999 and 1998 ........................................F-4.....

Consolidated Statements of Stockholders' Equity [Deficit]
for the years ended March 31, 1999 and 1998.....................F-5.....

Consolidated Statements of Cash Flows for the years
ended March 31, 1999 and 1998 ..................................F-6.....F-7

Notes to Consolidated Financial Statements......................F-8.....F-21

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

<PAGE>

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Stockholders of
Decor Group, Inc.
New York, New York

We have audited the accompanying consolidated balance sheet of Decor
Group, Inc. and its subsidiaries as of March 31, 1999, and the related
consolidated statements of operations, stockholders' equity [deficit], and cash
flows for each of the two years in the period ended March 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Decor Group, Inc. and its subsidiaries as of March 31, 1999, and the
results of their operations, and their cash flows for each of the two years in
the period ended March 31, 1999, in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that Decor Group, Inc. and its subsidiaries will continue as a
going concern. As discussed in Note 11 to the consolidated financial statements,
Decor Group, Inc. and its subsidiaries suffered a loss from operations of
$2,582,290 for the year ended March 31, 1999 and have a working capital deficit
of $2,010,712 at March 31, 1999 that raise substantial doubt about Decor Group,
Inc. and its subsidiaries' ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 11. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
June 12, 1999

F-1

<PAGE>

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

CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999.
- ------------------------------------------------------------------------------

Assets:
Current Assets:
Cash $ 500
Accounts Receivables - Net 511,072
Due from Interiors [4C] 467,387
Inventories - Net 270,879
Prepaid Expenses and Other Current Assets 26,371
-----------

Total Current Assets 1,276,209

Property and Equipment - Net 59,094
-----------

Other Assets:
Goodwill - Net 750,000
Other Assets 16,867
-----------

Total Other Assets 766,867
-----------

Total Assets $ 2,102,170
===========

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

F-2

<PAGE>

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

CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999.
- ------------------------------------------------------------------------------

Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
Cash Overdraft $ 35,751
Accounts Payable and Accrued Expenses 503,589
Accrued Compensation and Benefits - Former Officer 72,997
Accrued Indemnification - Interiors [4E] 300,000
Due to Interiors [4A] 1,079,494
Interest Payable - Related Party 58,909
Due to Stockholders 43,500
Accrued Costs for Restructuring 454,545
Line of Credit 610,121
Current Portion of Long-Term Debt 128,015
-----------

Total Current Liabilities 3,286,921

Long-Term Debt 429,030
-----------

Total Liabilities 3,715,951
-----------

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

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

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

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

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

Accumulated Deficit (8,180,999)

Deferred Compensation (55,715)
-----------

Total Stockholders' Equity [Deficit] (1,613,781)
-----------

Total Liabilities and Stockholders' Equity [Deficit] $ 2,102,170
===========

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

F-3

<PAGE>

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

CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------

Years ended
March 31,
1 9 9 9 1 9 9 8
------- -------

Revenues - Net $ 4,943,837 $ 5,186,334

Cost of Revenues 3,361,253 3,167,620
----------- -----------

Gross Profit 1,582,584 2,018,714
----------- -----------

Selling, General and Administrative
Expenses:
Administrative Expenses 808,594 1,981,184
Selling Expense 1,320,983 1,493,911
Amortization of Deferred Compensation [7A,7F] 381,167 554,285
Restructuring Costs -- 645,000
Write-off of Intangibles [2] 826,469 537,046
Management and Consulting Fees - Related Party [4A] 215,000 90,000
Marketing Costs - Related Party [4C] 193,661 --
Indemnification Expense - Related Party [4E] 300,000 --
Compensation Expense - Related Party [7A][9] 119,000 64,000
----------- -----------

Total Selling, General and Administrative Expenses 4,164,874 5,365,426
----------- -----------

[Loss] from Operations (2,582,290) (3,346,712)
----------- -----------

Other Income [Expense]:
Loss on Sale of Investment in Related Party -- (1,112,873)
Interest Income 563 --
Miscellaneous Income 37,824 61,800
Interest Expense (130,002) (39,410)
Interest Expense - Related Party (24,315) (90,038)
----------- -----------

Other [Expense] Income - Net (115,930) (1,180,521)
----------- -----------

Net [Loss] $(2,698,220) $(4,527,233)
=========== ===========

Net [Loss] Per Common Share:
Basic and Diluted $ (1.37) $ (2.65)
=========== ===========

Weighted Average Number of Common
Shares Outstanding 1,967,499 1,708,343
=========== ==========

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

F-4

<PAGE>

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

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

<TABLE>

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

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1997 20,304,934 $2,030 $2,423,970 1,707,500 $171 $4,035,252 $ (955,546) $(991,167) $(787,400) $3,727,310

Issuance of Common Shares
to Former Employee -- -- -- 1,666 -- 17,500 -- -- -- 17,500

Exercise of Options -- -- -- 50,000 5 -- -- -- -- 5

Issuance of Options for
20,000 Shares of Common
Stock to President -- -- -- -- -- 90,000 -- -- -- 90,000

Amortization of Deferred
Compensation -- -- -- -- -- -- -- 554,285 -- 554,285
---------

Sub-Total 4,389,100
----------

Comprehensive Income:
Adjustment on Disposal of
Securities Available for
Sale -- -- -- -- -- -- -- -- 787,400 787,400
Net [Loss] for the year
ended March 31, 1998 -- -- -- -- -- -- (4,527,233) -- -- (4,527,233)
-------- ------ -------- -------- ---- -------- ---------- --------- --------- ----------

