INTERIORS INC, SB-2, 1996-07-16

INTERIORS INC
SB-2, 1996-07-16
LUMBER & WOOD PRODUCTS (NO FURNITURE)

Previous: TARGETED GENETICS CORP /WA/, SC 13D/A, 1996-07-16

Next: GABELLI GLOBAL MULTIMEDIA TRUST INC, N-30D, 1996-07-16

<PAGE>

As filed with the Securities and Exchange Commission on July , 1996
Registration No. 333-
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

---------------

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

INTERIORS, INC.
(Name of small business issuer in its charter)

Delaware 5961 13-3590047
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)

320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
(Address and telephone number
of principal executive offices and principal place of business)

Max Munn
President
320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
(Name, address and telephone number of agent for service)

Copies to:

Hartley T. Bernstein, Esq.
Bernstein & Wasserman, LLP
950 Third Avenue
New York, NY 10022
(212) 826-0730
(212) 371-4730 (Fax)

Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: | X | continued overleaf

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

<PAGE>

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Proposed
Proposed maximum
Title of each Amount maximum aggregate Amount of
class of securities to be offering price offering registration
to be registered registered (1) per Unit (2) price (2) fee (1)
<S> <C> <C> <C> <C>
Common Stock,
par value
$.001 per share,
Underlying Class WA
Warrants (3) 3,760,000 $1.50 $5,640,000 $ 1,944.67

Class WB Warrants
Underlying Class WA
Warrants (4) 3,760.000 ------ ------- ------

Common Stock, par
value $.001 per
share Underlying
Class WB Warrants (5) 4,018,750 $2.00 $8,037,500 $ 2,771.33

TOTAL............................. $ 4,716
</TABLE>

- ----------
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock as may be issued by reason of adjustments pursuant
to anti-dilution provisions contained in the Class WA Warrants and Class WB
Warrants. Because such additional shares of Common Stock, will, if issued,
be issued for no additional consideration, no registration fee is required.

(2) Estimated solely for purposes of calculating registration fee.

(3) The number of shares of Common Stock specified is the number which may be
acquired upon exercise of the Class WA Warrants.

(4) The number of Class WB Warrants specified is the number which may be
acquired upon exercise of the Class WA Warrants.

(5) The number of shares of Common Stock specified included (i) 258,750 Shares
of Common Stock issuable upon the exercise of 258,750 Class WB Warrants
issued and outstanding, and (ii) 3,760,000 shares of Common Stock issuable
upon the exercise of 3,760,000 Class WB Warrants issuable upon the exercise
3,760,000 Class WA Warrants.

<PAGE>

---------------

INTERIORS, INC.

CROSS REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I, of Form SB-2)

Item in Form SB-2 Prospectus Caption
----------------- ------------------

1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors

4. Use of Proceeds.................... Use of Proceeds

5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors

6. Dilution........................... Dilution; Risk Factors

7. Selling Securityholders........... Description of Securities; Selling
Securityholders

8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting

9. Legal Proceedings.................. Business-Litigation

10. Directors, Executive Officers,
Promoters and Control Persons...... Management

11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders

12. Description of Securities.......... Description of Securities;
Underwriting

13. Interest of Named Experts and

Counsel............................ Experts; Legal Matters

<PAGE>

Item in Form SB-2 Prospectus Caption
----------------- ------------------

14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain Transactions

15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business

16. Description of Business............ Business; Risk Factors

17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations

18. Description of Property............ Business - Facilities

19. Certain Relationships and
Related Transactions............... Certain Transactions

20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting

21. Executive Compensation............. Management - Executive
Compensation

22. Financial Statements............... Selected Financial Data;
Financial Statements

23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... *
- ----------------
* Omitted because Item is not applicable.

iii

<PAGE>

PROSPECTUS

INTERIORS, INC.

7,778,750 Shares of Class A Common Stock issuable upon exercise of
3,760,000 Redeemable Class WA Warrants and
4,018,750 Redeemable Class WB Warrants
and
3,760,000 Redeemable Class WB Warrants

----------

Interiors, Inc., a Delaware corporation (the "Company"), hereby offers for
sale (i) 3,760,000 shares of Class A Common Stock, par value $.001 per share
(the "Class A Shares"), issuable upon exercise of 3,760,000 Class WA Warrants
("Class WA Warrants"), (ii) 3,760,000 Redeemable Class WB Warrants ("Class WB
Warrants") issuable upon exercise of 3,760,000 Class WA Warrants and (iii)
4,018,750 shares of Common Stock issuable upon exercise of 4,018,750 Class WB
Warrants. Hereinafter the Class WA Warrants and Class WB Warrants are sometimes
collectively referred to as the "Warrants." Each Class WA Warrant entitles the
registered holder thereof to purchase one Class A Share and one Class WB Warrant
at a combined exercise price of $1.50 until June 22, 1997. Each Class WB Warrant
entitles the holder thereof to purchase one Class A Share at an exercise price
of $2.00 per share until June 22, 1999. The Warrants are subject to redemption
by the Company at any time after June 22, 1995 upon 30 days notice at $0.01 per
Warrant if the closing bid price per Class A Share has equaled or exceeded 120%
of the then exercise price of the respective Class WA or Class WB Warrants for
twenty consecutive trading days prior to any such call for redemption. Although
the Company has no present intention to do so, should the closing bid price of
the shares of Class A Common Stock satisfy the requirements necessary to enable
the Company to call the Warrants for redemption, the Company may in the future
elect to call such securities for redemption. The exercise price of the Warrants
is subject to adjustment under certain circumstances. As of the date hereof,
3,420,247 Class A Shares, 802,500 shares of Class B Common Stock, par value
$.001 per share (the "Class B Shares"), 790,000 Shares of Series A Preferred
Stock, 3,760,000 Class WA Warrants and 258,750 Class WB Warrants are issued and
outstanding. No assurance can be given, however, regarding the likelihood or
degree of such Warrant exercise by Holders. See "Description of Securities" and
"Recent Developments."

Prior to the Company's initial public offering (the "Initial Public
Offering") of 517,500 Class A Shares, 460,000 Class WA Warrants and 258,750
Class WB Warrants (including securities issued upon exercise of the
over-allotment option granted to J. Gregory & Company, Inc., the Representative
of the Underwriters (the "Representative") in connection with the Initial Public
Offering) in June 1994, there was no established trading market for the Class A
Shares or the Warrants. In September 1995, the Company completed a secondary
public offering of 460,000 shares of Series A 10% Convertible Preferred Stock
(the "Series A Preferred Shares") and 230,000 Redeemable Class WC Warrants (the
"Class WC Warrants"). The Company's Series A Preferred Shares, Class A Shares,
Class WA Warrants, Class WB Warrants and Class WC Warrants are currently listed
for quotation on The Nasdaq SmallCap Market ("NASDAQ") under the symbols

"INTXP", "INTXA,"INTXL", "INTXW," and "INTXZ," respectively. As of the date of
this prospectus, the last reported bid and ask prices of the Company's Series A
Preferred Shares, Class A Shares, Class WA Warrants, Class WB Warrants and Class
WC Warrants as reported by NASDAQ on such date were $5.75, $6.50 respectively,
for Series A Preferred Shares, $3.50, $3.44, respectively, for Class A Shares,
$1.75, $2.25, respectively, for Class WA Warrants, $ 2.38 and 2.69 respectively
for Class WB Warrants $ 1.19 and $ 1.44, respectively, for Class WC Warrants. No
assurances may be given that any public market for the foregoing securities that
has developed since completion of the Initial Public Offering will continue or
be sustained. See "Market for the Company's Securities and Related Stockholder
Matters" and "Risk Factors."

----------

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS."

----------

<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is July 12, 1996

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "DILUTION" and "RISK FACTORS."

----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

================================================================================

================================================================================
Underwriting Discount
and Commissions Proceeds to
Exercise Price Number of Company(2)
Warrants(1)
- --------------------------------------------------------------------------------
Class WA Warrants $1.50 3,760,000 $5,640,000
- --------------------------------------------------------------------------------

Class WB Warrants $2.00 4,018,750 $8,037,500
- --------------------------------------------------------------------------------
Total.......... $13,677,500
================================================================================

- ----------
(1) Before deducting expenses of the offering payable by the Company estimated
at $ , consisting of accounting fees and expenses, legal fees and expenses,
blue sky fees and expenses, printing, warrant agent fees and miscellaneous
expenses.

(2) Assumes exercise by all holders of Class WA Warrants and Class WB Warrants.
There can be no assurance that all, or any, of the Class WA Warrants or
Class WB Warrants will be exercised.

<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith, files reports, proxy statements and other information including
annual and quarterly reports on Forms 10-KSB and 10-QSB (File No. 0-24352) (the
"1934 Act Filings") with the Securities and Exchange Commission (the
"Commission"). The Company filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2 under the Securities Act of 1933, as amended
(the "Securities Act), with respect to the securities described herein. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities described herein, reference is made to the Registration
Statement and to the exhibits filed therewith. The statements contained in this
Prospectus with respect to the contents of any agreement or other document
referred to herein are not necessarily complete and, in each instance, reference
is made to a copy of such agreement or document as filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
reference to the provisions of the relevant documents. The Registration
Statement, including the exhibits thereto, and the Company's 1934 Act Filings
may be inspected at: (i) the public reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; and (ii) the offices of the Commission located at Citicorp Center, 500
West Madison Street, Room 1400, Chicago, Illinois 60661, and the offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may also be obtained upon request and payment of
the appropriate fee from the Public Reference Section of the Commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to and
should be read in conjunction with the detailed information and financial
statements and notes thereto included elsewhere in this Prospectus. Unless
otherwise indicated, all share and per share amounts set forth herein have been
adjusted to reflect a 4,464.286 :1 stock exchange which occurred in connection
with the merger of A.P.F. (as defined below) with and into the Company (as
previously defined) in March, 1994. Each prospective investor is urged to read
this Prospectus in its entirety.

The Company

Interiors, Inc., a Delaware corporation (previously defined and hereinafter
referred to as the "Company") was incorporated pursuant to the laws of the state
of Delaware in February 1994. A.P.F. Holdings, Inc., a New York corporation
("A.P.F."), was incorporated pursuant to the laws of New York in October 1990.
Effective as of March 30, 1994, A.P.F. merged with and into the Company. Unless
otherwise indicated, references made hereinafter to the Company include A.P.F.
and the Company's wholly owned subsidiaries, I.R.A.L., Inc., a Pennsylvania
corporation, and Italia Collection, Inc., a Delaware corporation ("Italia"). See
"The Company" and "Recent Developments."

The Company is engaged, through its A.P.F. Master Framemakers division, in
the manufacturing and marketing of fine antique reproduction and contemporary
picture frames to museums, art galleries, designers, collectors and frame
retailers. These custom made frames retail from $100 to over $10,000, with the
majority under $5,000. Sales are generated through the Company's three
showrooms, its custom framing catalog and retail picture framers.

In February 1992 the Company, through its Interiors Catalog division, began
marketing, through a direct-to-consumer catalog, a variety of decorative
accessories for the home, approximately 60% of which were manufactured by the
Company. These products include framed pictures on canvas, framed and unframed
contemporary mirrors, sculptures, lamps, and other decorative accessories.
During the fiscal year ended June 30, 1994, the Company mailed approximately 2.8
million catalogs in 11 mailings, including remailings, to its approximately
35,000 established customers as well as targeted prospective customers from
purchased mailing lists. Sales generated by the Interiors Catalog division were
approximately $2,600,000 and $2,049,000 for the fiscal years ended June 30, 1994
and 1995, respectively. On March 31, 1996, Company management decided to
discontinue its catalog operations. Reduced revenues and high operating costs
from this operation necessitated a charge against earnings for catalog
write-downs of $350,000 in December 1995. The Company estimated that additional
charges against earnings of $750,000 relating to the discontinuance of the
catalog operation were necessary at March 1996. This charge, recorded in March
1996 will result in total charges relating to the discontinuation of the catalog
operation of $1,100,000. For the nine months ended March 31, 1996, losses from
continuing catalog operations will total $423,714. Of this amount, $112,647 was
generated during the quarter ended March 31, 1996. The Company plans to fully
carry out the discontinuation of the catalog operation within one year from

March 31, 1996. Subsequent to that date, the Company plans to wind down
operations by filling existing orders and possibly mailing one final catalog as
a "close-out sale" to liquidate inventory. Subsequently, no new orders will be
accepted and the business will be terminated. At that time, no remaining assets
or liabilities are expected to remain on the Company's balance sheet.

In the Spring of 1993 the Company commenced operations of its wholesale
division under the name "Interior Accents" to expand distribution of products
which it manufactures and sells to retail stores. On October 21, 1994 the
Company through its newly-formed wholly-owned subsidiary, Italia (the
"purchaser"),

<PAGE>

acquired all of the issued and outstanding stock of Murano Crystal Corp.
("Murano"), a Florida corporation doing business under the name "Italia
Collection" and the issued and outstanding stock of Ceramic Productions Corp., a
Florida corporation ("Ceramic") (together, the "Acquisitions") in connection
with its plan to reorganize the Interior Accents division. The Acquisitions will
be accounted for under the purchase method of accounting. In October and
November 1994 the Company sold the 3,000,000 Class WA Warrants subject of this
Prospectus, a portion of the proceeds from which sale has been used to support
the acquired operations. The Company currently utilizes independent sales
representatives to sell the Company's products to retailers, decorators and
furniture departments of major department stores. See "Business" and "Recent
Developments."

In March 1996, the Company purchased (i) 500,000 shares of Series A
Convertible Preferred Stock, and (ii) an option (the "Decor Option") to purchase
20,000,000 shares of Series B Non-Convertible Preferred Stock, of Decor Group,
Inc., an affiliate of the Company ("Decor"). In exchange for the securities of
Decor, the Company issued 200,000 shares of Class A Common Stock and 200,000
shares of Series A Preferred Stock. The Decor Option is issuable until March 20,
2003 at an exercise price of $.0001 per share. On June 7, 1996, Decor filed a
registration statement with the Securities and Exchange Commission in connection
with its initial public offering of 250,000 Units, each Unit consisting of
two(2) shares of Common Stock and one (1) Class A Redeemable Common Stock
Purchase Warrant. None of the securities of Decor held by the Company were
registered for sale under such registration statement.

The Company's executive offices are located at 320 Washington Street, Mt.
Vernon, New York 10553. Its telephone number is (914) 665-5400.

<PAGE>

The Offering

An aggregate of (i) 7,778,750 shares of Class A Common Stock issuable upon
the exercise of 3,760,000 Class WA Warrants and 4,018,750 Class WB Warrants and
(ii) 3,760,000 Class WB Warrants. See "Description of Securities."

Use of Proceeds

Although there can be no assurance that any of the Class WA Warrants or the
Class WB Warrants will be exercised, in the event of any such exercise the
Company will receive the exercise price of such Warrants. If the maximum number
of Warrants are exercised pursuant to this registration, the Company would
realize proceeds totaling $13,677,500. All of such proceeds will be added to
working capital and utilized as management in its sole discretion deems
appropriate.

Risk Factors

The securities offered hereby involve substantial risks including but not
limited to cash flow constraints, financing costs of doing business, liquidity
of current business operations, dilution, dependence on management, voting
control by a related party and a director, potential conflicts of interest,
dependence on skilled craftsmen and salespersons, litigation involving related
parties, possibility of litigation involving works of art, consent order for
permanent injunction as to Max Munn, competition, reliance on outside suppliers,
convertibility of Class B Common Stock and super voting rights, reliance on
tradename reputation, absence of dividends, significant retained deficits, no
assurance of continued public trading market or continued NASDAQ inclusion,
"penny stock" regulations, future issuances of stock by the Company, future
sales of stock by stockholders, Representative's Warrants, certain provisions of
Certificate of Incorporation and By-Laws, Blue Sky restrictions on exercise of
Warrants, current prospectus requirement and possible redemption of the
Warrants. See "Risk Factors."

<PAGE>

Summary Financial Information

The following summary financial data has been summarized from the financial
statements included elsewhere herein and should be read in conjunction with such
financial statements and related notes thereto and "Management's Discussion and
Analysis" included elsewhere in the Prospectus.

Summary Balance Sheet Data

At June 30, 1995 At March 31,
1996
---------------- ------------
Working capital $ (15,205) $ 795,585
Total assets 6,903,506 6,591,688

Total current liabilities 4,586,705 3,758,404
Total long term debt 324,458 313,437
Stockholders' equity 1,992,241 2,519,847

Summary Statement of Income Data

<TABLE>
<CAPTION>
Year Ended June 30, Nine Months ended
March 31,
-------------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 6,523,412 $ 7,050,286 $ 5,201,906 $ 5,032,906
Income (loss) from 32,080(1) (606,440)(1) 73,201 (106,472)(4)
operations
Net income (loss) (2,840,611)(2) (817,754) 73,201 (1,630,186)(4)
Income (loss) per share $ (2.18)(1)(2) $ (0.41)(1) $ 0.04 $ (0.63)
of Common Stock (3)
Weighted average 1,304,807 1,977,158 1,853,668 2,584,505
number of shares used
in computation (3)
</TABLE>

- -----------
(1) Gives effect to "Restructuring Costs" in the amount of $400,000 during the
period which represent a reserve for the reduction in value of certain
assets. As of June 30, 1995, approximately $300,000 of the reserve remains.
See Note 12 to the Financial Statements for the fiscal year ended June 30,
1995.

(2) Gives effect to a "Bridge Financing Charge" in the amount of $2,679,375
related to the Company's March 1994 bridge financing. See "Management's
Discussion and Analysis".

(3) Gives retroactive effect to the issuance by the Company of 1,000,000 shares
of Class B Common Stock, $.001 par value (the "Class B Shares") to the
stockholder of A.P.F. in connection with the recapitalization as a result
of the merger of A.P.F. with and into the Company as of March 30, 1994. As
of March 31, 1996, 447,500 of such shares were converted into the Company's
Class A Common shares. See "The Company."

(4) Loss from operations do not include charges for discontinued operations
recorded for the nine months ended March 31, 1996. Such charges total
$423,714 for losses from operations of discontinued operations, and
$1,100,000 for provision for disposal of discontinued operations.

<PAGE>

RISK FACTORS

The purchase of the securities offered hereby involves a high degree of
risk. Prospective purchasers should carefully consider the following risk
factors, as well as other matters set forth elsewhere in this Prospectus, before
deciding whether to invest in the Company's securities.

Cash Flow Constraints: The Company has been experiencing a shortage of
working capital since commencement of its catalog operations in February 1992.
Initially, this shortage was due substantially to the fact that the unexpected
response to catalog mailings and therefore the demand for the products offered
exceeded the Company's ability to finance the cost of inventory levels adequate
for such demand, thus leading to delays in fulfilling orders. Ultimately, the
working capital shortages became more a function of the difficulty in sustaining
revenue levels from the catalog business and the high costs associated with the
conduct of such business, particularly with respect to recent substantial
increases in paper, printing, and postage costs. Although management has decided
to discontinue the catalog business as of March 31, 1996, there can be no
assurance that such action will eliminate current cash restraints. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business, " "Use of Proceeds, " and "Financial Statements and
Notes."

Financing costs of doing business. Currently, the Company incurs
significant costs incurred in the financing of its business operations. Two
principal sources of financing are currently available to the Company. On
February 15, 1996, the Company entered into a financing agreement with a New
York based secured lender whereby its Italia Collection subsidiary may borrow
pursuant to an asset-related formula. Under this agreement, upon confirmation of
shipments, the lender will advance 70% of the receivable to the Company. Upon
collection of the receivable, the lender remits the balance of 30%. Interest is
calculated on the daily cash balance at the rate of prime plus 9% per annum
(17.25% as of the date of this filing) or a minimum of 18% per annum against a
minimum monthly defined compensation of $3,000. As of the date of this filing,
the amount due to the lender was approximately $762,000. The Company is
currently pursuing alternative financing arrangements, but as of the date of
this Prospectus, no such arrangements have been made. No assurances can be given
that alternative arrangements, whether or not at more favorable terms, can be
made. As of the date of this Prospectus, year-to-date interest charges pursuant
to this arrangement total approximately $200,000. The Company currently
maintains a line of credit with a New York bank based on receivables and
inventories, bearing interest at a rate of prime plus 1% (9.25% as of the date
of this Prospectus.) As of the date of this Prospectus, the balance of the line
of credit is $890,000. As of the date of this Prospectus, year-to-date interest
charges pursuant to this line of credit total approximately $88,000. The Company
and the bank have agreed that the line of credit will be reduced by $10,000 per
month. Accordingly, the Company is seeking alternative arrangements. No such
arrangements have been made as of the date of this Prospectus, nor can any
assurances be given that alternative arrangements can be made at more-favorable
or even comparable terms. See "Management's Discussion and Analysis."

Liquidity of Current Business Operations. Management believes that cash

flow from operations as they currently exist are not sufficient to support such
operations. For the nine months ended March 31, 1996, approximately $900,000 of
cash was used in the Company's operating activities. Accordingly, Company
management is now identifying and implementing the corrective changes deemed
necessary. As of the date of this filing, the Company has taken certain specific
steps for this purpose. As of March 31, 1996, the Company has decided to
discontinue its catalog operation. The difficulty associated with the
maintenance of such revenues, together with relatively high costs of operations
have led to this decision. Also, during the months of March and April 1996, the
Company has moved its Italia Collections subsidiary to The Lance Corporation
(Lance), a

<PAGE>

Massachusetts manufacturer and distributor of various products to the giftware
and collectibles market. As of the date of this Prospectus, the Company is
finalizing the terms under which Lance will manufacture and support the entire
product line of Italia on a temporary basis. The Company is seeking a new
location where it will manufacture and distribute products for Italia, this
relocation of Italia will lead to improved production and operational processes,
which will lead to improved revenues and cash flow. Finally, the Company is
currently reviewing its staffing needs and has already made certain staff
reductions during the quarter ended March 31, 1996. No assurances can be given
that the actions described above, or any subsequent actions will fully offset
the current operating cash shortfall See "Management Discussion and Analysis"and
"Business - Italia Collection".

Dilution. Purchasers of Class A Shares described herein will suffer
dilution in the net tangible book value of Common Stock. Additional dilution may
result in the event of the conversion of outstanding Class B Shares or the
exercise of outstanding Warrants, or options at exercise prices which are less
than the prices paid by purchasers of Class A Shares pursuant hereto. See
"Concurrent Sales," "Description of Securities," and "Recent Developments."

Dependence on Management. The Company is highly dependent on the services
of Max Munn, President, Chief Executive Officer and Treasurer, On February 15,
1996, the Company's Board of Directors agreed to enter into a four-year
employment agreement with this executive. As of the date of this Prospectus, the
agreement has not been finalized or executed. This is expected to occur during
the quarter ended September 30, 1996. The loss of the services of this executive
could have a material adverse effect upon the business and prospects of the
Company. In the event that the Company's financial condition stabilizes, the
Company will then investigate securing "key person" life insurance in the amount
of one million dollars on the life of Max Munn. See "Management" and "Executive
Compensation - Employment Arrangements."

Max Munn, President, Chief Executive Officer and Treasurer and Director,
and Ann Stevens, sister of Max Munn and formerly Executive Vice President, were
control persons and executive officers of Collector's Guild. Collector's Guild
owned and operated a frame manufacturing business through a subsidiary, A.P.F.,
Inc. In February 1990 Mr. Munn resigned as an officer and director and became a

consultant to Collectors' Guild. In June 1990 Collector's Guild filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. There can be no
assurance that the Company will be successful in operating its A.P.F. Master
Framemakers division. See "The Company" and "Management."

Voting Control by a related party and a Director. Laurie Munn, wife of the
Company's President and Chief Executive Officer owns approximately 65.5%
(526,250) and Theodore Stevens, a former director of the Company owns
approximately 34.5% (276,250) of the Company's 802,500 issued and outstanding
Class B Shares, each such Class B Share entitled to five votes or approximately
60.0% of the votes to which the Class A and Class B Shares taken as a single
class are entitled and assuming that none of the outstanding Warrants is
exercised. Accordingly, Ms. Munn is in a position to influence the election of
the Company's directors and the Company's business affairs. See "Principal and
Selling Securityholders" and "Description of Securities" and "Certain
Transactions."

Potential Conflicts of Interest. The Company has from time to time entered
into certain transactions with its officers, directors and/or associates and
relatives of such persons. Although two independent directors currently serve on
the Company's Board of Directors, the likelihood of such transactions to
continue in the future is highly probable. See "Certain Transactions."

<PAGE>

Dependence on Skilled Craftsmen and Salespersons. The Company's A.P.F.
Master Framemakers division, a provider of fine picture frames for art
galleries, upscale retail picture framers, museums, collectors and decorators in
the U.S., relies on its skilled craftsmen with specialized skills in the design
and crafting of its frames and the manufacture of other of its products.
Although the Company attempts to hire and train skilled craftsmen, the inability
of the Company to retain skilled craftsmen and creative designers may adversely
affect the division's operations. Furthermore, the Company is dependent on the
showroom salespersons who have relationships with museum curators, art
collectors, architects and other purchasers of "museum" quality picture frames.
The loss of such persons could have a material adverse impact on the Company.
See "Business--Personnel."

Litigation involving related parties. Various legal proceedings are
currently in progress between and among members of the Company's Board of
Directors, the wife of its President and Chief Executive Officer, and the wife
of a Director. The proceedings involve various issues, but primarily involving
the composition of the Board of Directors, the status of a sale of 269,500 of
the Company's Class B Common shares by Laurie Munn to Theodore Stevens, an
alleged breach of an employment agreement between the Company and Ann Stevens,
wife of Theodore Stevens (a former Director), the status of a sale of 250,000
shares of the Company's Class B Common shares to Laurie Munn, and the
sustainability of any election at a shareholder's meeting should the Company
hold such a meeting during the pendency of certain legal proceedings. See
"Business - Legal Proceedings."

Possibility of Litigation Involving Works of Art. Although the Company
endeavors to buy products which it believes the supplier has the right to
distribute, in the event an artist claims that his copyright has been violated,
the Company may be joined in any action against the supplier for infringement.
Each of the Company's vendors is required to execute and return to the Company a
certificate that the merchandise conforms to all federal and state laws as to
labeling, brands, etc. and agreeing to indemnify the Company against claims
arising from violation of trademark, patent or similar laws; however, there can
be no assurance that the Company would be successful in enforcing any such
agreement. The Company knows of no such claims which have been asserted nor
lawsuits which have been threatened other than as disclosed herein. There can be
no assurance that claims and/or lawsuits will not arise in the future or that
the cost of defending such actions will not be material. See "Business - Legal
Proceedings" and " - Patents and Trademarks."

Consent Order for Permanent Injunction as to Max Munn. In September 1991
Max Munn, the Company's present President, Chief Executive Officer, and a
Director, without admitting the allegations in the complaint, in an attempt to
minimize legal expense, entered into a U.S. Federal Trade Commission ("FTC")
Consent Order for Permanent Injunction for Defendant Max Munn (the "Consent
Order") which permanently restrains and enjoins Mr. Munn, his agents, employees
and others from making certain false representations in connection with the
promotion, sale or offering for sale of any art works or from removing certain
mandated disclosures on certain art, and for a period of five years from
destroying, mutilating, altering or disposing of business records for a period
of three years from their creation. The Consent Order further requires Mr. Munn
to permit inspection by the FTC of certain business records for a period of five
years. Violation of the Consent Order could have a material adverse effect on
the Company. See "Management."

Competition. The custom framing industry in the United States is highly
fragmented and consists primarily of small, local framing retailers. Only a few
companies are basic manufacturers of higher priced picture frames, which frames
are selected for valuable works of art owned by museums, galleries and
collectors. Custom framing of this type is not in competition with local retail
frame stores. Management of the Company believes that its A.P.F. Master
Framemakers division is one of

<PAGE>

the largest custom framers of its type in the country. However, there can be no
assurance that the Company will be able to maintain its position in this
industry.

Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors. Management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Italia.

Reliance on Outside Suppliers. All picture and mirror frame manufacturing

is performed by the Company in its facility in Mt. Vernon, New York. The Company
purchases wood, gold leaf, plexiglass, matboards, composite resins, 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 sole supplier. See "Business - Suppliers."

Convertibility of Class B Common Stock and Super Voting Rights. The
Company's Certificate of Incorporation authorizes the issuance of up to
2,500,000 Class B Shares, 276,250 of which are currently owned by Theodore
Stevens, a former director of the Company, and 526,250 of which are currently
owned by Laurie Munn, wife of the Company's President and Chief Executive
Officer. Each Class B Share entitles the holder thereof to five non-cumulative
votes per share on all matters on which stockholders may vote at meetings of
stockholders. The Class A Shares and Class B Shares shall generally vote
together as a single class. The Class B Shares are convertible on a one-for-one
basis at any time after issuance at the option of the holder into Class A
Shares; however, there can be no assurance that the holder thereof will convert
such Class B Shares. In addition, such conversion could result in a charge to
earnings to the extent that the fair market value of the Class A Shares exceeds
the fair market value of the Class B Shares at the date of conversion. In
addition, while the issue is not entirely clear, the issuance of additional
Class B Shares could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
voting and other rights of holders of Class A Shares. See "Description of
Securities."

Reliance on Tradename Reputation. The Company's custom frame operation is
conducted under the tradename "A.P.F. Master Framemakers," which tradename has
been used in the custom frame business since 1955 and which tradename the
Company acquired in 1990. See "The Company." The Company believes that its
ability to market its high-end custom picture and mirror frames has been based
largely upon its reputation as a reliable source of high-quality frames suitable
for use by nationally known museums, art galleries, decorators, fine frame
retailers and collectors. As a result of this reliance on its reputation, if the
Company's custom frame products and service were to be deemed unreliable, the
Company could experience a significant adverse impact.

Absence of Dividends. The Company has not paid and does not anticipate
paying any cash dividends on its Class A Shares or Class B Shares in the
foreseeable future, but instead intends to retain all working capital and
earnings, if any, for use in the Company's business operations and in the
expansion of its business. In February 1996, the Company did, however, declare a
stock dividend equivalent to $0.25 per share to its Series A 10% Cumulative
Convertible Preferred Stockholders of record as of the close of business on
February 23, 1996 (the record date.) Payment was made on March 1, 1996 by the
issuance of 0.10231 of a share of the Company's Class A Common Stock for each
share of Series A Preferred Stock held of record on the record date.
Accordingly, 55,247 shares of the Company's Class A Common Stock was issued for
this purpose. Retained earnings was charged $165,741 in March 1996 in
conjunction with the issuance of these shares. See "Dividend Policy" and
"Description of Securities."

<PAGE>

Significant retained deficits. At March 31, 1996, the Company has
recognized retained deficits totaling $5,131,545. Of this amount, $1,100,000 was
incurred as a provision for the discontinuation of the Company's catalog
operation. The Company believes that the discontinuation of this operation,
together with additional restructuring planned in the near term will be the
basis of the generation of positive retained earnings. However, no assurances
can be given that such actions will achieve this goal. See "Business - Strategic
Alliances."

No Assurance of Public Trading Market or Continued NASDAQ Inclusion. Prior
to the Initial Public Offering, which took place on June 23, 1994, there was no
established trading market for the Company's securities. In connection with the
Initial Public Offering, the Company applied for, and was granted, inclusion of
the Class A Shares, the Class WA Warrants and the Class WB Warrants on NASDAQ
and the Class A Shares and Class WA Warrants commenced quotation on NASDAQ on
June 23, 1994 under the symbols INTXA and INTXW, respectively. The Class WB
Warrants commenced quotation on NASDAQ on June 24, 1994 under the symbol INTXZ.
Further, on September 18, 1995, the Company registered and issued 400,000 shares
of Series A, 10% Cumulative Convertible Preferred Stock and 200,000 Redeemable
Class WC Warrants. The Series A, 10% Cumulative Convertible Preferred Stock, and
the Redeemable Class WC Warrants commenced quotation on NASDAQ on September 19,
1995 under the symbols INTXP and INTXL respectively. See "Market for the
Company's Securities and Related Stockholder Matters." However, there can be no
assurance given that the Company will be able to satisfy the requirements for
continued quotation, that such quotation will otherwise continue or that any
market for the Company's securities that has developed since completion of the
Initial Public Offering or the Preferred Stock Offering will continue or be
sustained. If for any reason, however, any of the Company's securities are not
eligible for continued listing or a public trading market does not develop,
purchasers of the Class A Shares, Series A, 10% Cumulative Convertible Preferred
Shares and/or Warrants may have difficulty selling their securities should they
desire to do so. Under the current rules adopted by the NASD for continued
listing, a company, among other things, must have $2,000,000 in total assets,
$1,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy the requirements for continued quotation on NASDAQ, trading, if any, in
the Class A Shares and Warrants would be conducted in the over-the-counter
market in what are commonly referred to as the "pink sheets" or on the NASD OTC
Electronic Bulletin Board. As a result, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, the
Company's securities.

"Penny Stock" Regulations. The Commission has adopted regulations under the
Exchange Act which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. If the
securities offered hereby are removed from NASDAQ, the Company's securities may
be deemed to be "penny stocks" and become subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities. For any transaction involving a penny stock, unless exempt, the

rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities, information on
the limited market in penny stocks and, if the broker-dealer is the sole
marketmaker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. In addition, the broker-dealer must obtain a
written acknowledgment from the customer that such disclosure information was
provided and must retain such acknowledgment for at least three years. Further,
monthly statements must be sent disclosing current price information for the
penny stock held in the account. While many NASDAQ-listed securities would
otherwise be covered by the definition of penny stock, transactions in a

<PAGE>

non-NASDAQ-listed security would be exempt from all but the sole marketmaker
provision for (i) issuers who have $2,000,000 in tangible assets, (ii)
transactions in which the customer is an institutional accredited investor and
(iii) transactions that are not recommended by the broker-dealer. In addition,
transactions in a NASDAQ-listed security directly with a NASDAQ marketmaker for
such securities would be subject only to the sole marketmaker disclosure, and
the disclosure with respect to commissions to be paid to the broker-dealer and
the registered representative.

The above-described rules may materially adversely affect the liquidity for
the market for the Company's securities. Such rules may also affect the ability
of broker-dealers to sell the Company's securities and may impede the ability of
Selling Securityholders or subsequent holders of the Class A Shares or the
Warrants to sell such securities in the secondary market.

Future Issuances of Stock by the Company. The Company has authorized
capital stock of 32,500,000 shares of $.001 par value Common Stock, of which
30,000,000 have been designated as Class A Shares and 2,500,000 have been
designated as Class B Shares; and 5,300,000 shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock"). As of the date hereof, there are
3,420,247 Class A Shares, 802,500 Class B Shares and 790,000 Preferred Shares
issued and outstanding. In addition, the Company has issued and outstanding
3,760,000 Class WA Warrants, 258,750 Class WB Warrants and Representative's
Warrants to purchase 14,985 Class A Shares, for which it has reserved for
issuance an aggregate of 10,311,235 Class A Shares. Although there are no
present plans, agreements or undertakings, written or oral, with respect to the
Company's issuance of any shares of stock or related convertible securities,
other than as disclosed herein, the issuance of any of such securities by the
Company could have anti-takeover effects insofar as they could be used as a
method of discouraging, delaying or preventing a change in control of the
Company. Such issuance could also dilute the public ownership of the Company.
Inasmuch as the Company may, in the future, issue authorized shares of Common
Stock or Preferred Stock without prior stockholder approval, there may be
substantial dilution to the interests of the Company's stockholders. Given that
the Company is authorized to issue additional securities, there can be no
assurance that the Company will not do so. In addition, a stockholder's pro rata

ownership interest in the Company may be reduced to the extent of the issuance
and/or exercise of any options or warrants relating to the Common Stock or
Preferred Stock.

Future Sales of Stock by Stockholders. All of the Company's outstanding
Class B Shares are "restricted securities" as that term is defined under the
Securities Act and in the future may only be sold in compliance with an
exemption from registration, including Rule 144, under the Securities Act or
pursuant to an effective registration statement. Rule 144 provides, in essence,
that a person (including a group of persons whose shares are aggregated) who has
satisfied a two-year holding period for such restricted securities may sell
within any three-month period, under certain circumstances, an amount of
restricted securities which does not exceed the greater of one percent of that
class of the Company's outstanding securities 34,202 Class A Shares as of the
date hereof) or the average weekly trading volume of that class of securities
during the four calendar weeks prior to such sale. Persons who are not
affiliated with the Company and who have held their restricted securities for at
least three years are not subject to the quantity limitations or the manner of
sale restrictions of the rule. As of the date of this prospectus, Laurie Munn,
wife of the Company's President and Chief Executive Officer owns 526,250 shares
of the Company's Class B Common shares, and Ted Stevens, a former Director, owns
276,250 of such Class B shares. These holdings comprise all of the Company's
outstanding Class B Common shares as of the date of this filing. Pursuant to
agreements with the Company's investment banking firm, and in connection with
the Company's September 18, 1995 offering of preferred stock and warrants, the
outstanding Class B shares may not be sold or otherwise disposed before March
17, 1997 without the prior consent of the Company's investment banking firm. As
of the date of this Prospectus, the Company's stockholders own an aggregate of
790,000 Preferred Shares, 3,420,247 Class A Shares, all of which are freely
saleable in the public

<PAGE>

market. A sale of shares by current stockholders, whether pursuant to Rule 144
or otherwise, may have a depressing effect upon the market price of the
Company's securities in any market that continues to exist. To the extent that
such shares enter the market, there may be a negative effect on the market price
of the Company's securities and on the ability of the Company to obtain
additional equity financing. See "Principal and Selling Securityholders,"
"Description of Securities," "Certain Transactions" and "Concurrent Sales."

Representative's Warrants. In connection with the Initial Public Offering,
the Company sold to the Representative's designees, for nominal consideration,
Representative's Warrants to purchase an aggregate of 45,000 Class A Shares,
40,000 Class WA Warrants and 22,500 Class WB Warrants. In October 1994
Representative's Warrants to purchase 30,015 Class A Shares, 40,000 Class WA
Warrants and 22,500 Class WB Warrants were repurchased by the Company. The
Representative's Warrants are exercisable until June 22, 1999, at an exercise
price equal to $1.50 per Class A Share, subject to certain adjustments. In
connection with the Preferred Stock Offering, the Company sold to VTR Capital,
Inc. a Warrant to purchase 40,000 shares of Series A Preferred Stock and 20,000

Class WC Warrants for an aggregate price of $20.00. Further, the Company granted
VTR Capital, Inc. an option exercisable through November 2, 1995, to purchase up
to 60,000 additional Shares of Series A Preferred Stock and/or up to 30,000
additional Class WC Warrants on the same terms as set forth above. The holders
of outstanding Representative's Warrants have the opportunity to profit from a
rise in the market price of the Company's securities, if any, without assuming
the risk of ownership, with a resulting dilution in the interest of other
shareholders. The Company may find it more difficult to raise additional equity
capital if it should be needed for the business of the Company while the
Representative's Warrants are outstanding. At any time when the holders thereof
might be expected to exercise such Warrants, the Company would probably be able
to obtain additional capital on terms more favorable than those provided by the
Representative's Warrants. The holders of the Representative's Warrants have the
right to require registration under the Securities Act of the Representative's
Warrants and the Class A Shares, Series A Preferred Shares, Warrants and the
Class A and Series A Preferred Shares issuable upon exercise of the Warrants
included in the Representative's Warrants and have certain "piggy-back"
registration rights. The cost to the Company of effecting a demand registration
may be substantial. See "Description of Securities" and "Recent Developments"
for a description of the termination agreement with the Representative.

Certain Provisions of Certificate of Incorporation and By-Laws; Potential
Anti-Takeover Effect. The Company's Board of Directors may designate the terms
of and issue up to 2,500,000 shares of Preferred Stock without further action by
the stockholders, of which 790,000 are issued and outstanding as of the date of
this filing. Voting rights that may be granted in the future to holders of
Preferred Stock could adversely affect the voting power of holders of Class A
Shares. The Company's By-Laws contain provisions which may discourage certain
transactions which involve an actual or threatened change in control of the
Company. The By-Laws provide that certain vacancies on the Board of Directors
shall be filled by a majority of the remaining directors then in office, limit
the ability to call a special meeting of shareholders, and require that no
proposal by a shareholder be presented for vote at a special or annual meeting
of shareholders unless the shareholder provides the Board of Directors or the
secretary of the Company with written notice of intention to present a proposal
for action at the meeting in accordance with the By-Laws. See "Description of
Securities."

As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including breach of the director's duty of loyalty to the Company
or its

<PAGE>

stockholders or any transaction from which the director derived an improper
personal benefit. See "Management - Indemnification of Directors and Officers."

The Company has expressly not opted out of, and is therefore subject to,

Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders." Under
this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying or
preventing a change in control of the Company. See "Description of Securities."

Blue Sky Restrictions on Exercise of Warrants. The Company has qualified
the offer and sale of the Class A Shares, Series A Preferred Shares, Class WB
Warrants issuable upon exercise of the Class WA Warrants, and Class WC Warrants
in a limited number of states. Although certain exemptions in the "Blue Sky"
laws of certain states may permit the Warrants to be transferred to purchasers
in such states, the Company will be prevented from issuing Class A Shares, Class
WB Warrants upon exercise of the Class WA Warrants, or Preferred Stock upon
exercise of the Class WC Warrants in such states unless an exemption from
registration or qualification is available or unless the issuance of such
securities upon the exercise of the Warrants is qualified and a current
registration statement is in effect. The Company may not have qualified the
issuance of such securities in all of the states in which the holders of the
Warrants reside. In such case, the Warrants of such purchasers will expire and
have no value if such warrants cannot be exercised or resold. Accordingly, the
market for and/or exercisability of the Warrants may be limited.

Current Prospectus Requirement. During the exercise period of the Warrants,
the Company must maintain and make available a current prospectus. This
Prospectus will no longer be current nine months from the date of this
Prospectus. There can be no assurance that the Company will not be prevented by
financial or other considerations from maintaining a current prospectus. In the
event a current prospectus is not available, the Warrants may not be exercisable
and the Company will be precluded from redeeming (calling) the Warrants.

Possible Redemption of the Class WA Class WB and Class WC Warrants.
Commencing at any time after June 22, 1995, in the event the closing bid price
per share of the Class A Shares as quoted in the over-the-counter market (as
reported by NASDAQ) or on an exchange on which the Company's securities are then
listed has equaled or exceeded 120% or more of the then effective exercise price
of the Class WA and Class WB Warrants, respectively, for 20 consecutive trading
days, the Warrants may be redeemed by the Company at a redemption price of $.01
per warrant prior to exercise or expiration upon 30 days prior written notice
thereof. Commencing at any time after September 17, 1996, in the event the
closing bid price per share of the Preferred Stock as quoted in the
over-the-counter market (as reported by NASDAQ) or on an exchange on which the
Company's securities are then listed has equaled or exceeded 110% or more of the
then effective exercise price of the Class WC Warrants for 20 consecutive
trading days, the Warrants may be redeemed by the Company at a redemption price
of $.01 per WC warrant prior to exercise or expiration upon 30 days prior
written notice thereof. Although holders of the Warrants will have the right of
exercise their Warrants through the date of redemption, they may be unable to do
so because they lack sufficient funds at the time of redemption, or they may
simply not wish to invest any more money in the Company's Class A Shares, Series
A Preferred Shares, Class WB Warrants, or Class WC Warrants at that time. Should
holders of the Warrants fail to exercise such Warrants or to sell such Warrants
on or prior to the redemption date, such Warrants will have no value beyond

their redemption value. As noted above, the Company may not redeem the Warrants
unless the Company has available a current prospectus with respect to the
Warrants. See "Description of Securities - Redeemable Warrants."

<PAGE>

PUBLIC OFFERINGS

The Company completed its Initial Public Offering on June 30, 1994, at
which time the Company issued 517,500 Class A Shares at $5.00 per share, 460,000
Class WA Warrants at $0.10 per Warrant, and 258,750 Class WB Warrants at $0.10
per Warrant (including 67,500 Class A Shares, 60,000 Class WA Warrants and
33,570 Class WB Warrants upon exercise of the Representative's Over-Allotment
Option). The Class A Shares, Class WA Warrants and Class WB Warrants were
purchasable and transferable separately upon issuance. Such securities were sold
by the Company pursuant to a "firm commitment" underwritten public offering
(previously defined as the "Initial Public Offering"). The Company received
approximately $1,600,000 in net proceeds (including the proceeds from the
exercise of the Over-Allotment Option) after payment of certain offering
expenses, commissions and non-accountable expenses including approximately
$100,000 in expenses paid by the Company prior to the receipt of the net
proceeds. The Initial Public Offering was underwritten by certain underwriters,
including J. Gregory & Company, Inc., which acted as the Representative of the
Underwriters. In accordance with the Underwriting Agreement between the Company
and the Representative, the Company issued to the Representative's designees
Representative's Warrants to purchase up to 45,000 Class A Shares, 40,000 Class
WA Warrants and 22,500 Class WB Warrants, exercisable through June 22, 1999. In
October 1994 the Company entered into a termination agreement with the
Representative and with Vincent Mongno for the repurchase of Representative's
Warrants to purchase 30,015 Class A Shares, 40,000 Class WA Warrants and 22,500
Class WB Warrants and the mutual termination of certain rights and obligations.
See "Risk Factors," "Description of Securities" and "Management's Discussion and
Analysis."

In September 1995, the Company filed a registration statement with respect
to 460,000 shares of Series A, 10% Cumulative Convertible Preferred Stock
("Preferred Stock"), and 230,000 Redeemable Class WC Warrants ("WC Warrants") to
purchase Preferred Stock at the exercise price of $5.50 per share was declared
effective by the Securities and Exchange Commission. Each share of Preferred
Stock is convertible commencing one year from the date of issue, subject to
adjustment, into three shares of Class A Common Stock of the Company. On May 5,
1995, the former President was reappointed as President, Chief Executive Officer
and Treasurer of the Company in connection with this offering. In September
1995, upon completion of the Preferred Offering, the President resigned. The net
proceeds from this offering were approximately $1,633,000, including
over-allotments.

USE OF PROCEEDS

The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any

<PAGE>

category of expenses may be increased or decreased by the Company's Board of
Directors, at its discretion.

To the extent that such expenditures require the utilization of funds in
excess of the amounts anticipated, additional financing may be sought from other
sources, such as debt or equity financing, although there can be no assurance
that such additional financing will be available, and if available, will be on
terms acceptable the Company. The net proceeds of this Offering that are not
expended immediately may be deposited in interest bearing accounts, or invested
in government obligations or certificates of deposit.

DIVIDEND POLICY

The Company has not paid and does not anticipate paying any cash dividends
on its Class A Shares or Class B Shares in the foreseeable future, but instead
intends to retain all working capital and earnings, if any, for use in the
Company's business operations, and in the expansion of its business. The
Company's Series A Preferred Stock is entitled to a 10% cumulative dividend,
payable semi-annually in the months of March and September. This dividend is
payable either in cash or Class A Common shares at the option of the Company. In
March 1996, and in satisfaction of the first semi-annual dividend obligation
with respect to the Preferred Stock, the Company issued 55,247 Common A shares
to the Preferred Stock holders of record as of February 23, 1996. See
"Description of Securities."

<PAGE>

SELECTED FINANCIAL INFORMATION

Summary Balance Sheet Data

At June 30, 1995 At March 31,
1996
---------------- ------------
Working capital $ (15,205) $ 795,585
Total assets 6,903,506 8,191,688
Total current liabilities 4,586,705 3,758,404
Total long term debt 324,458 313,437
Stockholders' equity 1,992,241 4,119,84

Summary Statement of Income Data

<TABLE>
<CAPTION>
Year Ended June 30, Nine Months Ended
March 31,
-------------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 6,523,412 $ 7,050,286 $ 5,201,906 $ 5,032,906

Income (loss) from 32,080(1) (606,440)(1) 73,201 (106,472)(4)
operations
Net income (loss) (2,840,611)(2) (817,754) 73,201 (1,630,186)(4)
Income (loss) per share $ (2.18)(1)(2) $ (0.41)(1) $ 0.04 $ (0.63)
of Common Stock (3)
Weighted average 1,304,807 1,977,158 1,853,668 2,584,505
number of shares used
in computation (3)
</TABLE>

- ----------
(1) Gives effect to "Restructuring Costs" in the amount of $400,000 during the
period which represent a reserve for the reduction in value of certain
assets. As of June 30, 1995, approximately $300,000 of the reserve remains.
See Note 12 to the Financial Statements for the fiscal year ended June 30,
1995.

(2) Gives effect to a "Bridge Financing Charge" in the amount of $2,679,375
related to the Company's March 1994 bridge financing. See "Management's
Discussion and Analysis"

(3) Gives retroactive effect to the issuance by the Company of 1,000,000 Class
B Shares to the stockholder of A.P.F. in connection with the
recapitalization as a result of the merger of A.P.F. with and into the
Company as of March 30, 1994. As of March 31, 1996, 447,500 of such shares
were converted into the Company's Class A Common shares. See "The Company."

<PAGE>

CAPITALIZATION

The following table compares the capitalization of the Company at March 31,
1996 and June 30, 1995. Both periods give effect to the issuance of 3,000,000
Class WA Warrants sold to certain selling securityholders in October and
November 1994.

------------------------------
March 31, 1996 June 30, 1995
-------------- -------------
Long-Term Debt(1) $ 313,437 $ 324,458
Series A Preferred Shares, $.01 par value 7,400
5,300,000 shares authorized,
790,000 shares issued and
outstanding at July 10, 1996
Class A Shares, $.001 par value, 2,435 1,570
30,000,000 shares authorized,
3,420,247 shares outstanding
at July 10, 1996
Class B Shares, $.001 par value; 553 883
2,500,000 shares authorized;
802,500 shares issued and
outstanding at July 10, 1996
Additional Paid-In Capital(2) 9,511,261 5,595,763
Retained Earnings (Deficit) (5,131,545) (3,335,618)
Treasury stock (270,257) (270,257)
----------- -----------
Total Stockholders' Equity $ 4,119,847 $ 1,992,341
----------- -----------
Total Capitalization $ 4,433,284 $ 2,316,799
=========== ===========

- ----------

(1) See Note 6 to the Company's Financial Statements.

(2) Gives effect to the issuance of the 3,000,000 Class WA Warrants sold to
certain selling securityholders in October and November 1994. Does not give
effect to the exercise of such Class WA Warrants nor of the Warrants issued
in connection with the Initial Public Offering or any of the Class WB
Warrants issuable upon exercise of outstanding Class WA Warrants or the
exercise of the Representative's Warrants. Further assumes no issuance of

any of the 250,000 Class A Shares reserved for issuance under the Company's
1994 Stock Option and Appreciation Rights Plan or the 250,000 Class A
Shares reserved for issuance under the Director Stock Option and
Appreciation Rights Plan (together the "Plans"). See "Recent Developments,"
"Description of Securities," and "Executive Compensation - Stock Option
Plans."

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

General

The following discussion should be read in conjunction with the information
contained in the financial statements of the Company (the "Financial
Statements") and the Notes (the "Notes") thereto appearing elsewhere herein.

Results of Operations

The Company's net sales for the quarter ended March 31, 1996 increased by
$185,000 or 10.8% to $1,892,000 (including $136,000 of revenue from discontinued
operations - {See "Recent Developments} from $1,707,000 for the quarter ended
March 31, 1995. The Company's net sales for the first nine months ended March
31, 1996 increased by $574,000 or 11.0% to $5,776,000 (including $743,000 of
revenue from discontinued operations - {See "Certain Transactions"} from
$5,202,000 for the nine months ended March 31, 1995.)

Net sales for the A.P.F. Master Framemakers division for the quarter ended
March 31, 1996 increased by $526,000 or 53.5% to $1,509,000 from $983,000 for
the quarter ended March 31, 1995. Net sales for the A.P.F. Master Framemakers
division for the nine months ended March 31, 1996 increased by $535,000 or 20.5%
to $3,144,000 from $2,609,000 for the nine months ended March 31, 1995. Net
sales for the Interiors Catalog division, which will be discontinued (See
"Certain Transactions") for the quarter ended March 31, 1996 decreased by
$163,000 or 54.5% to $136,000 from $299,000 for the quarter ended March 31,
1995. Net sales for the Interiors Catalog division for the nine months ended
March 31, 1996 decreased by $1,032,000 or 58.1% to $743,000 from $1,775,000 for
the nine months ended March 31, 1995. The decreases for both comparative periods
was largely due to the generally high operating costs associated with catalog
operations. It is for this reason that this business activity will be
discontinued (See "Certain Transactions".) Net sales of Italia Collection for
the quarter ended March 31, 1996 decreased by $176,000 or 41.6% to $247,000 from
$423,000 for the quarter ended March 31, 1995. This decrease was largely due to
the shutdown of manufacturing caused by the relocation of Italia Collection to
Massachusetts during the quarter (See "Certain Transactions".) Net sales of
Italia Collection for the nine months ended March 31, 1996 totaled $1,889,000.
During the prior period, net sales of Italia Collection from the date of
acquisition (October 21, 1994) to March 31, 1995 totaled $747,000.

The Company's cost of goods sold as a percentage of net sales (including

discontinued operations discussed at "Certain Transactions") increased to 50%
for the nine months ended March 31, 1996 from 42% for the nine months ended
March 31, 1995. The reduced margins are largely due to inventory charges
relating to the discontinuance of operations (See "Certain Transactions".) For
the nine months ended March 31, 1996 the cost of goods sold as a percentage of
net sales for the catalog operations totaled 55%, versus 37% for the nine months
ended March 31, 1995. The Company used during the nine months ended March 31,
1996 and 1995 the gross profit method to value inventory.

Selling, general and administrative expenses for the nine months ended
March 31, 1996, at $2,834,000 (including expenses for discontinued operations
{See "Certain Transactions"} totaling $713,000) were $96,000 higher than the
nine months ended March 31, 1995. But because revenues were correspondingly
greater, the percent of expenses to revenues decreases in the current period to
49% versus 53% for the prior period. Selling, general and administrative
expenses for the three months ended March 31, 1996 (including expenses for
discontinued operations {See "Certain

<PAGE>

Transactions} totaling $171,000) were $59,000 higher than the three months ended
March 31, 1995. But because revenues were correspondingly greater, the percent
of expenses to revenues decreased in the current period to 52% versus 55%.
Interest expense as a percentage of sales increased to 6.3% for the nine months
ended March 31, 1996 versus 4.7% for the nine months ended March 31, 1995,
primarily due to the impact of carrying Italia's debt, and the recording of
finance charges pursuant to the restructuring of certain notes outstanding. Such
restructuring took place on October 16, 1995. For the three months ended March
31, 1996, interest expense totaled $72,000 versus $81,000 for the three months
ended March 31, 1995.

During the quarter ended March 31, 1996, non-cash charges of $750,000 were
reported against earnings for the discontinuance of catalog operations. During
the immediately preceding quarter, $350,000 of such charges were recorded. This
total charge of $1,100,000 is pursuant to management's decision to discontinue
the catalog operation as of March 31, 1996 (See "Certain Transactions".) During
the quarter ended December 31, 1995, non-cash charges against earnings of
$200,000 for the future issuance of equity instruments to various consultants
was recorded. These securities were issued in April 1996 (See "Liquidity and
Capital Resources") and the actual charges relating thereto total $193,200.
Adjustment of $6,800 was recorded in March 1996.

For the three months ended March 31, 1996, the Company realized a net loss
of approximately $859,000 or $0.33 per share, as compared to net income of
approximately $18,000 or $0.01 per share for the three months ended March 31,
1995. For the nine months ended March 31, 1996, the Company realized a net loss
of approximately $1,630,000 or $0.63 per share, as compared to net income of
approximately $73,000 or $0.04 per share for the nine months ended March 31,
1995. For the three months ended March 31, 1996, income from continuing
operations totaled approximately $3,000 versus approximately $18,000 for the
three months ended March 31, 1995. For the nine months ended March 31, 1996,

losses from continuing operations totaled approximately $106,000 versus income
from continuing operations during the nine months ended March 31, 1995 totaling
approximately $73,000.

Liquidity and Capital Resources

At March 31, 1996, no cash balances were recorded as compared to
approximately $2,000 at June 30, 1995. Net cash used in operating activities
totaled approximately $908,000 for the nine months ended March 31, 1996 as
compared to $1,324,000 for the nine months ended March 31, 1995. For the nine
months ended March 31, 1996, the operating cash outflow was largely due to the
period's net loss, together with increases in inventories and accounts
receivable, decreases in accounts payable and accrued expenses, and partially
offset by the addback of non-cash charges to earnings (i.e. - provisions for
depreciation, amortization, discontinuance of operations, and the issuance of
stock.)

Net cash used in investing activities totaled $483,000 for the nine months
ended March 31, 1996 as compared to $280,000 for the nine months ended March 31,
1995. This increase in investing activities was primarily due to the assets
acquired through the purchase of Italia.

Net cash provided by financing activities totaled $1,389,000 for the nine
months ended March 31, 1996, compared to $851,000 for the nine months ended
March 31, 1995. The increase is largely due to the net proceeds from the sale of
460,000 shares of Series A Preferred Stock that were registered by the Company
in September 1995. This enabled the retirement of $276,000 of debt during the
current period, versus the need to increase debt in the prior period of
approximately $41,000.

<PAGE>

As of March 31, 1996, working capital was $796,000, as compared to a small
deficit as of June 30, 1995. During the nine months ended March 31, 1996, trade
accounts receivable increased $149,000, essentially due to the increased
revenues of the current period. Accounts payable and accrued liabilities for
March 31, 1996 decreased $317,000 during the nine months ended March 31, 1996.
During the current year, the Company is conducting business activities largely
on a cash basis. This, together with the ongoing settlement of open liabilities
has led to an overall reduction of such liabilities.

In July 1994 the Company replaced its financing arrangement with a bank
line of credit of up to $950,000 with a New York Bank following the Company's
Initial Public Offering. Such borrowings are based on receivables and inventory.
The borrowings under such line of credit are secured by a lien on all personal
property and fixtures of the Company and personally guaranteed by certain of the
Company's Directors. The Company has agreed with the bank to reduce the line of
credit by $10,000 per month. At March 31, 1996, the line of credit was reduced
to $940,000. As of the date of this filing, the line of credit has been reduced
to $890,000. This line of credit bears interest at a rate of prime plus 1%

(9.25% as of the date of this filing.) The Company is also seeking alternative
sources of financing to ultimately fully replace the current line of credit, but
there can be no assurance it will be able to do so.

In connection with the Company's plan to restructure its wholesale
business, the Company, through its wholly owned subsidiary, Italia Collection,
Inc. ("Italia Collection"), acquired the businesses of two privately held
Florida-based companies, Murano Crystal Corp. ("Murano") and Ceramic
Productions, Corp. ("CPC") , which manufacture and market upscale decorative
ceramic accessories to the home furnishings industry through a showroom in High
Point, North Carolina and a network of sales representatives. Closing on such
acquisitions occurred on October 21, 1994. These acquisitions were accounted for
under the purchase method of accounting. In connection therewith, the Company
agreed to pay the seller on the basis of a formula purchase price computed as a
factor of future earnings from continuing operations, subject to certain
adjustments and offsets in cash and/or Class A Shares. As of the date of this
filing, no payments have been made to the seller for this acquisition, nor have
any liabilities for such payment been recorded on the Company's books. The
parties are currently in dispute regarding the nature and amount, if any, of the
consideration necessary. Discussions are currently in progress. Upon resolution
of these discussions, appropriate payments will be made and recorded on the
Company's books.

On February 15, 1995, Italia Collection entered into a Financing Agreement
with a New York based secured lender whereby Italia Collection may borrow
pursuant to an asset-related formula. The agreement remains in effect as of the
date of this filing, and may be terminated by either party upon notice to the
other and payment of the commitment fee for the unexpired term of this
agreement. Although the Company is currently pursuing alternative financing
agreements, as of the date of this filing, no such arrangements have been
finalized. According to the current agreement, the lender, upon confirmation of
shipments, will advance Italia Collection 70% of the receivable. Upon collection
of the receivable, the lender remits the balance of 30%. Interest is calculated
on the daily cash balance at the rate of prime plus 9% per annum (17.25% as of
the date of this filing) or a minimum of 18% per annum against a minimum monthly
defined compensation of $3,000. As of the date of this filing, the amount due to
the lender was approximately $738,000. In addition, the secured lender received
personal guarantees from Max Munn, President and Chief Executive Officer of the
Company, and his spouse. During February 1996, the Company's President and Chief
Executive Officer arranged for $160,000 additional financing from this lender at
the rates in effect for existing loans. The President and Chief Executive
Officer, and his spouse, have provided personal guarantees for this additional
funding, in addition to a security interest in certain real estate and

<PAGE>

Company stock owned by his spouse. Of these proceeds, approximately $121,000 was
used to pay outstanding tax liabilities. The balance of the proceeds was loaned
by the Company to the President and Chief Executive Officer. A demand loan dated
February 8, 1996, bearing an annual rate of interest of 18% was executed by the
President and Chief Executive Officer, and countersigned by the Chief Financial

Officer. On May 13, 1996, the Company's Board of Directors affirmed the loan by
the Company to its President and Chief Executive Officer. The principal balance
of the loan is expected to be largely offset by unreimbursed business expenses
generated by the President and Chief Executive Officer during the past two
years. An accounting of these expenses will be made during July 1996. To the
extent that a balance remains, this balance will be repaid to the Company in
equal installments over one year, at an annual interest rate of 18%.

During the month of February 1996, the Company finalized negotiations with
the Internal Revenue Service (the "Service") for the payment of outstanding tax
liabilities. The agreement will require the Company to pay approximately $9,000
per month for approximately 14 months for this purpose. The Company executed an
agreement with the Service in March 1996 for this purpose.

On November 23, 1994, the Company borrowed the sum of $225,000 from
Ekistics Corp., a Bahamian corporation, pursuant to a promissory note due March
30, 1995, together with interest at the rate of 14% per annum and a 5% financing
charge. In April 1995, the Company paid $25,000, plus interest on account of the
principal amount of said Note and entered into a revised note for the $200,000
balance with such revised note providing for payment of principal on October 20,
1995, having an interest rate of 14% per annum and being convertible into 80,000
shares of Preferred Stock and 40,000 Class WC Warrants. On December 15, 1995,
this conversion took place. The 80,000 Preferred Shares and 40,000 WC Warrants
were registered in a Registration Statement declared effective September 18,
1995.

In August 1995, the Company agreed to issue, at a future date, 60,000 Class
A Common shares in settlement of all current and future liabilities under a
two-year Marketing and Organizational Agreement (the "Marketing Agreement") with
a consulting firm dated January 4, 1994. These shares were issued on April 16,
1996 bearing a restrictive legend. This consultant agreed to arrange to have a
secured lender restructure its $225,000 secured loan with the Company. The
consultant has also arranged for the sale of 330,000 registered Class A shares
of Theodore Stevens, a principal stockholder and Director of the Company.

In June and July 1995, the Company delivered to unaffiliated parties
promissory notes in the aggregate amount of $300,000 with interest at the rate
of 10% per annum (the "10% Notes") and promissory notes in the principal amount
of $100,000 with interest at the rate of 6% per annum (the "6% Notes".) The 10%
Notes and 6% Notes were each payable in June and July 1996 or the closing of the
sale by the Company of an issue of Preferred Stock, whichever is earlier. The 6%
Notes were convertible, in whole or in part, at the option of the holder, into a
maximum of 2,000,000 WC Warrants entitling the holders for a period of five
years to purchase one share of Preferred Stock per Class WC Warrant at a price
of $5.50 per share. These Warrants are redeemable by the Company. The Notes were
secured by a lien on the Company's assets. In September 1995 the Company repaid
all 10% Notes in full, plus all accrued interest for both the 10% Notes and 6%
Notes. All holders of 6% Notes have converted in full, into a total of 2,000,000
Class WC Warrants, which were registered in a Registration Statement declared
effective by the Securities and Exchange Commission on September 18, 1995.

In September 1995, the Company issued 460,000 shares of Series A, 10%
Cumulative Convertible Preferred Stock ("Preferred Stock") and 230,000
Redeemable Class WC Warrants ("Warrants") to purchase Preferred Stock at the

exercise price of $5.50 per share. Each share of Preferred Stock is convertible,
commencing one year from the date of issue, subject to adjustment,

<PAGE>

into three shares of Class A Common Stock of the Company. On May 5, 1995 Mr. Ted
Stevens was reappointed as President, Chief Executive Officer and Treasurer of
the Company in connection with this offering. In September 1995, upon completion
of the Preferred Offering, Mr. Stevens resigned from this position. The net
proceeds from this Offering were approximately $1,633,000, including
over-allotments.

In September 1995, the Company lowered the exercise price of the Company's
Class WA Warrant to $1.50 per share and arranged to place 180,000 shares of the
Company's Class A shares which were previously sold pursuant to a Regulation S
private placement into escrow and to be repurchased by the Company over the next
12 months. These shares were sold in January 1996 to unrelated parties pursuant
to a restructuring of a note payable by the Company to the holder of these
shares as discussed below.

On October 16, 1995, the Company entered into an agreement to restructure a
promissory note dated May 1995, with the principal amount of $500,000 bearing
interest at the rate of 18% per annum with the principal which was due and
payable in full on September 30, 1995 and a $150,000 note dated May 12, 1995,
bearing interest at the rate of 18% payable monthly with 135% of the principal
which was also due and payable in full on September 30, 1995 with a Nevis, BWI
Corporation. As of October 16, 1995 the parties agreed the Company owes the
lender, including interest and monthly extension fees of approximately $102,500
through December 15, 1995, an aggregate amount of approximately $805,000.
Pursuant to the new agreement, the Company paid $405,000 to the Nevis
Corporation upon acceptance of the agreement. The Company also delivered a
Promissory Note in the principal amount of approximately $400,000, in extension
and replacement of the remaining balance due payable of $180,000 on or before
December 15, 1995 and $220,000 on July 31, 1996. The new agreement also
stipulates that the lender shall sell the 180,000 shares of the Company's Class
A Common Stock, owned by the lender and held in escrow, for $180,000 to an
unaffiliated third party. The proceeds of such sale will be applied against the
note and was scheduled to occur prior to December 15, 1995. The stock sale took
place during January 1996. In addition, during December 1995, the Company issued
to the lender 35,000 unregistered shares of Class A Common Stock. Such shares
shall be afforded a piggyback registration right for all registration statements
filed by the Company before July 31, 1996 and a one time demand registration
right commencing after July 31, 1996. The note is also guaranteed by Max Munn,
President and Chief Executive Officer of the Company.

In April 1996, the Company's investment banking firm arranged for the
private placement of 175,000 shares of the Company's Common A Stock and 50,000
shares of the Company's Series A Preferred Stock. These shares, all of which
bear a restrictive legend, were issued on April 24, 1996 to various independent
investors generating gross proceeds of $431,251. The Company realized net
proceeds of $310,609 which was used to pay certain outstanding liabilities.

Except as otherwise set forth herein, the Company has no material
commitments for capital expenditures. In order to fund growth over the
long-term, the Company anticipates possible future issuance of its securities
resulting in further dilution to its security holders.

Management believes that cash flow from operations as they currently exist
are not sufficient to support such operations. Accordingly, Company management
is now identifying and implementing the corrective changes deemed necessary. Two
important actions, as disclosed elsewhere in this filing are the discontinuance
of its catalog business, and the relocation of its Italia operation. The Company
has also reduced staffing during the quarter ended March 31, 1996 to

<PAGE>

generate payroll cost savings. In addition, the Company is actively pursuing
additional financing to provide an immediate benefit.

Impact of Inflation

The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in supplies
and other operating costs could adversely affect the Company's operations.
However, the Company believes it could increase prices to offset increases in
cost of goods sold or other operating costs.

Sales Variations

Although the Company's net sales are not subject to seasonality
fluctuations experienced by certain retailers, the Company experiences some
minor variations in the level of sales by quarter. The first quarter of the
fiscal year (i.e., July 1 through September 30) is generally the Company's
slowest sales period due to the fact that the summer period is typically the
period when art galleries are at their slowest purchasing period. During this
period, the Company's warehouse and factory closes for three to five days to
take the annual physical inventory and to consolidate vacation periods for the
Company's employees. On the other hand, the Company's sales during its second
quarter (October 1 through December 31) modestly exceed each of the Company's
other three quarters.

BUSINESS

General

The Company was incorporated in October 1990 under the name A.P.F.
Holdings, Inc., a New York corporation ("A.P.F.") and merged with and into
Interiors, Inc., a Delaware corporation in March 1994. It has been engaged since
1990, through its A.P.F. Master Framemakers and Conservators division ("A.P.F.
Master Framemakers"), in the manufacturing and marketing of high-end or museum
quality traditional (antique reproduction) frames and contemporary picture and

mirror frames to museums, art galleries, decorators, collectors and frame
retailers. The Company is qualified to do business in New York under the name
A.P.F. Master Framemakers.

The Company operates three showrooms, one at 75th Street in Manhattan, one
in "Old City" in Philadelphia and one at the Company's Mt. Vernon location. The
sales generated from the Manhattan showroom were approximately $1,520,000 and
$2,107,000 for the fiscal years ended June 30, 1994 and 1995, respectively. The
Philadelphia showroom generated sales of approximately $330,000 and $308,000 for
the years ended June 30, 1994 and 1995, respectively. The Company's showroom in
Mt. Vernon, New York, conducts business with upscale custom picture frame shops
located throughout the country. Sales generated from the Mt. Vernon showroom
were approximately $1,670,000 and $1,108,000 for the year ending June 30, 1994
and June 30, 1995, respectively.