Total Comprehensive Income (3,739,833)
----------

Balance - March 31, 1998 20,304,934 2,030 2,423,970 1,759,166 176 4,142,752 (5,482,779) (436,882) -- 649,267

Issuance of Options for
20,000 Shares of Common
Stock to President -- -- -- -- -- 10,000 -- -- -- 10,000

Exercise of Options -- -- -- 50,000 5 -- -- -- -- 5

Amortization of Deferred
Compensation -- -- -- -- -- -- -- 381,167 -- 381,167

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

Comprehensive Income:
Net [Loss] for the year
ended March 31, 1999 -- -- -- -- -- -- (2,698,220) -- -- (2,698,220)
---------- ------ ---------- --------- ---- ---------- ----------- --------- --------- -----------

Balance - March 31, 1999 20,304,934 $2,030 $2,423,970 2,009,166 $201 $4,196,732 $(8,180,999) $ (55,715) $ -- $(1,613,781)
========== ====== ========== ========= ==== ========== =========== ========= ========= ===========

</TABLE>

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

F-5

<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------

Years ended
March 31,
1 9 9 9 1 9 9 8
------- -------
Operating Activities:
Net [Loss] $(2,698,220) $(4,527,233)
Adjustment to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Loss on Sale of Investment in Related Party -- 1,112,873
Write-off of Intangibles 826,469 537,046
Amortization of Deferred Compensation 381,167 554,285
Accrued Management and Consulting Fees - Related
Party [4A] 215,000 90,000
Accrued Marketing Costs - Related Party [4C] 193,661 --
Bad Debt Expense -- 208,366
Amortization of Intangibles 94,057 126,988
Depreciation 68,517 43,250
Net Book Value of Transferred Assets for Services -- 13,478
Stock Issued for Services 44,000 17,500
Indemnification Expense - Related Party [4E] 300,000 --
Options Issued to President 10,000 90,000
Moving Costs Paid by Related Party [4A] 120,209 --
Finders' Fee Paid by Related Party [4A][9] 119,000 --

Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 36,375 361,762
Inventory 316,074 373,065
Prepaid Expenses 73,690 5,612
Other Assets 61 (15,474)

Increase [Decrease] in:
Accounts Payable and Accrued Expenses (177,882) 155,807
Accrued Compensation and Benefit - Former Officer (88,025) 161,022
Accrued Costs for Restructuring (190,455) 645,000
Accrued Interest - Related Party 58,909 (7,447)
---------- ----------

Net Cash - Operating Activities - Forward (297,393) (54,100)
---------- ----------

Investing Activities:
Sale of Property and Equipment -- 1,979
Purchase of Property and Equipment (30,490) (39,685)
Proceeds from Sale of Investment in Related Party -- 487,127
Additional Acquisition Costs - Settlement Agreement -- (258,438)
---------- ----------

Net Cash - Investing Activities - Forward (30,490) 190,983
---------- ----------

Financing Activities:
Advances to Interiors [4C] (300,000) (50,000)
Advances from Interiors [4A] [4C] 600,000 --
Costs Paid on Behalf of Interiors [4C] (251,134) (309,914)
Proceeds from Line of Credit 346,693 263,428
Payment of Notes and Leases Payable (117,437) (159,654)
Exercise of Options 5 5
---------- ----------

Net Cash - Financing Activities - Forward $ 278,127 $ (256,135)

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

F-6

<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------

Years ended
March 31,
1 9 9 9 1 9 9 8
------- -------

Net Cash - Operating Activities - Forwarded $ (297,393) $ (54,100)
---------- ----------

Net Cash - Investing Activities - Forwarded (30,490) 190,983
---------- ----------

Net Cash - Financing Activities - Forwarded 278,127 (256,135)
---------- ----------

Net [Decrease] in Cash (49,756) (119,252)

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

Cash - End of Years $ 500 $ 50,256
========== ==========

Supplemental Disclosures of Cash Flow Information:
Cash paid for the years for:
Interest $ 77,080 $ 69,495
Income Taxes $ 10,916 $ --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
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
approximately $1,000,000 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. Additionally, the Company
recorded deferred compensation for options issued to the seller for 100,000
shares of common stock valued at $1,000,000.

In December of 1997 and January 1999, the Company issued options for a total
of 40,000 shares of the Company's common stock to its President and recorded a
total of $100,000 as compensation expense for the two years ended March 31,
1999.

In March 1999, the Company retired approximately $66,000 of fully depreciated
leasehold improvements for offices in the Company's Glendale Blvd. location,
which are no longer in use.

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

F-7

<PAGE>

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

[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. The Company does not maintain separate divisions, segments, or
product lines for its business. [See Notes 2 and 6].

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

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

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

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

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

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

F-8

<PAGE>

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

[1] Summary of Significant Accounting Policies [Continued]

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

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

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

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

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

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

The Company routinely assesses the financial strength of its customers, and
based upon factors surrounding the credit risk of its customers, established an
allowance for uncollectible accounts of $137,068 for the fiscal period ended
March 31, 1999 and as a consequence, believes that its accounts receivable
credit risk exposure beyond this allowance is limited. The Company does not
require collateral to support financial instruments subject to credit risk.

F-9

<PAGE>

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

[1] Summary of Significant Accounting Policies [Continued]

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

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

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

[L] Advertising Expenses - The Company incurred advertising expenses of
approximately $88,000 and $143,000 for the years ended March 31, 1999 and 1998,
respectively.

[2] Acquisition - Artisan

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

[3] Inventories

The components of inventory were as follows:

Raw Materials $ 207,970
Work-in Process 12,822
Finished Goods 110,427
----------

Totals $ 331,219
------ ==========

The Company has set up an allowance for slow moving products of $60,340.