Sales for the nine months ended March 31, 1995 and 1996 for the Manhattan
showroom were approximately $1,486,000 and $1,677,000, respectively. Sales
generated from the Philadelphia showroom were approximately $263,000 and
$242,000 for the nine months ended March 31, 1995 and 1996, respectively. The
Company's showroom in Mt. Vernon generated sales of approximately $927,000 and
$785,000 for the nine months ended March 31, 1995 and 1996, respectively.

In February 1992 the Company began distributing, through its Interiors
Catalog division, a direct-to-consumer catalog, which offers a variety of
decorative accessories for the home, approximately 60% of which are currently
manufactured by the Company. Sales generated by the

<PAGE>

Interiors Catalog division were approximately $2,600,000 and $2,000,000 for the
years ended June 30, 1994 and 1995, respectively. Interiors Catalog division
sales for the nine months ended March 31, 1994 and 1995 were approximately
$743,000 and $1,775,000, respectively. The decreases for both comparative
periods was largely due to the generally high operating costs associated with
catalog operations. It is for this reason that this business activity will be
discontinued (See - "Certain Transactions.")

The Company believes that the accessory supply industry will consolidate as
major retailers attempt to increase their "single-sourcing" in order to reduce
distribution and related expenses. The Company intends to capitalize on the
fragmented nature of the supply side of the home decorative accessory industry
and the consolidation of such industry through either strategic alliances or the
acquisition of manufacturers and distributors of art-related decorative
accessories. Through such means, the Company intends to increase the number and
nature of products manufactured by the Company. Such products will be offered
for sale by the Company through either its Italia unit or other newly created
units. Management believes that increasing the number and kinds of products it
manufactures will enhance its ability to expand its wholesale operations as the
Company develops the ability to market "whole room" packages to furniture and
department stores.

A.P.F. Master Framemakers

The Company's custom frames are marketed primarily to museums, better art
galleries, upscale frameshops and decorators, as well as collectors of important
works of art under the tradename "A.P.F. Master Framemakers and Conservators"
(previously defined and hereinafter referred to as "A.P.F. Master Framemakers").
A.P.F. Master Framemakers' customers have included nationally known museums, art
institutes and galleries.

There are approximately 15,000 picture frame retailers in the United States
alone. In management's opinion, approximately 3,000 of these serve markets which
the Company believes may be sufficiently affluent to support the Company's
product line. The A.P.F. Master Framemakers division now conducts business with
only approximately 300 of these retailers, or about 10% of this market segment.
The Company plans, through direct mail marketing and increasing the number of
showrooms, to expand its sales to the "high-end" of this industry but there can
be no assurance the Company will be able to do so.

Prices on individual custom-made frames range from $100 to well over
$10,000 with the majority under $5,000. The Company has crafted several single
frames in excess of $20,000 each during the last three years. The Company
utilizes varying discount and pricing structures for its different market
segments, with frame retailers receiving the largest price discount and art
collectors receiving minimal price reductions depending on the level of
aggregate annual purchases and the degree of customization requested. The A.P.F.
Master Framemakers division has had no material returns inasmuch as its business
is generated from orders for custom-made products. However, there can be no
assurance that the Company's previous experience will continue.

Italia Collection

On October 21, 1994 (the "Closing Date") the Company, through its
newly-formed wholly-owned subsidiary, Italia, acquired all of the issued and
outstanding stock of Murano Crystal Corp. ("Murano"), a Florida corporation
doing business under the name "Italia Collection," pursuant to the terms of a
certain stock purchase agreement dated October 21, 1994 (the "Murano Purchase
Agreement") between Italia and Murano and Stephen M. Tucker, the sole
stockholder and acquired

<PAGE>

all of the issued and outstanding capital stock of Ceramic Productions Corp., a
Florida corporation ("Ceramic") pursuant to the terms of a certain stock
purchase agreement dated as of such date (the "Ceramic Purchase Agreement")
between Italia and Ceramic and Stephen M. Tucker and Michael D. Tucker, the sole
stockholders. The Company agreed to pay such respective stockholders an
"allocated portion" of three times the combined "after-tax earnings" of Murano
and Ceramic, net of intercompany transactions for the third fiscal year
following the Closing Date. For purposes of the respective Purchase Agreements,
"after tax earnings" means combined net income of Murano and Ceramic for the
fiscal year ended June 30, 1997 and "allocated portion" means that proportionate

share of the net book value, calculated according to generally accepted
accounting principles, of Murano and Ceramic adjusted for intercompany
transactions as of the close of business on the day preceding the Closing Date
or, if it is commercially impracticable to make the calculation as of such date,
then the first commercially practicable date thereafter. One-third of the
purchase price is payable on or before each of September 28, 1997, 1998 and 1999
and, at the sole election of Italia, up to two-thirds of the purchase price is
payable by the delivery of Class A Common Stock of the Company but in no event
shall more than an aggregate of 300,000 shares of Class A Common Stock be
issuable in payment of the purchase price under the Murano and Ceramic Purchase
Agreements. Italia further agreed that in the event that it elects to pay a
portion of the purchase price in shares of Class A Common Stock, that it will
grant to the stockholders a one-time "piggy-back" registration right for the
inclusion for registration of such securities in a registration statement filed
under the Securities Act at such time as other securities are registered
following the fifth anniversary of the Closing Date provided that the respective
stockholder is at the time of such registration an employee of the Purchaser. As
of the date of this filing, no payments have been made to the seller for this
acquisition, nor have any liabilities for such payment been recorded on the
Company's books. The parties are currently in dispute regarding the nature and
amount, if any, of the consideration necessary. Discussions are currently in
progress. Upon resolution of these discussions, appropriate payments will be
made and recorded on the Company's books. The Company entered into an employment
agreement with one of such stockholders and a consulting agreement with a
relative of such stockholders. In July 1995, both the employment and consulting
agreements were terminated by the Company.

During April 1996, the Company moved the operations of Italia Collection to
The Lance Corporation (Lance), a Massachusetts manufacturer and distributor of
various products to the giftware and collectibles market. The Company is
currently finalizing the terms under which Lance will manufacture and support
the entire product line of Italia Collection, which largely consists of ceramic
and porcelain collectibles, mirrors, and other decorative accessories for the
home.

As of the date of this filing, Laurie Munn, wife of the Company's President
and Chief Executive Officer, was issued 9 of the outstanding 100 common shares
of Lance Acquisition Corp. ("LAC"), which on March 3, 1996 acquired the assets
of The Lance Corporation ("Lance") a Massachusetts manufacturer and distributor
of various products for the giftware and collectibles marketplace. The Company
and LAC have entered into an agreement whereby each entity will guarantee
certain liabilities of the other. During April 1996, the Company moved the
operations of its Italia Collections Inc. subsidiary ("Italia") to Lance. The
Company is currently finalizing the terms under which Lance will manufacture and
support the entire product line of Italia on a temporary basis. The Italia line
of products which largely consists of ceramic and porcelain collectibles,
mirrors, and other decorative accessories for the home. The Company is seeking a
new location where it will manufacture and distribute products for Italia.

<PAGE>

Interiors Catalog

On March 31, 1996, Company management decided to discontinue its catalog
operations. Reduced revenues and high operating costs from this operation
necessitated a charge against earnings for catalog write-downs of $1,100,000 at
March 31, 1996. For the nine months ended March 31, 1996, losses from continuing
catalog operations will total $423,714. The Company plans to fully carry out the
discontinuation of the catalog operation within one year from March 31, 1996.
Subsequent to that date, the Company plans to wind down operations by filling
existing orders and possibly mailing one final catalog as a "close-out sale" to
liquidate inventory. Subsequently, no new orders will be accepted and the
business will be terminated. At that time no remaining assets or liabilities are
expected to remain on the Company's balance sheet.

Manufacturing

The Company's manufacturing operations include specialized woodworking
systems, using a unique multi-spindle carving machine, and customized
proprietary embossing equipment, using tools, dies and molds especially created
for the Company. Production also includes frame finishing, which involves gold
leaf application, antiquing and painting, mold construction and metal and
acrylic frame fabrication. The Company recently developed and installed a
finishing process which does not use actual gold but management believes the
results of which are substantially indistinguishable in appearance from
moderately priced products using hand-applied gold leaf.

The Company maintains an inventory of metal and wood molding, composite
resins and other materials for use in its manufacturing processes. The Company's
mold and steel die inventory allows reproduction of frames from the 14th Century
(gothic) to the present day. These tools can be used to produce over 1500 styles
of picture and mirror frames. The Company has an extensive collection of tools,
molds and dies and has been unable to locate any other manufacturer of picture
frames which casts glass and urethane composite reproductions of decorative
frames to the extent and type that the Company does.

No single outside manufacturer supplies five percent or more of the
Company's products, and the Company's management is not aware at this time of
any product or manufacturer which the Company cannot replace with a comparable
product from an alternative manufacturer.

Products

Custom Frames. Each frame manufactured by the Company's A.P.F. Master
Framemakers division is individually made to the customer's size and finish
"coloration" specifications. In approximately 40% of the orders received by this
division, the customer also specifies a customized decorative element or carving
change to the basic design of the frame. The A.P.F. Master Framemakers division
uses primarily fine domestic hardwoods and other traditional materials to hand
carve a "museum" quality frame. The Company's custom frames include styles as
follows: (a) Gothic through the Renaissance and various Italian styles; (b) a
product range of 15th through 17th Century Spanish designs; (c) a variety of
French designs from the stylistic periods between Louis 13th through Louis 16th,
as well as French "Regency" and "Empire" styles; (d) Dutch and Northern European
designs, generally 17th Century; (e) various English designs, including Queen

Anne and Georgian; (f) a broad range of American styles, including Colonial,
Federal, Empire, Late 19th Century Hudson River School type frames,
turn-of-the-century designs, including designs by the artists Whistler,
Prendergast, and others; and (g) contemporary designs utilizing hardwoods and

<PAGE>

welded brass and aluminum. The Company has selected the most popular segments of
some of these periods, and has incorporated them into brochures which picture
the actual designs. The specific collections currently utilized by the Company
are:

The Signature Painting Frame Collection. The Signature Painting Frame
Collection, including styles selected to enhance a broad range of works
covering many periods and nations of origin, feature detailed recreations
of important picture frames of major periods, special decorative treatments
such as rich burl veneers, antique panels, sculptured gesso, 22 karat gold
leaf, and carved corners. The Signature Painting Frames range in price from
$58 to $110 per perimeter lineal foot.

The Classic Drawing Frame Collection. The Classic Drawing Frame Collection
features high quality traditional frames to enhance a broad range of works
on paper, including old prints and drawings as well as contemporary art.
The Classic Drawing Frames range in price from $34 to $70 per perimeter
lineal foot.

The Modern Gold Collection. The Modern Gold Collection features a unique
selection of contemporary frames in various karat gold leaf to enhance a
wide range of works, including modern prints and drawings as well as
contemporary paintings and photographs. The Modern Gold Collection frames
range in price from $28 to $110 per perimeter lineal foot.

The Classic Welded Frame. The Classic Welded Frames are individually hand
crafted from extrusions of aluminum or brass that are mitred and welded
together by hand to produce a seamless corner. A wood strainer, secured by
counter-sunk screws, holds glass, art, and backing firmly in place. Classic
Welded Frames are suitable for framing canvas or works on paper. The
Classic Welded Frames range in price from $11 to $25 per perimeter lineal
foot.

Decorative Mirrors and Home Decor Products. The Company sells its
decorative mirrors and home decor products through its Italia Collections
Division. Such products include a wide variety of high-quality decorative
items, including framed reproductions on canvas, contemporary and
traditional mirrors designed and produced by the Company's in-house staff
as well as sculpture, pedestals, lamps, vases, planters and accents. The
Company also purchases for resale other high quality accessory products
from a variety of vendors.

Marketing

The Company currently markets its custom picture frames to art galleries,
museums, custom frame retailers, art consultants, artists, corporations and
private collectors.

Typically, sales for the picture frame division are generated through the
following activities:

Y Sales of "high-end" custom-made picture and mirror frames through the
Company's three showrooms.

Y Sales to retail picture framers. These sales generally require that
the Company supply samples or "corners," consisting of two short sides
of the frame, to the retailers who use the "corners" to promote the
sales of the Company's frames.

In addition, the Company has established an unwritten arrangement with an
art gallery in Manhattan at 231 E. 60th Street to allow one of the Company's
employees to work from that location to assist the gallery in the sale of custom
picture frames to gallery clients and other customers. The Company operates from
such location without a lease or any cost or obligation of any kind and has

<PAGE>

done so since the Company's inception. Less than 4% of the Company's revenues
are generated through that location. While the Company believes that the
relationship is mutually beneficial to both the Company and such gallery, there
can be no assurance that the art gallery will allow the relationship to
continue.

The Company markets its corners to the retail framer through direct mail
brochures and through advertising in "Picture Framer" magazine, a trade
publication. The Company believes these corners aid the retail framer in the
sale of custom framing to the consumer. The retail framers' investment in new
corners is made significantly easier by both the Company's extended payment
terms for corners and its coupon redemption program. The Company offers the
retailer the opportunity to extend payments for corners over several months. The
coupon redemption program encourages utilization of the corners by affording the
retail framer credit on his first order of that particular style of frame from
the Company. The Company intends to expand its distribution of such corners
through the increase in its advertising expenditures and by offering more
liberal payment terms. To the extent retail framers accept such extended payment
terms, the Company expects that its levels of accounts receivable will increase.

The Company plans to add an additional showroom in a key market on the West
Coast of the United States during the next six months. The Company has not
identified the exact location of such showroom facility and there can be no
assurance that the Company will be able to select locations which are suitable
or be able to lease showroom space on acceptable terms or be able to attract and
hire qualified personnel for such facility. The possibility exists that the
Company will not adequately forecast the time, costs, management and capital
needed to expand its A.P.F. Master Framemakers segment. See "Risk Factors."

Suppliers

Substantially all of the picture and mirror frames sold by the Company are
manufactured by the Company in its facility in Mt. Vernon, New York. The Company
purchases wood, composite resins, gold leaf, plexiglass, matboards 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. The Company currently purchases from a vendor base of
more than 300 suppliers. While there are many suppliers of most materials, the
Company has chosen to limit the majority of its purchases to the one or two
vendors with whom it has developed long-term relationships. The Company
generally does not need to enter into contracts with its suppliers as most
merchandise is readily available from multiple sources.

Competition

The custom framing industry in the United States is highly fragmented and
consists primarily of small, local framing retailers. Only a few companies are
basic manufacturers of higher priced picture frames, which frames are selected
for valuable works of art owned by museums, galleries and collectors. Custom
framing of the type produced by the Company is not in competition with local
frame stores. Management of the Company believes that its A.P.F. Master
Framemakers division is one of the largest custom framers of its type in the
country. However, there can be no assurance that the Company's position in this
industry will continue.

<PAGE>

Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors and management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Italia.

The Company believes that its competitive advantage lies in its ownership
of a substantial number of models, tools, dies and molds developed from
museum-quality antiques and its continuing ability to manufacture quality
reproductions of those antiques. Management also believes that the Company is
further protected by what the Company considers to be its excellent reputation
with its customer base and management's estimation that the cost today (i.e.,
the difficulty) of obtaining antiques to reproduce, as well as the costs to
build tools, dies and molds, make the entry of meaningful competition extremely
difficult. Management believes that it would be difficult to build such a
collection of tools, dies and molds because of the cost of acquiring antiques
and the reluctance of museums and collectors to lend or dispose of irreplaceable
antiques and the difficulty in establishing a trained work force of skilled
crafts people. However, there can be no assurance that such assets will continue

to afford the Company any competitive advantage. See "Business Manufacturing."

Backlog and Backorders

The Company has no significant backlog in its A.P.F. Master Framemakers
division since the nature of custom framemaking requires that frames be
constructed only after receipt of an order. Such custom orders are generally
filled approximately thirty days after receipt of the order.

As of the date of this filing, the Company's Italia Collections, Inc.
(Italia) subsidiary has a backlog of approximately $250,000. This backlog is
primarily a result of the Company's decision to relocate Italia's operation from
Florida to Massachusetts (See Certain Transactions) during April 1996. During
this relocation, and the subsequent set-up of the relocated operations, customer
shipments were not possible. But due to the greater production and shipment
capacity of the Massachusetts location, Company management believes that the
Italia backlog will be made current during the month of July 1996.

Patents and Trademarks

The Company believes that its future success does not depend significantly
upon patents. Instead, the Company relies, to a large extent, upon the technical
competence and creative skills of its personnel and on its significant
unpatented proprietary technology as well as its collection of tools, dies and
molds. The Company believes that it owns or has the right to use all proprietary
technology necessary to manufacture and market its existing and planned
products. The Company has no knowledge that it is infringing any existing patent
such that it would be liable for material damages or be prevented from
manufacturing or marketing its products. In fact, most of the Company's
technology is process-related and may not be patentable. The decorative
accessory manufacturing industry is generally not technology driven, but is more
design and marketing driven; consequently there are few applicable patents in
this industry. In the event the Company's right to market any of its products
were to be successfully challenged, the Company may be required to discontinue
certain products and the Company's business and prospects may be adversely
affected if acceptable alternative products were not available.

The Company owns the registered trademarks "Interiors" and "A.P.F.", and
has used the name "Interior Accents" as a business name for the purpose of
selling art-related home decor products on a wholesale basis to furniture and
lighting stores, and to furniture departments in major department stores. The
name "Italia Collection" was registered by the former owner of this business
with the

<PAGE>

Secretary of State of Florida. Pursuant to the acquisition of this business by
the Company, it also owns this trademark.

The Company does not own any other patents, copyrights or other
intellectual property. The Company relies upon trade secrets, a substantial

quantity of tools, dies and molds and continuing design and marketing innovation
to maintain its competitive position.

Research and Development

The Company continually seeks to develop additional design and related
molds for picture and mirror frames and capitalizes the cost thereof over a five
year period. The Company estimates that it has expended $84,250 and $62,000 on
such activities during the fiscal years ended June 30, 1994 and 1995,
respectively. The Company expects to continue to increase its expenditures for
product development as it expands its "in-house" manufacturing for its Italia
Collection division. However, there can be no assurance that such product
development will yield profitable growth.

Government Regulation

The Company must comply with federal, state and local laws affecting
companies in the manufacturing and wholesale business. To date, such government
regulations have not had a material adverse effect on the Company. The Company
has no knowledge of any federal, state or local environmental compliance
regulations which affect its business and has not expended any material capital
to comply with environmental protection statutes and does not anticipate that
such expenditures will be necessary in the future.

Employees

As of the date of this filing, the Company had a total of approximately 79
full-time employees. Effective April 1, 1991, the Company signed a three-year
collective bargaining agreement with the Production, Merchandising and
Distribution Employees Union, Local 210, Affiliated with The International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America,
AFL-CIO (the "Union") covering its manufacturing employees. The agreement
contains a provision for an automatic two-year renewal. The Company has received
notice that the two year automatic renewal and the existing Union contract will
remain in effect through April 1, 1996. As of the date of this filing, the
Company is currently negotiating the renewal of its Union contract. None of the
Company's employees have been on strike, or threatened to strike, since the
Company's inception and the Company believes its relationship with all of its
personnel is satisfactory.

Legal Proceedings

The Company in April 1992 borrowed $150,000 from Hideo Tashiro and $150,000
from Takehisa Nishijima evidenced by promissory notes due July 1, 1995.
Subsequent to June 30, 1995, Mr. Tashiro commenced an action by motion for
summary judgement in lieu of a complaint for the alleged failure by the Company
to pay the sum of $150,000 with interest and costs. The motion was denied, and
the Court held that there was an issue of fact to be tried.

On or about September 22, 1993, Boyan Radoslavov and Slava Radoslavov
brought an action against the Company and one of the Company's suppliers of art
in the U.S. District Court for the Northern District of California (Case No. C93
3493EFL) for alleged copyright infringement, unfair competition and unjust
enrichment concerning certain copyrighted works of art. In January 1994 the

32
<PAGE>

Company reached an agreement to settle the action against the Company for $1,000
and the Company's agreement to an injunction to refrain from manufacturing,
reproducing, selling, offering for sale, advertising, transferring, or
distributing approximately 24 enumerated works of art without the prior written
permission from the Radoslavovs.

On or about December 28, 1994, Merrill Corp. filed a complaint in the
Supreme Court of the State of New York, County of New York (Index No. 135411/94)
against the Company seeking payment for goods sold and delivered to the Company
in the approximate amount of $55,670, plus interest and attorney's fees relating
to the printing of the Company's registration statement. The Company maintains
that Merrill billed approximately five times the price estimate and that bills
were unreasonable. Merrill moved for summary judgement, and the motion was
denied.

The litigation relating to the 1995 employment agreement between Ann
Stevens and the Company has been settled by the execution of an employment
severance agreement ("Agreement"). Pursuant to the Agreement, the Company will
pay Ms. Stevens $63,000 for accrued compensation upon execution of the
Agreement. Subsequently, for a period of seven years, the Company will make
bi-weekly payments to Ms. Stevens to total $72,000 for the first year, $70,000
for each of the next three years, and $50,000 for each of the final three years.
In addition, the Company will issue to Ms. Stevens 50,000 shares of the
Company's Class A Common Shares, which were previously committed to Ms. Stevens
pursuant to her 1995 employment agreement. The Company is required to cause a
registration statement to be filed not later than September 30, 1996 registering
the 50,000 shares of Class A Common Stock issued to Ms. Stevens. Should the
registration statement fail to become effective by December 18, 1996, or should
the Company fail to deliver an Investment Banker Waiver by December 18, 1996 to
Ms. Stevens, or should the Company fail to purchase the 50,000 shares issued to
Ms. Stevens, by December 18, 1996, then the Company is required to pay Ms.
Stevens $125,000 in 24 equal payments, in return for Ms. Stevens surrendering
the 50,000 shares of the Company's common stock issued to her. As additional
compensation, the Company will pay Ms. Stevens $50,000 in various installments
during the four months ending December 1996. The Company is required to repay a
note guaranteed by Ms. Stevens and secured by a mortgage on the Stevens real
estate holding, of $35,000 on or before August 5, 1996, subject to extension but
in no event later than November 5, 1996. Ms. Stevens also guaranteed a debt of
the Company, which the Company is required to repay by March 31, 1997. If that
debt is not repaid by said date, the Company is required to pay Ms. Stevens one
twelfth of two and one half percent of the outstanding balance of the loan, on
the last day of each month, as the Company's payment is due. The Company will
enter into a non-compete agreement with Ms. Stevens for which the Company will
make bi-weekly payments to Ms. Stevens to total $25,000 per year for seven
years, plus automobile expenses of $595 per month, automobile insurance and
health insurance on Ms. Stevens. The Company has also agreed to indemnify and
hold Ms. Stevens harmless to the fullest extent permitted by law from claims,
lawsuits and judgments, including attorneys fees, arising out of her employment
with the Company or any of its subsidiaries.

On or about May 11, 1995, Hideo Tashiro commenced a lawsuit against
Interiors Inc. and others, by filing a motion for summary judgement in lieu of a
complaint. Mr. Tashiro demands a sum of $75,000 in repayment of a loan to Decor
Holdings, Inc., together with interest and attorney's fees. The loan was
guaranteed by A.P.F. Holdings, Inc., predecessor to Interiors Inc. The Company
believes it has meritorious defenses and intends to vigorously defend against
the claim. On April 23, 1996, the Court denied Mr. Tashiro's motion for summary
judgement.

In July 1995, the Company through its attorneys made demand against Morgan
Steel Ltd., the office of which is located on the Isle of Man, England, for the
payment of $362,507 on account of a perceived violation of Section 16(b) of the
Exchange Act. No response to such demand for payment has been made to date. On
May 23, 1996, the Company's Board of Directors resolved that the Company and its
officers and directors undertake no action given the uncertainty of the cost,
collectibility, and ultimate legal liability of Morgan Steel Ltd., either in the
United States or the Isle of Man.

Gear Holdings, Inc. claims that it is owed license fees by Italia for an
amount in excess of $40,000. Italia is investigating the merits of this claim,
and believes that it does not have a liability to Gear Holdings, Inc.

On October 13, 1995 Ted Stevens, individually, as a Shareholder and
Director and Morris Munn, individually and as a Director and on behalf of
themselves and all other similarly situated Shareholders and Directors of
Interiors Inc., filed a complaint in the Supreme Court of the State of New York,
County of Westchester, against the Company, Max Munn, Richard Josephberg, Roger
Lourie and Steven Morse seeking, among other things, to enjoin Max Munn from
serving as President and Chief Executive Officer and seeking to enjoin Messrs.
Josephberg and Morse from serving as Directors. Further, they are seeking
unspecified damages. Mr. Steven Morse has since resigned as a Director of the
Company. The Plaintiffs have moved for a preliminary injunction, and

33
<PAGE>

this motion was denied. On November 9, 1995, Max Munn filed a complaint in the
Court of Chancery of the State of Delaware in and for New Castle County, against
the Company, Ted Stevens, Morris Munn and Sidney Burns seeking, among other
things, a summary or expedited proceeding directing the Company to hold an
Annual Meeting of its Stockholders and setting the record date for the
determination of Stockholders entitled to vote at the meeting. In May 1996, the
Court set the date of the Company's annual meeting at June 21, 1996 for
shareholders of record at April 10, 1996. The Company has mailed the necessary
proxies for this purpose.

On December 1, 1995, Ted Stevens filed a complaint in United States
District Court, Southern District of New York against Laurie Munn and American
Stock Transfer & Trust Company seeking, among other things, the equitable
recision of a stock sale agreement between Mr. Stevens and Ms. Munn and return
of 269,500 Class B Common shares of stock sold by Mr. Stevens to Ms. Munn,
together with punitive and compensatory damages. Mr. Stevens moved for a
preliminary injunction to prohibit Ms. Munn from voting her shares during the
action. On February 29, 1996, the Court held that Mr. Stevens did not have the

right to recision and denied Mr. Stevens' motion for a preliminary injunction.
On April 17, 1996, the Court dismissed the action for lack of subject matter
jurisdiction because it was for less than the jurisdictional minimum amount.

On December 12, 1995, Ann Stevens filed a complaint in United States
District Court, Southern District of New York (now pending in the Supreme Court
of New York, County of Nassau) against Interiors Inc., Italia Collection Inc.,
Max Munn, Robert Schildkraut, Roger Lourie, Richard Josephberg, and Michael
Freehling seeking, among other things, compensatory damages of $734,694 and
punitive damages of $3,000,000 arising out of the alleged breach of Ann Stevens'
Employment Agreement. On January 26, 1996, this action was discontinued in
Federal Court and recommenced in the Supreme Court of the State of New York,
County of Nassau. A motion to dismiss all but her breach of contract cause of
action was served on February 19, 1996 and is pending as of the date of this
filing.

On April 23, 1996, Ted Stevens filed a complaint in the Court of Chancery
of the State of Delaware against Max Munn, Michael Amore, Donald Feldman,
Richard Josephberg, and Roger Lourie and Interiors Inc., seeking among other
things, the recision of a stock sale agreement between the Company and Laurie
Munn for the sale of 250,000 shares of the Company's Class B Common stock to Ms.
Munn, voiding the results of any election at a shareholders meeting should the
company hold such a meeting during the pendency of this complaint, requiring the
immediate repayment with interest to the Company of a loan made by the Company
to Mr. Munn on February 8, 1996 for $39,305.42, plus damages and expenses. This
action is brought as a derivative and class action suit. The Company and the
individual defendants consider the complaint to be without merit and will
vigorously defend the action.

In July 1996, all litigation brought against the Company and its principals
by Ted Stevens has been settled without the need for any payments by any of the
parties to these actions.

All litigation between the Company and Morris Munn and the Company and Ann
Stevens has been settled.

The Company is subject to other claims and litigation in the ordinary
course of business. In management's opinion, such claims are not material to its
financial position or its results of operations.

Properties

The Company has its principal offices at 320 Washington Street, Mt. Vernon,
New York, where it has sub-leased approximately 56,000 square feet of
administrative offices, manufacturing and

34
<PAGE>

warehousing facilities and a factory showroom. The Company's sublease with Stern
Metals expires December 31, 1996. The Company's monthly base rent payments under
the sublease are approximately $20,000 per month. As a condition of this lease,
the Sublessor agreed to and loaned the Company $125,000 pursuant to a promissory
note which bore interest at 10% per annum and was payable in February 1994. To

secure the Company's obligation to pay the indebtedness evidenced by this note,
and in consideration of the terms of the lease, the Company caused to be pledged
as collateral to Stern Metals 51% of the outstanding, issued and authorized
Class B Shares of the Company, which were then owned by Theodore Stevens, then
President and a Director of the Company, with the Company's President
guaranteeing such repayment from the Company to the Sublessor. The Company paid
such promissory note and accrued rent to the Sublessor from the net proceeds of
the Initial Public Offering and from working capital and the security interest
in the Class B Shares was released. As of the date of this filing, the Company
owes Stern Metals back rent of approximately $155,000, and has agreed in
principle with Stern Metals to a plan of payment. The Company has determined
that there is substantial manufacturing and warehousing space available in the
vicinity if the Company were required to expand or relocate some or all of its
current facilities. However, there can be no assurances that when the current
sublease for the Company's principal facility expires that the Company will be
able to negotiate a renewal thereof on acceptable terms or obtain alternative
manufacturing and warehousing space on terms acceptable to the Company.

The Company also operates three specialty custom frame showrooms, which are
in Mt. Vernon, New York City and Philadelphia. The Company occupies
approximately 1,800 square feet of showroom and office space at 172 East 75th
Street in New York City pursuant to a lease expiring January 31, 2003 between
the Company and Francisco Saggese. The lease requires the Company to pay rent at
rates which escalate 4% per year on February 1 and which rental is currently
approximately $6,200 per month. In addition, pursuant to a three-year lease
agreement dated August 11, 1992 between Hoopskirt Factory Partners and I.R.A.L,
and agreed to by B&D Frames, Inc. ("B&D"), the Company occupies approximately
4,000 square feet of showroom, warehouse and office space leased by Hoopskirt
Factory Partners, Inc. to B&D under a lease dated July 24, 1990, which lease B&D
and Hoopskirt Factory Partners agreed would be deemed to have been canceled and
B&D deemed to have surrendered possession of the leased premises and B&D
released from its lease. The agreement provided for minimum rent of $2,500 per
month. On or about April 16, 1993, Hoopskirt Factory Partners filed for relief
under Chapter 11 of the Bankruptcy Code. Although such filing may affect
I.R.A.L.'s continued occupancy of the premises, presently the Company is
continuing to pay monthly rent of approximately $2,200 to the attorney for
Hoopskirt Factory Partners, Inc. Under current lease agreement, the lease term
will expire on August 31, 2000. The Company believes alternate space is
available if the Company is required to relocate and that any such relocation
would not have a material adverse effect on the Company. However, there can be
no assurance that the Company will be able to obtain such alternate space on
terms acceptable to the Company.

During April 1996, Italia moved its operations to the premises of The Lance
Corporation (Lance), a Massachusetts manufacturer and distributor of various
products to the giftware and collectibles market. Lance operates in a 48,000
square foot facility located at 321 Central Street, Hudson Massachusetts 01748.
Italia occupies approximately 10,000 square feet of this space on a temporary
basis. Italia occupies approximately 1,750 square feet at International Home
Furnishings Center in High Point, North Carolina, pursuant to a lease dated May
1, 1993. The term of the lease is five years and requires rent payments of
approximately $2,200 per month.

The Company believes all of such facilities are adequate for its current

needs; however, the Company will require approximately 1,500 to 2,000 square
feet of space for its contemplated showroom location. Inasmuch as the Company
has not selected the city in which it plans to establish

35
<PAGE>

such showroom, it has no arrangements for such lease and there can be no
assurance that the Company will be able to obtain appropriate facilities on
terms acceptable to the Company.

MANAGEMENT

The names and ages of the Directors, executive officers and key personnel
of the Company are as follows:

Name Age Position(s) Held with the Company
---- --- ---------------------------------
Max Munn 52 President, Chief Executive Officer,
Treasurer and Director
Michael J. Amore 48 Vice President, Chief Financial Officer and Director
Roger Lourie 51 Director
Richard Josephberg 49 Director
Donald Feldman 58 Vice President, Sales and Marketing and Director

Management Biographies

Brief biographies of the Directors, executive officers, and key personnel
of the Company are set forth below. All Directors hold office until their
resignation, retirement, removal, disqualification, death or until their
successors have been elected and qualified. Vacancies in the existing Board of
Directors are filled by majority vote of the remaining Directors. Officers of
the Company serve at the will of the Board of Directors.

Max Munn has been President and Chief Executive Officer since September
1995. In June 1996 Mr. Munn was named Chairman of the Board of Decor Group, Inc.
(See "Certain Transactions.") He serves as Executive Vice President-Operations
and Secretary of the Company between February 1994 and September 1995, and a
Director thereof since March 1994. He served as Vice President of A.P.F. from
May 1993 until the A.P.F. merger with the Company. From November 1990 to May
1993, he was a consultant to the Company, 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, New Jersey. From 1981 to
February 1990 he was Chairman, President and Chief Executive Officer of
Collectors' Guild and from February 1990 to June 1990 he served as a consultant
to Collector's Guild. In June 1990 Collectors' Guild filed a petition for relief
under the U.S. Bankruptcy Code and was subsequently liquidated. Mr. Munn is
subject to a Consent Order entered by the FTC in September 1991. See "Management
- - Consent Order." Mr. Munn holds a Bachelor of Architecture degree from
Massachusetts Institute of Technology and subsequently did graduate level study
in Art History at Columbia University.

Michael J. Amore has been Vice President and Chief Financial Officer since
November 1995. He was appointed to the Company's Board of Directors in January

1996. Prior to joining the Company, Mr. Amore served as Director,
Administration; Director, Corporate Finance, and as Controller from 1979 to 1995
at Olympus USA, Inc., a wholly-owned subsidiary of Olympus Optical Co., Ltd., a
multinational manufacturer and distributor of photographic, medical, optical and
precision instruments. Mr. Amore is a certified public accountant in the State
of New York. He earned a B.S. degree in Accounting from St. John's University in
New York, and an M.B.A. degree in Investments, Banking, and Finance from Hofstra
University in New York.

36
<PAGE>

Morris Munn was named a Director and Chairman of the Board of Directors on
May 4, 1995. Mr. Munn, who is the father of Max Munn, was the Founder of A.P.F.
Master Framemakers in 1955. He also is a consultant in mold design, development
and manufacturing for the Company.

Roger Lourie was named as a Director on May 4, 1995. He is an engineer and
book publisher. He has over twenty years of experience with Procter and Gamble,
Time Inc., Mead Paper, and Grolier Inc. He was Senior Vice President of
Marketing of Grolier Inc. Currently, he is a General Partner of Tremon
Associates and President of Misty Ridge Associates, which are equity investment
firms. He is also Chairman of the Board of two Connecticut-based manufacturing
concerns. He has a B.S. degree in Engineering from Rensselaer Polytechnic
Institute and M.B.A. and M.I.A. degrees from Columbia University in New York.

Richard Josephberg was named as a Director in October 1995. Since 1986, he
has been the Chairman of Josephberg Grosz & Co., Inc., a New York based
investment banking firm. Josephberg Grosz specializes in providing private
institutional capital to emerging growth companies. Mr. Josephberg has a B.B.A.
degree from the University of Cincinnati, and attended Bernard Baruch Graduate
School of Business in New York.

Donald Feldman became Vice President of Sales and Marketing on June 1,
1995, and was named a Director in February 1996. In June 1996, Mr Feldman was
named President of Decor Group, Inc. (See "Certain Transactions".) From April
1990 to May 1995 he served as Vice President of Sales and Marketing of Toyo
Trading Co., a major importer and marketer of decorative accessories based in
Los Angeles, California. He also has a strong merchandising background working
with Sears Roebuck as Corporate Merchandise Manager for Decorative Accessories.

Consent Order

In September 1991 Mr. Munn, without admitting or denying the allegations,
agreed with the FTC to the entry of a Consent Order for Permanent Injunction for
Defendant Max Munn (previously defined as the "Consent Order") in an action
brought in the U.S. District Court for the Southern District of New York (90
CIV. 2554 (LMM)) against Collectors' Guild Ltd, Inc., Collectors' Guild, Mr.
Munn and J. Robert Leshufy which action arose out of the sale of certain
lithographs of original works of art. The Consent Order arose out of a complaint
alleging that Collectors Guild, and its officer, Mr. Munn, had made advertising
representations implying that the artist had played a substantial role in the
creation and production of the lithographs. Collectors Guild and Mr. Munn denied
the allegations. The case was settled before trial or discovery, solely with

entry of the above Consent Order. The Consent Order permanently enjoins Mr. Munn
from making certain false representations in connection with the promotion, sale
or offering for sale of any art works, from removing certain mandated
disclosures on certain art, and, for a period of five years, from destroying,
mutilating, altering, or disposing of any books, records, tapes, checks, and
other business records enumerated in the Consent Order in his possession or the
possession of any business entities directly or indirectly under Mr. Munn's
control for a period of three years after creation or receipt of such documents.
Mr. Munn is also required for a period of five years to notify the FTC of any
change in his residence or employment within 30 days of any change and must
permit FTC officials access to his office upon five days notice for inspection
purposes. The Consent Order extends to Mr. Munn, his successors, assigns,
agents, servants and employees, and all persons or entities in active concert or
participation with him who receive actual notice of the Consent Order and, in
part, to any business entities directly or indirectly under his control or in
which he owns a controlling interest, directly or indirectly.

<PAGE>

Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.

The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of shareholders or otherwise.

The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law.

The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the

opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three fiscal years by the
Company's President and Chief Executive Officer (1). None of the Company's
executive officers who served as such at the end of the last fiscal year earned
in excess of $150,000 during the fiscal years indicated.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ----------------------- All
Restricted Securities Other
Other Annual Stock Underlying LTIP Comp -
Name and Bonus Compensation Award(s) Options Payouts ensation
Principal Position Year Salary($) ($) ($) ($) SARs (#) ($) ($)
- ------------------ ---- --------- ----- ------------ ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Theodore Stevens 1995 59,615 -- --(2) --(4) -- -- --
President and 1994 99,283 -- --(2) --(3) -- -- --
Chief Executive 1993 74,769 --(2) --(3) -- -- --
Officer

Max Munn 1995 150,000 -- --(2) --(3) 25,000 -- --
Executive Vice 1994 116,627 -- --(2) --(3) -- -- --
President 1993 (4) -- -- -- -- -- --
Operations and
Secretary

Ann Stevens 1995 121,154 -- --(2) --(3) 25,000 -- --
Executive Vice 1994 -- -- -- -- -- -- --
President 1993 -- -- -- -- -- -- --
</TABLE>

- ----------
(1) In September 1995, upon the completion of the Preferred Stock Offering, Mr.
Stevens resigned as President and Chief Executive Officer. At that time,
Max Munn succeeded Mr. Stevens as President and Chief Executive Officer.
Mr. Munn's annual rate of compensation is $150,000, plus additional
components of compensation. (See "Employment Arrangements".) As of the date
of this filing, Mr. Stevens remains as a Director of the Company.

(2) Does not include certain automobile expenses and other perquisites which in
the aggregate do not exceed the lesser of $50,000 or 10% of the named
executive officer's compensation.

(3) Mr. Stevens did not hold restricted stock warrants or options as of the end
of the fiscal year. Mr. Stevens held 1,000,000 Class B Shares at the end of
the last fiscal year. Inasmuch as there is no public market for such Class
B Shares, the value of such stock holdings is unknown. Had such Class B
Shares been converted to 1,000,000 Class A Shares the value thereof would
have been $6,062,500 based on the closing bid price of the Class A Shares
on

<PAGE>

June 30, 1994. In September 1995, Mr. Stevens converted 447,500 Class B
shares into Common A shares and transferred 276,250 Class B shares to
Laurie Munn, wife of the Company's President and Chief Executive Officer.
Mr. Stevens holds 276,250 shares of the Company's Class B Common Shares as
of the date of this filing. In November 1994, Mr. Stevens agreed to sell
49,500 Class A Shares at $0.75 per share to an unaffiliated third party,
but the transaction was not consummated.

(4) Mr. Stevens did not hold restricted stock warrants or options as of the end
of the fiscal year. Mr. Stevens currently holds 269,750 Class B Shares.
Inasmuch as there is no public market for such Class B Shares, the value of
such stock holdings is unknown. Had such Class BS Shares been converted to
269,750 Class A Shares, the value thereof would have been $1,011,563 based
on the closing bid price of the Class A Shares at the date of this filing.

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

Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Number of Securities Percent of Total Exercise or
Underlying Options/SARS Granted to Base
Name Options/SARS Granted (#) Employees in Fiscal Year Price ($/Sh) Expiration Date
---- ------------------------ ------------------------ ------------ ---------------
<S> <C> <C> <C> <C>
Theodore Stevens 25,000 9.1 $3.85 9/15/04
Max Munn 25,000 9.1 $3.85 9/15/04
Ann Stevens 25,000 9.1 $3.85 9/15/04
</TABLE>

===================

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

The following table sets forth certain information with respect to options

exercised during the fiscal year ended June 30, 1995, by the Company's Chief
Executive Officer named in the Summary Compensation Table, and with respect to
unexercised options held by such person at the end of the fiscal year ended June
30, 1995.

<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised in the Money
Unexercised Options/SARS Options/SARs at
at FY-End (#) FY-End ($)
Shares Acquired Value -------------------------------- ---------------------------------
Name on Exercise (#) Realized $ Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Theodore Stevens 0 0 25,000 N/A N/A N/A
- - ------
Max Munn 0 0 25,000 N/A N/A N/A
- - ------
Ann Stevens 0 0 25,000 N/A N/A N/A
- - ------
</TABLE>

===================

<PAGE>

Directors' Compensation

Directors receive no compensation for their services to the Company as
directors, but are reimbursed for any expenses actually incurred in connection
with attending meetings of the Board of Directors.

Employment Arrangements

On February 15, 1996, the Company's Board of Directors agreed to enter into
a four-year employment agreement between the Company and its President and Chief
Executive Officer. The agreement will provide an annual base salary of $150,000,
with annual increases of 10%. Such increases will be subject to the attainment
of profitable results of operations by the Company. In addition, the agreement
will grant the President and Chief Executive Officer an option to purchase at
any time 150,000 shares of the Company's Series A, 10% Cumulative Convertible
Preferred Stock at a price of $2.50 per share. The exercise of this option, as
well as any subsequent conversion to the Company's Class A Common Stock, will
require the prior consent of the Company's investment banking firm. The
agreement will also contain a "non-compete" clause and provide the President and

Chief Executive Officer with life insurance and the use of an automobile. As of
the date of this filing, the document for this agreement has not been finalized
or executed. This is expected to occur during the subsequent quarter. Presently,
the President and Chief Executive Officer draws an annual salary of $150,000 and
has the use of an automobile provided by the Company.

On October 27, 1995 the Company entered into a one-year employment
agreement with the Vice President, Operations with an annual base salary of
$120,000. The Agreement may be terminated by the Company with a payment of 50%
of the employee's salary remaining under the agreement or a payment of six
week's salary in the event the employee resigns from the Company. The Agreement
also provides for the employee to be granted certain stock options to purchase
an aggregate of 100,000 Class A Shares, 50,000 of which to be granted and vested
immediately at a price of $2.00 per share, exercisable in six months from the
date of grant, and any attempt to exercise these options during the exercise
period will terminate the options granted on September 16, 1994; options to
purchase 25,000 shares at a price of $4.00 per share to be granted on the second
anniversary; and options to purchase 25,000 shares at a price of $5.00 per share
to be granted on the third anniversary. The Agreement also provides for a bonus
program based on the Company meeting certain minimum profit goals. In April
1996, the employment of the Vice President, Operations was terminated. The
Company will settle its obligations to the employee during the subsequent
quarter. This settlement will be in the form of severance payments totaling
approximately $27,000. No securities have been issued to the employee, nor will
they be as part of the settlement. This Employment Contract has since been
terminated.

In August 1995, the Company entered into a four-year employment agreement
with the Executive Vice President, with an annual salary of $150,000. In
addition, on or about September 30, 1995, the Agreement provided for the
Executive Vice President to receive a one-time payment at the Company's option
of either, $50,000 or 50,000 shares of Class A Common Stock. As of the date of
this filing this one time payment has not been made. This person is also
entitled to receive stock options, stock bonuses and other equity instruments in
an amount equal to that which is received by Max Munn, President and Chief
Executive Officer of the Company or members of his immediate family.

As part of the Italia acquisition during fiscal year ended June 30, 1995,
the Company entered into various consulting and employment agreements
aggregating $176,000 per annum. The agreements were subject to termination at
any time by Italia for reasons specified in the agreements. In July 1995, the
employment agreement for the President of Italia, as well as all other
agreements, were terminated by the Company.

41
<PAGE>

Consulting Arrangements

Decor Holdings, Inc. ("Decor"), a consulting firm operated and controlled
by Theodore Stevens, President of the Company, with services to the company for
Decor principally performed by Ann Stevens, Mr. Stevens' wife and Mr. Munn's
sister, was responsible for merchandising and designing the Company's catalogs

until July 1, 1994. Such services were performed on a per catalog basis and
there was not written agreement between the Company and Decor. During the fiscal
years ended June 30, 1993 and 1994, the Company paid Decor $217,750 and
$226,820, respectively, for such services. The Company discontinued such
consulting relationship and hired Ann Stevens on a full-time basis commencing
July 1, 1994 at a salary of $150,000 per year. Ms. Stevens presently services as
an Executive Vice President of the Company. The Company believes that the cost
for such services does not exceed that which the Company would be required to
pay an unaffiliated provider. See "Business - Interiors Catalog."

From February 1991 to June 1993 Mr. Munn provided management and finance
consulting services to the Company in exchange for use of an office and
secretarial support service at the Company's Mt. Vernon, New York executive
offices.

On October 1, 1993, the Company entered into a one year letter agreement
which has been verbally extended on a month-to-month basis, with Morris Munn,
the father of Max Munn, Executive President and Chief Executive Officer of the
Company, pursuant to which Mr. Munn provided product development and consulting
services in exchange for $2,110 per month through August 1994. In addition, on
the same date, the Company entered into a one year letter agreement, which was
verbally extended on a month-to-month basis through June 1994, with M & E
Company, an entity owned by Morris Munn, pursuant to which M & E Company
provided mold design and development consulting services in exchange for fees of
$3,000 per month. Presently, Mr. Munn provides such services on an as-needed
basis for which he is compensated at rates which the Company believes are at
market rates.

Effective as of January 4, 1994, the Company entered into a two year
Marketing and Organizational Agreement (the "Marketing Agreement") with Robert
M. Leopold. Pursuant to the Marketing Agreement, Mr. Leopold will consult with
and advise the Company concerning its marketing plans, business operations,
organization, management, strategic planning, products and services,
acquisitions, mergers, mailing services, catalog production and other advice.
Mr. Leopold will be paid $9,375 each quarter in advance together with
reimbursement for expenses incurred not to exceed $200 per month. Fees to Mr.
Leopold for the fiscal year ended June 30, 1994 were $18,750. (Also see "Stock
Option Plans" below.) In August 1995, the Company agreed to issue, at a future
date, 60,000 Class A Common shares in satisfaction of all current and future
liabilities under the Marketing Agreement. These shares, which bear a
restrictive legend, were issued April 16, 1996. In conjunction with the issuance
of these shares, approximately $55,000 was charged against earnings. This charge
was accrued in December 1995.

From time-to-time during prior periods, Sol Munn, uncle of Max Munn,
President and Chief Executive officer of the Company has provided various
consulting services to the Company with respect to the marketing of custom
picture frames. In February 1996, the Company's Board of Directors approved the
issuance to Mr. Munn of 150,000 shares of the Company's Class A Common Stock, in
consideration for these services. The shares, which bear a restrictive legend,
were issued on April 12, 1996. In conjunction with the issuance of these shares,
approximately $138,000 of charges were recorded in December 1995. Mr. Munn is
not expected to provide services to the Company in the future.

<PAGE>

On June 30, 1996, the Company entered into a five (5) year consulting
agreement with Morris Munn, the father of Max Munn, the Chief Executive Officer
of the Company. Pursuant to the terms of the Agreement, the Company agreed to
issue an option to purchase up to 350,000 shares of the Company's Preferred
Shares at an exercise price of $2.25 and to pay Mr. Munn $54,000 per year for
five (5) years. In exchange, Mr. Munn has agreed to assist the Company with
marketing, acquisitions, divestitures, joint ventures and other strategic
initiatives. The Preferred Shares issuable upon the exercise of the Option were
registered for sale to the public under a Registration Statement in Form S-8
filed with the Commission on July 3, 1996.

Stock Option Plans

The 1994 Plan. On June 20, 1994, the Company adopted the Interiors, Inc.
1994 Stock Option and Appreciation Rights Plan (the "1994 Plan"), which provides
for the granting of options to officers, employees and consultants to purchase
not more than an aggregate of 250,000 Class A Shares. Directors of the Company
are not eligible to participate in the 1994 Plan. The 1994 Plan provides for the
grant of options intended to qualify as "incentive stock options" under the
Internal Revenue Code of 1986, as amended (the "Code") as well as options which
do not so qualify.

Pursuant to the 1994 Plan, the Board of Directors or a stock option
committee established by the Board to administer the 1994 Plan determines the
persons to whom options are granted, the number of Class A Shares subject to
option, the period during which the options may be exercised and the option
exercise price. With respect to incentive stock options, no option may be
granted more than ten years after the effective date of the 1994 Plan or
exercised more than ten years after the date of grant (five years if the
optionee owns more than ten percent of the Class A Shares of the Company at the
time of grant). Additionally, with respect to incentive stock options, the
option price may not be less than 100% of the fair market value of the Class A
Shares on the date of the grant (110% if the optionee owns more than ten percent
of the Class A Shares of the Company at the time of grant). The fair market
value of the Class A Shares will be determined by the Board or the Committee in
accordance with the 1994 Plan as follows: If the Class A Shares are not listed
and traded upon a recognized securities exchange, on the basis of recent
purchases and sales of Class A Shares in arms-length transactions or based on
the last reported sale or transaction price for such stock on the date of grant
or, if the shares are traded on a recognized securities exchange or quoted on
the NASDAQ National Market System upon the basis of the last reported sale or
transaction price on the date of grant or, if the shares were not traded on such
date, on the date nearest preceding that date. Subject to certain limited
exceptions, options may not be exercised unless, at the time of exercise, the
optionee is in the service of the Company.

The Board of Directors or the Committee may, in its discretion, at any time
prior to the exercise of any option, grant in connection with such option the
right to surrender part or all of such option to the extent the option is

exercisable, and receive an amount (payable in cash, Class A Shares or
combination thereof as determined by the Board or the Committee) equal to the
difference between the then fair market value of the shares issuable upon the
exercise of the option (or portions thereof surrendered) and the exercise price
of the option or portion thereof surrendered.

On September 16, 1994, the Board of Directors granted Incentive Options to
purchase an aggregate of 159,000 Class A Shares under the 1994 Plan at an
exercise price equal to the fair market value of the shares on the date of
grant, or $3.50 per share, to 23 employees and Incentive Options to purchase
25,000 Class A Shares to Ann Stevens, Executive Vice President and wife of
Director and then President, Theodore Stevens, at 110% of the fair market value
or $3.85 per share. Of such options, options to purchase 75,000 Class A Shares
were granted to two persons who are presently executive officers of the Company.
In addition, on October 5, 1994 the Board of Directors granted Incentive Options
to two employees to purchase an aggregate of 20,000 Class A Shares at exercise
prices equal to the fair market

<PAGE>

value of the shares or $3.38 per share. With respect to each such grant, 25% of
such options will vest each year commencing on the first anniversary of the
grant.

The Director Plan. On June 20, 1994 the Board of Directors approved the
1994 Director Stock Option and Appreciation Rights Plan (the "Director Plan").
The Director Plan was adopted to provide an incentive to Directors through
automatic and discretionary grants of stock options. The Director Plan provides
for the grant of options intended to qualify as "incentive stock options" under
the Code as well as options which do not so qualify.

The Director Plan may be administered by a committee appointed by the Board
of Directors of the Company (the "Committee"). Options under the Director Plan
may be granted to each person who is a Director of the Company on the date of
grant. All Directors of the Company are eligible to receive options under the
Director Plan.

The Director Plan provides for the granting of options to Directors in such
amount and, subject to the terms of the Director Plan, upon such terms as the
Board or Committee determines in its discretion in order to reward the recipient
director for extraordinary service to the Company. In addition, on the second
Monday of May of each year each person who is then a director of the Company
shall be automatically granted an option to purchase 10,000 of the Company's
Class A Shares, subject to adjustment as provided for in the Director Plan. The
aggregate number of shares for which options may be issued pursuant to the
Director Plan is 250,000 shares. The exercise price for options granted under
the Director Plan must be equal to the fair market value per Class A Share on
the date of grant. The fair market value of the Class A Shares will be
determined by the Board or the Committee in accordance with the Director Plan as
follows: If the Class A Shares are not listed and traded upon a recognized
securities exchange, on the basis of recent purchases and sales of Class A

Shares in arms-length transactions or based on the last reported sale or
transaction price for such stock on the date of grant or, if the shares are
traded on a recognized securities exchange or quoted on the NASDAQ National
Market System upon the last reported sale or transaction price on the date of
grant or, if the shares were not traded on such date, on the date nearest
preceding that date. Each option granted under the Director Plan expires ten
years after the date of grant, unless a lesser period is specified by the
Committee.

In the event an optionee ceases to be a Director of the Company for any
reason at a time when he holds an option, he may exercise only such options as
are exercisable at the time he ceases to be a Director, within the original term
of the option. Options which are not exercisable at the time an optionee ceases
to be a Director shall terminate. In the event an optionee dies, the Director
Plan provides for the exercise of an option on behalf of the deceased Director.

On September 16, 1994, the Board of Directors granted Incentive Options to
purchase 25,000 Class A Shares to each of Theodore Stevens, Director and then
President and Max Munn, President and Chief Executive Officer and then Executive
Vice President-Operations under the Director Plan at an exercise price equal to
110% of the fair market value of the shares on the date of grant, or $3.85 per
share, all of which options immediately vested.

On April 4, 1996, the Company's Board of Directors resolved to issue
250,000 shares ("the shares") of the Company's Class B Common Stock to Laurie
Munn, wife of the Company's President and Chief Executive Officer. This issuance
is in consideration for a down payment of $250, Ms. Munn's 6.6% note to the
Company providing for principal of $437,500 to be paid to the Company in five
equal annual installments of $105,561.90, and Ms. Munn's guaranty and pledge of
her assets for certain

<PAGE>

Company debt. The shares were issued to Ms. Munn on April 8, 1996. A Promissory
Note and Security Agreement, whereby the shares will collateralize the
Promissory Note, was executed by the Company and Ms. Munn pursuant to these
terms. A copy of the Promissory Note and Security Agreement are included as
exhibits with this filing.

Other than the 250,000 shares of the Company's Class B Common Stock issued
to Laurie Munn on April 8, 1996, no securities have been issued by the Company
pursuant to any stock option plan as of the date of this filing.

Profit Sharing and Deferred Compensation Plans

In July 1991 the Company adopted a Qualified Profit Sharing Plan for all
nonunion employees and a nonqualified Deferred Compensation Plan for certain key
employees. The Company has not made any contributions to the Qualified Profit
Sharing Plan or the Deferred Compensation Plan since its initial contribution
during the fiscal year ended June 30, 1992.

PRINCIPAL SECURITYHOLDERS

Principal Stockholders

Each Class A Share is entitled to one vote and each Class B Share is
entitled to five votes. The Company has no other voting securities outstanding.
It does, however, have certain securities outstanding that are convertible into
Class A Common shares. As of the date of this filing, such securities are: (1)
790,000 shares of Series A Preferred Stock, each convertible into 3 shares of
Class A Common stock commencing September 17, 1996, (and therefore not
convertible into voting shares within 60 days of this filing) (2) 3,760,000
Class WA Warrants, each exercisable into one Class A Common share and one Class
WB Warrant, and (3) 258,750 Class WB Warrants, each exercisable into one Common
A share, and (4) 2,270,000 Class WC Warrants, each exercisable into one share of
Series A Preferred Stock which, due to the timing of convertibility, cannot be
converted into voting shares within 60 days of this filing.

The following table sets forth certain information as of the date hereof
with respect to: (1) each executive officer and director; (2) all executive
officers and directors of the Company as a group; and (3) all persons known by
the Company to be the beneficial owners of five percent or more of the Company's
Class A or Class B Shares of Common Stock. The table below also sets forth as to
each holder the percent of voting power represented by the Class A Shares (with
one vote per share) and the Class B Shares (with five votes per share) voting as
a single class prior to conversion of the Class B Shares to Class A Shares and
after giving effect to the conversion of such Class B Shares and assuming no
exercise of outstanding Warrants.

<TABLE>
<CAPTION>
Percent of Votes (2)
-----------------------------
Prior to After
Conversion of Conversion
Name and Address of Number of Percent of all Class B of all Class B
Beneficial Owner (1) Title of Class Shares Class (2) Shares (3) Shares (4)
- -------------------- -------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Theodore Stevens Class A Shares 366,250 (5) 9.6% 21.0% 9.6%
Class B Shares 276,250 (5) 34.4%

</TABLE>

<PAGE>

Max Munn Class A Shares 35,000 (7)(8) * * *
Class B Shares -0- (8) -0-

Ann Stevens Class A Shares 50,000 (9) 1.3% * 1.3%
Class B Shares -0- (10) -0-

Sol Munn Class A Shares 150,010 3.9% 2.1% 3.9%
3129 Darby Falls Drive Class B Shares
Las Vegas, NV 89134

Laurie Munn Class A Shares 526,250 (6) 13.8% 37.5% 13.8%
60 Skimhampton Rd. Class B Shares 526,250 (6) 65.6%
E. Hampton, NY 11937

Harborage Leasing Corp. Class A Shares 252,000 6.64% 5.0% 6.64%
585 Stuart Avenue Class B Shares -0- -0-
Garden City, NY 11530

Morris Munn Class A Shares
22033 N. Golf Club Drive Class B Shares
Sun City, AZ 85375 Preferred Shares 250,000(11)

All Executive Officers and Class A Shares 130,000 12.1% 22.3% 12.1%
Directors as a Group (8 Class B Shares 276,250 34.4%
persons)
</TABLE>

- ----------
* Less than 1%.

(1) Messrs. Stevens and Munn are executive officers and directors and Ms.
Stevens is an executive officer of the Company and can be contacted at the
Company's principal executive offices at 320 Washington Street, Mt. Vernon,
NY 10553. Mr. Stevens is married to Mr. Munn's sister, Ann Stevens and Max
Munn and Laurie Munn are husband and wife. Such person's percentage
ownership is determined by assuming that the options or convertible
securities that are held by such person which are exercisable within 60
days from the date hereof have been exercised or converted, as the case may
be.

(2) Does not give effect to the exercise of the Warrants, or stock options
granted under the Plans other than as noted.

(3) Reflects the percentage of the votes to which the voting Common Stock owned
is entitled to vote if the Class A Shares and Class B Shares vote as one
class. Assumes that the 802,500 Class B Shares have not been converted to
Class A Shares and, consequently, have five votes per share (aggregating
4,012,500 votes).

(4) Reflects the percentage of the votes to which the voting Common Stock owned
is entitled to vote if the Class A Shares and Class B Shares vote as one
class. Assumes the 802,500 Class B Shares have been converted to 802,500
Class A Shares and, consequently, have one vote per share rather than five
votes per share.

(5) Represents 276,250 Class A Shares into which the 276,250 Class B Shares are
convertible and 55,000 Class A Shares. Also includes 35,000 Class A Shares
issuable to Mr. Stevens upon exercise of an Incentive Stock Option issued
pursuant to the Director Plan. Does not include Class A Shares issuable to
Ann Stevens, wife of Mr. Stevens, pursuant to an Incentive Stock Option.

<PAGE>

(6) Represents 526,250 Class A Shares into which the 526,250 Class B Shares are
convertible. Does not include Class A Shares issuable to Max Munn, husband
of Laurie Munn, pursuant to an Incentive Stock Option.

(7) Represents Class A Shares issuable to Mr. Munn upon exercise of an
Incentive Stock Option issued pursuant to the Di rector Plan.

(8) Does not include 526,250 Class B Shares (convertible into 526,250 Class A
Shares) held by Laurie Munn, Mr. Munn's wife. See Note 6, above. Mr. Munn
disclaims ownership of any such shares.

(9) Represents 50,000 shares pursuant to an Employment Agreement dated August
1995. Does not include 25,000 Class A Shares issuable upon exercise of an
Incentive Stock Option issued pursuant to the 1994 Plan, none of which
options are exercisable within 60 days.

(10) Does not include 276,250 Class B Shares and 55,000 Class A Shares owned of
record by Theodore Stevens, husband of Ann Stevens.

(11) Includes 250,000 shares issuable to Morris Munn pursuant to a Consulting
Agreement with the Company dated June 30, 1996, pursuant to which Mr. Munn
was granted an option to purchase 350,000 shares of Series A Preferred
Stock for a period of three (3) years issuable at an exercise price of
$2.25 per share.

As of the date of this Prospectus, there are no agreements or other
arrangements or understandings known to the Company concerning the voting of the
Common Stock of the Company or otherwise concerning control of the Company which
are not disclosed herein. There are no pre-emptive rights applicable to the
Company's securities.

<PAGE>

CERTAIN TRANSACTIONS

In October 1990 A.P.F. issued 100 shares of its Common Stock, no par value,
to Theodore Stevens, President and a Director of the Company, for aggregate
consideration of $225,000 and in October 1990 A.P.F. issued 165 shares of its

Preferred Stock, $1,000 par value per share, to Theodore Stevens in
consideration for the payment of $165,000. On June 30, 1992, A.P.F. converted
certain indebtedness arising from services rendered and loans provided by Decor
to A.P.F. in the amount of $114,000 to 114 shares of Preferred Stock of A.P.F.
In March 1994 such shares were transferred by Decor to Theodore Stevens and all
of such 279 shares of Preferred Stock were converted by Mr. Stevens into 124
shares of A.P.F. Common Stock. As a result of the Company's recapitalization,
the Company issued 1,000,000 Class B Shares (constituting all of the then issued
and outstanding Class B Shares of the Company) to Theodore Stevens in exchange
for all of the issued and outstanding Common Stock of A.P.F., the predecessor to
the Company.

In November 1990 the Company acquired, as part of the transaction pursuant
to which it acquired certain assets from Collectors' Guild, from the assignee of
New York Bank for Business the rights of such creditor under certain personal
guarantees issued by Max Munn, Executive Vice President-Operations of the
Company, and his wife, Laurie Munn. The personal guarantees guaranteed the
payment of outstanding obligations of Collector's Guild to First New York Bank
for Business. See "The Company." On June 19, 1991, Max Munn executed an
Affidavit of Confession of Judgment authorizing the entry of a judgment by the
Company against him by reason of his guarantee to such bank and the assignment
of such guarantee to the Company and on that date the Company obtained a
Judgment by Confession in the amount of $1,000,000 plus interest in the amount
of $52,768 against Mr. Munn. On March 8, 1994, in order to proceed with its then
contemplated Initial Public Offering, the Company executed and filed with the
court a Satisfaction of Judgment in consideration for the payment to the Company
on behalf of Mr. Munn of $50,000 and execution of a three year employment
agreement.

Messrs. Theodore Stevens and Max Munn, then respectively President and
Executive Vice President-Operations of the Company, and their spouses, were
personal guarantors with respect to the sums borrowed under the Company's
security agreement entered into on November 13, 1990 with United Credit
Corporation, a New York corporation, and as thereafter amended from time to
time, pursuant to which the Company borrowed pursuant to an asset-related
formula in an amount not to exceed the borrowing base or $650,000, plus a
$250,000 overadvance (above the credit line), whichever was less. Sums borrowed
under the facility bore interest at 8% over the prime rate and were payable on
or before July 31, 1994, together with a $24,000 termination fee. As of June 30,
1993 and 1994, the sums owed to United Credit Corporation were $645,082 and
$925,000, respectively. Such indebtedness was repaid and the personal guarantees
released in July 1994. On February 15, 1995, the Company's Italia Collection
subsidiary entered into a Financing Arrangement with this same New York
corporation whereby Italia Collection may borrow pursuant to an asset-related
formula. The agreement remains in effect as of the date of this filing and may
be terminated by either party upon notice to the other and payment of the
commitment fee for the unexpired term of this agreement. Interest is calculated
on the daily cash balance at the rate of prime plus 9% per annum (17.25% as of
the date of this filing) or a minimum of 18% per annum against a minimum monthly
defined compensation of $3,000. As of the date of this filing, the amount due to
the lender was approximately $738,000. (See "Management's Discussion and
Analysis Liquidity and Capital Resources.")

Messrs. Theodore Stevens and Max Munn, then respectively President and

Executive Vice President-Operations of the Company, personally guaranteed up to
an aggregate of $165,000 of the $270,000 in principal amount of the 10% Notes
issued by the Company in connection with the Bridge

<PAGE>

Financing. A portion of the net proceeds of the Initial Public Offering were
used to repay such 10% Notes.

During the fiscal year ended June 30, 1992, the Company borrowed the sum of
$75,000 from Sol Munn, the uncle of Max Munn, then Executive Vice
President-Operations, and now President and Chief Executive Officer of the
Company and borrowed an additional $75,000 in fiscal 1993. The aggregate amount
due in the amount of $150,000 was evidenced by a promissory note dated September
1, 1993, payable to The Munn Trust of 1975-Trustee: Sol Munn and Evelyn Munn and
bore interest at the rate of 12% per annum. The note was payable September 1,
1996, subject to the right of Sol Munn to extend the term for an additional one
year period upon 60 days notice. In March 1994 the bearer of the note agreed to
purchase certain works of art at 58% above the Company's cost in full
satisfaction of the above note. The Company realized approximately $87,000 gross
profit on the transaction.

In December 1992 the Company and Decor exchanged a painting owned by the
Company for certain posters owned by Decor of approximately equal value. The
painting was received by the Company from an artist in exchange for $60,000
worth (at the Company's cost) of custom framing the prior year.

In March 1994 Theodore Stevens, President of the Company, and Laurie Munn,
wife of Max Munn, Executive Vice President-Operations of the Company, entered
into a Stock Option Agreement pursuant to which Mrs. Munn was granted an option
to purchase 50% of the Class B Shares owned by Mr. Stevens for consideration of
$3.50 per share until March 15, 1999, subject to extension of the exercise
period for two successive five year terms upon 30 days' prior written notice and
payment of $5,000 for each such extension. In September 1995, Mr. Stevens
transferred 276,250 Class B Shares to Ms. Munn pursuant to this Agreement.

Mr. Stevens, the Company's President and a Director, pledged 51% of the
Class B Shares of the Company owned by him to secure the principal amount of
$125,000 loaned to the Company by the Sublessor of the Company's manufacturing
and executive offices in Mt. Vernon, New York. The Company repaid the
approximate balance of $83,000 of such indebtedness from the proceeds of the
June 1994 Initial Public Offering and the securities were released from such
pledge. See "Business -- Properties.

In March 1994 the Company borrowed the sum of $100,000 from William
Evenchick, the father of the President of the Company. The amount due was
evidenced by a promissory note dated March 16, 1994, bore interest at the rate
of 6% per annum and was payable thirteen months from issuance provided that all
principal and interest thereon is payable within ten days of closing of the
Initial Public Offering. The Company paid the note in full from the net proceeds
of the Initial Public Offering.

For the years ended June 30, 1993 and June 30, 1994, the Company paid
approximately $29,000 and $71,000, respectively, to the father of the Executive
Vice President - Operations. For fiscal year 1993, the entire amount related to
the purchase of molds and consulting service. For fiscal year 1994,
approximately $43,000 related to the purchase of molds, approximately $17,000
related to consulting services and approximately $11,000 related to interest on
a debt obligation. As of June 30, 1994, all debt obligations had been satisfied
in full. For the three months ended September 30, 1994, the Company has paid
approximately $12,800 related to the purchase of molds and approximately $1,200
related to consulting services. See "Executive Compensation - Consulting
Arrangements."

Theodore Stevens, Max Munn and Ann Stevens, then respectively President,
Executive Vice President-Operations and Executive Vice President of the Company,
personally guaranteed the obligations of the Company under the Promissory Note
dated July 7, 1994 in the amount of $950,000 at an interest rate of prime plus
one percent (9.25% as of the date of this filing) to a New York bank. In January
1996, Theodore Stevens and Ann Stevens, who are together married, notified the
Bank of their intention to

<PAGE>

terminate their personal guarantees of this Note. The Company is reducing the
outstanding balance of this Note. As of the date of this filing, such balance
totals $910,000. The Company is also seeking alternative sources of financing to
ultimately fully replace this Note, but there can be no assurance it will be
able to do so.