F-10

<PAGE>

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

[4] Related Party Transactions

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

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

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

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

The Company recorded a non-cash $125,000 of management consulting fees due
Interiors on June 30, 1998, relating to marketing and merchandising services
provided by the related party to the Company and accrued the management fee of
$90,000 during the year ended March 31, 1999. In addition, the Company received
a $400,000 advance from Interiors on July 23, 1998. As of March 31, 1999, the
Company has an outstanding balance due to Interiors of $1,079,494. The Company
recorded interest expense for the years ended March 31, 1999 and 1998 of $19,095
and $16,116, respectively, on the unpaid management fee [See Note 16].

[B] Stockholders' Loans Payable - The Company received $35,500 in June 1996 and
$8,000 in July 1996 in loan proceeds. The notes bear interest at 12% per annum
and had a maturity date of April 1998. Interest expense for the years ended
March 31, 1999 and 1998 was $5,220 and $5,220, respectively.

[C] Due from Interiors - In March of 1998, the Company advanced approximately
$300,000 to Interiors, Inc., $200,000 of which carried interest at the Company's
borrowing rate. The $200,000 was repaid with interest in April of 1998.
Throughout fiscal 1999, Artisan also incurred costs, which were allocated to
Interiors, totaling approximately $224,000 primarily for various employee and
consulting expenses on behalf of Interiors. In addition, Artisan reduced the
accounts receivable balance due from Interiors in exchange for product marketing
and merchandising costs being incurred by the related party on behalf of the
Company for $193,661, which is classified as consulting services by a related
party. As of March 31, 1999, the balance due on the intercompany charges was
$134,515.

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

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

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

F-11

<PAGE>

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

[4] Related Party Transactions [Continued]

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

[E] Insurance Allocations - The Company pays an allocated premium for property
liability and workmens' compensation insurance as a part of the master policy of
Interiors. The master policy consolidates the various Interiors entities, and
produces a lower premium. The Company is allocated the premium based upon sales,
property value and payroll. The allocated insurance expense for the year ended
March 31, 1999 was approximately $50,000.

[5] Property and Equipment

Property and equipment consisted of the following:

Machinery and Equipment $ 175,862
Leasehold Improvements 111,270
Furniture and Fixtures 150,244
Office and Computer Equipment 66,058
----------

Total - At Cost 503,434
Less: Accumulated Depreciation 444,340
----------

Net $ 59,094
--- ==========

Depreciation expense was approximately $68,516 and $43,000, respectively for the
years ended March 31, 1999 and 1998.

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

On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting Convertible Preferred Stock and an option to purchase 20,000,000
shares of Series B Non-Convertible Voting Preferred Stock for $2,000 in exchange
for Interiors, Inc. issuing to the Company 66,666 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000. This option was exercised in September of 1996. On May 28, 1996, the
Company entered into a management agreement with Interiors, Inc. whereby
Interiors, Inc. will provide the Company certain marketing and management
services [See Note 4A]. The exchange of shares between the Company and
Interiors, Inc. was pursuant to the Company's intentions to secure the ongoing
and long-term availability of these services. In September 1997, the Company
sold all of the common and preferred shares of Interiors stock to an unrelated
party for gross proceeds of $487,127 and, accordingly, realized a loss of
$1,112,873. As of March 31, 1999, Interiors, Inc. owned approximately 90% of the
Company's total voting stock outstanding assuming no conversion of the Series A
and Series C Preferred Stock [See Note 16[A] - Pending Merger].

F-12

<PAGE>

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

[7] Commitments and Contingencies

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

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

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

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

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

[D] Line of Credit - On September 15, 1998, Artisan obtained an increased
accounts receivable and inventory based line of credit for up to $950,000 with
interest at prime plus 5.5% secured by all of Artisan's assets and guaranteed by
Decor and Interiors, Inc. The amount available under the line of credit at March
31, 1999 was $85,545. At March 31, 1999, Artisan had an outstanding balance of
$610,121. The line of credit has an expiration date of June 30, 1999. The term
of the credit line automatically renews each year unless notice is given by
either the Company or the lender to the other, respectively, within a period not
less than 60 days prior to expiration. No such notice has been given or received
by the Company. The Company is not in violation of any of the covenants of the
loan. Interest expense and collection and processing fees for the year ended
March 31, 1999 was $61,736 and $8,831, respectively.

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

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

F-13

<PAGE>

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

[7] Commitments and Contingencies [Continued]

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

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

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

Year ended
March 31,
2000 $ 247,904
2001 246,446
2002 145,538
2003 37,520
2004 37,520
Thereafter 3,127
---------

Total $ 718,055
----- =========

Artisan also rents showroom space in High Point, North Carolina and San
Francisco, California. The High Point lease expires April of 2004 and the San
Francisco lease expires in July of 2001. The current monthly lease payments are
$3,126 for High Point and $1,465 for San Francisco.

Rental expense was $246,972 and $236,197, respectively for the years ended March
31, 1999 and 1998.

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

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

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

F-14

<PAGE>

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

[8] Debt
March 31,
1 9 9 9

Acquisition Loan $ 585,409
Less: Discount 28,364
----------

Total 557,045
Less: Current Portion of Long-Term Debt 128,015
----------

Long-Term Portion $ 429,030
----------------- ==========

Annual maturities of notes payable are as follows:

Year ended
March 31,
2000 $ 128,015
2001 139,472
2002 289,558
Thereafter --
---------

Total $ 557,045
----- =========

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

[9] Legal Proceedings

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

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

F-15

<PAGE>

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

[10] Capital Stock

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

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

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

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

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

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

[11] Going Concern

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

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

F-16

<PAGE>

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

[11] Going Concern [Continued]

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

[12] Restructuring Plan

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

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

During the year ended March 31, 1999, the Company reduced the reserve by
$170,454 which represented the annual lease payments. Therefore, the Company's
restructuring reserve as of March 31, 1999 of $454,545, represents the 32
remaining months on the lease term.