In June 1994, the Company borrowed the sum of $100,000 from the President
of the Company to cover uncleared bank funds. The amount due was evidenced by a
promissory note payable July 10, 1994, bearing interest at the rate of 12% per
annum. A partial payment was made prior to June 30, 1994 of $26,000 and the
balance of $74,000 was paid on July 1, 1994 including interest.

In June 1994 the Company sold certain works of art to the father of the
Executive Vice President-Operations of the Company for $75,000. As of June 30,
1994, the full amount is included in accounts and other receivables. The Company
realized approximately $75,000 gross profit on the transaction.

In October 1994 the Company borrowed the sum of $8,000 from Max Munn,
Executive Vice President-Operations, and $33,000 from Robert M. Schildkraut,
then Vice President and Chief Financial Officer, as a result of the delay in the
receipt of the proceeds from the sale of the Class WA Warrants to the Selling
Securityholders. In November 1994 sums due to Mr. Munn were repaid in full.
Although payment of $25,000 borrowed from Mr. Schildkraut had been tendered,
payment of such amount together with interest thereon and the principal sum of
$8,000 has been extended to February 15, 1995, at which time the Company fully
repaid its note to Mr. Schildkraut, plus interest.

In October and November 1994 the Company sold to certain selling

securityholders the 3,000,000 Class WA Warrants at $0.16 per Class WA Warrant or
an aggregate of $480,000. The Company agreed to file a registration statement
relating to such Class WA Warrants on or before December 31, 1994 and to cause
the registration statement to be declared effective by the Commission no later
than 180 days after the issuance of such Class WA Warrants. In the event such
registration obligations were not met, the Selling Securityholders would have
been entitled to receive 300,000 additional Class WA Warrants for each full
month that the registration statement was not declared effective, not to exceed
1,500,000 additional Class WA Warrants. The Company used the proceeds from the
sale of such Class WA Warrants for reduction of liabilities incurred in
connection with the Murano and Ceramic acquisitions including advances from
certain of the officers of the Company as well as reduction of bank debt. As of
the date of this filing, substantially all of such selling securityholders have
since disposed their holdings in such Warrants.

On November 23, 1994, the Company borrowed the sum of $225,000 from
Ekistics Corp., a Bahamian corporation, pursuant to a promissory note due March
30, 1995, together with interest at the rate of 14% per annum and a 5% financing
charge. As security for the obligations under the promissory note, the Company
granted a security interest in and a lien upon all real property, personal
property and fixtures of the Company now owned or hereafter acquired. In
addition, Theodore Stevens, Ann Stevens, Max Munn and Laurie Munn each executed
a personal guaranty of the Company's obligations under the promissory note. On
April 21, 1995, the Company entered into an agreement to restructure the terms
of the promissory note. The security interest, liens, and guarantees previously
granted continued pursuant to the restructuring. On April 24, 1995, the Company
paid the lender $25,000 principal plus $13,010 of accrued interest. The
promissory note was due October 20, 1995. The note bore interest at the rate of
14% payable monthly. The promissory note was convertible in whole or in part
into a maximum of 80,000 shares of the Preferred Stock, and on December 15,
1995, such conversion took place. Also in December 1995, pursuant to the terms
of the promissory note, 35,000 shares of the Company's Class A Common Stock were
issued to the lender. Approximately $25,000 was charged against earnings during
the quarter ended December 31, 1995 in conjunction with the issuance of these
shares.

<PAGE>

In June and July 1995, the Company delivered to unaffiliated parties
promissory notes in the aggregate amount of $300,000 with interest at the rate
of 10% per annum (the 10% Notes) and promissory notes in the principal amount of
$100,000 with interest at the rate of 6% per annum (the 6% Notes.) The 10% Notes
and 6% Notes were each payable in June and July 1996 or the closing of the sale
by the Company of an issue of Preferred Stock whichever is earlier. The 6% Notes
were convertible, in whole or in part, at the option of the holder, into a
maximum of 2,000,000 WC Warrants entitling the holders for a period of five
years to purchase one share of Preferred Stock per Warrant at a price of $5.50
per share. These Warrants are redeemable by the Company. The Notes are secured
by a lien on the Company's assets. In September 1995 the Company repaid all 10%
notes in full, plus all accrued interest for both the 10% Notes and 6% Notes.
All holders of 6% Notes have opted to convert, in full, into a total of

2,000,000 WC Warrants, which were registered in a Registration Statement
declared effective by the Securities and Exchange Commission on September 18,
1995.

In August 1995, the Company has agreed to issue, at a future date, 60,000
Class A Common shares in settlement of all current and future liabilities under
a two-year Marketing and Organizational Agreement (the "Marketing Agreement")
with a consulting firm dated January 4, 1994. These shares, which bear a
restrictive legend, were issued on April 16, 1996. In conjunction with the
issuance of these shares, approximately $55,000 of charges against earnings were
recorded in December 1995.

On October 16, 1995, the Company entered into a new agreement to
restructure a promissory note dated May 1995, with the principal amount of
$500,000 bearing interest at the rate of 18% per annum with the principal which
was due and payable in full on September 30, 1995 and a $150,000 note dated May
12, 1995, bearing interest at the rate of 18% payable monthly with 135% of the
principal which was also due and payable in full on September 30, 1995 with a
Nevis, BWI Corporation. As of October 16, 1995, the parties agreed the Company
owed the lender, including interest and monthly extension fees of approximately
$102,500 through December 15, 1995, an aggregate amount of approximately
$805,000. According to the new agreement, the Company paid $405,000 to the Nevis
BWI Corporation upon acceptance of the agreement. The Company also delivered a
Promissory Note in the principal amount of approximately $400,000, in extension
and replacement of the remaining balance due payable of $180,000 on or before
December 15, 1995 and $220,000 on July 31, 1996. The new agreement also
stipulates that the lender shall sell the 180,000 shares of the Company's Class
A Common Stock, owned by the lender and held in escrow, for $180,000 to an
unaffiliated third party. designated by the Company. This sale took place in
January 1996. In addition, during December 1995, the Company issued 35,000
shares of Class A Common Stock to the lender (such shares carry registration
rights.) The Note is also guaranteed by Max Munn, the President and Chief
Executive Officer of the Company.

In December 1995, in consideration for certain services rendered, 10,000
shares of the Company's Class A Common Stock were issued to various individuals.
Approximately $7,000 was charged against earnings during the quarter ended
December 31, 1995 in conjunction with the issuance of these shares.

In January 1996, the Company's Board of Directors elected to lower the
exercise price of the Company's Class WB Warrant to $2.00 per Class A Common
share, subject to the filing and effectiveness of this Registration Statement
with the Securities and Exchange Commission.

In February 1996, the Company's Board of Directors approved the issuance to
Sol Munn, uncle of the Company's President and Chief Executive Officer, of
150,000 shares of the Company's Class A Common Stock, in consideration for past
consulting services provided. These shares, which bear a restrictive legend,
were issued on April 12, 1996. In conjunction with the issuance of these shares,
approximately $138,000 of charges against earnings were recorded in December
1995.

Part of the Company's long term plan for growth includes either the
acquisition of or entering into strategic alliances with unrelated companies in

the decorative accessories industry to maximize market

<PAGE>

potential. For this purpose, pursuant to a March 3, 1996 agreement relating to
the capitalization of Decor Group, Inc., ("Decor"), Decor issued to the Company
500,000 shares of Series A Convertible Preferred Stock and an option to purchase
20,000,000 shares of Series B Non-Convertible Voting Preferred Stock in exchange
for issuance to Decor by the Company of 200,000 shares of its Class A Common
stock and 200,000 shares of its Series A Convertible Preferred stock and a
guarantee with respect to certain indebtedness. Conversion of the 500,000 shares
of Series A Convertible Preferred stock into common stock would give the Company
approximately 16% of the voting stock of Decor as of the date of this filing.
Decor is planning a public offering of certain of its securities within the next
quarter. If, after this public offering is effective, the Company exercises its
option to purchase 20,000,000 shares of Series B Non-Convertible Voting
Preferred Stock, it will own approximately 86.6% of the total voting stock of
Decor.

Pursuant to a March 31, 1996 agreement relating to the capitalization of
Decor, Laurie Munn, wife of the Company's President and Chief Executive Officer
was issued certain shares of the Common Stock of Decor. As of the date of this
filing, Ms. Munn was issued 200,000 shares of the outstanding 2,625,000 common
shares of Decor. As of the date of this filing, Decor is finalizing the
acquisition of a California based manufacturer of metal wall sculpture marketed
to the home furnishing and decorative accessories market. Also, as of the date
of this filing, the Company is finalizing a management agreement with Decor,
whereby the Company will provide management and administrative support for the
companies acquired by Decor. At March 31, 1996, approximately $77,000 of fees
were accrued by the Company for such services.

On April 15, 1996, the Company's investment banking firm arranged for the
private placement of 175,000 shares of the Company's Common A Stock and 50,000
shares of the Company's Series A Preferred Stock. These shares were issued on
April 24, 1996 to various unrelated investors generating gross proceeds of
$431,251. The Company realized net proceeds of $310,609 which was used to pay
certain outstanding liabilities. As of May 24, 1996, the investors
shall have the right to demand in writing (the "Demand Notice") that the Company
file a registration statement with the Securities and Exchange Commission (the
"Commission") which shall cover the 175,000 shares of the Company's Common A
Stock issued and allow the investors to sell the shares to the public. Within
fifteen (15) days following receipt of the Demand Notice, the Company shall file
such registration statement and use its best efforts to have such registration
statement declared effective by the Commission and such state securities
regulators as reasonably requested by the investor. The Corporation also agreed
to include the Shares in the next registration statement filed with the
Securities and Exchange Commission in connection with a public offering. As a
result, the Shares shall be registered for sale to the public. In the event that
the offering is underwritten, the Investor agreed to comply with any
restrictions on the sale or the transfer of the Shares, requested by the
managing underwriter thereof. The Company anticipates registering these shares

in the near future.

On April 4, 1996, the Company's Board of Directors resolved to issue
250,000 shares of the Company's Class B Common Stock to Laurie Munn, wife of the
Company's President and Chief Executive Officer. This issuance is in
consideration for a down payment of $250, Ms. Munn's 6.6% note to the Company
providing for principal of $437,500 to be paid to the Company in five equal
annual installments of $105,561.90, and Ms. Munn's guaranty and pledge of her
assets for certain Company debt. Ms. Munn has also executed a Promissory Note
and Security Agreement with the Company pursuant to this transaction. The shares
were issued to Ms. Munn on April 8, 1996.

<PAGE>

Preferred Shares at an exercise price of $2.25 and to pay Mr. Munn $54,000 per
year for five (5) years. In exchange, Mr. Munn has agreed to assist the Company
with marketing, acquisitions, divestitures, joint ventures and other strategic
initiatives. The Preferred Shares issuable upon the exercise of the Option were
registered for sale to the public under a Registration Statement in Form S-8
filed with the Commission on July 3, 1996.

The Company will not permit loans or other transactions among the Company
and the officers, directors, principal shareholders, or affiliates of any of
them for other than bona fide business purposes or on terms less favorable than
could be obtained from third parties, unless approved by a majority of the
disinterested directors and the independent directors, if any, of the Company.
Of the eight Directors currently comprising the Company's Board of Directors,
three may be considered disinterested and independent.

See "Executive Compensation - Employment Arrangements" and "Executive
Compensation Consulting Arrangements" for descriptions of the present employment
agreement with Max Munn, President and Chief Executive Officer of the Company
and certain other related and unrelated parties.

Theodore Stevens may be deemed to be a "parent" or "promoter" of the
Company, as that term is defined in the Securities Act.

DESCRIPTION OF SECURITIES

Common Stock

The Certificate of Incorporation of the Company authorizes the issuance of
up to (i) 30,000,000 shares of Class A Common Stock, par value $.001 per share,
(previously defined as "Class A Shares") of which 3,420,247 Class A Shares are
issued and outstanding as of the date hereof and (ii) 802,500 shares of Class B

Common Stock, par value $.001 per share (previously defined as "Class B
Shares") of which 789,500 Class B Shares are issued and outstanding as of the
date hereof. The holders of shares of Common Stock: (i) have equal ratable
rights to dividends from funds legally available therefor, when, as and if
declared by the Board of Directors of the Company; (ii) are entitled to share
ratably in all of the assets of the Company available for distribution to
holders of Common Stock, upon liquidation, dissolution or winding up of the
affairs of the Company; and (iii) do not have preemptive or subscription rights
and there are no redemption or sinking fund provisions applicable thereto. All
shares of Common Stock issued and outstanding are duly authorized, fully paid
and nonassessable.

Class A Shares. Each Class A Share is entitled to one non-cumulative vote
per share on all matters on which stockholders may vote at meetings of
stockholders. The Class A Shares are not convertible into any other securities
of the Company.

Class B Shares. Each Class B Share is entitled to five non-cumulative votes
per share on all matters on which stockholders may vote at all meetings of
stockholders. The Class B Shares are convertible on a one-for-one basis at any
time after issuance at the option of the holder into Class A Shares. Issuance of
additional Class B Shares could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Class A Shares.

Except as otherwise required by law, the holders of the Common Stock shall
vote together as a single class on all matters.

Preferred Stock

<PAGE>

The Certificate of Incorporation of the Company authorizes the issuance of
up to 5,300,000 shares of Preferred Stock, $.01 par value per share. Prior to
September 18, 1995, none of such Preferred Stock has been designated or issued.
On September 18, 1995, the Company's "Registration Statement" with respect to
460,000 shares of Series A, 10% Cumulative Convertible Preferred Stock
("Preferred Stock") and 230,000 Redeemable Class WC Warrants ("Warrants") to
purchase Preferred Stock at the exercise price of $5.50 per share was declared
effective by the Securities and Exchange Commission. Each share of Preferred
Stock is convertible commencing one year from the date of issue, subject to
adjustment, into three shares of Class A Common Stock of the Company. (See
Certain Transactions.) The Board of Directors is authorized to issue shares of
Preferred Stock from time to time in one or more series and, subject to the
limitations contained in the Certificate of Incorporation and any limitations
prescribed by law, to establish and designate any such series and to fix the
number of shares and the relative conversion rights, voting rights and terms of
redemption (including sinking fund provisions) and liquidation preferences. If
shares of Preferred Stock are issued with voting rights, such issuance could
affect the voting rights of the holders of the Company's Class A Shares and
Class B Shares by increasing the number of outstanding shares having voting

rights, and by the creation of class or series voting rights. Shares of
Preferred Stock with conversion rights could potentially increase the number of
shares of Common Stock outstanding. Issuance of Preferred Stock could, under
certain circumstances, have the effect of delaying or preventing a change in
control of the Company and may adversely affect the rights of holders of Class A
shares. Also, Preferred Stock could have preferences over the Class A Shares
(and other series of preferred stock) with respect to dividends and liquidation
rights. As of the date of this filing, the Company has issued 802,500 shares of
Series A Preferred Stock, all of which are convertible into three shares of
Common A shares beginning September 17, 1996, subject to the filing by the
Company of a post -effective amendment to its registration statement with the
Securities and Exchange Commission.

Series A 10% Cumulative Convertible Preferred Stock

The Series A Preferred Stock consists of 2,870,000 shares of which 790,000
shares are currently issued and outstanding. Each share of Series A Preferred
Stock is convertible commencing one year from the date this Prospectus into 3
shares of Class A Common Stock. After September 17, 2000, it is redeemable by
the Company in whole or in part at %5.25 per share upon 30 days prior written
notice. The Series A Preferred Stock is entitled to a dividend, prior to any
payment of dividends on the Class A or Class B Common Stock, of $0.50 per share
per annum payable in semi-annual installments of $0.25 per share. If the Series
A Preferred stock dividend is not paid, it accumulates until paid in full to
date. The Company may elect to pay the Series A Preferred Stock dividend either
in cash or in shares of Class A Common Stock shall be issued for such purposes
on the basis of the average closing prices of the Class A Common Stock for the
ten business days prior to the date of declaration of the Series A Preferred
Stock dividend. The Series A Preferred Stock shall not have any right to vote
except to the extent, if any, required by Delaware Law. Upon liquidation of the
Company, the Series A Preferred Stock is entitled to receive $5.00 per share
plus accrued and unpaid dividends before any payment is made to the holders of
Class A and Class B Common Stock.

<PAGE>

Redeemable Warrants

Class WA Warrants. Each Class WA Warrant entitles the registered holder
thereof to purchase one Class A Share and one Class WB Warrant at a combined
exercise price of $1.50 until June 23, 1997. The combined exercise price of the
Class WA Warrants as originally issued was $6.00. On March 29, 1995 the Company
announced that because of certain sales of Class A shares by the Company, the
combined exercise price of each Class WA Warrant had been reduced to $5.17 and
each Class WA Warrant now entitled the holder to purchase 1.1 Class A Shares and
1.1 WB Warrants; and that the exercise price of each WB Warrant had been reduced
from $7.00 to $6.03 (subsequently reduced to $2.00 - see below) and each Class
WB Warrant now entitles the holder to purchase 1.1 Class A Shares. On April 13,
1995 the Board of Directors, as permitted by the terms of the Warrant
Agreements, reduced the combined exercise price of each of the Class WA Warrants

to $1.50 for one share of Class A Stock and for one Class WB Warrant in order to
facilitate the sale of 300,000 shares of Class A Stock by the Company. The
exercise price of the Class WA Warrants is subject to adjustment under certain
circumstances. Fractional Class A Shares will not be issued upon exercise of the
Class WA Warrants and, in lieu thereof, a cash adjustment based on the market
value of the Class A Shares immediately prior to the date of exercise will be
made.

The Class WA Warrants are redeemable by the Company at any time after June
22, 1995, and prior to their exercise upon notice of redemption in writing to
the Class WA Warrant holders of record, giving a 30-day notice of such
redemption. The redemption price of the Class WA Warrants is $0.01 per Warrant
if the closing bid price per Class A Share has equaled or exceeded 120% of the
then exercise price of the Class WA Warrants for 20 consecutive trading days
prior to any such call for redemption. Any Class WA Warrants so redeemed, and
not exercised by the end of the date specified in the notice of redemption, will
expire on the books of the Company and cannot be exercised.

Class WB Warrants. Each Class WB Warrant entitles the registered holder
thereof to purchase one Class A Share at a purchase price of $2.00 until June
22, 1999. The exercise price of the Class WB Warrant was previously $6.03. In
January 1996, the Company announced that the exercise price of the Class WB
Warrant is reduced to $2.00 per Class A Common share. The exercise price of the
Class WB Warrants is subject to adjustment under certain circumstances.
Fractional Class A Shares will not be issued upon exercise of the Class WB
Warrants and, in lieu thereof, a cash adjustment based on the market value of
the Class A Shares immediately prior to the date of exercise will be made.

The Class WB Warrants are redeemable by the Company at any time prior to
their exercise after June 22, 1995, and upon notice of redemption in writing to
the Warrant holders of record, giving a 30-day notice of such redemption. The
redemption price of the Class WB Warrants is $0.01 per Warrant if the closing
bid price per Class A Share has equaled or exceeded 120% of the then exercise
price of the Class WB Warrants for 20 consecutive trading days prior to any such
call for redemption. Any Class WB Warrants so redeemed, and not exercised by the
end of the date specified in the notice of redemption, will expire on the books
of the Company and cannot be exercised.

Class WC Warrants. Each Class WC Warrant entitles the holder to purchase
one share of Preferred Stock during the five year period commencing September
18, 1995 at a purchase price of $5.50. Commencing one year from the date of
issuance, each Class WC Warrant shall be redeemable by the Company at a
redemption price of $.01 per Warrant upon thirty days prior written notice to
holders; provided, however, that the closing average bid price of the Preferred
Stock in the over-the-counter market, for a period of twenty consecutive trading
days prior to such call for redemption, shall have been 110% or more of the then
effective exercise price of the Class WC Warrants.

The Warrants are exercisable by tendering to American Stock Transfer &
Trust Company, New York (the "Warrant Agent") the appropriate exercise price
along with the Warrant certificate (with the election to purchase section on the
reverse side of the certificate properly filled out.) The Company shall

<PAGE>

then issue and sell such fully paid and nonassessable Class A Shares, Class WB
Warrants, and Series A Preferred Shares, as applicable, to the Warrant holder as
specified on the certificate so tendered. Payment of the exercise price shall be
made in cash or by certified check or bank draft made payable to the order of
the Company. For further information, reference is made to the Warrant Agreement
among American Stock Transfer & Trust Company, the Warrant Agent, the Company
and the Representative, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

The Warrants pursuant to their terms are subject to adjustment upon the
occurrence of certain events including subdivisions or combinations of the Class
A Shares. The Company may at any time, and from time to time, extend the
exercise period of the Warrants, provided that written notice of such extension
is given to the Warrant holders prior to the expiration date then in effect.
Also, the Company may reduce the exercise price of the Warrants for limited
periods or through the end of the exercise period if deemed appropriate by the
Board of Directors of the Company. Notice of any reduction of the exercise price
will be given to the Warrant holders. Prior to any such extension or
modification of the exercise price of such Warrants, the Company may be required
to amend the Registration Statement covering such securities or to file a new
registration statement.

Representative's Warrants

In connection with the June 1994 Initial Public Offering, the Company sold
to the Representative's designees for nominal consideration, the
Representative's Warrants to purchase up to an aggregate of 45,000 Class A
Shares, 40,000 Class WA Warrants and 22,500 Class WB Warrants. The
Representative's Warrants are exercisable through June 22, 1999 at exercise
prices of $1.50, $0.12 and $0.12 as to the Class A Shares, Class WA Warrants and
Class WB Warrants, respectively, subject to certain adjustments. In October 1994
the Company repurchased Representative's Warrants to purchase 30,015 Class A
Shares, 40,000 Class WA Warrants and 22,500 Class WB Warrants from the holder
thereof. The holders of the remaining outstanding Representative's Warrants have
the opportunity to profit from a rise in the market price of the securities, if
any, without assuming the risk of ownership, with a resulting dilution in the
interest of other shareholders. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Representative's Warrants are outstanding. At any time at which the
holder thereof might be expected to exercise them, the Company would probably be
able to obtain additional capital on terms more favorable than those provided by
the Representative's Warrants. See "Risk Factors" and "Certain Transactions."

After purchase of the Series A Preferred Stock and the Class WC Warrants by
the Underwriters, the Company will sell to the Representative of the
Underwriters Warrants, for an aggregate purchase price of $20.00, entitling the
Holders to purchase 40,000 shares of Series A Preferred Stock and 20,000 Class
WC Warrants. These Warrants shall not be exercisable until September 17, 1996.
Such Warrants shall be exercisable for a period of four years commencing
September 17, 1996. The exercise price for each Warrant to purchase Series A

Preferred Stock shall be $6.00 per share, and the exercise price to purchase WC
Warrants is $.06 each. The Company has agreed that, while the Representative's
Warrants are outstanding, it will not enter into any merger or reorganize or to
take any other action which would terminate the Representative's Warrants. The
Warrants contain anti-dilution adjustment provisions. The Warrants are not
transferrable until September 17, 1996, except to Officers of the
Representative, selling group members and their officers as partners.
Thereafter, the Representative's Warrants shall be fully transferrable provided
such transfer is in accordance with the provisions of the Securities Act of
1934.

Business Combination Provisions

<PAGE>

The Company is subject to a Delaware statute ("Section 203") regulating
"business combinations," defined to include a broad range of transactions
between Delaware corporations and "interested stockholders," defined as persons
who have acquired at least 15% of a corporation's outstanding voting stock.
Under the law, a corporation which is subject to Section 203 may not engage in
any business combination with any interested stockholder for a period of three
years from the date such person became an interested stockholder unless certain
conditions are satisfied. Section 203 contains provisions enabling a corporation
to avoid the statute's restrictions.

Anti-Takeover Measures

The Company's Certificate of Incorporation and By-Laws contain provisions
that could discourage potential takeover attempts and prevent shareholders from
changing the Company's management. The existence of such anti-takeover
provisions could, among other things; (1) result in the Company being less
attractive to a potential acquirer and (2) result in shareholders receiving less
for their shares than otherwise might be available in the event of a take-over
attempt. The By-Laws provide that certain vacancies on the Board of Directors
shall be filled by a majority of the remaining Directors then in office.

In addition, the Company's By-Laws limit the ability to call a special
meeting of shareholders to the president or any executive vice president upon
the request in writing of two-thirds of the Board of Directors or upon the
written request of shareholders of the Company owning two-thirds of each class
of stock issued and outstanding and entitled to vote. The By-Laws also provide
that no proposal by a shareholder shall be presented for vote at a special or
annual meeting of shareholders unless such shareholder, not later than the close
of business on the fifth day following the date on which notice of the meeting
is first given to shareholders, shall provide the Board of Directors or the
secretary of the Company with written notice of intention to present a proposal
for action at the forthcoming meeting of shareholders, which notice shall
include the name and address of such shareholder, the number of voting
securities held of record and held beneficially, the text of the proposal to be

presented at the meeting and a statement in support of the proposal. Any
shareholder may make any other proper proposal at an annual or special meeting
of shareholders and the same may be discussed and considered, but unless stated
in writing and filed with the Board of Directors or the secretary prior to the
date set forth hereinabove, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 60 days or
more thereafter. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as described above.

Transfer and Warrant Agent

The Transfer Agent for the Class A and Class B Common Stock and the Warrant
Agent for the Warrants is American Stock Transfer & Trust Company, New York, New
York.

Registration Rights

The holders of the remaining Representative's Warrants have demand and
piggy-back registration rights with respect to the Representative's Warrants and
the securities underlying the Representative's Warrants for a period of five
years. Any exercise of such registration rights may result in dilution in the
interest of the Company's shareholders, hinder efforts by the Company to arrange
future financings of the Company and/or have an adverse effect on the market
price of the Company's Class A Shares and/or Warrants.

As of May 24, 1996 investors in the Company's private placement of 175,000
shares of Common A Stock have the right to demand in writing ("Demand Notice")
that the Company file a registration statement with the Securities and Exchange
Commission (the "Commission") which shall cover the shares and all investors to

<PAGE>

sell the shares publicly. Within fifteen (15) days following receipt of the
Demand Notice, the Corporation shall file such registration statement and use
its best efforts to have such registration statement declared effective by the
Commission and such state securities regulators as reasonably requested. The
Company shall also include said shares in the next registration statement filed
with the S.E.C. in connection with a public offering. The Company anticipates
registering these shares in the near future.

MARKET FOR THE COMPANY'S SECURITIES
AND RELATED STOCKHOLDER MATTERS

Prior to the Initial Public Offering, there existed no public trading

market for any of the Company's securities. In connection with the Initial
Public Offering, the Company applied for and was granted inclusion of its
securities for quotation on NASDAQ. The Class A Shares and the Class WA Warrants
commenced quotation on NASDAQ on June 23, 1994 under the symbols "INTXA and
INTXW", respectively, and the Class WB Warrants commenced quotation on June 24,
1994 under the symbol "INTXZ." On September 18, 1995, the Company's Series A
Preferred Shares and Class WC Warrants commenced quotation under the symbols
"INTXP" and "INTXL" respectively. While the Company's securities are currently
listed for quotation on NASDAQ, there can be no assurance given that the Company
will be able to satisfy the requirements for continued quotation on NASDAQ or
that such quotation will otherwise continue; nor can there be any assurance
given that any market for the Company's securities that has developed since
completion of the Initial Public Offering or the Preferred Stock Offering will
continue or be sustained. See "Risk Factors - No Assurance of Public Market or
Continued NASDAQ Listing."

The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Class A Shares, the Class A
Warrants the Class B Warrants the Series A Preferred Shares, and the Class WC
Warrants for the periods such securities have been trading on NASDAQ. Such
quotations reflect inter-dealer prices, but do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.

Class A Shares Class WA Warrants
------------------------- -------------------------
Bid Ask Bid Ask
----------- ----------- ----------- -----------
Quarter Ended High Low High Low High Low High Low
------------- ---- --- ---- --- ---- --- ---- ---
June 30, 1994 (1) $8.25 $5.00 $8.50 $6.25 $ 2.8 $ 1.0 $3.2 $2.00
September 30, 1994 6.69 2.75 4.25 3.13 2.50 1.12 1.56
December 31, 1994 4.00 2.00 4.38 2.47 1.19 0.50 0.84
March 31, 1996 -- -- -- -- -- -- -- --

Class WB Warrants
-------------------------------
Bid Ask
------------- -------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
June 30, 1994 (1) $1.25 $0.8 $2.0 $1.06

<PAGE>

September 30, 1994 0.94 0.25 1.25 0.88
December 31, 1994 0.56 0.38 0.88 0.59

Series A Preferred Shares Class WC Warrants
------------------------- -------------------------
Bid Ask Bid Ask
----------- ----------- ----------- -----------
Quarter Ended High Low High Low High Low High Low
------------- ---- --- ---- --- ---- --- ---- ---
September 30, 1995 $8.13 $7.5 $ 9.0 $7.88 $3.6 $2.0 $3.7 $2.50
December 31, 1995 7.88 5.75 8.50 6.00 3.88 1.50 4.13 2.00
March 31, 1996 7.13 5.00 7.63 5.38 3.13 1.56 3.50 2.00

(1) Reflects quotations commencing June 23, 1994 (the date of initial quotation
of the Class A Shares and the Class A Warrants on NASDAQ) and June 24, 1994
(the date of initial quotation of the Class B Warrants on NASDAQ),
respectively.

As of July 11, 1996, there were nine record holders of the Company's Class
A Shares and two record holder of the Company's Class B Shares. In addition, as
of December 23, 1994 there were 34 individual participants in Class A Shares
pursuant to position listings furnished by Cede & Co., New York, New York,
registered clearing agency and holder of approximately 93% of the Company's
outstanding Class A Shares. The Company believes that there are approximately
500 beneficial owners of Class A Shares who hold shares in "street name." As of
July 10, 1996 there were 3,420,247 Class A Shares, 802,500 Class B Shares,
790,000 Series A Preferred Shares, 3,760,000 Class WA Warrants and 258,750 Class
WB Warrants outstanding. As of the date of this prospectus, the last reported
bid and ask prices of the Company's Series A Preferred Shares, Class A Shares,
Class WA Warrants, Class WB Warrants and Class WC Warrants as reported by NASDAQ
on such date were $5.75 and $6.50 respectively, for Series A Preferred Shares,
$3.50 and $3.44, respectively, for Class A Shares, $1.75 and $2.25,
respectively, for Class WA Warrants, $ 2.38 and $2.69 respectively, for Class WB
Warrants $ 1.19 and $ 1.44, respectively, for Class WC Warrants

The Company has never paid and does not anticipate paying any cash
dividends on its Class A or Class B Shares in the foreseeable future. In
February 1996, the Company's Board of Directors declared a stock dividend
equivalent to $0.25 per share to its Series A 10% Cumulative Convertible
Preferred Stockholders of record as of the close of business on February 23,
1996 (the record date.) Payment was made on March 1, 1996 by the issuance of
0.10231 of a share of the Company's Class A Common Stock for each share of
Series A Preferred Stock held of record on the record date. Accordingly, 55,247
shares of the Company's Class A Common Stock was issued for this purpose.
Retained earnings was charged $165,741 in March 1996 in conjunction with the
issuance of these shares. The Company intends to retain all working capital
earnings for use in the Company's business operations and in the expansion of
its business. See "Risk Factors - Lack of Dividends."

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this filing, there are 3,420,247 Class A Shares
outstanding, 802,500 Class B Shares outstanding, and 790,000 Series A Preferred
Shares outstanding. All except 385,000 of such Class A Shares are fully
tradeable without restriction or further registration under the Securities Act,
except that any such shares owned by affiliates of the Company will be subject
to the limitations of Rule 144 under the Securities Act. As of the date of this
filing, Laurie Munn, wife of the Company's President and Chief Executive Officer
owns 526,250 shares of the Company's Class B Common shares, and Ted Stevens, a
Director, owns 276,250 of such Class B shares. These holdings comprise all of
the Company's outstanding Class B Common shares as of the date of this filing.
Pursuant to agreements with the Company's investment banking firm, and in
connection with the Company's September 18, 1995 offering of preferred stock and
warrants, the outstanding Class B shares may not be sold or otherwise disposed
before March 17, 1997 without the prior consent of the Company's investment
banking firm. See "Certain Transactions." In the event any shares not currently
salable become salable by means of registration, exemption from registration or
eligibility for sale under Rule 144 and the holders of such shares elect to sell
such shares in the public market, there may be a negative effect on the market
price of the Company's securities and on the ability of the Company to obtain
additional equity financing.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least two years that does not exceed the greater of
(i) one percent of the then outstanding Class A Shares (8,675 Class A Shares as
of the date hereof) or (ii) the average weekly trading volume in the Class A
Shares during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. However, a
person who is not an affiliate and who has beneficially owned such shares for at
least three years is entitled to sell such shares without regard to the volume
or other resale requirements.

The Company has granted to the holder of the Representative's Warrants the
right, subject to certain terms and conditions, to register at the Company's
expense at the holder's demand, all or any part of such Representative's
Warrants or any securities underlying such Representative's Warrants under the
Securities Act or in connection with registrations of any securities by the
Company.

The Company also has 3,760,000 Class WA Warrants 258,750 Class WB Warrants,
and 2,270,000 Class WC Warrants outstanding. The outstanding Class WA Warrants
are exercisable to purchase 3,760,000 Class A Shares and 3,760,000 Class WB
Warrants which Class WB Warrants are exercisable to purchase an additional
3,760,000 Class A Shares and the outstanding Class WB Warrants are exercisable
to purchase 258,750 Class A Shares assuming there is a current prospectus
relating to the exercise thereof. The outstanding Class WC Warrants are
exercisable to purchase an additional 2,270,000 Series A Preferred Shares
assuming there is a current prospectus relating to the exercise thereof.

No predictions can be made of the effect, if any, that sales of Class A

Shares or the availability thereof for sale will have on the market price of
such securities prevailing from time to time. Nevertheless, the foregoing could
adversely affect prevailing market prices.

<PAGE>

PLAN OF DISTRIBUTION

The Securities issuable upon exercise of outstanding Warrants will be
issued by the Company subsequent to the date hereof upon exercise of such
Warrants and the Company will receive the net proceeds thereof. The exercise
price of the Warrants were determined arbitrarily by the Company and is not
necessarily related to the asset, book value or net worth of the Company or any
other established criteria of value.

In order to facilitate the exercise of the Class WA or Class WB Warrants,
the Company will furnish, at its expense, such number of copies of this
Prospectus to the recordholder of the Warrants as the recordholder may request
together with instructions that such copies of this Prospectus be delivered to
the beneficial owners of the Class WA Warrants. In addition, in order to
facilitate the reoffer and resale of the Class WB Warrants and the Class A
Shares (including shares underlying the Class WA and Class WB Warrants), the
Company will furnish, at its expense, such number of copies of this Prospectus
to the recordholder of such as the recordholder may request together with
instructions that such copies of this Prospectus be delivered to the beneficial
owners of such securities.