[13] Income Taxes

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

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

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

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

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

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

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

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

F-17

<PAGE>

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

[13] Income Taxes [Continued]

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

[14] Stock Options

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

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

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

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

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

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

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

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

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

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

F-18

<PAGE>

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

[14] Stock Options [Continued]

Had compensation cost been determined on the basis of fair value pursuant to
SFAS No. 123, for the shares under employee options [See Note 7F] for the years
ended March 31, 1999 and 1998, net loss and loss per share would have been as
follows:

1 9 9 8 1 9 9 7
------- -------
Net Loss:
As Reported $(2,698,220) $(4,527,233)
=========== ===========

Pro Forma $(2,698,218) $(4,527,228)
=========== ===========

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

Pro Forma $ (1.37) $ (2.65)
=========== ===========

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

Risk-Free Expected Expected
Interest Rate Expected Life Volatility Dividends

6% 2 Years 188% None

[15] Fair Value of Financial Instruments

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

[16] Pending Merger

F-19

<PAGE>

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

[17] New Authoritative Pronouncements

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

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

F-20

<PAGE>

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

[17] New Authoritative Pronouncements

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

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

. . . . . . . . . . .

F-21

<PAGE>

Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

None.

PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

The names and ages of the directors and executive officers of the Company are
set forth below:

Name Age Position

Dennis D'Amore 49 President and Chief Financial Officer and Director
of the Company; Chairman of the Board, President
and Chief Operating Officer and Treasurer of AHI.

Max Munn 54 Chairman of the Board and Secretary

James Herman 55 Director

Dennis D'Amore has been President and Chief Financial Officer and a
Director of the Company since March 1997 and Chairman of the Board, Chief
Operating Officer, and Treasurer of AHI since January 1997 and President since
July 1997. In June 1998 Mr. D'Amore was appointed Executive Vice President of
Interiors, Inc., by the controlling stockholder of the Company. From 1991
through 1996, Mr. D'Amore was a consultant to various private and public
companies. From 1989 to 1991, Mr. D'Amore served as Vice President of Sales and
Marketing for Lasco Bathware, a division of Tomkins Industries, Inc. From 1988
to 1989, Mr. D'Amore served as President of Colford-D'Amore, Inc., a management
consulting firm. From 1981 to 1988, Mr. D'Amore served as Executive Vice
President and General Manager of Water Jet Corporation. Mr. D'Amore holds a
Bachelor of Engineering-Mechanical Degree from New York University and
subsequently received a Masters of Business Administration in Finance from
Fairleigh Dickinson University.

Max Munn has been the Chairman of the Board of Directors since the
Company's inception and was the President of the Company from inception until
May 1996. Mr. Munn became Secretary of the Company in March 1997. Mr. Munn is
currently President and Chief Executive Officer and Chairman of the Board of
Director of Interiors, Inc., which is the majority stockholder of the Company.
Mr. Munn has been President of Interiors since October 1995 and a Director and
principal stockholder since March 1994. From May 1993 to September 1995 Mr. Munn
served as Vice President of Interiors. From November 1990 to May 11, 1993, Mr.
Munn served as a consultant to Interiors, Inc., as well as a consultant directly
and indirectly to Imperial Enterprises, Inc., a catalog company in Japan, and
the IEI Corporation, a direct marketer, in Princeton, NJ. Mr. Munn holds a
Bachelor of Architecture from Massachusetts Institute of Technology and
subsequently did graduate level study in Art History at Columbia University.

James Herman has been a Director of the Company since October 1997.
Since 1983 Mr. Herman has been a consultant and designer in the decorative
accessory and home furnishings industry. Prior thereto Mr. Herman held positions
with M. Grumbacher Inc. and Hunt Manufacturing Company, Inc., both of which are
manufacturers of art materials. Mr. Herman holds a Bachelor of Fine Arts degree
from Southwest Missouri in 1970 and a Master of Fine Arts degree from University
of Oregon in 1972.

There are no family relationships between the officers and directors of
the Company.

<PAGE>

Compliance with Section 16(a) of The Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company during the year ended March 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were satisfied.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid to the executive
officers of the Company and its wholly owned subsidiary, AHI, for the Company's
fiscal year ending March 31, 1999.

Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Name Other Securities
and Annual Restricted underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s)$) SARs Payouts($) sation($)
- ------------------------------------------------------------------------------

(a) (b) (c) (d) (e) (f) (g) (h) (i)

Dennis D'Amore. 1999 $150,000 -- -- -- 20,000 -- --
............... 1998 $125,000 -- -- -- 20,000 -- --
President and Chief Financial
Officer, Decor Group, Inc., and
Chairman of the Board, President
Chief Operating Officer, and
Treasurer of AHI.

The Company has allocated $115,000 of Dennis D'Amore's salary to Interiors, Inc.
based upon an estimate of time devoted to Interiors duties.

The following table sets forth certain information with respect to
options granted during the last fiscal year to the Company's Chief Executive
Officer and the other executive officers named in the above Summary Compensation
Table.