Persons who wish to exercise the Class WA Warrants or the Class WB Warrants
must deliver the executed warrant certificates with the purchase forms, duly
executed, accompanied by payment in the form of a certified or bank cashier's
check or money order payable to the Company (or cash), for the number of
Warrants exercised to American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005. All such payments must be received prior to
termination of the exercise period thereof. The Company shall then issue and
sell such fully paid and non-assessable Class A Shares to the warrantholder as
specified on the warrant certificates so tendered. Warrants not exercised prior
to termination of the exercise period will expire. See "Description of
Securities."

LEGAL MATTERS

Certain legal matters in connection with the securities offered hereby are
being passed upon for the Company by Bernstein & Wasserman, LLP, New York.

EXPERTS

The audited financial statement included, incorporated by reference in this
Prospectus and elsewhere in the registration statment have been audited by
Arthur Andersen, LLP, independent accountants, and indicated in their report

with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.

<PAGE>

Item 7. Financial Statements

INDEX TO FINANCIAL STATEMENTS

Consolidated Interim Balance Sheet (unaudited) as of
March 31, 1996.................................................... 2

Consolidated Interim Statements of Operations (unaudited) for
the nine months ended March 31, 1996 and 1995..................... 3

Consolidated Interim Statements of Changes in Stockholders'
Equity (unaudited) for the nine months ended March 31, 1996....... 5

Consolidated Interim Statement of Cash Flows (unaudited) for
the nine months ended March 31, 1996 and 1995..................... 6

Notes to Consolidated Interim Financial Statements................ 7

Report of Independent Public Accountants.......................... F-1

Consolidated Balance Sheet as of June 30, 1995.................... F-2

Consolidated Statements of Operations for the Years Ended
June 30, 1995 and 1994............................................ F-3

Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1995, and 1994........................... F-4

Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995 and 1994............................................ F-5

Notes to Consolidated Financial Statements........................ F-6

<TABLE>
<CAPTION>
INTERIORS, INC.
CONSOLIDATED
BALANCE SHEET
(unaudited)

March 31, March 31,
ASSETS 1996 LIABILITIES AND STOCKHOLDERS' EQUITY 1996
---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $0 Notes payable and current maturities of
Accounts receivables - long-term debt $2,310,742
Trade, net of allowance of $40,000 1,596,437 Accounts payable and accrued liabilities 1,374,350
Inventories 2,542,130 Prepaid sales and customer deposits 46,583
Prepaid expenses and other current assets 415,422 Capital lease obligations 26,729
---------- ----------
Total current assets 4,553,989 Total current liabilities 3,758,404
---------- ----------
NON-CURRENT LIABILITIES:
Notes payable 302,843
Capital lease obligations 10,594
----------
Total noncurrent liabilities 313,437
----------
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 1,709,415 COMMITMENTS AND CONTINGENCIES
Furniture and fixtures 156,179
Leasehold improvements 259,405
---------- STOCKHOLDERS' EQUITY:
Total property and equipment, at cost 2,124,999 Preferred stock, $.01 par value,
5,300,000 shares authorized,
540,000 issued and outstanding 7,400
Class A common stock, $.001 par value,
30,000,000 shares authorized, 2,780,000
shares issued and 2,435,247 outstanding 2,435
Less- Accumulated depreciation and Class B common stock, $.001 par value,
amortization 908,234 2,500,000 shares authorized,
---------- 552,500 shares issued and outstanding 553
Net property and equipment 1,216,765 Additional paid-in-capital 7,911,261
Retained deficit (5,131,545)
Treasury Stock (270,257)
----------
OTHER ASSETS 820,934 Total stockholders' equity 2,519,847
---------- ----------
Total assets $6,591,688 Total liabilities and stockholders' equity $6,591,688
========== ==========
</TABLE>

The accompanying notes are an integral part of this balance sheet

<PAGE>

INTERIORS, INC.

CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)

1996 1995
---------- ----------
NET SALES $1,756,106 $1,706,792

COST OF GOODS SOLD 863,937 670,264
---------- ----------
Gross profit from continuing operations 892,169 1,036,528

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 821,741 933,994
PROVISION - ISSUANCE OF STOCK OPTIONS (6,800) 0
---------- ----------
Operating expenses 814,941 933,994

Income (loss) from continuing operations before
interest and provision for taxes 77,228 102,534

INTEREST EXPENSE (including financing charges) 73,714 80,671
---------- ----------
Income (loss) from continuing operations
before provision for taxes 3,514 21,863

PROVISION FOR INCOME TAXES 0 4,235
---------- ----------
Income (loss) from continuing operations 3,514 17,628

DISCONTINUED OPERATIONS (Note 3)

Loss from operations of discontinued operations 112,647 0
Provision for disposal of discontinued operations 750,000 0
---------- ----------
Loss from discontinued operations 862,647 0

NET INCOME (LOSS) ($859,133) $17,628
========== ==========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK ($0.33) $0.01
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTATION 2,604,869 1,927,611
========== ==========

the accompanying notes are an integral part of these financial statements

<PAGE>

INTERIORS, INC.

CONSOLIDATED

STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)

1996 1995
---------- ----------
NET SALES $5,032,906 $5,201,639

COST OF GOODS SOLD 2,497,620 2,195,089
---------- ----------
Gross profit from continuing operations 2,535,286 3,006,550

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,121,320 2,738,125

PROVISION - ISSUANCE OF STOCK OPTIONS 193,200
---------- ----------
Operating expenses 2,314,520 2,738,125

Income (loss) from continuing operations
before interest and provision for taxes 220,766 268,425

INTEREST EXPENSE (including financing charges) 321,240 177,924
---------- ----------
Income (loss) from continuing operations
before provision for taxes (100,474) 90,501

PROVISION FOR INCOME TAXES 5,998 17,300
---------- ----------
Income (loss) from continuing operations (106,472) 73,201

DISCONTINUED OPERATIONS (Note 3)
Loss from operations of discontinued operations 423,714
Provision for disposal of discontinued operations 1,100,000
---------- ----------
Loss from discontinued operations 1,523,714 0

NET INCOME (LOSS) ($1,630,186) $73,201
========== ==========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK ($0.63) $0.04
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTATION 2,604,869 1,853,668
========== ==========

the accompanying notes are an integral part of these financial statements

<PAGE>

<TABLE>
<CAPTION>
INTERIORS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 1996
(unaudited)

Series A Class A Class B
Preferred Stock Common Stock Common Stock Additional Retained
--------------- ----------------- ---------------- Paid-In Earnings Treasury
Shares Amount Shares Amount Shares Amount Capital (Deficit) Stock Total
------- ------ --------- ------ -------- ------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995 0 $0 1,570,000 $1,570 882,500 $883 $5,595,763 ($3,335,618) ($270,257) $1,992,341

Proceeds from issuance of
Series A Preferred 460,000 $4,600 $1,628,032 $1,632,632
Conversion of Class B
Shares 330,000 $330 (330,000) ($330) $0
Conversion of convertible
debt into Class WC
Warrants $100,000 $100,000
Issuance of Series A
Common Stock 280,000 $280 $31,580 $31,860
Conversion of Convertible
Debt into Series A
Preferred 80,000 $800 $199,200 $200,000
Provision-issuance of
stock to employees $193,200 $193,200
Issuance of Cl A Com Stk
as dividend on Pfd. Stk
Ser A 55,247 $55 $165,686 ($165,741) $0
Investment in Decor
Group, Inc 200,000 $2,000 200,000 $200 ($2,200) $0
Net loss ($1,630,186) ($1,630,186)
$0
$0
$0
$0
------- ------ --------- ------ ------- ---- ---------- ---------- -------- ----------
BALANCE, MARCH 31, 1996 740,000 $7,400 2,435,247 $2,435 552,500 $553 $7,911,261 ($5,131,545) ($270,257) $2,519,847
======= ====== ========= ====== ======= ==== ========== ========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

INTERIORS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)

NINE MONTHS ENDED
MARCH 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($1,630,186) $73,201
---------- ---------
Adjustments to reconcile net Income (loss) to
net cash used in operating activities:
Depreciation and amortization 666,937 456,709
Provision for losses on accounts receivable 33,766
Provision for discontinued catalog operations 1,100,000
Provision for issuance of stock options 193,200
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, trade (147,616) (407,292)
Decrease (increase) in inventories (560,484) (738,806)
Decrease (increase) in prepaid catalog costs,
prepaid expenses and other current assets (149,669) (252,983)
Decrease (increase) in other assets (99,995) (731,198)
Increase (decrease) in accounts payable and
accrued expenses (317,114) 288,975
Increase (decrease) in prepaid sales & customer
deposits 3,415 (12,107)
---------- ---------
Net cash used in operating activities (907,746) (1,323,501)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (483,234) (280,169)
Investment in Decor Group, Inc. (2,200)
---------- ---------
Net cash used in investing activities (485,434) (280,169)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt 2,030,542
Repayments of debt and capitalized lease obligations (275,626) (1,990,117)
Net proceeds from sale of Series A preferred stock,
common stocks, and warrants 1,666,692 810,083
---------- ---------
Net cash provided by financing activities 1,391,066 850,508
---------- ---------
Net Increase (decrease) in cash (2,114) (753,162)

CASH, beginning of period 2,114 1,042,112
---------- ---------
CASH, end of period ($0) $288,950
========== =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $366,118 $160,344
Taxes $5,998 $5,233
NON-CASH FINANCING ACTIVITIES:
Conversion of convertible debt into Class WC
Warrants $100,000 $0
Conversion of convertible debt into Class A
Preferred Stock $200,000 $0
Investment - Decor Group, Inc. - issuance of
Common A and Pfd. shares $2,200
Other $0 $63,000

The accompanying notes are an integral part of these financial statements

<PAGE>

1. BASIS OF PRESENTATION

The financial statements included herein have been prepared by the Company
without audit, in accordance with generally accepted accounting principles, and
pursuant to the rules and regulations of the Securities and Exchange Commission.
Reference should be made to the Company's financial statements for the year
ended June 30, 1995 for a description of the accounting policies which have been
applied consistently. Also, reference should be made to the notes to the
Company's June 30, 1995 financial statements contained in the Company's Form
10-KSB for the fiscal year ended June 30, 1995, for additional details of the
Company's financial condition, results of operations and cash flows. The details
in those notes have not changed except as a result of normal transactions in the
interim. All adjustments (of normal recurring nature) which are, in the opinion
of management, necessary for a fair presentation of the results of the interim
period have been included. The results of operations for the three and nine
months ended March 31, 1996 are not necessarily indicative of those to be
expected for the entire year. The Company, for the three and nine months ended
March 31, 1996 and 1995, used the gross profit method to value inventory.

2. ACQUISITIONS AND STRATEGIC ALLIANCES

Part of the Company's long term plan for growth includes either the acquisition
of or entering into strategic alliances with unrelated companies in the
decorative accessories industry to maximize market potential. For this purpose,
pursuant to a March 3, 1996 agreement relating to the capitalization of Decor
Group, Inc., ("Decor"), Decor issued to the Company 500,000 shares of Series A
Convertible Preferred Stock and an option to purchase 20,000,000 shares of
Series B Non-Convertible Voting Preferred Stock in exchange for issuance to
Decor by the Company of 200,000 shares of its Class A Common stock and 200,000
shares of its Series A Convertible Preferred stock and a guarantee with respect
to certain indebtedness. Conversion of the 500,000 shares of Series A
Convertible Preferred stock into common stock would give the Company
approximately 16% of the voting stock of Decor as of the date of this filing.
Decor is planning a public offering of certain of its securities within the next
quarter. If, after this public offering is effective, the Company exercises its
option to purchase 20,000,000 shares of Series B Non-Convertible Voting
Preferred Stock, it will own approximately 86.5% of the total voting stock of
Decor. As of the date of this filing, the Company is recording its investment in
Decor at $2,200, which is the par value of the Company's shares issued in
exchange therefor. If the Company exercises its option to purchase 20,000,000
shares of Series B Non-Convertible Voting Preferred Stock of Decor, the date of
such exercise will be the measurement date for determining the valuation of the
Company's investment in Decor to be recorded on the Company's financial
statements.

of this filing, the

<PAGE>

Company is finalizing a management agreement with Decor, whereby the Company
will provide management and administrative support for the companies acquired by
Decor. At March 31, 1996, approximately $77,000 of fees were accrued by the
Company for such services.

As of the date of this filing, Laurie Munn, wife of the Company's President and
Chief Executive Officer, was issued 9 of the outstanding 100 Common shares of
Lance Acquisition Corp ("LAC"), which on March 3, 1996 acquired the assets of
The Lance Corporation ("Lance") a Massachusetts manufacturer and distributor of
various products for the giftware and collectibles marketplace. The Company and
LAC have entered into an agreement whereby each entity will guarantee certain
liabilities of the other. During April 1996, the Company moved the operations of
its Italia Collections Inc. subsidiary ("Italia") to Lance. The Company is
currently finalizing the terms under which Lance will manufacture and support
the entire product line of Italia, which largely consists of ceramic and
porcelain collectibles, mirrors, and other decorative accessories for the home.
As of the date of this filing, the Company has executed no contracts for this
purpose, but anticipates doing so during the month of July 1996. Subsequent to
the move of Italia to Lance, LAC has determined that the overall business
activities of Lance are not consistent with its own longer-term goals. Thus, as
of the date of this filing, LAC is seeking to dispose its holding in Lance. The
Company and LAC intend that any subsequent acquirer of Lance will continue to
support Italia.

3. DISCONTINUATION OF CERTAIN OPERATIONS

On March 31, 1996, Company management decided to discontinue its catalog
operations. As reported in prior filings, reduced revenues and high operating
costs from this operation necessitated a charge against earnings for catalog
write-downs of $350,000 in December 1995. The Company estimates that additional
charges against earnings of $750,000 relating to the discontinuance of the
catalog operation are necessary at March 1996. This charge, recorded in March
1996 will result in total charges relating to the discontinuation of the catalog
operation of $1,100,000. For the nine months ended March 31, 1996, losses from
continuing catalog operations ,will total $423,714. Of this amount, $112,647 was
generated during the quarter ended March 31, 1996. The Company plans to fully
carry out the discontinuation of the catalog operation within one year from
March 31, 1996. Subsequent to that date, the Company plans to wind down
operations by filling existing orders and possibly mailing one final catalog as
a "close-out sale" to liquidate inventory. Subsequently, no new orders will be
accepted and the business will be terminated. At that time no remaining assets
or liabilities are expected to remain on the Company's balance sheet.

4. NOTES PAYABLE

In November 1994, the Company borrowed the sum of $225,000 from an unaffiliated
third party, pursuant to a promissory note due March 30, 1995, together with
interest at the rate of 14% per annum and 5% financing charge. As security for

the obligations under the promissory note, the Company granted a security
interest in and a lien upon all real property, personal property and fixtures of
the Company then owned or subsequently acquired. Said lien was subordinate to
the lien of a New York Bank. In addition, Max Munn, the President and his wife
and a director and

<PAGE>

his wife, an Executive Vice President, each executed a personal guaranty of the
Company's obligations under the promissory note. On April 21, 1995, the Company
entered into an agreement to restructure the terms of the promissory note. The
security interest, liens, and guarantees previously granted continued pursuant
to the restructuring. On April 24, 1995, the Company paid the lender $25,000
principal plus $13,010 of accrued interest. The promissory note was due October
20, 1995. The note bore interest at the rate of 14% payable monthly. The
promissory note was convertible in whole or in part into a maximum of 80,000
shares of the Preferred Stock, and on December 15, 1995, such conversion took
place.

In June and July 1995, the Company delivered to unaffiliated parties promissory
notes in the aggregate amount of $300,000 with interest at the rate of 10% per
annum (the 10% Notes) and promissory notes in the principal amount of $100,000
with interest at the rate of 6% per annum (the 6% Notes). The 10% Notes and 6%
Notes were each payable in June and July, 1996 or the closing of the sale by the
Company of an issue of Preferred Stock whichever is earlier. The 6% Notes were
convertible, in whole or in part, at the option of the holder, into a maximum of
2,000,000 WC Warrants entitling the holders for a period of five years to
purchase one share of Preferred Stock per Warrant at a price of $5.50 per share.
These Warrants are redeemable by the Company. The Notes are secured by a lien on
the Company's assets. In September 1995 the Company repaid all 10% notes in
full, plus all accrued interest for both the 10% Notes and 6% Notes. All holders
of 6% notes have opted to convert, in full, into a total of 2,000,000 WC
Warrants, which were registered in a Registration Statement declared effective
by the Securities and Exchange Commission on September 18, 1995 (See Note 5).

On October 16, 1995, the Company entered into a new agreement to restructure a
promissory note dated May 1995, with the principal amount of $500,000 bearing
interest at the rate of 18% per annum with the principal which was due and
payable in full on September 30, 1995 and a $150,000 note dated May 12, 1995,
bearing interest at the rate of 18% payable monthly with 135% of the principal
which was also due and payable in full on September 30, 1995 with a Nevis, BWI
Corporation. As of October 16, 1995 the parties agreed the Company owed the
lender, including interest and monthly extension fees of approximately $102,500
through December 15, 1995, an aggregate amount of approximately $805,000.
According to the new agreement, the Company paid $405,000 to the Nevis BWI
Corporation upon acceptance of the agreement, The Company also delivered a
Promissory Note in the principal amount of approximately $400,000, in extension
and replacement of the remaining balance due payable of $180,000 on or before
December 15, 1995 and $220,000 on July 31, 1996. The new agreement also
stipulates that the lender shall sell the 180,000 shares of the Company's Class
A Common Stock, owned by the lender and held in escrow, for $180,000 to an
unaffiliated third party designated by the Company. This sale took place in

January 1996. In addition, during December 1995 the Company issued 35,000 shares
of Class A Common Stock to the lender (such shares carry registration rights.)
The Note is also guaranteed by Max Munn, the President of the Company.

5. COMMITMENTS AND CONTINGENCIES

Consulting and Employment Agreements

<PAGE>

On October 27, 1995 the Company entered into a one year employment agreement
with the Vice President, Operations with an annual base salary of $120,000. The
Agreement may be terminated by the Company with a payment of 50% of the
employee's salary remaining under the agreement or a payment of six week's
salary in the event the employee resigns from the Company. The Agreement also
provides for the employee to be granted certain stock options to purchase an
aggregate of 100,000 Class A Shares, 50,000 of which to be granted and vested
immediately at a price of $2.00 per share, exercisable in six months from the
date of grant, and any attempt to exercise these options during the exercise
period will terminate the options granted on September 16, 1994; options to
purchase 25,000 shares at a price of $4.00 per share to be granted on the second
anniversary; and options to purchase 25,000 shares at a price of $5.00 per share
to be granted on the third anniversary. The Agreement also provides for a bonus
program based on the Company meeting certain minimum profit goals. In April
1996, the employment of the Vice President, Operations was terminated. The
Company will settle its obligations to the employee during the subsequent
quarter. This settlement will be in the form of severance payments totalling
approximately $27,000. No securities have been issued to the employee, nor will
they be as part of the settlement.

In August 1995, the Company entered into a four year employment agreement with
the Executive Vice President, with an annual salary of $150,000. In addition, on
or about September 30, 1995, the agreement provided for the Executive Vice
President to receive a one time payment at the Company's option of either,
$50,000 or 50,000 shares of Class A Common Stock. As of the date of this filing,
this one time payment has not been made. This person is also entitled to receive
stock options, stock bonuses and other equity instruments in an amount equal to
that of which is received by Max Munn, the President or members of his immediate
family.

As part of the Italia acquisition during fiscal year ended June 30, 1995, The
Company entered into various consulting and employment agreements aggregating
$176,000 per annum. The agreements were subject to termination at any time by
Italia for reasons specified in the agreements. In July 1995, the employment
agreement for the President of Italia, as well as all other agreements, were
terminated by the Company.

will grant the President and Chief Executive Officer an option to purchase at
any time 150,000 shares of the Company's Series A, 10% Cumulative Convertible
Preferred Stock at a price of $2.50 per share. The exercise of this option, as
well as any subsequent conversion to the Company's Class A Common Stock, will
require the prior approval of the Company's investment banker. The agreement
will also contain a "non-compete" clause and provide the President and Chief
Executive Officer with life insurance and the use of an automobile. As of the
date of this filing, the document for this agreement has not been finalized or
executed. This is expected to occur during the subsequent quarter. Presently,
the President

<PAGE>

and Chief Executive Officer draws an annual salary of $150,000 and has the use
of an automobile provided by the Company.

Legal Matters

On October 13, 1995, Ted Stevens, individually, as a Shareholder and Director
and Morris Munn, individually and as a Director and on behalf of themselves and
all other similarly situated Shareholders and Directors of Interiors, Inc.,
filed a complaint in the Supreme Court of the State of New York, County of
Westchester, against the Company, Max Munn, Richard Josephberg, Roger Lourie and
Steven Morse seeking, among other things, to enjoin Max Munn from serving as
President and Chief Executive Officer and seeking to enjoin Messrs. Josephberg
and Morse from serving as Directors. Further, they are seeking unspecified
damages. Mr. Steven Morse has since resigned as a director of the Company. The
Plaintiffs have moved for a preliminary injunction, and this motion was denied.
On November 9, 1995, Max Munn filed a complaint in the Court of Chancery of the
State of Delaware in and for New Castle County, against the Company, Ted
Stevens, Morris Munn and Sidney Burns seeking, among other things, a summary or
expedited proceeding directing the Company to hold an Annual Meeting of its
Stockholders and setting the record date for the determination of Stockholders
entitled to vote at the meeting. In May 1996, the Court set the date of the
Company's annual meeting at June 21, 1996 for shareholders of record at April
10, 1996. The Company held the meeting at its offices on this date.

On December 1, 1995, Ted Stevens filed a complaint in United States District
Court, Southern District of New York against Laurie Munn and American Stock
Transfer & Trust Company seeking, among other things, the equitable recision of
a stock sale agreement between Mr. Stevens and Ms. Munn and return of the
269,500 Class B Common shares of stock sold by Mr. Stevens to Ms. Munn, together
with punitive and compensatory damages. Mr. Stevens moved for a preliminary
injunction to prohibit Ms. Munn from voting her shares during the action. On
February 29, 1996, the Court held that Mr. Stevens did not have the right to
recision and denied Mr. Stevens' motion for a preliminary injunction. On April
17, 1996, the Court dismissed the action for lack of subject matter jurisdiction
because it was for less than the jurisdictional minimum amount.

Munn, Robert Schildkraut, Roger Lourie, Richard Josephberg, and Michael
Freehling seeking, among other things, compensatory damages of $734,694 and
punitive damages of $3,000,000 arising out of the alleged breach of Ann Stevens'
Employment Agreement. On January 26, 1996, this motion was discontinued in
Federal Court and recommenced in the Supreme Court of the State of New York,
County of Nassau. A motion to dismiss all but her breach of contract cause of
action was served on February 19. 1996 and is pending as of the date of this
filing.

<PAGE>

On April 23, 1996, Ted Stevens filed a complaint in the Court of Chancery of the
State of Delaware against Max Munn, Michael Amore, Donald Feldman, Richard
Josephberg, and Roger Lourie and Interiors, Inc., seeking, among other things,
the recision of a stock sale agreement between the Company and Laurie Munn for
the sale of 250,000 shares of the Company's Class B Common stock to Ms. Munn,
voiding the results of any election at a shareholders meeting should the company
hold such a meeting during the pendency of this complaint, requiring the
immediate repayment with interest to the company of a loan made by the company
to Mr. Munn on February 8, 1996 for $39,305.42, plus damages and expenses. This
action is brought as a derivative and class action suit. The company and the
individual defendants consider this complaint to be without merit and will
vigorously defend the action.

The Company is subject to other claims and litigation in the ordinary course of
business. In Management's opinion, such claims are not material to its financial
position or its results of operations.

6. SHAREHOLDERS' EQUITY

On April 13, 1995, the Company lowered the price at which its Class WA Warrants
may be converted into Class A Shares from $5.17 per share to $1.50 per share,
subject to 30 days notice to all warrant holders and the filing by the Company
of an amended Registration Statement, and the Securities and Exchange Commission
declaring such Registration Statement, as amended, effective. The Company has
filed such amendment with the Securities and Exchange Commission on May 15, 1995
and the Commission declared it effective on June 15, 1995. As of the date of
this filing, none of the subject warrants have been exercised and the amended
Registration Statement is no longer effective because financial information
included therein is not current. The Company plans to refile an amended
Registration Statement with the Securities and Exchange Commission during June
1996 for this purpose.

In September 1995, the Company's "Registration Statement" with respect to
460,000 shares of Series A, 10% Cumulative Convertible Preferred Stock
("Preferred Stock"), and 230,000 Redeemable Class WC Warrants ("Warrants") to
purchase Preferred Stock at the exercise price of $5.50 per share was declared
effective by the Securities and Exchange Commission. Each share of Preferred
Stock is convertible commencing one year from the date of issue, subject to
adjustment, into three shares of Class A Common Stock of the Company. On May 5,
1995 the former President was reappointed as President, Chief Executive Officer
and Treasurer of the Company in connection with this offering. In September

1995, upon completion of the Preferred Offering, the President resigned. The net
proceeds from this Offering were approximately $1,633,000, including
over-allotments.

In December 1995, pursuant to the terms of a promissory note, the holder of such
note converted the note into 80,000 shares of Preferred Stock. Also in December
1995, pursuant to the terms of a promissory note, 35,000 shares of the Company's
Class A Common Stock were issued to the lender. Approximately $25,000 was
charged against earnings during the quarter ended December 31, 1995 in
conjunction with the issuance of these shares. (See Note 4. Notes Payable.)

<PAGE>

In December 1995, in consideration for certain services rendered, 10,000 shares
of the Company's Class A Common Stock were issued to various individuals.
Approximately $7,000 was charged against earnings during the quarter ended
December 31, 1995 in conjunction with the issuance of these shares.

In August 1995, the Company has agreed to issue, at a future date, 60,000 Class
A Common shares in settlement of all current and future liabilities under a
two-year Marketing and Organizational Agreement (the "Marketing Agreement") with
a consulting firm dated January 4, 1994. These shares, which bear a restrictive
legend, were issued on April 16, 1996. In conjunction with the issuance of these
shares, approximately $55,000 of charges against earnings are necessary and were
fully accrued in December 1995.

In January 1996, pursuant to the terms of restructure of a promissory note,
180,000 shares of the Company's Class A Common Stock, owned by the lender and
held in escrow, were sold to unrelated investors. (See Note 4. Notes Payable.)

In January 1996, the Company's Board of Directors elected to lower the exercise
price of the Company's Class WB Warrant to $2.00 per Class A Common share,
subject to the filing and effectiveness of a Registration Statement with the
Securities and Exchange Commission. The Company expects to file such statement
during July 1996.

In February 1996, the Company's Board of Directors declared a stock dividend
equivalent to $0.25 per share to its Series A 10% Cumulative Convertible
Preferred Stockholders of record as of the close of business on February 23,
1996 (the record date). Payment was made on March 1, 1996 by the issuance of
0.10231 of a share of the Company's Class A Common Stock for each share of
Series A Preferred Stock held of record on the record date. Accordingly, 55,247
shares of the Company's Class A Common Stock was issued for this purpose.
Retained earnings was charged $165,741 in March 1996 in conjunction with the
issuance of these shares.

In February 1996, the Company's Board of Directors approved the issuance to Sol
Munn of 150,000 shares of the Company's Class A Common Stock, in consideration
for past consulting services provided. These shares, which bear a restrictive
legend, were issued on April 12, 1996. In conjunction with the issuance of these
shares, approximately $138,000 of charges against earnings are necessary and
were fully accrued in December 1995.

On March 3, 1996, the Company acquired 500,000 shares of Series A Convertible
Preferred Stock and an option to purchase 20,000,000 shares of Series B
Non-Convertible Voting Preferred Stock of Decor Group, Inc., ("Decor") in
exchange for issuance to Decor by the Company of 200,000 shares of its Class A
Common stock and 200,000 shares of its Series A Convertible Preferred stock and
a guarantee with respect to certain indebtedness. Conversion of the 500,000
shares of Series A Convertible Preferred stock into common stock would give the
Company approximately 16% of the voting stock of Decor as of the date of this
filing. Decor is planning a public offering of certain of its securities within
the next quarter. If, after this public offering is effective, the Company
exercises its option to purchase 20,000,000 shares of Series B Non-

<PAGE>

Convertible Voting Preferred Stock, it will own approximately 86.5% of the total
voting stock of Decor. The holding in Decor will be accounted for as an
investment at cost on the books of the Company. It also will be accounted for as
a non-cash financing activity.

In April 1996, the Company's investment banking firm arranged for the private
placement of 175,000 shares of the Company's Common A Stock and 50,000 shares of
the Company's Series A Preferred Stock. These shares were issued on April 24,
1996 to various unrelated investors generating gross proceeds of $431,251. The
Company realized net proceeds of $310,609 which was used to pay certain
outstanding liabilities.

On April 4, 1996, the Company's Board of Directors resolved to issue 250,000
shares of the Company's Class B Common Stock to Laurie Munn, wife of the
Company's President and Chief Executive Officer. This issuance is in
consideration for a down payment of $250, Ms. Munn's 6.6% note to the Company
providing for principal of $437,500 to be paid to the Company in five equal
annual installments of $105,561.90, and Ms. Munn's guaranty and pledge of her
assets for certain Company debt. The shares were issued to Ms. Munn on April 8,
1996. Ms. Munn has executed a Promissory Note and Security Agreement in
conjunction with the issuance of these shares. Copies of these documents are
included with this filing.

In July 1996, the Company will enter into a consulting agreement with Morris
Munn, father of the Company's President and Chief Executive Officer, in exchange
for certain services. As part of this agreement, the Company will issue to
Morris Munn options to purchase up to 350,000 shares of the Company's series A
preferred shares.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Interiors, Inc.:

We have audited the accompanying consolidated balance sheet of Interiors,
Inc. (a Delaware corporation) (known formerly as A.P.F. Holdings, Inc., a
New York corporation) and subsidiary as of June 30, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. We have also audited the statements of
operations, changes in stockholders' equity, and cash flows for Interiors,
Inc. for the year ended June 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interiors, Inc. and
subsidiary as of June 30, 1995, and the results of its operations and its
cash flows for each of the two years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

New York, New York
October 12, 1995

F-1

<PAGE>
<TABLE>
<CAPTION>
INTERIORS, INC.
CONSOLIDATED
BALANCE SHEET

June 30, June 30,
ASSETS 1995 LIABILITIES AND STOCKHOLDERS' EQUITY 1995
---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash 2,114 Notes payable and current maturities of
Accounts receivables - long-term debt 2,885,527
net of allowance of $60,000 1,484,223 Accounts payable and accrued liabilities 1,641,464
Inventories 2,234,226 Prepaid sales and customer deposits 43,168
Prepaid catalog costs 458,623 Capital lease obligations 16,549
Prepaid expenses and other current assets 392,320 ----------
---------- Total current liabilities 4,586,708
Total current assets 4,571,506 ----------
----------
NON-CURRENT LIABILITIES:
Notes payable 309,182
Capital lease obligations 15,276
----------
Total noncurrent liabilities 324,458
----------
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 1,280,692 COMMITMENTS AND CONTINGENCIES (Notes 8)
Furniture and fixtures 152,227
Leasehold improvements 248,410
---------- STOCKHOLDERS' EQUITY:
Total property and equipment, at cost 1,681,329 Preferred stock, $.01 par value,
2,500,000 shares authorized,
no shares issued and outstanding -
Class A common stock, $.001 par value,
15,000,000 shares authorized, 2,350,000
shares issued and 1,570,000 outstanding 1,570
Less- Accumulated depreciation and Class B common stock, $.001 par value,
amortization 592,949 2,500,000 shares authorized,
---------- 882,500 shares issued and outstanding 883
Net property and equipment 1,088,380 Additional paid-in-capital 5,595,763
Retained deficit (3,335,618)
Treasury Stock (270,257)
----------
OTHER ASSETS 1,243,620 Total stockholders' equity 1,992,341
---------- ----------
Total assets 6,903,506 Total liabilities and stockholders' equity 6,903,506
========== ==========
</TABLE>

The accompanying notes are an integral part of this balance sheet

F-2

<PAGE>

INTERIORS, INC.

CONSOLIDATED

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1995 AND 1994

1995 1994
---------- ----------
NET SALES 7,050,286 6,523,412

COST OF GOODS SOLD 3,780,408 2,754,238
---------- ----------
Gross Profit 3,269,878 3,769,174

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,876,318 3,337,094

RESTRUCTURING COSTS (Note 13) -- 400,000
---------- ----------
Income (loss) from operations (606,440) 32,080

INTEREST EXPENSE 311,314 281,316

BRIDGE FINANCING CHARGE -- 2,679,375
---------- ----------
Income (loss) before provision (benefit)
for income taxes (917,754) (2,928,611)

(BENEFIT) FOR INCOME TAXES (100,000) (88,000)
---------- ----------
Net income (loss) (817,754) (2,840,611)
========== ==========
NET (LOSS) PER SHARE OF COMMON STOCK (0.41) (2.18)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTATION 1,977,158 1,304,807
========== ==========

The accompanying notes are an integral part of these financial statements.

F-3

<PAGE>

<TABLE>
<CAPTION>
INTERIORS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994

Class A Class B
Common Stock Common Stock Additional Retained
----------------- ---------------- Paid-In Earnings Treasury
Shares Amount Shares Amount Capital (Deficit) Stock Total
--------- ------ --------- ------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1993 -- $-- 1,000,000 1,000 503,000 322,748 -- 826,748

Proceeds from issuance of
Class A common stock,
net of expenses of
$1,092,448 517,500 518 -- -- 1,494,534 -- -- 1,495,052
Proceeds from issuance
of warrants -- -- -- -- 71,875 -- -- 71,875
Conversion of convertible
debt 300,000 300 -- -- 29,700 -- -- 30,000
Bridge financing charge -- -- -- -- 2,679,375 -- -- 2,679,375
Net loss -- -- -- -- (2,840,611) -- (2,840,611)
--------- ----- --------- ----- --------- --------- ------- ---------
BALANCE, June 30, 1995 817,500 818 1,000,000 1,000 4,778,484 (2,517,863) -- 2,262,439

Proceeds from issuance
of warrants -- -- -- -- 372,211 -- -- 372,211
Conversion of Class B
Shares 117,500 118 (117,500) (118) -- -- -- --
Purchase of warrants and
related costs -- -- -- -- (46,425) -- -- (46,425)
Proceeds from sale of
Class A common stock 635,000 635 -- -- 491,493 -- -- 492,128
Treasury stock -- -- -- -- -- -- (270,257) (270,257)
Net loss -- -- -- -- -- (817,754) -- (817,754)
--------- ----- --------- ----- --------- --------- ------- ---------
BALANCE, June 30, 1995 1,570,000 1,570 882,500 883 5,595,763 (3,335,618) (270,257) 1,992,341
========= ===== ========= ===== ========= ========= ======= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4

<PAGE>

INTERIORS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS

YEARS ENDED
JUNE 30,
-----------------------
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($817,754) ($2,840,611)
---------- ----------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 630,670 321,005
Provision for losses on accounts receivable 35,000 (39,227)
Deferred income taxes (100,000) (88,000)
Restructuring costs (76,000) 400,000
Non-cash satisfaction of debt (63,000) (136,700)
Bridge financing charge -- 2,679,375
Change in assets and liabilities:
(Increase) decrease in accounts receivable (545,599) 165,221
Increase in inventories (516,990) (662,708)
Increase in prepaid catalog costs, prepaid expenses
and other current assets (176,439) (91,393)
Increase in other assets (489,606) (435,659)
(Decrease) increase in accounts payable and
accrued liabilities (169,600) 84,619
Increase (decrease) in prepaid sales & customer
deposits 1,996 (47,770)
Decrease in income taxes payable -- (2,164)
---------- ----------
Net cash used in operating activities (2,287,322) (694,012)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (591,041) (257,395)
---------- ----------
Net cash used in investing activities (591,041) (257,395)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt 3,652,100 879,918
Repayments of debt and capital lease obligations (2,630,535) (543,884)
Net proceeds from sale of Class A common stock and
warrants 863,704 1,596,627
Purchase of warrants and related costs (46,425) --
---------- ----------
Net cash provided by financing activities 1,838,844 1,932,661
---------- ----------
Net (decrease) increase in cash (1,039,519) 981,254

CASH, beginning of period 1,041,633 60,379
---------- ----------
CASH, end of period $2,114 $1,041,633
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $283,904 $254,957
Taxes $5,283 $2,974
NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company assumed a $500,000 note payable in exchange
for the right to repurchase 180,000 Regulation S Class A
Shares (See Note 6).

The accompanying notes are an integral part of these financial statements

F-5

INTERIORS, INC.
NOTES TO FINANCIAL STATEMENTS

I. DESCRIPTION OF BUSINESS AND ORGANIZATION

Business Activity

Interiors, Inc (the "Company" or "Interiors" known formerly as A.P.F.
Holdings, Inc. or "A.P.F.") was incorporated pursuant to the laws of
Delaware in February 1994. A.P.F. was incorporated pursuant to the laws of
New York in October 1990. A.P.F. was incorporated in order to reincorporate
in the State of Delaware. Effective March 1994, A.P.F. merged with and into
the Company.

The Company has three divisions: 1) the Custom Framing Division which is
engaged in the manufacture of antique and contemporary picture frames for
museums, art galleries, designers, collectors and frame retailers; 2) the
Catalog Division, a direct-to-consumer catalog, which offers a variety of
decorative accessories for the home; and 3) the Wholesale Division, which
manufactures and markets a line of high-end traditional and contemporary
mirrors through upscale retail furniture and department stores and the
Catalog division. The majority of the Company's sales are domestic and there
is no individual customers that represent more than 10% of sales.

The Company has from time to time entered into transactions with related
parties (See Note 9). To the extent that the Company is unable to attract
and retain qualified independent persons to serve on its board of
directors, conflict of interest may arise due to these relationships.

Management believes that the net proceeds from the preferred stock offering
of approximately $1,800,000 (See Note 7), debt and internally generated
funds will be adequate to continue at the Company's present level of
operations. Except for the net proceeds from the exercise of the warrants
issued in connection with the Company's initial public offering and the
Preferred Stock Offering in September 1995, the Company has no commitments
for additional financial. There is no assurance that if sought, the Company
will be able to obtain any additional financing.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated Financial Statements include the accounts of the Company
and its wholly-owned subsidiary ("Italia" or "CPC and Murano"). All
intercompany transactions have been eliminated.

F-6

<PAGE>

Revenue Recognition

Revenue is recognized at the time custom work, wholesale or catalog
merchandise is shipped or acceptance is acknowledged by the customer.
Payments received for merchandise not yet shipped or accepted are reflected
within prepaid sales and customer deposits, a current liability. Refunds of
catalog merchandise shipped have ranged from 11% to 23% of gross sales. The
Company has accrued for such refunds in the accompanying financial
statements.

Prepaid Catalog Costs

Prepaid catalog costs consist primarily of production and mailing costs,
which are deferred and amortized over the period of expected revenue stream
(estimated based upon historical results for similar catalogs and
circulation levels) of the related catalog from the date the catalog is
mailed, not exceeding one year. Amounts included in this asset at the
balance sheet date also include expenses incurred for catalogs to be mailed
subsequent to June 30, 1995. Catalog costs expensed are included in
selling, general and administrative expense for the years ended June 30,
1995 and 1994 amounted to $1,106,000 and $1,141,000, respectively.

Inventories

Inventory is valued at the lower of cost or market, with cost determined
using the first-in, first-out method. Finished goods consist of those items
being sold through the catalog or available for shipping through the
wholesale division. Bartered inventory acquired is valued at the original
cost of the inventory to the Company, which was determined to be the lower
of cost or market.

Property and Equipment

Property and equipment is stated at cost. The cost of additions and
improvements are capitalized and expenditures for repairs and maintenance
are expensed in the period incurred. Depreciation and amortization of
property and equipment is provided utilizing straight-line and accelerated
methods over the estimated useful lives of the respective assets as
follows:

Years
-----
Machinery and equipment 5-10
Furniture and fixtures 7-10

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

F-7

<PAGE>

Income Taxes

The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of exiting
assets and liabilities. Deferred income taxes have been provided for the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities (See Note 11).

Goodwill

In connection with the acquisition of Italia, amounts were paid in excess of
the fair market value of the assets required. These amounts have been recorded
as goodwill and are being amortized over 10 years. It is the Company's policy
to evaluate the life and amount of goodwill annually. Such evaluations are
based on current market conditions and expected future cash flows.

Use of Estimates in Preparation of the Financial Statements

Financial statements prepared in conformity with generally accepted accounting
principles require the use of management's estimates that effect the reported
amounts of assets and the reported amounts of certain expenses during the
reporting period. These assets include prepaid catalog costs and property and
equipment as management has made estimates as to the percent complete and
useful lines of these assets, respectively. Expenses are recorded as these
related assets are amortized and/or depreciated. Actual results could differ
from changes in these estimates.

Net Loss Per Share of Common Stock

Net loss per share of common stock was computed based on the weighted average
number of Class A and Class B shares outstanding. For the two years in the
period ended June 30, 1995, no common stock equivalents were included in the
computation since the effect would be antidilutive.

Fourth Quarter Adjustments

The Company recorded approximately $700,000 in losses during the fourth
quarter of fiscal 1995. The losses were attributable to write downs of
inventory based on the physical count, and the acceleration of amortization of
prepaid catalog costs due to reevaluation of future catalog mailings.

F-8

<PAGE>

3. INVENTORIES

The components of inventory are as follows:

June 30, 1995
-------------
Raw materials $1,900,154

Work in process 186,952
Finished goods 147,120
----------
$2,234,226
==========

4. OTHER ASSETS

The components of other assets are as follows:

June 30, 1995
-------------
Showroom samples, net of accumulated
amortization of $28,521 $ 148,673

List development costs net of accumulated
amortization of $357,984 257,844

Investment and close-out art 287,902

Organization costs net of accumulated
amortization of $120,071 155,400
Goodwill, net of accumulated amortization
of $10,728 222,995
Frame mirror molds, net of accumulated
amortization of $100,286 112,392

Security deposits 58,414
----------
$1,243,620
==========

List development costs incurred by the Company consist primarily of the
costs to acquire mailing lists used to create the Company's "House List"
for the use in its mail order catalog business. The costs associated with
the acquisition of these mailing lists are being amortized over a
three-year period. Investment and close-out art includes investment quality
art. It is valued at the lower of cost or market and was acquired in
non-cash transactions during fiscal 1995 and 1994 (See Note 13).
Organization costs incurred by the Company are being amortized over a
five-year period. Frame mirror molds include costs related to the wholesale
division in order to construct prototypes and molds for a product line of
antique reproduction framed mirrors. These costs are amortized over the
related product life or five years, whichever is shorter.

F-9

<PAGE>

5. ACCRUED LIABILITIES

June 30, 1995
-------------
Payroll and employee benefits $240,225
Deferred rent 69,286
Insurance 19,333
Union dues and benefits 56,120
Professional fees 78,453
Interest 48,000
Preferred Stock Offering 48,475
Other 16 733
--------
$576,625
========

As of June 30, 1995, the Company has unpaid payroll taxes, including
Italia, in the amount of approximately $100,000, including interest and
penalties. As of October 1995 approximately $100,000 remains unpaid.

6. LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt is as follows:

June 30, 1995
-------------
Notes payable, due May 2016, to U S. Small
Business Administration, bearing interest at 4%
payable monthly $319,435
Current maturities of long-term debt 10,253
--------
$309,182
========

Maturities of long-term debt for the next five years
ending June 30, are as follows:

1996 $10,253
1997 10,992
1998 11,448
1999 11,902
2000 12,435
Thereafter 262,405
-------
$319,435
========

In May 1993, Murano and CPC, secured Disaster loans from U.S. Small
Business Administration pursuant to promissory notes dated May 20, 1993 and
May 21,

F-10

<PAGE>

1993 in an aggregate amount of $339,300, which sums bear interest at the
rate of 4% per annum, are payable in equal monthly installments including
principal and interest and the balance of which will be due 23 years from
the date of the notes. Such borrowings are secured by machinery and
equipment and are personally guaranteed by the former President and Vice
President of Murano and CPC and their spouses.

Notes Payable and current maturities of short-term debt are as follows:

Current maturities of long-term debt $ 10,253
Notes payable 2,875,274
----------
$2,885,527
==========

June 30, 1995
-------------
Bank Line of Credit (a) $ 950,000

Notes payable, due July 1, 1995, to individuals, bearing
interest at 16% payable quarterly (See Note 8 legal
matters) 300,000

Notes payable, due October 20, 1995 to an unaffiliated
third party, bearing interest at 14% payable
monthly (b) 200,000

Notes payable, due September 30, 1995 to a Nevis, BWI
Corporation, bearing interest at 18%, payable monthly(c) 500,000

Notes payable at 135%, due September 30, 1995 to
a Nevis, BWI Corporation, bearing interest at 18%,
payable monthly (c) 150,000

Notes payable, due June 1996, to unaffiliated third
parties, bearing interest at 10%, payable June 1996 (d) 225,000

Notes payable, due June 1996, to unaffiliated third
parties, bearing interest at 6%, payable June 1996 (d) 75,000

Financing Agreement With A Secured Lender (e) 475,274
----------
$2,875,274
==========

(a) In July, 1994, the Company replaced its existing asset-based financing
agreement with a line of credit of up to $950,000 with a New York Bank at
a rate of interest of prime plus 1% (9.75% at June 30, 1995). Such
borrowings are based on trade receivable and inventory balances and

expires on November 30, 1995. Although management believes satisfactory
arrangements will be made to renew this facility, there can be no
assurance that this facility or one like it will be attained. The
borrowings under such line of credit are secured by a lien on all
personal property and fixtures of the Company and are personally
guaranteed by certain executive officers of the Company.

F-11

<PAGE>

(b) In November 1994, the Company borrowed the sum of $225,000 from an
unaffiliated third party, pursuant to a promissory note due March 30,
1995, together with interest at the rate of 14% per annum and 5% financing
charge. As security for the obligations under the promissory note, the
Company granted a security interest in and a lien upon all real property,
personal property and fixtures of the Company now owned or hereafter
acquired. Said lien is subordinate to the lien of a New York Bank. In
addition, the President and his wife and a director and his wife, an
Executive Vice President, each executed a personal guaranty of the
Company's obligations under the promissory note. On April 21, 1995, the
Company entered into an agreement to restructure the terms of the
promissory note. The security interest, liens, and guarantees previously
granted continue. On April 24, 1995, the Company paid the lender $25,000
principal plus $13,010 of accrued interest. The promissory note is due
October 20, 1995 together with interest at the rate of 14% per annum. The
promissory note is convertible in whole or in part into a maximum of
80,000 shares of the Preferred Stock. The Company will record a financing
charge to operations which will be made based on the difference between
the market value of the Preferred Stock, when the Securities and Exchange
Commission declares the Registration Statement effective (but in no event
later than September 30, 1995), and the price at which the note is
convertible. As of October 1995, such conversion has not occurred. Had the
conversion taken place at the date the Preferred Stock Registration was
declared effective (September 1995), approximately $400,000 would have
been recorded as a charge to earnings. The Company has signed a
Subscription Agreement with the same secured lender for the purchase of
80,000 of the Company's Class A Common Shares at a price of $0.466 per
share. In accordance with the Subscription Agreement such shares were sold
in April 1995. (See Note 7).

(c) In May 1995, the Company entered into a Compromise and Loan Agreement
with a Nevis, BWI Corporation which previously purchased 180,000 Class A
Common Shares of the Company pursuant to Regulation S. The agreement
provides for the issuance of a promissory note with stated principal
amount of $500,000 bearing interest at the rate of 18% per annum, with
the principal due and payable in full on September 30, 1995. The maturity
date may be extended upon payment of an extension fee. In consideration
for the issuance of the note, the lender grants to the Company a right to
repurchase all, but not less than all, of the shares at any time prior to
December 1, 1995. The promissory note is mandatorily prepayable upon the
receipt by the Company of any debt or equity financing, with defined

exceptions. The lender has been granted a security interest, except for
certain prior liens granted to a New York Bank and an unaffiliated third
party. The above 180,000 shares have been deposited with an independent
escrow agent. Upon payment in full of the loan pursuant to the promissory
note and joint written instructions by the Company and the lender, the
escrow agent will deliver the shares to the Company. The Company's
repurchase of these shares for $500,000 will be treated as a treasury
stock transaction when paid. The difference between the repurchase amount
of $500,000 and the

F-12

<PAGE>

proceeds from the original sale of the Class A Common Shares of $229,743
will be a reduction in Stockholders' Equity. If such joint written
instructions have not been delivered to the escrow agent by December 1,
1995, then the escrow agent shall deliver the shares to the lender on
December 5, 1995 unless the Company shall have delivered readily
available funds of $500,000 to the escrow agent. In addition, on May 12,
1995, the same corporation loaned the Company $150,000, bearing interest
at the rate of 18% payable monthly with 135% of the principal due and
payable in full on September 30, 1995. The maturity date may be extended
upon payment of an extension fee of $7,500 per month. The parties are
currently negotiating an extension on all amounts due to this lender. The
note on default is convertible at the option of the lender into 600,000
shares of Class A Common Stock of the Company at a price of $0.25 per
share. The above 600,000 shares have been deposited with an independent
escrow agent. The lender will be granted a security interest in certain
Class A Common Shares as collateral for the above loan.

(d) In June and July 1995, the Company delivered to unaffiliated parties
promissory notes in the aggregate amount of $300,000 with interest at the
rate of 10% per annum (the "10% Notes") and promissory notes in the
principal amount of $100,000 with interest at the rate of 6% per annum
(the "6% Notes"). The 10% Notes and 6% Notes are each payable in June and
July, 1996 or the closing of the sale by the Company of an issue of
Preferred Stock whichever is earlier. The 6% Notes are convertible, in
whole or in part at the option of the holder, into a maximum of 2,000,000
WC Warrants entitling the holders for a period of three years to purchase
one share of Preferred Stock per Warrant at a price of $5.50 per share.
These Warrants are redeemable by the Company. The Notes are secured by a
lien on the Company's assets. In September 1995 the Company repaid all
10% notes in full, plus all accrued interest for both the 10% Notes and
6% Notes. All holders of 6% notes have opted to convert, in full, into a
total of 2,000,000 WC Warrants, which were registered in a Registration
Statement declared effective on September 18, 1995.

(e) On June 16, 1992, CPC entered into a Financing Agreement with a secured
lender whereby CPC may borrow pursuant to an asset-related formula plus a
collection fee ranging from 5% to 11% based on the aging of the
receivable as of the collection date. This agreement was terminated on

February 15, 1995, Simultaneously, Italia entered into a Financing
Agreement with a New York based secured lender whereby Italia may borrow
pursuant to an asset-related formula. The agreement remains in effect
until February 29, 1996, and may be terminated by either party upon
notice to the other and payment of the commitment fee for the unexpired
term of the agreement. According to the agreement, the lender upon
confirmation of shipments, will advance Italia 70% of the accounts
receivable. Upon collection of the receivable, the lender remits the
balance of 30%. Interest is calculated on the daily cash balance at the
rate of prime plus 9% (18% as of June 30, 1995) per annum or a minimum of
18% per annum

F-13

<PAGE>

against a minimum monthly defined compensation of $3,000. In addition,
the secured lender received personal guarantees from the President of the
Company and his spouse.

7. SHAREHOLDER'S EQUITY

A.P.F. Reincorporation

In March 1994, A.P.F.'s certificate of incorporation was amended (i) to
increase the number of authorized shares of common stock, no par value, and
(ii) to modify the rights of its preferred stock, par value of $1,000 per
share, to eliminate the cumulative dividends on such preferred stock and to
provide for the convertibility of preferred stock into shares of common stock.
Also in March 1994, in accordance with the provisions of the Restated
Certificate of Incorporation, all of the shares of preferred stock par value
of $1,000 per share, were converted into fully paid and non-assessable shares
of common stock pursuant to a conversion rate equal to one share of common
stock, no par value for each 2.25 shares of preferred stock. No adjustment has
been made for dividends on the preferred stock which was converted since the
preferred stock (i) did not legally accrue or accrete dividends and (ii) was
converted at historical carrying value. Stockholders' equity in the
accompanying balance sheet and the statements of changes in stockholders'
equity have been retroactively restated to reflect the conversion of A.P.F.
preferred stock to A.P.F. common stock and the issuance of the Class B shares
upon the merger of A.P.F. into Interiors as of July 1, 1993.

Interiors Capitalization

The Company's certificate of incorporation authorizes the issuance of
15,000,000 (adjusted to 30,000,000 in August 1995) Class A shares, $.001 par
value, 2,500,000 Class B shares, $.001 par value, and 2,500,000 (adjusted to
5,500,000 in August 1995) shares of Preferred Stock, $.01 par value. Each
Class B share entitles the holder thereof to five noncumulative votes per
share on all matters on which stockholders may vote at meetings of
stockholders. The Class A and Class B shares shall vote together as a single
class on all matters. The Class B shares are convertible on a one-for-one
basis at any time after issuance at the option of the holder into Class A

shares. The issuance of additional Class B shares could, under certain
circumstances, have the effect of delaying or preventing a change in control
of the Company and may adversely affect the voting and other rights of
Class A shares. The Preferred Shares are convertible on a three to one basis
at any time after issuance at the option of the holder into Class A shares.

F-14

<PAGE>

Initial Public Offering

In June 1994, the Company issued 517,500 shares of Class A common stock, par
value $.001 per share, 460,000 Class WA warrants to purchase Class A shares
and Class WB warrants, and 258,750 Class WB warrants to purchase Class A
shares. The net proceeds from this Offering were approximately $1,600,000.

Through bridge financing in March 1994, the Company issued $270,000 in
principal amount of 10% notes and issued $30,000 in principal amount of 6%
convertible promissory notes (the "Convertible Notes") to the same unrelated
parties. In June 1994, the Convertible Note holders exercised their right to
convert, resulting in the issuance of 150,000 Conversion Units (300,000 Class
A shares and 300,000 Class WA warrants). Management believes that based on
the nature of such borrowings, the Company's financial position and the
current economic environment, the stated interest rate of 6% for the
Convertible Notes, is not reflective of the effective market rate of interest
when considering the conversion option of the note holders. Accordingly, a
"Bridge Financing Charge" in the amount of $2,679,375 is reflected in the
Statement of Operations for the year ended June 30, 1994. The amount was
computed using the fair market value of the Conversion Units (each conversion
Unit consisting of two Class A Shares and two Class WA Warrants) issued upon
conversion of the Convertible Notes, namely, the mean between the high and
low bid price of such securities as reported on NASDAQ Small Cap Market on the
date such Convertible Notes were converted. The mean price of each conversion
unit was $18.0625 per unit.

On October 6, 1994, the Company entered into a termination agreement with J.
Gregory & Co., Inc. ("J. Gregory"), the Representative of the Underwriters
in connection with its Initial Public Offering, and a holder of certain of the
Representative's Warrants. Pursuant to the agreement, the Company paid an
aggregate of $27,500 plus certain expenses in consideration for the
repurchase of Representative's Warrants to purchase 30,015 shares of Class A
Common Stock, 40,000 Class WA Common Stock Purchase Warrants and 22,500
Class WB Common Stock Purchase Warrants and the mutual termination of
certain rights and obligations.

Stock Option Plan

During fiscal 1994 the Company adopted the Interiors, Inc. 1994 Stock Option
and Appreciation Rights Plan (the "Plan") which provides for the granting of
options to officers, employees and consultants to purchase not more than an
aggregate of 250,000 Class A shares. In addition, the Company approved the
1994 Director Stock Option and Appreciation Rights Plan (the "Directors'

Plan"). The aggregate number of Class A shares for which options may be
issued pursuant to the Directors' Plan is 250,000 shares.

F-15

<PAGE>

On September 16, 1994, the Board of Directors granted incentive options to
purchase an aggregate of 159,000 Class A Shares under the 1994 Plan at an
exercise price equal to the fair market value of the shares on the date of
grant or $3.50 per share, to 23 employees and incentive options to purchase
25,000 Class A Shares to one employee at 110% of the fair market value of
$3.85 per share. Of such options to purchase, 75,000 options were granted to
two persons who are presently executive officers of the Company. In addition,
on October 5, 1994 the Board of Directors granted incentive options to two
employees to purchase an aggregate of 20,000 Class A Shares at exercise
prices equal to the fair market value of the shares or $3.38 per share. With
respect to each such grant, 25% of such options will vest each year
commencing on the first anniversary of the grant. On September 16, 1994, the
Board of Directors granted incentive options to purchase an aggregate of
50,000 Class A Shares to the Company's two directors under the Director Plan
at an exercise price equal to 110% of the fair market value of the shares on
the date of grant or $3.85 per share, all of which options immediately vested.
As of June 30, 1995 no other options have been granted. As June 30, 1995 an
aggregate on 239,000 options are exercisable at prices ranging from $3.50 to
$3.85.

Other Stock Transactions

On January 31, 1995, (as supplemented on February 6, 1995) the Company's
registration statement relating to the sale by certain selling security
holders of 3,000,000 Class WA Warrants, 500,000 Class A shares, 450,000 Class
A shares issuable upon conversion of 450,500 Class B shares by principal
stockholder and director of the Company, was declared effective by the
Securities and Exchange Commission. The Company agreed to deposit 500,000
Class A shares in escrow for a period of 60 business days (subject to
extension) with an independent escrow agency in connection with a
contemplated sale of such shares. During this purchase and escrow period, an
unaffiliated third party obtained the right to purchase a portion of the
escrowed shares in lots of 25,000 shares upon wiring payment for such shares
to the Company at the purchase price of $1.12 per share. On February 10,
1995, the unaffiliated third party purchased 200,000 Class A Common Shares
pursuant to the escrow agreement. On March 28, 1995, the purchase and escrow
agreements were terminated. The remaining 300,000 shares available from the
Company's registration statement were purchased by individual investors in
April 1995 at a price of $0.93 per share, as arranged, for by VTR Capital,
Inc. pursuant to the Financial Consulting Agreement (See Note 8).

During March 1995, the Company entered into two Offshore Securities
Subscription Agreements under which the Company sold 180,000 Class A Common
shares at a price of $1.856 per share and 55,000 Class A Common shares at a
price of $1.75 per share pursuant to "Regulation S" to a Nevis, BWI
corporation and an Andorra corporation respectively. The net proceeds from
the combined sales were approximately $283,000,

F-16

<PAGE>

which were used for working capital and general corporate purposes. The sale
to Nevis, BWI corporation was subject to certain price protection provisions.
The same Nevis, BWI corporation has entered into a Compromise and Loan
Agreement with the Company (See Note 6). In March 1995, the Company entered
into a lock-in agreement with Reynders, Gray and Company, Inc. in
consideration of the payment of $25,000 in substitution for the lock-in
Agreement for J. Gregory the then President and director obtained release of
the terms of such lock-in agreement as to the sale of 450,500 shares of Class
B Common Stock, which shall be converted into 450,500 shares of Class A
Common Stock, owned by him. On April 18, 1995, a Director of the Company
converted 117,500 Class B Shares to 117,500 Class A Shares and then sold
90,000 and 27,500 registered Class A Common shares to the same corporations,
at the same price per share as the Company, respectively. No consideration
was paid in conjunction with the conversion.

In September 1995, the Company's registration statement with respect to
460,000 shares Series A, 10% Cumulative Convertible Preferred Stock
("Preferred Stock"), and 230,000 Redeemable Class WC Warrants ("Warrants") to
purchase Preferred Stock at the exercise price of $5.50 per share was
declared effective by the Securities and Exchange Commission. Each share of
Preferred Stock is convertible commencing one year from the date of issue,
subject to adjustment, into three shares of Class A Common Stock of the
Company. On May 5, 1995 the former President was reappointed as President,
Chief Executive Officer and Treasurer of the Company in connection with this
offering. In September 1995, upon completion of the Preferred Offering, the
President resigned. The net proceeds from this Offering were approximately
$1,808,000, including over-allotments. The effect of such offering would have
resulted in an increase in total assets of $880,000, to $7,794,000, from
$6,904,000, as of June 30, 1995. Current liabilities would have decreased
$875,000, to $3,712,000, from $4,587,000, as of June 30, 1995. Stockholders'
Equity would have resulted in an increase of $1,755,000, to $3,747,000, from
$1,992,000, as of June 30, 1995.

8. COMMITMENTS AND CONTINGENCIES

Operating Leases

On January 16, 1991, the Company entered into a sublease agreement that
provides for the leasing of a site which serves as the Company's principal
office and manufacturing facility. The term of the sublease expires December
31, 1996. The Company had a purchase option on this facility, which expired
on January 31, 1994. This lease requires minimum annual lease payments of
approximately $255,000.

The Company entered into a lease on February 1, 1993, for a 1,800 square foot
Manhattan showroom. The lease expires January 3, 2003, and requires rent
payments on approximately $78,000 per annum.

F-17

<PAGE>

Italia occupies approximately 1,750 square feet at International Home
Furnishings Center in High Point, North Carolina, pursuant to a lease dated
May 1, 1993. The term of the lease is five years and requires minimum annual
rent payments of approximately $26,500.

In addition, Italia occupies approximately 15,000 square feet of
manufacturing and office space at 8717 N.W. 117th Street, Hialeah Gardens,
Florida on a month to month basis. Italia is required to pay rent of
approximately $72,000 per annum. The Company believes alternate space is
available if Italia is required to relocate and that any such relocation
would not have a material adverse affect on the Company.

Future minimum lease payments under all operating leases are as follows:

1996 $ 381,543
1997 262,877
1998 130,498
1999 111,637
2000 114,903
Thereafter 234,928
----------
$1,236,368
==========

Rent expense charged to operations, which includes escalation charges, for
the years ended June 30, 1994 and 1995, amounted to $405,945 and $299,474,
respectively.

Union Agreement

Effective April 1, 1991, the Company signed a three-year (with an additional
two-year automatic renewal) union contract for its union members under the
terms of a collective bargaining agreement. The Company has received notice
that the two-year automatic renewal and the existing union contract will
remain in effect through April 1, 1996.

Employment Agreements and Consulting Agreements

In March 1994, the Company entered into an Employment Agreement (the
"Agreement") with its President. The Agreement is for a term of three years
expiring in February 1997. According to the terms of the Agreement, the
President will be employed at a base salary of $81,000 per year and will be
entitled to bonuses in accordance with a bonus plan. In August 1994, the
President's base salary was increased to $150,000. The Agreement permits the
Company to terminate his employment for "cause", as that term is defined, in
accordance with the State of New York. In addition, the Agreement requires
this individual to devote substantially all of his working time to the
Company and contains confidentiality and noncompetition provisions effective
through May 1997.

F-18

<PAGE>

On July 15, 1994, the Company entered into a letter agreement with its Vice
President and Chief Financial Officer. According to the terms of the
agreement, the Vice President and Chief Financial Officer is employed at a
base salary of $110,000 with salary increases of $5,000 in month six and
month twelve and bonuses in accordance with a bonus plan and certain stock
options to purchase an aggregate of 100,000 Class A shares, 50,000 of which
were granted on September 16, 1994; 25,000 of which will be granted on the
second anniversary of employment and 25,000 on the third anniversary.
Further, the parties contemplate that the employment agreement will include a
severance clause to compensate the Vice President and Chief Financial Officer
one weeks salary for each month of employment in the event his employment is
terminated by the Company during the first year.

Decor Holdings, Inc. ("Decor"), a consulting firm operated and controlled by
the former President of the Company, currently a Director of the Company, was
responsible for merchandising and designing the Company's catalogs until June
30, 1994. Services to the Company by Decor were principally performed by his
wife, who is also the sister of the President of the Company (the
"consultant"). Effective July 1, 1994, the Company discontinued the use of
Decor's services. The former consultant became a full-time employee of the
Company at a salary of $150,000 per year and presently serves as Executive
Vice President and Secretary. Decor's staff used the Company's in-house
computerized models to analyze the return on products offered in the
Interiors Catalog in order to determine the optimum space allotments in
future catalogs. The layout, product mix and prices of products in the
Interior Catalog are modified for future mailings based on such analyses.
Merchandising services performed by Decor included management of sourcing or
locating new products and vendors, selection of products, attendance at trade
shows, allocation of catalog and advertising space, and determination of
pricing and selection of mailing lists (See Note 9).

In August 1995, the Company entered into a four year employment agreement
with the Executive Vice President, with an annual salary of $150,000. In
addition, on or about September 30, 1995, the agreement provides for the
Executive Vice President to receive a one time payment at the Company's
option of either, $50,000 or 50,000 shares of Class A Common Stock. The bonus
will be a charge to operations in the first quarter of fiscal 1996. This
person is also entitled to receive stock options, stock bonuses and other
equity instruments in an amount equal to that which receives by the President
or members of his immediate family.

On June 1, 1995, the Company entered into an Employment Agreement with a
sales representative who became Vice President of Sales and Marketing of the
Company. The Agreement is for a term of four years beginning June 1995 and
may be terminated by the Company after the first year with payment of 80% of
the employee's salary, reduced by the employee's other income. The Agreement
provides that the Vice President of Sales

F-19

<PAGE>

and Marketing will be employed at a base salary of $117,500 plus a sales
commission structure based on increases in net sales for the Company and for
Italia. This person, an unrelated party, will be granted an option to
purchase 10,000 shares of the Company's Class A Common Stock for every full
year under the employment agreement at a price of $2.50 per share. These
options have not yet been granted.

Effective January 4, 1994, the Company entered into a two-year Marketing and
Organizational Agreement (the "Marketing Agreement") with a consulting firm.
Pursuant to the Marketing Agreement, the consulting firm will consult with
and advise the Company concerning its marketing plan, business operations and
catalog production. The consulting firm will be paid $9,375 each quarter in
advance together with reimbursement of expenses incurred not to exceed $200
per month. Amounts due under this agreement were $18,750 as of June 30, 1995.
In August 1995, the company has agreed to issue, at a future date, 60,000
Class A Common shares in settlement of all current and future liabilities
under this Agreement.

As part of the acquisition of CPC and Murano, Italia entered into various
consulting and employment agreements aggregating $176,000 per annum. The
agreements may be terminated at any time by Italia for reasons as defined in
the agreements. In July 1995, the employment agreement for the President of
Italia was terminated by the Company. While it is expected that termination
provisions will be amicably resolved, there can be no assurance that such
results will be achieved. The Company believes this termination may effect
the other consulting and employment agreements.

On April 18, 1995, the Company entered into a Financial Consulting Agreement
with VTR Capital, Inc., which provides for the consultant to arrange for the
sale by the Company of its remaining registered 300,000 shares of Class A
Common stock at a price of $0.93 per share. The consultant also arranged
bridge loans to the Company in the aggregate amount of $400,000, bearing
interest at 6% and 10%. Three hundred thousand dollars of these notes were
repaid out of proceeds of the sale of Preferred Stock. The balance of the
loans was converted into 2,000,000 Class WC warrants in connection with the
Company's Preferred Stock Offering in September 1995.

In September 1995, the consultant completed a public offering of preferred
stock in the gross amount of $2,010,000. In consideration for the services
rendered by the Consultant, the Company lowered the exercise price of the
Company's Class WA Warrant to $1.50 per share and to have approximately
180,000 shares of the Company's Class A shares which were previously sold
pursuant to a Regulation S private placement under the Securities Act of 1993
("Regulation S"), to be put into escrow and to be repurchased by the Company
over the next 12 months. (See Note 6). The consultant agreed to arrange to
have a secured lender restructure its secured loan with the Company (See Note
7). The consultant has also agreed to use its best efforts to arrange for the
sale of the certain registered Class A Shares of a Director. In consideration
for this and the consultant's

F-20

<PAGE>

services to the Company, the Director and the wife of the President, entered
into a Lock-up Agreement, of certain other shares, with the consultant for a
period of 90 days from signing the Agreement.

On April 18, 1995, the Company entered into a Management Consulting Agreement
with a secured lender for a period of six months ending October 18, 1995 for
a fee of $11,250 payable on October 18, 1995. The consultant shall consult
with and render advice concerning the Company's strategic planning, financial
strategies, and other financial activities. (See Note 6--relating to the
promissory note in the amount of $225,000).

On April 1, 1995, the Company entered into a Consulting Agreement with the
father of the President under which the consultant will provide the Company
with: design and fabrication of new molds for sculpture; recommend, and
implement improvements in antiquing, woodworking, gilding and carving
processes; and attendance at trade shows for frame making and mold making.
Fees under the agreement are payable at $54,000 per annum for one year
renewable at the Company's option (See Note 9).

Legal Matters

In November 1990, in connection with APF's original acquisition of its
assets, the Company acquired the rights, under certain personal guarantees
issued by the President of the Company and his wife. On June 19, 1991, the
President executed an affidavit of confession of judgment authorizing the
entry of a judgment by the Company against him and on that date the Company
obtained a judgment of confession in the amount of $1,000,000 plus interest
in the amount of $52,768 against this individual. On March 8, 1994, the
Company executed and filed with the court a satisfaction of judgment in
consideration for the payment to the Company of $50,000 on behalf of this
individual and execution of a three-year employment agreement (See discussion
above regarding employment agreement).