Option/SAR Grants In Last Fiscal Year

Number of Percent of Total
Securities Options/SARS Market
Underlying Granted to Exercise or Base Price on
Options/SARS Employees in Base Price Date of
Name Granted Fiscal Year ($/Sh) Grant Expiration Date
- ---- ------- ----------- ------ ----- ---------------
(a) (b) (c) (d) (e)

Dennis D'Amore 20,000 100% $.0003 $.50 January 1, 2004

The following table sets forth certain information with respect to
options exercised during the last fiscal year by the Company's Chief Executive
Officer and the executive officers named in the Summary Compensation Table, and
with respect to unexercised options held by such persons at the end of the last
fiscal year:

<PAGE>

Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values

Value of
Underlying Unexercised in
Unexercised the Money
Options/SARS Options/SARS at
at FY-End (#) FY-End ($)
Acquired on Value exercisable/ exercisable/
Name Exercise (#) Realized $ unexercisable unexercisable
---- ------------ ---------- ------------- -------------
(a) (b) (c) (d) (e)

Dennis D'Amore -- -- 8,000/42,000 $4,000/$21,000

Employment Agreements

AHI entered into a three (3) year employment agreement with a former
officer of AHI on November 18, 1996 with (i) an annual salary of $75,000; (ii) a
signing bonus of $70,000, $30,000 of which was paid at the closing of the
Company's acquisition of Artisan House, Inc. and $40,000 of which is paid in
equal monthly installments of $3,333.33 during the first year of the employment
agreement, (iii) reimbursement of expenses incurred by the officer for lease and
insurance payments with respect to his automobile, (iv) an annual performance
bonus equal to 1% of AHI's sales in excess of those achieved by Artisan for the
twelve months ended June 30, 1996, payable within 60 days after the end of AHI's
fiscal year, with the first and last payments being calculated on a pro rated
basis, (v) 2.5% (later amended to 1.25%) of the consideration paid by the
Company in connection with an acquisition of an unrelated third party introduced
to the Purchaser, the Company, Interiors, or any affiliate of them by the
officer, and (vi) an annual performance bonus equal to 5% of the increase in
AHI's export sales in excess of those export sales and 1.25% of the increase in
domestic sales in excess of the increase in AHI's domestic sales achieved by
Artisan for the twelve months ended June 30, 1996. The Employment Agreement also
contains provisions protecting the confidential information of the Company and
restricting the officer from competing with the Company. In July 1997, there was
an attempt to terminate Artisan's employment agreement with the seller. In
connection with a settlement agreement reached in September 1997 with CIDCOA
International, Inc. ["CIDCOA"], formerly known, as Artisan House, Inc. [See Note
9], the Company reinstated the employment agreement with the seller and recorded
additional monies owed to the seller of approximately $290,000 whereby no money
is outstanding at March 31, 1999 pursuant to this agreement. The employment
agreement also provides for additional fees to be earned by the seller pursuant
to certain acquisitions made by the Company, its parent or affiliates. The
Company expensed $64,000 representing an estimate of compensation earned by the
seller as a consequence of the two acquisitions made by Interiors, Inc. in March
of 1998. The Company expensed $119,000 in fiscal 1999, which is the compensation
due the seller resulting from acquisitions in fiscal 1999.

On December 31, 1996, AHI entered into a three (3) year employment
agreement (the "Employment Agreement") with Dennis D'Amore pursuant to which Mr.
D'Amore agreed to serve as AHI's Chief Operating Officer and Treasurer. AHI
agreed to pay Mr. D'Amore (i) an annual salary of $100,000 (increased to
$150,000 as of January 1, 1999), (ii) a cash bonus equal to ten percent (10%) of
Mr. D'Amore's annual salary based upon AHI's net profit before taxes ("NPBT"),
and (iii) a cash bonus equal to five percent (5%) of AHI's increases in NPBT
over the fiscal year, not to exceed forty percent (40%) of Mr. D'Amore's annual
base salary. The Employment Agreement provides that Mr. D'Amore is entitled to
receive options to purchase 10,000 shares of the Company's Common Stock for each
of the years of the contract at an exercise price of equal to $.0003 per share
exercisable after one year for a period of five years. The Company recorded
deferred compensation of $180,000 for the options. For the years ended March 31,
1999 and 1998, the Company amortized $60,000 and $54,285, respectively, as
compensation expense. In March 1997, the officer was elected to the offices of
President and Chief Financial Officer of the Company. The Employment Agreement
also provides additional performance options to purchase 10,000 shares of the
Company's Common Stock exercisable for a period of one year at an exercise price
equal to the average closing price of the Company's stock for the 20 days ending
two days prior to date of grant for each of the years ending March 31, 1998,
1999, 2000. Continued

<PAGE>

employment of the Company is required and the Company must meet or exceed 115%
of the prior year's NPBT. In December of 1997, Mr. D'Amore received 20,000
options, which represented the additional 10,000 options due on January 1, 1998
under the Employment Agreement and an additional 10,000 options.

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

Consulting Agreements

On January 1, 1997 the Company entered into a Consulting Agreement with
Matthew Harriton, a Director of the Company until October 1997, pursuant to
which Mr. Harriton agreed to provide the Company with such consulting services
as requested by the Company in connection with strategic planning, marketing and
management issues. As payment for the services provided by Mr. Harriton, the
Company has agreed to pay an aggregate of $150,000 to be paid over the period of
three (3) years from the date of the agreement. At March 31, 1999, the Company
owed $50,000 to the director as monies due upon his resignation, which was paid
in April of 1999.

Stock Option Plans and Agreements

In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align employees with the interests of stockholders of the
Company by linking benefits to stock performance and to retain the services of
such employees, as well as to attract new key employees. In furtherance of that
purpose, the 1996 Plan authorizes the grant to executives and other key
employees of the Company stock options, restricted stock, deferred stock, bonus
shares, performance awards, dividend equivalent rights, limited stock
appreciation rights and other stock-based awards, or any combination thereof.
The 1996 Plan is expected to provide flexibility to the Company's compensation
methods, after giving due consideration to competitive conditions and the impact
of federal tax laws.

The maximum number of shares of Common Stock with respect to which
awards may be granted pursuant to the 1996 Plan is initially 250,000 shares.
Shares issuable under the 1996 Plan may be either treasury shares or authorized
but unissued shares. The number of shares available for issuance will be subject
to adjustment to prevent dilution in the event of stock splits, stock dividends
or other changes in the capitalization of the Company.

The 1996 Plan will be administered by a committee consisting of not
less than two (2) members of the Board of Directors who are "disinterested"
within the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will determine the persons to whom awards will be granted, the type of award
and, if applicable, the number of shares to be covered by the award. During any
calendar year no person may be granted under the 1996 Plan awards aggregating
more than 100,000 shares (which number shall be subject to adjustment to prevent
dilution in the event of stock splits, stock dividends or capitalization of the
Company).

Types of Awards

Stock Options. Options granted under the 1996 Plan may be "incentive
stock options" ("Incentive Options") within the meaning of Section 422 of the
Code or stock options which are not incentive stock options ("Non-Incentive
Options" and, collectively with Incentive Options, hereinafter referred to as
"Options"). The persons to whom Options will be granted, the number of shares
subject to each Option grant, the prices at which Options may be exercised
(which shall not be less than the fair market value of shares of Common Stock on
the date of grant), whether an Option will be an Incentive

<PAGE>

Option or a Non-Incentive Option, time or times and the extent to which Options
may be exercised and all other terms and conditions of options will be
determined by the Committee.

Each Incentive Option shall terminate no later than ten (10) years from
the date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined. No Incentive Option may be
granted at any time after October 2005. Each Non-Incentive Option shall
terminate no later than ten (10) years from the date of grant. The exercise
price at which the shares may be purchased may not be less than the Fair Market
Value of shares of Common Stock at the time the Option is granted, except as
provided below with respect to Incentive Options granted to 10% Stockholders.
Options granted to executive officers may not be exercised at any time prior to
six (6) months after the date of grant.

The exercise price of an Incentive Option granted to a person
possessing more than 10% of the total combined voting power of all shares of
stock of the Company or a parent or subsidiary of the Company ("10%
Stockholder") shall in no event be less than 110% of the Fair Market Value of
the shares of the Common Stock at the time the Incentive Option is granted. The
term of an Incentive Option granted to a 10% Stockholder shall not exceed five
(5) years from the date of grant.

The exercise price of the shares to be purchased pursuant to each
Option shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of
shares of the Company's Common Stock owned by the option at the time of the
exercise of the Option (iii) in installments, payable in cash, if permitted by
the Committee or for any combination of the foregoing. The stock-for-stock
payment method permits an optionee to deliver one (1) or more shares of
previously owned Common Stock of the Company in satisfaction of the exercise
price of subsequent Options. The optionee may use the shares obtained on each
exercise to purchase a larger number of shares on the next exercise. (The
foregoing assumes an appreciation in value of previously acquired shares). The
result of the stock-for-stock payment method is that the optionee can generally
avoid immediate tax liability with respect to any appreciation in the value of
the stock utilized to exercise the Option.

Shares received by an optionee upon exercise of a Non-Incentive Option
may not be sold or otherwise disposed of for a period determined by the Board
upon grant of the Option, which period shall be not less than six (6) months nor
more than three (3) years from the date of acquisition of the shares (the
"Restricted Period"), except that, during the Restricted Period (i) the optionee
may offer the shares to the Company and the Company may, in its discretion,
purchase up to all the shares offered at the exercise price and (ii) if the
optionee's employment terminates during the Restricted Period (except in limited
instances), the optionee upon written request of the Company, must offer to sell
the shares to the Company at the exercise price within seven (7) business days.
The Restricted Period shall terminate in the event of a Change in Control of the
Company (as defined), or at the discretion of the Board. After the Restricted
Period, an optionee wishing to sell must first offer such shares to the Company
at the Fair Market Value.

Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.

Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions by the Committee at the
time of grant. In the event that the holder of restricted stock cease to be
emplostrictive period, restricted stock that is at the time subject to
restrictions shall be forfeited and reacquired by the Company. Except as
otherwise provided by the Committee at the time of the grant, a holder of
restricted stock shall have all the rights of a stockholder including, without
limitation, the right to vote restricted stock and the right to recover
dividends thereon. An award of deferred stock is an award that provides for the
issuance of stock upon expiration of a deferral period established by the
Committee. Except as otherwise determined by the Committee, upon termination of
employment of the recipient of the award during the applicable deferral period,
all stock that is at the time subject to deferral

<PAGE>

shall be forfeited until such time as the stock which is the subject of the
award is issued, the recipient of the award has no rights as a stockholder.

Dividend Equivalent Awards. A dividend equivalent gives the recipient
the right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a freestanding award.

Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related in whole or in part to, Common Stock,
including, without limitation, convertible or exchangeable debentures, or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of Common Stock or aware of
securities of, or the performance of, specified subsidiaries.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The following table sets forth as of June 30, 1998, certain information
with respect to the beneficial ownership of the Company's Common Stock and the
Series B Preferred Stock by each person or entity known by the Company to be the
beneficial owner of 5% or more of such shares, each officer and director of the
Company, and all officers and directors of the Company as a group:

Shares of Percentage (%)
Shares of Series B of Series B
Name and Address Common Stock Percentage (%) Preferred Stock Preferred Stock
of Beneficial Beneficially of Common Beneficially Beneficially
Owner(1) Owned(2) Stock Owned Owned(2) Owned
- -------- -------- ----------- -------- -----

Dennis D'Amore(3) 50,000 2.0% -- --
Max Munn(4)(5) 67,000 3.0% -- --
Henry Goldman(6) 250,000 12.4% -- --
James Herman -- -- -- --
Interiors, Inc. (7) -- -- 20,000,000 100%
The Skyes
Corporation (8) 200,000 10.0% -- --
All directors and
officers as a group (9) 117,000 -- -- --

(1)Unless otherwise indicated, the address of each beneficial owner is c/o
Decor Group, Inc., 320 Washington Street, Mt. Vernon, New York 10553.
(2)Beneficial ownership as reported in the table above has been determined in
accordance with Item 403 of Regulation S-B of the Securities Act of 1933
and Rule 13(d)-3 of the Securities Exchange Act.
(3)Mr. D'Amore is President and Chief Financial Officer and a Director of the
Company and Chairman of the Board, President, Chief Operating Officer and
Treasurer of AHI. Mr. D'Amore holds options to purchase 50,000 shares of
Common Stock for a period of five (5) years at an exercise price of $.0003
per share.
(4)Mr. Munn is Chairman of the Board and Secretary of the Company.
(5)Includes 67,000 shares of Common Stock held by Laurie Munn, Mr. Munn's
wife. Mr. Munn disclaims beneficial ownership of such shares.
(6)Mr. Goldman's address is c/o 12841 Bloomfield #305, Studio City, CA 91604.
(7)Includes 20,000,000 shares of Series B Preferred Stock owned by Interiors,
Inc. Mr. Munn, Chairman of the Board of the Company, and President, Chief
Executive Officer and Chairman of the Board of Directors of Interiors may
vote the shares of Series B Preferred Stock held by Interiors, Inc. on all
matters presented to the vote of stockholders. Mr. Munn disclaims
beneficial ownership of such shares.

<PAGE>

(8)The Skyes Corporation address c/o 430 Chestnut Street, East Hills, New
York 11576
(9)Excludes the 20,000,000 shares of Series B Preferred Stock owned by
Interiors, Inc. as to which all of the directors and officers disclaim
beneficial ownership.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In March, 1996, the Company issued to certain investors (i) 913,750
shares of Common Stock to M.D. Funding, Inc. for cash consideration of $73,100,
(ii) 100,000 shares of Common Stock to Laurie Munn, the wife of Max Munn, the
Chairman of the Board of the Company, for cash consideration of $8,000, (iii)
61,250 shares of Common Stock to Judy Pace for cash consideration of $4,900,
(iv) 125,000 shares of Common Stock to First National Funding, Inc. for cash
consideration of $10,000, (v) 62,500 shares of Common Stock to Ulster
Investments, Ltd. for cash consideration of $5,000, and (vi) 25,000 shares of
Common Stock to Matthew Harriton, a director and formerly the President of the
Company, for cash consideration of $2,000. In addition, the Company also issued
in March 1996 25,000 shares of Common Stock and 12,500 Class A Warrants to
Gordon Brothers Capital Corporation ("GBCC") for services rendered valued at an
aggregate of $2,000. Neither GBCC nor any of its affiliates are affiliated with
the Company, the Representative, the Underwriters or any of their respective
affiliates. GBCC assisted the Company in identifying and negotiating with
potential acquisition candidates.

In March 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 Voting Preferred Stock (the "Series B Option") 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. The Series B Option was exercised by Interiors in
September 1996 at an exercise price of $.0001 per share. Immediately following
the exercise of the Series B Option, Interiors entered into a Voting Agreement
with the Company and Messrs. Max Munn, Matt Harriton and Michael Lulkin
(collectively, the "Voting Trustees") each of whom is a director of the Company.
Under the terms of the Voting Agreement, the Voting Trustees have the right to
vote the shares of Series B Preferred Stock held by Interiors on all matters
presented to the stockholders prior to December 31, 1997. A majority of the
Voting Trustees shall determine the manner in which the shares of Series B
Preferred Stock are to be voted. A unanimous vote of the Voting Trustees is
required in order for the Company to enter into certain transactions, including
any mergers, consolidations, significant acquisitions, recapitalizations,
reorganizations or any transaction which would result in Interiors' ownership of
less than 51% of the outstanding voting stock of the Company (so long as
Interiors does not sell or transfer any of the Series B Preferred Stock held
thereby).

In May 1996, the Company entered into a two year Management Services
Agreement with Interiors, Inc. ("Interiors"). Interiors has, pursuant to such
agreement, agreed to advise the Company on the manufacturing, sale, marketing
and distribution of the Company's products as well as providing the Company
accounting and administrative services and strategic planning with regard to
joint ventures, acquisitions, and other long term business initiatives. In
exchange for such services, the Company has agreed to pay to Interiors an annual
amount equal to the greater of (i) $75,000 or (ii) 1 1/2% of Excess Cashflow (as
defined in the agreement). The Management Services Agreement is automatically
renewable for an additional one (1) year term unless terminated by either party
not less than sixty (60) days prior to the end of the term may be terminated by
the Company or Interiors upon sixty (60) days prior written notice. In the event
that the Management Services Agreement is terminated for any reason, the
Company's business may be negatively effected. In such an event, the Company may
be required to hire additional personnel or engage one or more independent
contractors at an added cost to the Company. In February 1997, the Company and
Interiors amended the Management Services Agreement pursuant to which Interiors
agreed to advise the Company on the manufacturing, sale, marketing and
distribution of the Company's products as well as providing the Company with
accounting and administrative services and strategic planning with regard to
joint ventures, acquisitions, and other long term business initiatives. In
exchange for such services, the Company has agreed to pay to Interiors an annual
amount equal to the greater of (i) $90,000 or (ii) 1 1/2% of Excess Cashflow (as
defined in the agreement). At March 31, 1997, the Company had amounts due to
Interiors of $185,285, consisting of $18,750 in management fees and $166,535 of
advances. The Company accrued additional management fees of $90,000 [in
accordance with amended agreement dated February 1997] and paid $50,000 during
the year ended March 31, 1998.

<PAGE>

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

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

The Company recorded a non-cash $125,000 of management consulting fees
due Interiors on June 30, 1998, relating to marketing and merchandising services
provided by the related party to the Company and accrued the management fee of
$90,000 during the year ended March 31, 1999. In addition, the Company received
a $400,000 advance from Interiors on July 23, 1998. As of March 31, 1999, the
Company has an outstanding balance due to Interiors of $840,285. The Company
recorded interest expense for the years ended March 31, 1999 and 1998 of $19,095
and $16,116, respectively, on the annual unpaid management fee [Note 16A].

In March of 1998, the Company advanced approximately $300,000 to
Interiors, Inc., $200,000 of which carried interest at the Company's borrowing
rate. The $200,000 was repaid with interest in April of 1998. Throughout fiscal
1999, Artisan also incurred costs, which was allocated to Interiors, totaling
approximately $224,000 primarily for employee and consulting expenses on behalf
of Interiors. In addition, Artisan reduced the accounts receivable balance due
from Interiors in exchange for product marketing and merchandising cost being
incurred by the related party on behalf of the Company for $193,661, which is
classified as consulting services by a related party. As of March 31, 1999, the
balance due on the intercompany charges was $134,515.

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

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

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

In June 1996, the Company borrowed an aggregate of $50,000 from the
Company's stockholders, other than Gordon Brothers Capital Corporation, on a pro
rata basis based upon ownership of the Company's shares of Common Stock. Each
lender received a promissory note obligating the Company to repay the loan on
the earlier of (i) fifteen (15) months following the Effective Date or (ii) June
21, 1997. The Company utilized the proceeds from the loan for working capital
purposes. At March 31, 1999 the Company owed $43,000 to stockholders.

In August 1996, the Company agreed to issue 47,084 shares of Series C
Preferred Stock to Interiors, Inc. in exchange for the payment of $706,250. In
September 1996, the Company agreed to issue 7,850 shares of Series C Preferred
Stock to Interiors in exchange for the payment of $117,750.

In October 1996, the Company effected a recapitalization with respect
to its outstanding shares of capital stock (the "Recapitalization"). Pursuant to
the Recapitalization, the Company effected a 1-for-3 reverse stock split with
respect to its shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock.

In November and December 1996, Interiors loaned the Company $50,238 and
$60,000, respectively. Both of these loans are demand loans, callable at any
time by Interiors and bear interest at the rate of eight percent (8%) per annum.
The Company has repaid these loans to Interiors.

<PAGE>

On November 18, 1996, AHI entered into a five (5) year lease with Henry
Goldman. The lease is for approximately 33,000 square feet and requires a
monthly rent payment of $14,203.

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

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

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

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

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

On January 1, 1997, the Company entered into a Consulting Agreement
with Matthew Harriton, formerly a Director of the Company until October 1997,
whereby Mr. Harriton agreed to provide the Company with such consulting services
as requested by the Company in connection with strategic planning, marketing and
management issues. As consideration for the services provided by Mr. Harriton,
the Company has agreed to pay to Mr. Harriton an aggregate of $150,000 to be
paid over the period of three (3) years from the date of the agreement.

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

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

None

(b) Current Reports on Form 8-K

None.

<PAGE>

SIGNATURE PAGE

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

DECOR GROUP, INC.

/s/ Dennis D'Amore
July 9, 1999 Dennis D'Amore,
President and Chief Operating Officer

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

/s/ Dennis D'Amore
July 9, 1999 Dennis D'Amore,
President and Chief Operating Officer

/s/ Max Munn
July 9, 1999 Max Munn, Chairman and Secretary

*Print the name and title of each signing officer under his signature.

Supplemental information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Exchange Act by Non-reporting Issuers.

(c) Registrant has not furnished its annual report or proxy materials to
its security holders. Such report and proxy materials are to be furnished to
registrant's security holders subsequent to the filing of the annual report on
this Form.

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the
consolidated balance sheet and the consolidated statement of operations
and is qualified in its entirety by reference to such schedules
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 648,140
<ALLOWANCES> 137,068
<INVENTORY> 270,879
<CURRENT-ASSETS> 1,276,209
<PP&E> 503,434
<DEPRECIATION> 444,340
<TOTAL-ASSETS> 2,102,170
<CURRENT-LIABILITIES> 3,286,921
<BONDS> 0
0
2,426,000
<COMMON> 4,196,933
<OTHER-SE> (8,236,714)
<TOTAL-LIABILITY-AND-EQUITY> 2,102,170
<SALES> 4,943,837
<TOTAL-REVENUES> 4,943,837
<CGS> 3,361,253
<TOTAL-COSTS> 4,165,874
<OTHER-EXPENSES> (38,387)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,317
<INCOME-PRETAX> (2,698,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,698,220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,698,220)
<EPS-BASIC> (1.37)
<EPS-DILUTED> (1.37)

</TABLE>