In September 1991, the Company's President without admitting or denying the
allegations, agreed to the entry by the U.S. Federal Trade Commission ("FTC")
of a consent order for permanent injunction for the Company's President. The
consent order permanently enjoins this individual from making certain false
representations in connection with the promotion, sale or offering for sale
of any artworks or from removing certain required disclosures on certain art.
In addition, for a period of five years the President is prevented from
destroying or disposing of any business records identified in the consent
order in this possession or the possession of any business entities either
directly or indirectly under his control for period of three years after the
creation or receipt of such documents. The consent order extends to all
persons or entities in participation with him who receive actual notice of
the consent order and to any business entities directly or indirectly under his
control or in which he owns a direct or indirect controlling interest. On or
about December 28, 1994 Merrill Corp. filed a complaint in the Supreme Court
of

F-21

<PAGE>

the State of New York, County of New York against the Company seeking payment
for goods sold and delivered to the Company in the approximate amount of
$55,670, plus interest. The Company believes it has meritorious defenses and
intends to vigorously defend against the claim. As of June 30, 1995 all
amounts have been accrued.

On or about May 11, 1995, Hide Tashiro commenced a lawsuit against
Interiors, Inc. and others, by filing a motion for sumrnary judgment in lieu
of a complaint. Mr. Tashiro demands a sum of $75,000 in repayment of a loan
to Decor Holdings, Inc., together with interest and attorney's fees. The loan
was guaranteed by A.P.F. Holdings, Inc., predecessor to Interiors, Inc. The
Company believes it has meritorious defenses and intends to vigorously defend
against the claim.

The Company in April 1992 borrowed $150,000 from Hide Tashiro and $150,000
from Takehisa Nishijima evidenced by promissory notes due July 1, 1995.
Demand for payment has been made but the Company believes that it is due
from the lenders funds in excess of the amount of said notes (See Note 6).

In July 1995, the Company through its attorneys made demand against Morgan
Steel Ltd. the office which is located on the Isle of Man, England, for the
payment of $362,507 on account of a perceived violation of Section 16(b) of
the Securities and Exchange Act. No response to said demand for payment has
been made to date.

Gear Holdings, Inc. claims that it is owed license fees by Italia in an
amount in excess of $40,000. Italia is investigating the merits of this
claim, and believes that it does not have a liability to Gear Holdings, Inc.

In connection with a previously settled lawsuit, the Company agreed to an
injunction to refrain from manufacturing, reproducing, selling, offering for
sale, advertising, transferring or distributing approximately 24 enumerated
works of art without prior written permission of the supplier.

On October 12, 1995, the Company was notified by two of its directors (who
are related to the Company's President) that they dispute the validity of the
meeting as well as the election of certain directors and officers that took
place at a Board Meeting on October 2, 1995. These Directors further notified
the Company that unless immediate action was taken, among other things, to
nullify the October 2nd meeting and the election of related directors and
officers, legal action will be taken to protect the rights of the Company.

The Company is subject to other claims and litigation in the ordinary course
of business. In Management's opinion, such claims are not material to its
financial position or its results of operations.

F-22

<PAGE>

9. RELATED PARTY TRANSACTIONS

During the fiscal years ended June 30, 1994, the Company paid Decor $226,820
for consulting services (See Note 8). The Company believes that the cost for
such services did not exceed that which the Company would be required to pay
a nonaffiliated provider. No arnounts were paid to Decor during fiscal 1995.

In March 1994, the wife of the President of the Company made a $50,000
payment to the Company on his behalf in consideration of a satisfaction of
judgment against certain outstanding obligations (See Note 8). This $50,000
is included in other income for fiscal 1994.

In August 1995, a Director of the Company, and the wife of the President of
the Company, entered into an agreement whereby an existing option granted by
the director to the President's spouse to purchase 500,000 shares of Class B
Common Stock at $3.50 per share was canceled and the director sold to the
President's wife 269,750 shares of Class B Common Stock for $150,000, the
then market price.

In March 1995, the Company repaid its promissory note in the amount of
$15,000 due July 1, 1995. The lender, who was elected to the Board of
Directors in May 1995, accepted artwork and framing from the Company as
payment in full of the principal and all accrued interest, to date, for a
total of $20,622.

In June 1994, the Company sold certain works of art to the father (a Director
of the Company) of the President of the Company for $75,000. In June 1995,
the Company arranged for and negotiated the sale of a portion of the
aforementioned art. The Company incurred approximately $70,000 in production
costs to finish the art and recognized a $40,000 profit on the transaction.
For the years ended June 30, 1995 and June 30, 1994, the Company paid
approximately $45,650 and $71,000 respectively, to the father of the
President.

Included in inventory as of June 30, 1994, was $77,400 of art work
representing the remaining inventory from a prior year's non-cash transaction
with a related party. During the fiscal year ended June 30, 1995, this art
work was exchanged for other art, with the same value.

Through fiscal 1994, the Company borrowed an aggregate of $150,000 from a
relative of the President of the Company. The aggregate amount due is
evidenced by a promissory noted dated September 1, 1993 and bears interest at
the rate of 12% per annum. In March 1994, the bearer of the note agreed to
accept certain works of art in full satisfaction of the above note.

In March 1994, the Company borrowed the sum of $100,000 from a relative of a
Director

F-23

<PAGE>

of the Company. The amount was is evidenced by a promissory note and bore
interest at the rate of 6% per annum. The balance was paid in full on or
about July 1, 1994, including interest.

In June 1994, the Company borrowed the sum of $100,000 from the former
President of the Company. The amount due was evidenced by a promissory note
payable, which bore interest at the rate of 12% per annum. A partial payment
was made prior to June 30, 1994 of $26,000 and the balance of $74,000 was
paid on July 1, 1994, including interest. This transaction was entered into
to cover uncleared bank funds. No further transactions of this nature have
been entered into since June 1994.

In October 1994, the Company borrowed the sum of $33,000 from the Vice
President and Chief Financial Officer of the Company. The amount due was
evidenced by two promissory notes dated October 27, 1994 and October 28, 1994
for $8,000 and $25,000, respectively, which bore interest at the rates of 18%
and 12% per annum, respectively. The principal and interest were initially
due November 17, 1994 and November 18, 1994, and had been extended to
February 15, 1995. Unpaid sums bore interest at the rate of 18% per annum
plus $160. In April 1995, the Company paid all principal and interest due on
both promissory notes.

In October 1994, the Company borrowed the sum of $8,000 from the President of
the Company. The amount due was evidenced by a promissory note dated October
27, 1994, which bore interest at the rate of 12% per annum. The principal and
interest were due November 17, 1994. In November 1994, the Company paid the
sums due the President of the Company. In addition, in November and December
1994, the Company advanced an aggregate amount of $13,000 to the President of
the Company.

The balances resulting from related party transactions as of June 30, 1995
and 1994, are as follows:

June 30, 1995 June 30, 1994
------------- -------------
Accounts receivable from Decor* $ 57,825 $ 57,825
Receivable from a related party 13,000
Accounts receivable from a related party 35,000 75,000
Accounts payable due Decor 4,200
Note payable, due April 16, 1995,
bearing interest at 6% 100,000
Note payable, due July 10, 1994,
bearing interest at 12% 74,000

F-24

<PAGE>

Note payable due September 1, 1996,
bearing interest at 12% per annum 150,000
Note payable due July 1, 1995, bearing

interest at 10% per annum 15,000

*collateralized by certain art work held by the Company

10. PROFIT SHARING AND DEFERRED COMPENSATlON PLANS

In July 1991, the Company started a qualified Profit Sharing Plan for all
nonunion employees and a nonqualified Deferred Compensation Plan for certain
key employees. Under the terms of the Profit Sharing Plan, the Company is
required to contribute a minimum of 1% of related annual salary in any
three-year period. The Company has not made any contributions to the Profit
Sharing Plan since its initial contribution in 1991.

11. PROVISION (BENEFIT) FOR INCOME TAXES

The income tax provision (benefit) consists of

Year Ended June 30
--------------------
1995 1994
---- ----
Current income taxes:
Federal $ -- $ --
State and local -- --

Deferred income tax (100,000) (88,000)
--------- --------
$(100,000) $(88,000)
========= ========

The difference between the statutory and effective tax rate for the years
ended June 30, 1995 and 1994 results principally from immaterial
non-deductible expenses in 1995 and approximately $1,000,000 of
non-deductible expenses in 1994.

The benefit from the Company's net operating loss carryforward for federal
income tax purposes in the amount of approximately $2,700,000 has been fully
reserved for because future realization is not considered to be "more likely
than not". In addition, due to the changes in ownership during the last 3
years and the future, utilization of the net operating losses against future
taxable income may be severely limited.

12. RESTRUCTURING COSTS

Since the inception of the Interior Accents Division, sales generated both
in-house and by outside independent sales representatives have not been
significant and have not met management's expectations. Therefore, management
began a thorough review of its

F-25

<PAGE>

product line and distribution in the fourth quarter of fiscal 1994.
Management evaluated alternative approaches to penetrating the home
furnishings market and concluded that a relationship with a company which has
an existing sales, marketing and design infrastructure already in place would
accelerate growth in this market segment. In June 1994, the Company began
reviewing opportunities to purchase several manufacturers of decorative
accessories. The companies available which meet the criteria of this
alternative approach have designing and manufacturing capabilities which may
duplicate the Company's own capabilities and a product line which will
necessitate a change in the existing product mix. The Company had not
contemplated the need for a restructuring charge at the time of or prior to
the Company's Initial Public Offering. It was not until August 1994 that any
discussions regarding the possible restructuring of the Interior Accents
Division began. By September 1994 the Company had completed its evaluation of
alternatives to entry into the home furnishings market and decided that a
$400,000 reserve was necessary for the reduction in value of certain assets
it believes have been impaired as a result of the implementation of its plan
regarding this business activity. As of June 30, 1995, approximately $300,000
of the reserve remains.

13. NON-CASH TRANSACTIOINS

In February 1994, the Company acquired fixed assets valued at $155,150 in
exchange for certain works of art (inventory) of equal value. No income or
loss was recognized on this transaction. In March 1994, the Company satisfied
a $150,000 note payable to a related party through the exchange of certain
works of art. The Company realized $87,000 gross profit on the transaction
(See Note 9).

Included in inventory as of June 30, 1994, was $77,400 of art work
representing the remaining inventory from a prior year's non-cash transaction
with a related party. During fiscal year ended June 30, 1995, this art work
was exchanged, for other art, at the same value, which the Company believes is
more saleable.

14. ACQUISITION

In connection with the Company's plan to restructure its wholesale business,
the Company through its wholly owned subsidiary Italia acquired the business
of two privately held Florida-based companies. Murano and CPC, manufacture
and market upscale decorative ceramic accessories to the home furnishings
industry through a showroom in High Point, North Carolina and a network of
sales representatives. Closing on such acquisitions occurred on October 21,
1994. These acquisitions were accounted for under the purchase method of
accounting. The Company assumed a deficit of approximately $200,000 for all
of the outstanding stock of the acquired companies. Accordingly, the excess
of costs over fair value has been recorded as goodwill and is being amortized
over 10 years on a straight line basis. The Company also agreed to pay the
seller on the basis of a formula purchase price computed as a factor of
future earnings from continuing operations, subject to

F-26

<PAGE>

certain adjustments and offsets in cash and or Class A Shares. This
additional consideration will result in an additional element of cost of the
acquisition of Murano and CPC which will be recorded at the time such payment
is calculated. In October and November 1994 the Company sold 3,000,000 Class
WA Warrants for additional working capital a portion of which was used to
support the acquired operations. The net proceeds from this offering were
approximately $371,400. Pursuant to the Subscription Agreement the Company
was required to register these warrants within 180 days of the sale. The
Company's Registration Statement relating to the 3,000,000 Class WA Warrants
was declared effective by the Securities and Exchange Commission on January
31, 1995 (and supplemented on February 6, 1995 and March 29, 1995). On April
13, 1995 the Company lowered the price at which its Class WA Warrants may be
converted into Class A Shares from $5.17 per share to $1.50 per share,
subject to 30 days notice to all warrant holders and the filing by the
Company of an amended Registration Statement, and the Securities and Exchange
Commission declaring such Registration Statement, as amended, effective. The
Company filed such amendment with the Securities and Exchange Commission on
May 15, 1995 and such amendment was declared effective on June 15, 1995.

The Company's consolidated net loss for the year ended June 30, 1995 includes
approximately $144,000 of net income from the operations of Murano and CPC
for the period October 21, 1994 to June 30, 1995.

Had the Company acquired Murano and CPC as of July 1, 1994, the Company's net
loss for the year ended June 30, 1995 would have not been materially effected.
No audited information is available for Murano or CPC for any period prior
to October 21, 1994.

F-27

<PAGE>

No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer of any securities
other than the securities to which it relates or an offer to any person in any
jurisdiction in which such an offer would be unlawful.

----------

TABLE OF CONTENTS

Page
----
Available Information .............
Prospectus Summary ................
The Company .......................
The Offering ......................
Summary Financial
Information ......................
Risk Factors ......................
Use of Proceeds ...................
Dilution ..........................
Capitalization ....................
Dividend Policy ...................
Selected Financial Data ...........
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations .......................
Business ..........................
Management ........................
Principal Stockholders ............
Certain Transactions ..............
Description of
Securities .......................
Selling Securityholders ...........
Underwriting ......................
Legal Matters .....................
Experts ...........................
Additional Information ............
Financial Statements ..............

----------

Until , 1996 (25 days after the date of this Prospectus), all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

7,778,750 Shares of Class A Common Stock issuable
upon exercise of
3,760,000 Redeemable Class WA Warrants and
4,018,750 Redeemable Class WB Warrants
and
3,760,000 Redeemable Class WB Warrants

INTERIORS, INC.

----------

PROSPECTUS

----------

JULY , 1996

----------

<PAGE>

PART II

Item 24. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnity its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) arising
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.

Article Seven of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.

The effect of the foregoing is to require the Company to indemnity the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.

II-3

<PAGE>

Item 25. Other Expenses of Issuance and Distribution

The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered, other than selling
discounts and commissions:

Securities and Exchange Commission Registration Fee
Accounting Fees and Expenses to Auditor and Consultant $_______
Legal Fees and Expenses $_______

Consulting Services $_______
Miscellaneous Expenses _______
Total Estimated Expenses $
========

All such expenses will be borne by the Company.

Item 26. Recent Sales of Unregistered Securities.

The following shares of unregistered securities have been issued by the
Registrant since its inception. There were no underwriting discounts or
commissions paid in connection with the issuance of any of said securities,
except as noted below.

In October 1990 A.P.F. issued 100 shares of its Common Stock, no par value,
to Theodore Stevens, President and a Director of the Company, for aggregate
consideration of $225,000. In October 1990 A.P.F. issued 165 shares of its
Preferred Stock, $1,000 per value per share to Theodore Stevens in consideration
for the payment of $165,000. On June 30, 1992 A.P.F. converted certain
indebtedness of A.P.F. to Decor in the amount of $114,000 to 114 shares of
Preferred Stock of A.P.F. In March 1994 such shares were transferred by Decor to
Theodore Stevens and the 279 shares of Preferred Stock were converted by Mr.
Stevens into 124 shares of A.P.F. Common Stock. As a result of the Company's
recapitalization, the Company issued 1,000,000 shares of the Company's Class B
Shares to Theodore Stevens in exchange for all of the issued and outstanding
Common Stock of A.P.F.

In March 1994 as part of a bridge financing, the Company issued to two
persons 10% Notes in the aggregate principal amount of $270,000 and Convertible
Notes in the aggregate principal amount of $30,000, all in consideration of
loans to the Company in the aggregate principal amount of $300,000. See "Bridge
Financing."

In November 1994 Theodore Stevens converted 49,500 Class B Shares to 49,500
Class A Shares.

In November 1994 the Company sold 3,000,000 Class WA Warrants to nine
individuals and/or entities for aggregate consideration of $480,000.

sale by the Company of an issue of Preferred Stock, whichever is earlier. The 6%
Notes were convertible, in whole or in part, at the option of the holder, into a
maximum of 2,000,000 WC Warrants entitling the holders for a period of five
years to purchase one share of Preferred Stock per Class WC Warrant at a price
of $5.50 per share. These Warrants are redeemable by the Company. The Notes were
secured by a lien on the Company's assets. In September 1995 the Company repaid
all 10% Notes in full, plus all accrued interest for both the 10% Notes and 6%
Notes. All holders of 6% Notes have converted in full, into a total of 2,000,000
Class WC Warrants, which were registered in a Registration Statement declared
effective by the Securities and Exchange Commission on September 18, 1995.

II-4

<PAGE>

The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering. No broker-dealer
or underwriter was involved in the foregoing transactions. All certificates
representing the securities issued and currently outstanding by the Registrant
herein have been or will be appropriately legended.

Item 27. Exhibits.

Exhibit No. Item
- ----------- ----

1.1 Revised form of Underwriting Agreement by and between the
Company and J. Gregory & Company, Inc.2/

1.2 Form of Agreement Among Underwriters.1/

1.3 Form of Selected Dealer Agreement.1/

2.01 Stock Purchase Agreement, dated October 21, 1994, among the
Company and Murano Crystal Corp. and Stephen M. Tucker.6/

2.02 Stock Purchase Agreement, dated October 21, 1994, among the
Company and Cemmic Productions Corp. and Stephen M. Tucker and
Michael D. Tucker.2/

3.1 Certificate of Incorporation of the Company.1/

3.2 By-Laws of the Company.1/

3.3 Restated Certificate of Incorporation of A.P.F. Holdings,
Inc.1/

3.4 Certificate of Ownership and Merger between Interiors, Inc.
and A.P.F. Holdings, Inc.1/

3.5 Articles of Incorporation of Italia Collection, Inc. 7/

3.6 By-laws of Italia Collection, Inc.7/

4.1 Forms of Representative's Warrants to Purchase Class A Common
Stock, Class WA Warrants and Class WB Warrants.2/

4.2 Form of Warrant Agreement by and between the Company, J.
Gregory & Company, Inc., and Transfer Agent.3/

II-5

<PAGE>

4.3 Specimen Class A Common Stock Certificate.2/

4.4 Specimen Class B Common Stock Certificate.2/

4.5 Specimen Class WA Warrant Certificate.2/

4.6 Specimen Class WB Warrant Certificate.2/

4.7 First Amendment to Warrant Agreement.

5.1 Opinion of Bernstein & Wasserman, LLP, securities counsel for
Registrant.

10.1 Sublease Agreement dated January 16, 1991 between Stern Metals
and the Company.1/

10.2 Lease dated August 11, 1992 between Hoopskirt Factory Partners
and I.R.A.L., Inc.2/

10.3 Lease dated February 1, 1993 between Arglo Realty Company and
the Company.1/

10.4 Security Agreement dated November 13, 1990 between the Company
and United Credit Corporation and amendments thereto dated
November 13, 1990, January 7, 1992 , October 11, 1991 ,
December 15, 1992 and June 23, 1993.1/

10.5 Promissory note dated June 27, 1991 for $75,000 to Mount
Vernon Urban Renewal Agency.1/

10.6 Mount Vernon Small and Minority Business Loan Agreement dated
June 27, 1991.1/

10.7 Security Agreement between Mount Vernon Urban Renewal Agency
and the Company dated June 27, 1991.1/

10.8 Intercreditor Agreement dated June 27, 1991 between United
Credit Corporation and Mount Vernon Urban Renewal Agency.1/

10.9 Promissory note dated April 2, 1992 in favor of Hide Tashiro,
in principal amount Of $150,000.1/

10.10 Promissory note dated April 2, 1992 in favor of Takehisa
Nishijima, in principal amount of $150,000.1/

II-6

<PAGE>

10.11 Promissory note dated June 8, 1992 in favor of Roger Lourie,
in principal amount of $15,000.1/

10.12 Promissory note dated September 19, 1992 in favor of Howard
Morganstein, in principal amount of $50,000.1/

10.13 Promissory note dated September 1, 1993 in favor of The Munn
Trust of 1975 Trustee: Sol Munn and Evelyn Munn, in the
principal amount of $150,000.1/

10.14 Agreement dated April 1, 1991 between Production,
Merchandising & Distribution Employees Union, Local 210,
affiliated with The International Brotherhood of Teamsters,
Chauffeurs, Warehouseman and Helpers of America, AFL-CIO and
the Company.1/

10.15 Form of Security Agreement between the Company and the Bridge
Lenders.1/

10.16 Form of Non-Negotiable 6% Convertible Promissory Note.1/

10.17 Form of Non-Negotiable 10% Promissory Note.1/

10.18 Employment Agreement dated March 8, 1994 between A.P.F.
Holdings, Inc. and Max Munn.1/

10.19 Marketing and Organizational Agreement between the Company and
Robert M. Leopold dated as of January 4, 1994.1/

10.20 Promissory Note dated March 16 , 1994 in favor of William
Evenchick, in the principal amount of $100,000.1/

10.21 Pledge and Security Agreement between Ted Stevens and Stem
Metals, Inc. dated January 16, 1991.1/

10.22 Promissory Note dated January 16, 1991 in favor of Stem
Metals, Inc. in the principal amount of $125,000.1/

10.23 1994 Stock Option and Appreciation Rights Plan.5/

10.24 1994 Director Stock Option and Appreciation Rights Plan.4/

10.25 Revised form of Warrant Exercise Fee Agreement.5/

10.26 Revised form of Consulting Agreement between the Company and
J. Gregory & Company, Inc.2/

II-7

<PAGE>

10.27 General Loan and Security Agreement dated July 7, 1994 between
the Company and The Bank of New York.5/

10.28 Promissory Note dated July 7, 1994 in the amount of
$950,000.5/

10.29 General Guarantees dated July 7, 1994 of Ann Stevens, Theodore
Stevens and Max Munn to The Bank of New York.5/

10.30 Lease Agreement dated July 15, 1994 between the Company and
Robert Schildkraut.5/

10.31 Promissory Note dated June 30, 1994 in the amount of $100,000
issued to Ted Stevens.5/

10.32 Agreement dated October 6, 1994 among the Company, J. Gregory
& Company, Inc. and Vincent Mongo.5/

10.33 Consulting agreement between Morris Munn and the Company dated
October 1, 1993.5/

10.34 Consulting agreement between M & E Company and the Company
dated October 1, 1993.5/

10.35 Promissory Note dated October 25, 1994 in the amount of
$100,000 issued to Nybor Group, Inc. together with Affidavit
of Confession of Judgment relating thereto.7/

10.36 Employment Agreement dated October 21, 1994, between Murano
Crystal Cozp. and Stephen M. Tucker.6/

10.37 Consulting Agreement dated October 21, 1994, between Murano
Crystal Corp. and Jean Tucker.6/

10.38 Guaranty issued by the Company to Stephen M. Tucker and Jean
Tucker.6/

10.39 Guaranty issued by the Company to Stephen M. Tucker and
Michael D. Tucker.6/

10.40 Non-Competition and Confidentiality Agreement entered into
between Murano Crystal Corp. and Michael D. Tucker.6/

10.41 Non-Competition and Confidentiality Agreement entered into
between Murano Crystal Corp. and Lisette Tucker.6/

II-8

<PAGE>

10.42 Promissory Note dated October 27, 1994 in the amount of $8,000
issued to Max Munn.7/

10.43 Promissory Notes dated October 27 and October 28, 1994 in the
amounts of $8,000 and $25,000, respectively, issued to Robert
M. Schildkraut together with Affidavits of Confession of
Judgment relating thereto.7/

10.44 Promissory Note dated November 23, 1994 in the amount of
$225,000 issued to Eldstics Corp.7/

10.45 Guarantees dated November 23, 1994 of Theodore Stevens, Max
Munn, Iaune Munn, and Ann Stevens.7/

10.46 General Loan and Security Agreement dated November 22, 1994
from the Company to Eldstics Corp.7/

10.47 Rollover Promissory Notes issued to Robert Schildkraut in the
amounts of $25,000 and $8,000.

10.48 Form of Subscription Agreement for Private Placement of
Series A 10% Convertible Preferred Stock.8/

10.49 Form of Subscription Agreement for offering, by Decor Group,
Inc.9/

21.1 Subsidiaries of the Registrant.5/

23.1 Consent of Arthur Andersen LLP, independent Public
accountants.

23.2 Consent of Bernstein & Wasserman, LLP - such consent is
contained in the opinion contained in Exhibit 5. 1.

99.1 U.S. Patent and Trademark office Trademark Reg- No.
1,736,623.1/

99.2 U.S. Patent and Trademark Office Service mark Reg. No.
1,783,694.1/

99.3 Consent Order for Permanent injunction for Defendant Max Munn
issued by the Federal Trade Commission in September 1991.1/

99.4 Satisfaction of Judgement in the matter of A.P.F. Holdings,
Inc. vs. Max Munn.2/

- ----------
1/ Previously filed as an exhibit to the Registration Statement
(Registration No. 33-77288-NY), which exhibit is incorporated
herein by reference.

2/ Previously filed as an exhibit to Amendment No. 1 to the
Registration Statement (Registration No. 33-77288-NY), which
exhibit is incorporated herein by reference.

3/ Previously filed as an exhibit to Amendment No. 2 to the
Registration Statement (Registration No. 33-77288-NY), which
exhibit is incorporated herein by reference.

II-9

<PAGE>

4/ Previously filed as an exhibit to Amendment No. 3 to the
Registration Statement (Registration No. 33-7728-NY), which
exhibit is incorporated by reference.

5/ Filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1994 (File No.
0-24352), which exhibit is incorporated herein by this
reference.

6/ Filed as an exhibit to the Company's Current Report on Form
8-K filed November 3, 1994 (File No. 0-24352), which exhibit
is incorporated herein by this reference.

7/ Previously filed as an exhibit to the Registration Statement
(Registration No. 33-86296) and which exhibit is incorporated
herein by reference.

8/ Attached hereto as an Exhibit.

9/ To be filed in an amendment to this filing.

Item 28. Undertakings

(a) Rule 415 Offering.

The undersigned registrant will:

(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and

(iii) Include any additional or changed material information on
the plan of distribution.

(2) For determining liability under the Securities Act treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.

(b) Indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in

II-10

<PAGE>

Item 28 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a c@ for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(d) Rule 430A.

The undersigned Registrant will:

(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of

this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the small business
issuer under Rule 424(b)(1) or (4) or 497(h) under the Securities
Act as part of this Registration Statement as of the time the
Commission declared it effective.

(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
Registration Statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.

II-11

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Mt.
Vernon, State of New York, on July 11, 1996.

INTERIORS, INC.

By: /s/
________________________________
Max Munn, President
Chief Executive Officer and
Treasurer

In accordance with the requirements of the Securities Act of 1933, as
amended, this amendment to Registration Statement on Form SB-2 was signed by the
following persons in the capacities and on the dates stated.

Signature Title Date
--------- ----- ----

/s/ Max Munn
____________________________ President, Chief Executive July 11, 1996
Max Munn Officer, Treasurer and
Director

/s/ Donald Feldman
____________________________ Vice President- Sales and July 11, 1996
Donald Feldman Marketing and Director

/s/ Michael Amore
____________________________ Vice President and Chief July 11, 1996
Michael Amore Financial and Accounting
Officer

____________________________ Director
Roger Lourie

/s/ Richard A. Josephberg
____________________________ Director July 11, 1996
Richard A. Josephberg

II-12

<PAGE>

FORM OF SUBSCRIPTION AGREEMENT

April __, 1996

Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10533

Gentlemen:

1. Subscription. Subject to the terms and conditions of this Subscription
Agreement, the undersigned (the "Investor") hereby subscribes for and agrees to
acquire on the Closing Date (as hereinafter defined) ________ newly issued
shares of Series A 10% Convertible Preferred Stock (the "Shares") of Interiors,
Inc. (the "Corporation"), at an aggregate purchase price of $______ for the
Shares.

2. Acceptance. If the Investor's subscription is accepted, the Corporation
will return to the Investor one executed copy of this Subscription Agreement.

3. Representations and Warranties. The Investor hereby represents and
warrants to the Corporation as follows:

(a) The Investor is fully aware that the Shares have not been registered
under the Shares Act of 1933, as amended (the "Securities Act"), or under any
applicable state securities laws. The Investor further understands that the
Shares are being issued in reliance on the exemption from the registration
requirements of the Shares Act provided by Section 4(2) thereof or Regulation D
promulgated under the Shares Act, and in reliance on exemptions from the
registration requirements of certain state Shares laws, on the grounds that the
offering involved has been made to a limited number of potential investors.

(b) The Investor is acquiring the Shares for his own account as a principal
and not with a present view to resale or distribution.

(c) The Investor is able to bear the economic risk of the investment in the
Shares and has such knowledge and experience in financial and business matters,
and knowledge of the business of the Corporation.

(d) The Investor has received all information with respect to the
Corporation he has requested.

(e) The Investor has been given the opportunity to ask questions of, and
receive

<PAGE>

answers from, officers of the Corporation concerning the terms and conditions of
the offering and to obtain such additional information which the Corporation
possesses or can acquire without unreasonable effort or expense that is

necessary to verify information that was otherwise provided, including without
limitation, the Corporation's most recent Annual Report on Form 10-KSB (a copy
of which is attached hereto as Exhibit A) and the Corporation's most recent
Annual Report on Form 10-QSB (a copy of which is attached hereto as Exhibit B).

(f) The Investor recognizes that investment in the Shares involves
substantial risks. In deciding whether to invest in the Shares, the Investor has
weighed these risks against the potential return. Considering all relevant
factors in his financial and personal circumstances, the Investor is able to
bear the economic risk of the investment. The Investor has adequate means of
providing for his current needs and possible personal contingencies and has no
need in the foreseeable future for liquidity of his investment in the Shares.

(g) The Investor has sought such accounting, legal and tax advice as he has
considered necessary to make an informed investment decision with respect to his
investment in the Shares.

(h) The Investor is aware that no Federal or state agency has (i) made any
finding or determination as to the fairness of any aspect of the investment in
the Shares or (ii) passed on or endorsed the merits of the offering of the
Shares.

(i) The Investor agrees not to sell, pledge, transfer or otherwise encumber
the Shares for a period of two years following the date hereof unless the Shares
are registered for sale to the public.

(j) The Investor acknowledges that the Corporation has retained VTR
Capital, Inc. as the placement agent for this offering who shall receive a
commission of 10% of the offering price and reimbursement of fees and expenses
up to 3% of the offering price.

(k) Any information that such Investor has heretofore furnished to the
Corporation with respect to their respective financial position, and investment
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to the Closing,
such Investor will immediately furnish such revised or corrected information to
the Corporation.

(l) The Investor has the full legal right and power and all authority and
approval required to enter into, execute and deliver this Subscription Agreement
and to perform fully his obligations hereunder. This Subscription Agreement has
been duly executed and delivered and is the valid and binding obligation of the
Investor, enforceable in accordance with his terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other such laws affecting the enforcement of creditors' rights
generally and by principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in

<PAGE>

equity). The execution, delivery and performance of this Subscription Agreement
by such Investor will not: (i) require the approval or consent of any Person or

(ii) conflict with or result in any breach or violation of any of the terms and
conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, any statute, regulation, order, judgment or decree
of or applicable to the Investor, or any instrument, contract or other agreement
to which the Investor is a party or by or to which the Investor is bound or
subject.

(m) The Investor is not affiliated or associated with any member of the
National Association of Securities Dealers.

4. Registration of Shares. Commencing thirty (30) days following the date
hereof, the Investor shall have the right to demand in writing (the "Demand
Notice") that the Corporation file a registration statement with the Securities
and Exchange Commission (the "Commission") which shall cover the Shares and
allow the Investor to sell the Shares to the public. Within fifteen (15) days
following receipt of the Demand Notice, the Corporation shall file such
registration statement and use its best efforts to have such registration
statement declared effective by the Commission and such state securities
regulators as reasonably requested by the Investor. The Corporation also agrees
to include the Shares in the next registration statement filed with the
Securities and Exchange Commission in connection with a public offering. As a
result, the Shares shall be registered for sale to the public. In the event that
the offering is underwritten, the Investor agrees to comply with any
restrictions on the sale or the transfer of the Shares, requested by the
managing underwriter thereof. All costs and fees incurred in connection such
registration(s) shall be borne by the Corporation.

5. Modification. This Subscription Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and may not be modified, discharged or terminated except by a written instrument
duly executed by each party.

6. Binding Effect. The provisions of this Subscription Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

7. Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of law.

8. State Securities Laws Notices:

FOR RESIDENTS OF ALL STATES:

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECUR
ITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE
BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RE
STRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD

<PAGE>

EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. [INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.]
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

NOTICE TO RESIDENTS OF FLORIDA:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA SECURITIES ACT
IN RELIANCE UPON EXEMPTION PROVISIONS CONTAINED THEREIN. ss.517.061(11)(a)(5) OF
THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT (THE "FLORIDA ACT") PROVIDES
THAT ANY PURCHASER OF SECURITIES IN FLORIDA WHICH ARE EXEMPTED FROM REGISTRATION
UNDER ss.517.061(11) OF THE FLORIDA ACT MAY WITHDRAW HIS SUBSCRIPTION AGREEMENT
AND RECEIVE A FULL REFUND OF ALL MONIES PAID, WITHIN THREE BUSINESS DAYS AFTER
HE TENDERS CONSIDERATION FOR SUCH SECURITIES. THEREFORE, ANY FLORIDA RESIDENT
WHO PURCHASES SECURITIES IS ENTITLED TO EXERCISE THE FOREGOING STATUTORY
RESCISSION RIGHT WITHIN THREE BUSINESS DAYS AFTER TENDERING CONSIDERATION FOR
THE SE CURITIES BY TELEPHONE, TELEGRAM, OR LETTER NOTICE TO THE GENERAL PARTNER
AT THE ADDRESS OR TELEPHONE NUMBER SET FORTH ON THE COVER PAGE HEREOF. ANY
TELEGRAM OR LETTER SHOULD BE SENT OR POSTMARKED PRIOR TO THE END OF THE THIRD
BUSINESS DAY. A LETTER SHOULD BE MAILED BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ENSURE ITS RECEIPT AND TO EVIDENCE THE TIME OF MAILING. ANY ORAL
REQUESTS SHOULD BE CONFIRMED IN WRITING.

FOR RESIDENTS OF GEORGIA:

THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.

NOTICE TO NEW YORK RESIDENTS:

THIS MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL OF THE STATE
OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF
NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

THIS MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR
OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY ARE MADE, NOT MISLEADING. IT CONTAINS A FAIR
SUMMARY OF THE MATERIAL TERMS OF DOCUMENTS PURPORTED TO BE SUMMARIZED HEREIN.

<PAGE>

IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of this ____ day of March, 1996.

______________________

Accepted and Agreed to as
of the date first above written:

INTERIORS, INC.

By___________________________
Name:
Title: