<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 10, 1998
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6395 13-3590047
- ----------------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
320 Washington Street, Mt. Vernon New York 10553
------------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 665-5400
---------------------
Not Applicable
---------------------------------------------------------------------------
(Former name or former address, if changed since last report)
===============================================================================
<PAGE>
The Registrant hereby amends its Current Report on Form 8-K as filed with the
Commission on March 25, 1998 as provided herein.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 10, 1998, the Registrant entered into, and consummated, an
Agreement and Plan of Merger (the "Merger Agreement") among the Registrant,
Vanguard Acquisition Corp., a wholly-owned subsidiary of the Registrant,
Henlor, Inc. ("Henlor") and the shareholders of Henlor. The transaction was
structured as a reverse triangular merger. As a result of the merger, Henlor
now is a wholly-owned subsidiary of the Registrant. Henlor, through its
wholly-owned subsidiary Vanguard Studios, Inc. ("Vanguard"), designs,
manufactures and wholesales decorative accessories furnishings for the home,
including framed hand-painted oil paintings, framed prints under glass, wall
mirrors, lamps, sculptures and decorative tabletop accessories. The acquisition
of Henlor provides the Registrant with an expanded breadth of product
offerings.
Pursuant to the Merger Agreement, the purchase price paid to the
shareholders of Henlor at closing consisted of a cash payment of $705,621 and
the delivery of a subordinated promissory note in the aggregate principal
amount of $794,379. In addition, the Registrant issued to the shareholders of
Henlor an aggregate of 299,581 unregistered shares of its Class A Common Stock
(the "Merger Shares") and the Registrant repaid indebtedness of Vanguard owed
to the principal shareholders of Henlor in the amount of $294,379 . All of the
Merger Shares are being held in a two year escrow as security for the
indemnification obligations of Henlor's former shareholders pursuant to the
Merger Agreement, and the number of Merger Shares remains subject to adjustment
based on the value of the Merger Shares on the second anniversary of the
closing date.
The merger was financed by (i) a bridge loan in the principal amount
of $500,000 from United Credit Corp., the Registrant's senior lender, and (ii)
the private placement to accredited investors of the Registrant's unregistered
Subordinated Convertible Promissory Notes in the aggregate principal amount of
$500,000. The aggregate purchase price was determined in arms-length
negotiations between the Registrant and the shareholders of Henlor.
The assets acquired pursuant to the Merger Agreement included, among
other things, (i) fixed assets owned, leased or used by Henlor and Vanguard,
including equipment, (ii) accounts receivable, (iii) inventory and (iv)
contracts, agreements, and leases of real and personal and property. For the
foreseeable future, the Registrant intends to utilize such assets in connection
with the operation of the business of Henlor and Vanguard.
A copy of the Merger Agreement was appended as an exhibit to the
Report on this transaction filed on Form 8-K on March 25, 1998.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
-----------------------------------------
Consolidated Financial Statements for Henlor, Inc. and Subsidiaries
D.B.A. Vanguard Studios For the Nine Months ended July 31, 1997 and
For the Year ended October 31, 1996 are appended as an Exhibit to this Report.
Interim Financial Statements (unaudited) for the seven months ended February
28, 1998 and February 28, 1997 are appended as an Exhibit to this Report.
(b) Pro Forma Financial Information.
-------------------------------
Pro Forma Financial Information with respect to the acquisition of Henlor, Inc.
by the Registrant is appended as an Exhibit to this Report.
(c) Exhibits
--------
Document Description Exhibit No.
- -------------------- -----------
Consolidated Financial Statements for Henlor, Inc. and Subsidiaries
D.B.A. Vanguard Studios For the Nine Months ended July 31, 1997
and For the Year ended October 31, 1996 3
Interim Financial Statements (unaudited) for the seven months ended
February 28, 1998 and February 28, 1997. 4
Pro Forma Financial Information with respect to the acquisition of
Henlor, Inc. by the Registrant 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this amendment to report to be signed on
its behalf by the undersigned hereunto duly authorized.
May 28, 1998 INTERIORS, INC.,
a Delaware corporation
By: /s/ John D. Mazzuto.
-------------------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Document Description Numbered Pages
- ------- -------------------- -------------
<S> <C> <C>
3 Consolidated Financial Statements for Henlor, Inc. and Subsidiaries Cover
D.B.A. Vanguard Studios For the Nine Months ended July 31, 1997 Contents
and For the Year ended October 31, 1996 Pages 1 - 13
4 Interim Financial Statements (unaudited) for the seven months Pages 1- 4
ended February 28, 1998 and February 28, 1997
5 Pro Forma Financial Information with respect to the acquisition of Pages 1 - 9
Henlor, Inc. by the Registrant
</TABLE>
<PAGE>
EXHIBIT 3
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND OCTOBER 31, 1996
<PAGE>
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
Consolidated Balance Sheets
As of July 31, 1997 and October 31, 1996 2
Consolidated Statements of Income
and Retained Deficit for the Nine
Months Ended July 31, 1997, and for the
Year Ended October 31, 1996 3 - 4
Consolidated Statements of Cash Flows for the Nine
Months Ended July 31, 1997, and for the
Year Ended October 31, 1996 5 - 6
Notes to Consolidated Financial Statements
As of July 31, 1997 and October 31, 1996 7 - 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Henlor, Inc. and Subsidiaries
Pacoima, California
Members of the Board:
We have audited the accompanying consolidated balance sheets of Henlor, Inc.
and Subsidiaries d.b.a. Vanguard Studios as of July 31, 1997 and October 31,
1996 and the related consolidated statements of income and retained deficit and
cash flows for the nine months ended July 31, 1997 and the year ended October
31, 1996. 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Henlor, Inc. and Subsidiaries d.b.a. Vanguard Studios as of July 31, 1997 and
October 31, 1996, and the results of their operations and cash flows, for the
nine months ended July 31, 1997 and the year ended October 31, 1996 in
conformity with generally accepted accounting principles.
THOMASHOW, BROWN & PAIALII, LLP
Certified Public Accountants
Los Angeles, California
October 1, 1997
1
<PAGE>
<TABLE>
<CAPTION>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
1997 1996
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 72,038 $ 84,131
Accounts receivable, net of allowance for
doubtful accounts of $73,710 and
$89,348 respectively (Notes 4 and 6) 1,932,103 2,157,188
Inventories, net of LIFO reserves of $255,806
and $235,077, respectively (Notes 1, 2 and 4) 1,798,680 1,583,929
Prepaid expenses and other current assets 112,041 132,329
------------- --------------
TOTAL CURRENT ASSETS 3,914,862 3,957,577
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization
(Notes 1, 3 and 6) 514,689 571,460
OTHER ASSETS
Other assets 73,438 74,283
Deferred income taxes (Note 1) 57,650 57,650
------------- --------------
TOTAL OTHER ASSETS 131,088 131,933
------------- --------------
TOTAL ASSETS $ 4,560,639 $ 4,660,970
============= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
July 31, October 31,
1997 1996
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit (Note 4) $ 2,273,880 $ 2,237,731
Accounts payable 1,024,896 958,392
Accrued expenses 321,544 432,051
Current maturities of long-term debt (Note 6) 147,243 145,177
------------- --------------
TOTAL CURRENT LIABILITIES 3,767,563 3,773,351
------------- --------------
LONG-TERM DEBT (Note 6) 463,989 574,687
------------- --------------
SUBORDINATED NOTES PAYABLE - OFFICERS (Note 5) 294,379 283,056
SUBORDINATED NOTES PAYABLE - OTHERS (Note 5) - 238,699
------------- --------------
TOTAL SUBORDINATED DEBT 294,379 521,755
------------- --------------
TOTAL LIABILITIES 4,525,931 4,869,793
------------- --------------
COMMITMENTS (Note 7) - -
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 1 and 8)
Common stock, $0.0001 par value;
10,000,000 shares authorized,
760,000 shares issued and outstanding 76 76
Additional paid-in capital 89,874 89,874
Retained deficit (55,242) (298,773)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 34,708 (208,823)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 4,560,639 $ 4,660,970
============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED DEFICIT
<TABLE>
<CAPTION>
For the Nine % of For the Year % of
Months ended Net Ended Net
July 31, 1997 Sales October 31, 1996 Sales
------------- ------- ---------------- ------
<S> <C> <C> <C> <C>
NET SALES $9,700,442 100.0% $13,427,516 100.0%
COST OF SALES 6,098,645 62.9 8,515,199 63.4
--------- ------------------------- ------
GROSS PROFIT 3,601,797 37.1 4,912,317 36.6
--------- ------------------------- ------
OPERATING EXPENSES
Selling 2,431,996 25.1 3,141,609 23.3
General and administrative 948,149 9.8 1,205,483 9.0
-------- ------------------------- ------
TOTAL OPERATING EXPENSES 3,380,145 34.9 4,347,092 32.3
---------- ------------------------- ------
INCOME BEFORE OTHER INCOME
(EXPENSE) 221,652 2.2 565,225 4.3
---------- ------------------------- ------
OTHER INCOME (EXPENSE)
Other income (Note 9) 162,670 1.7 16,783 .1
Interest income 1,909 - 572 -
Interest expense (317,005) (3.2) (481,595) (3.7)
Interest expense - shareholders (5,700) (.1) (11,322) -
---------- ------------------------- ------
TOTAL OTHER INCOME (EXPENSE) (158,126) (1.6) (475,562) (3.6)
--------- ----------- ------------ ------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 63,526 .6 89,663 .7
PROVISION FOR INCOME TAXES (Note 1) 3,585 - 3,200 -
---------- ------------------------- ------
INCOME BEFORE EXTRAORDINARY ITEM 59,941 .6 86,463 .7
EXTRAORDINARY ITEM - gain on extinguishment
of debt 183,590 1.9 - -
---------- ------------------------- ------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED DEFICIT - (CONTINUED)
<TABLE>
<CAPTION>
For the Nine % of For the Year % of
Months ended Net Ended Net
July 31, 1997 Sales October 31, 1996 Sales
------------- ------- ---------------- ------
<S> <C> <C> <C> <C>
NET INCOME 243,531 2.5% 86,463 .7%
===== ==
RETAINED DEFICIT
Beginning of period (298,773) (385,236)
---------- ----------
End of period $ (55,242) $ (298,773)
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine For the Year
Months ended Ended
July 31, 1997 October 31, 1996
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income
$ 243,531 $ 86,463
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on extinguishment of debt (183,590) -
Depreciation and amortization 95,208 124,542
Change in allowance for doubtful accounts (15,638) 26,453
Changes in operating assets and liabilities:
Decrease in accounts receivable 240,723 518,936
Decrease in prepaid expenses and other current assets 20,288 20,802
(Increase) decrease in inventories (214,751) 150,124
(Decrease) in accounts payable (44,003) (43,988)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 141,768 883,332
-------------- --------------
INVESTING ACTIVITIES
Acquisition of property and equipment (38,437) (165,198)
Decrease in other assets 845 2,695
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (37,592) (162,503)
-------------- --------------
FINANCING ACTIVITIES
Net borrowings (payment) on line of credit 36,149 (671,596)
Net principal payments on long-term debt (108,632) (135,136)
Proceeds from note payable to officers 11,323 -
Cash paid to extinguish debt (55,109) -
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (116,269) (806,732)
-------------- --------------
(DECREASE) IN CASH (12,093) (85,903)
CASH - beginning of period 84,131 170,034
-------------- --------------
CASH - end of period $ 72,038 $ 84,131
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine For the Year
Months ended Ended
July 31, 1997 October 31, 1996
----------------- ----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest $ 353,918 $ 492,329
============== ==============
Income taxes $ 3,200 $ 3,200
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company, a Delaware corporation doing business as
Vanguard Studios is engaged in the business of designing,
manufacturing and wholesaling decorative accessories
predominantly to the home furnishings market throughout the
United States.
Change of Fiscal Year
During 1997, the Board of Directors approved a change in the
Company's fiscal year end from October 31 to July 31
effective July 31, 1997. As a result of the change, the
Company's Consolidated Statements of Income and Consolidated
Statements of Cash Flows for the period ended July 31, 1997
covers nine months.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Vanguard
Studios, Inc., and Vanguard of North Carolina, Inc. All
material intercompany transactions have been eliminated in
consolidation.
Inventories
Approximately 70% of the Company's inventories are carried at
the lower of cost or market, with cost determined under the
LIFO (last-in, first-out) method. The remaining inventories
are carried at lower of cost or market, with cost determined
under the FIFO (first-in, first-out) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is provided for by the straight-line and
accelerated methods over the estimated useful lives of the
principal classes of property.
The estimated useful lives of the principal classes of
property are as follows:
Machinery and equipment 3 - 5 years
Furniture and fixtures 3 - 5 years
Leasehold improvements Lesser of estimated useful
life or lease term
Building 30 years
7
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment- (Continued)
Expenditures for replacements and betterments are
capitalized, while repairs and maintenance are charged to
expense as incurred.
Income Taxes
Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting
purposes. Temporary differences are primarily due to
different methods of accounting for the depreciation of
property and equipment, the write off of bad debts, and the
valuation of inventories.
Net Operating Loss Carryforwards
At July 31, 1997, the Company has available approximately
$187,000 and $2,000,000 of net operating loss carryforwards
for federal and state tax reporting purposes, respectively,
which can be offset against future taxable income. The
carryforwards expire by the year 2011.
Use of Estimates
The process of preparing financial statements in conformity
with generally accepted accounting principles requires
management to use estimates and assumptions regarding certain
types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and
events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from
estimated amounts.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows,
the Company considers all highly liquid debt instruments with
a maturity of three months or less to be cash equivalents.
8
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 2 - INVENTORIES
At July 31, 1997 and October 31, 1996, inventories consist of
the following:
<TABLE>
<CAPTION>
1997 1996
------------ ---------
<S> <C> <C>
Raw materials $ 836,486 $ 773,765
Finished goods and work in process 962,194 810,164
---------- ----------
Total Inventories $1,798,680 $1,583,929
========== ==========
</TABLE>
Inventories valued at current costs are greater than LIFO
cost by $255,860 and $235,077 as of July 31, 1997 and October
31, 1996, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
At July 31, 1997 and October 31, 1996, property, plant and
equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Machinery and equipment $1,059,291 $1,033,799
Furniture and fixtures 356,595 348,269
Leasehold improvements 829,225 824,444
Land and building 246,547 246,547
---------- ----------
Total property, plant and equipment 2,491,658 2,453,059
Less: accumulated depreciation and amortization 1,976,969 1,881,599
---------- ----------
$ 514,689 $ 571,460
========= ==========
</TABLE>
Depreciation and amortization expense for the nine months
ended July 31, 1997 and the year ended October 31, 1996 is
$95,208 and $128,032, respectively.
NOTE 4 - LINE OF CREDIT
The Company has a $3,350,000 line of credit with a lender
which allows the company to borrow up to 85% of eligible
accounts receivable (up to $2,700,000) and 35% of eligible
inventories (up to $650,000). Interest is paid monthly at the
lender's prime rate plus 4% (8.5% at July 31, 1997). The line
of credit is renewed on a month to month basis. All
borrowings under this agreement are guaranteed by the
principal stockholders of the Company. The agreement contains
certain restrictions as to creation of new debt, investments
and acquisitions, transactions with stockholders and
affiliates, changes in the structure of the Company, and
payments of dividends.
9
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 4 - LINE OF CREDIT - (CONTINUED)
The Company has subsequently renegotiated the terms of the
line of credit effective September 1, 1997 (Note 12).
NOTE 5 - SUBORDINATED NOTES PAYABLE
At July 31, 1997 and October 31, 1996, subordinated notes
payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
8% note payable - stockholders,
unsecured, due on demand. $ 294,379 $ 283,056
======== ==========
10% note payable - unrelated party,
unsecured, due on demand. $ 0 $ 238,699
======== ==========
</TABLE>
Under the terms of the line of credit agreement (Note 4), the
above notes are subordinated in right of repayment to all
obligations to the bank. Consequently, these notes payable
are classified as long-term liabilities.
On February 4, 1997, the subordinated note payable -
unrelated party of $258,590 (principal and interest) was
settled for $75,000 and which resulted in debt forgiveness
income of $183,590. This amount is shown as an extraordinary
item on the statement of income for the nine months ended
July 31, 1997.
NOTE 6 - LONG-TERM DEBT
At July 31, 1997 and October 31, 1996, long-term debt
consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Note payable - bank, secured by substantially all assets
of the Company, personally guaranteed by the stockholders,
payable in monthly installments of $10,000
plus interest at 3% above the bank's reference
rate,* maturing December 1999 (Note 12). $ 288,333 $ 378,333
</TABLE>
10
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 6 - LONG-TERM DEBT - (CONTINUED)
<TABLE>
<S> <C> <C>
Trust deed payable - bank, secured by real property with a
carrying value of $166,051, payable in monthly installments
of $4,221 including interest at 10.5%, maturing
in August 2005. 295,458 309,562
Note payable - payable in monthly installments of $772 plus
interest at 10.5 %, debt matures in
February 2001. 27,441 31,969
---------- ----------
611,232 719,864
Less: current portion 147,243 145,177
---------- ----------
$ 463,989 $ 574,687
========= =========
</TABLE>
*The reference rate is 8.5% as of July 31, 1997.
The maturities of long term debt subsequent to July 31, 1997
are as follows:
<TABLE>
<S> <C>
Year ending July 31,
1998 $ 147,243
1999 150,264
2000 81,951
2001 33,417
2002 31,312
Thereafter 167,045
----------
$ 611,232
==========
</TABLE>
NOTE 7 - COMMITMENTS
The Company leases its facilities under operating leases
expiring at various periods through December 2001. Certain
leases provide for payment of property taxes, insurance
premiums, maintenance and other costs by the Company.
11
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 7 - COMMITMENTS - (CONTINUED)
The following are future minimum rental payments required
under noncancelable operating leases with terms of one year
or more:
<TABLE>
<S> <C>
Year Ending July 31,
1998 $ 641,554
1999 622,793
2000 312,008
2001 18,521
2002 6,787
-----------
$1,601,663
===========
</TABLE>
Total rent expense is $425,101 and $585,643 for the nine
months ended July 31, 1997 and the year ended October 31,
1996, respectively.
NOTE 8 - EMPLOYEE STOCK PURCHASE PLAN
In December 1988, the Company adopted an employee stock
purchase plan for selected employees, officers and directors
of the Company and its subsidiaries. The Company has reserved
50,000 shares of common stock for issuance under the plan.
The plan committee has the power and discretion to authorize
the issuance of common stock to eligible participants at a
price determined by the board of directors, not to be less
than 85% of fair market value. The plan committee may require
payment in full or execute a three year promissory note
bearing interest at 10%, secured by the common stock
purchased. As of July 31, 1997 and October 31, 1996, no
transactions occurred on this plan.
NOTE 9 - OTHER INCOME
Other income of the nine months ended July 31, 1997 and the
year ended October 31, 1996, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ------
<S> <C> <C>
Lawsuit settlement, net of attorney fees $ 94,749 $ -
Dividend reimbursement from workers'
compensation carrier 55,946 -
Miscellaneous income 11,602 16,783
---------- ------
$162,297 $ 16,783
======== ======
</TABLE>
12
<PAGE>
HENLOR, INC. AND SUBSIDIARIES
D.B.A. VANGUARD STUDIOS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1997 AND OCTOBER 31, 1996
NOTE 10 - PROFIT SHARING PLAN
The Company has a 401(k) Profit Sharing Plan covering
substantially all employees who qualify as to age and length
of service. The Company's contributions, which are limited to
15% of eligible compensation, are discretionary and
determined by the board of directors. No contribution was
made by the Company to the plan for the nine months ended
July 31, 1997 and the year ended October 31, 1996.
NOTE 11 - MAJOR CUSTOMER
During the period, the Company had sales to one customer
which accounted for approximately 10% of total net sales. At
July 31, 1997, amount due from this customer is 4% of
accounts receivable.
NOTE 12 - SUBSEQUENT EVENTS
In August 1997, a note payable (Note 6) to a bank of
approximately $288,000 was settled for $188,000 resulting in
debt forgiveness income of approximately $100,000. This
amount will be shown as extraordinary income on the July 31,
1998 Statement of Income. At that time, the Company borrowed
$152,000 from a different lender to settle this note. The
note is secured by the equipment of the Company. Principal
and interest will be paid monthly on a fully amortizing basis
at the lender's prime rate (8.5% at September 30, 1997) plus
2 1/2% for thirty-six months.
Effective September 1, 1997, the Company renegotiated with
its current lender the terms of its line of credit (Note 4).
Under the new agreement, the Company has a $3,000,000 line of
credit with the lender which allows the Company to borrow up
to 85% of eligible accounts receivable (up to $1,800,000) and
50% of eligible inventories (up to $1,200,000). Interest is
paid monthly at the lender's prime rate (8.5% at September 1,
1997) plus 1.75%. The loan agreement is renewed for a two
year term. The agreement also contains certain restrictions
as to creation of new debt, investments and acquisitions,
transactions with stockholders and affiliates, changes in the
structure of the Company, and payments of dividends.
During October 1997, the Company closed its North Carolina
facility. Equipment is being sold, inventory is being
transferred to the Pacoima location and the land and building
is in escrow to be sold. Upon sale, the bank debt (Note 6)
related to the property will be paid off. The Company expects
to record a minimum of $100,000 of income from the sale of
all the assets net of operating income and expenses during
the period.
13
<PAGE>
EXHIBIT 4 - Interim Financial Statements
The financial statements included herein have been prepared by Interiors, Inc.
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these statements include all
adjustments necessary to present fairly the financial condition of the Acquired
Company (Henlor, Inc.) as of February 28, 1998 and the results of operations
for the seven month period then ended and the seven month period ended February
28, 1997.
The Acquired Company's results of operations during the seven months ended
February 28, 1998 are not necessarily indicative of any future results. It is
suggested that the financial statements included in this report be read in
conjunction with the financial statements and notes thereto in the Acquired
Company's Annual Report for the fiscal period ended July 31, 1997.
1
<PAGE>
<TABLE>
<CAPTION>
INTERIM FINANCIAL STATEMENTS FOR HENLOR, INC. AND SUBSIDIARIES DBA VANGUARD STUDIOS
<S> <C>
BALANCE SHEET 2/28/98
$(000)
ASSETS
CURRENT ASSETS:
Cash $ -
Accounts receivable, net 2,077
Inventories 1,668
Other current assets 128
Total current assets 3,873
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 989
Furniture and fixtures 345
Leasehold improvements 691
Total property and equipment 2,026
Less-Accumulated depreciation 1,782
Net property and equipment 244
OTHER ASSETS 152
Total assets $ 4,269
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable & current maturities of LTD $ 2,642
Accounts payable and accrued liabilities 1,282
Total current liabilities 3,924
NON-CURRENT LIABILITIES:
Notes & Loans Payable 103
Due to related parties 294
Total non-current liabilities 397
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock
Additional paid-in-capital 90
Retained deficit (142)
Total stockholders' equity (deficit) (52)
Total liabilities and stockholders' equity $ 4,269
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
<CAPTION>
INTERIM FINANCIAL STATEMENTS FOR HENLOR, INC. AND SUBSIDIARIES DBA VANGUARD STUDIOS
<S> <C> <C>
STATEMENTS OF OPERATIONS 7mo. to 2/98 7mo. to 2/97
$(000) $(000)
SALES AND OTHER REVENUES: $ 7,832 $ 7,320
EXPENSES:
Cost of goods sold 5,205 4,586
Selling, general, and administrative 2,573 2,416
Total Expenses 7,778 7,002
Income (loss) from operations 54 318
OTHER INCOME (EXPENSE), Net (3) 142
INTEREST INCOME (EXPENSE), Net (217) (269)
Income (Loss) from operations
before provision for taxes (166) 191
PROVISION FOR TAXES $ - $ 3
Net Income (loss) from operations $ (166) $ 188
EXTRAORDINARY ITEM, extinguishment of debt 80 184
Net Income (Loss) $ (86) $ 372
STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net Income (Loss) $ (86) $ 372
Gain on extinguishment of debt (80) (184)
Depreciation & Amortization 52 62
(Increase) Decrease in Current Assets 78 626
Increase (Decrease) in Current Liabilities (61) (252)
Net Cash (used) provided by Operating (97) 624
INVESTING ACTIVITIES:
(Acquisition) Sale of Fixed Assets 109 (87)
(Increase)Decrease in Other Assets (20) 14
Net Cash (used) provided by Investing 89 (73)
FINANCING ACTIVITIES
Net Credit line borrowing 328 (323)
Debt Repayments (388) (132)
Net Cash used in Financing Activities (60) (455)
Increase (decrease) in Cash (68) 96
CASH - beginning 68 18
CASH - end of period $ - $ 114
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
INTERIM FINANCIAL STATEMENTS FOR HENLOR, INC. AND SUBSIDIARIES DBA VANGUARD
STUDIOS
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. 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 seven
months ended February 28, 1998 are not necessarily indicative of those to be
expected for the entire year.
2. NOTES PAYABLE - Related parties
At February 28, 1998, the Company had aggregate Notes payable - related parties
of approximately $294,000. These notes were repaid as part of the acquisition
of the company by Interiors, Inc. on March 10, 1998.
4
<PAGE>
EXHIBIT 5 - PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Combined Financial Information as of June 30, 1997 and
the year then ended and as of March 31, 1998 and for the nine months then ended
for Interiors, Inc. and comparable periods for the Combined Companies has been
prepared to reflect the combined financial position and the results of
operations of Interiors, Inc. ("Interiors") , Henlor, Inc. and subsidiaries DBA
Vanguard Studios ("Vanguard"), Merchandise Sales, Inc. DBA Artmaster Studios
(Artmaster) and Decor Group, Inc. (Decor) as if the combination, described in
Note 1, had been effective as of June 30,1997 and July 1, 1996 (for one year
operations), March 31,1998, July 1, 1997 (for nine months operations),
respectively. The acquisitions of Vanguard and Artmaster and the probable
acquisition of Decor have been accounted for as purchases and the excess of
purchase price over fair value of assets acquired, $7,456,000 if the
acquisitions had all occurred as of June 30, 1997, will be reflected as an
intangible asset and will be amortized over fifteen years.
The Pro Forma Combined Financial Information is unaudited and not necessarily
indicative of the consolidated results which actually would have occurred if
the combination had been consummated at the beginning of the periods presented,
nor does it purport to represent the future financial position and results of
operations for future periods.
1
<PAGE>
Pro Forma Historical Financial Information for Interiors and Combined Companies
<TABLE>
<CAPTION>
BALANCE SHEET Interiors Vanguard Artmaster Decor Adjustments Combined
6/30/97 7/31/97 3/28/97 3/31/97
$(000) $(000) $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 271 $ 72 $ 87 $ 170 $ 600
Accounts receivable, net 947 1,932 454 1,118 4,451
1,521 1,799 612 960 256 a 5,147
Inventories
Other current assets 898 112 79 106 1,195
Total current assets 3,637 3,915 1,232 2,353 11,393
INVESTMENTS 3,977 (2,837) c 1,140
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 1,546 1,059 350 258 3,213
Furniture and fixtures 144 357 41 122 664
Leasehold improvments 213 829 180 137 1,359
Land and Building 247 247
Total property and equipment 1,904 2,492 571 517 5,483
Less-Accumulated depreciation 1,019 1,977 414 401 3,810
Net property and equipment 885 515 157 116 1,673
PURCHASE PRICE IN EXCESS OF BOOK
VALUE OF ACQUIRED COMPANIES 2,026 7,456 abc 9,482
OTHER ASSETS 263 131 261 814 (127) b 1,343
Total assets $ 8,762 $ 4,561 $ 1,650 $ 5,309 $ 25,031
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements
2
<PAGE>
Pro Forma Historical Financial Information for Interiors and Combined Companies
(in thousands)
<TABLE>
<CAPTION>
BALANCE SHEET Interiors Vanguard Artmaster Decor Adjustments Combined
6/30/97 7/31/97 3/28/97 3/31/97
$(000) $(000) $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes & Current Maturities of LTD $ 1,637 $ 2,421 $ 4 $ 362 271 a $ 4,695
Accounts payable and accrued liabilities 2,100 1,346 666 569 955 abc 5,636
Due to related parties 463 (463) b
Total current liabilities 3,737 3,768 1,133 931 10,331
NON-CURRENT LIABILITIES:
Notes & Loans Payable 908 464 31 651 4,318 ab 6,373
Due to related parties 294 52 (347) ab
Total non current liabilities 908 758 84 651 6,373
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock 11 2 (2) c 11
Common Stock 7 1 1 1 abc 9
Additional paid-in-capital 13,217 90 668 6,459 (3,010) abc 17,424
Retained deficit (8,679) (55) (236) (956) 1,246 abc (8,679)
Other items (438) (1,779) 1,779 c (438)
Total stockholders' equity 4,118 35 433 3,727 8,327
Total liabilities and stockholders' equity $ 8,762 $ 4,561 $ 1,650 $ 5,309 $ 25,031
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements.
3
<PAGE>
Pro Forma Historical Financial Information for Interiors and Combined Companies
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS Interiors Vanguard Artmaster Decor Adjustments Combined
yr. end 9mo. end yr. end yr. end
6/30/97 7/31/97 3/28/97 3/31/97
<S> <C> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUES: $(000) $(000) $(000) $(000) $(000) $(000)
Net sales $ 4,652 $ 9,700 $ 8,292 $ 2,003 $ (75) c $ 24,573
Royalty & commission revenues 144 144
Proceeds from sales to Photo-To-Art 1,140 1,140
Total Sales and Other Revenues 5,936 9,700 8,292 2,003 25,857
EXPENSES:
Cost of goods sold 3,076 6,099 5,955 991 16,120
Selling, general, and administrative 2,570 3,380 2,477 1,527 (75) c 9,879
Amortization of Intangibles 98 441 abc 539
Total Expenses 5,646 9,479 8,432 2,616 26,538
Income (loss) from operations 291 222 (140) (613) (681)
GAIN ON SALE OF 201 201
INVESTMENT
OTHER INCOME (EXPENSE), Net 0 163 8 170
INTEREST EXPENSE (405) (321) (125) (243) (297) ab (1,391)
Income (loss) from operations
before (benefit) provision for taxes 87 64 (257) (856) (1,701)
(BENEFIT) PROVISION FOR TAXES (19) 4 1 (15)
Income (loss) from operations $ 106 $ 60 $ (258) $ (856) $ (1,686)
Basic EPS $ .02 ($ .25)
Diluted EPS $ .02 ($ .25)
Shares (000) 4,527 2,308 6,836
Shares (000) 4,527 2,308 6,836
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements.
4
<PAGE>
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS AND COMBINED COMPANIES
<TABLE>
<CAPTION>
BALANCE SHEET Interiors Decor Adjustments Combined
3/31/98 12/31/97
<S> <C> <C> <C> <C>
ASSETS $(000) $(000) $(000) $(000)
CURRENT ASSETS:
Cash $ 1,739 $ 23 $ - $1,762
Accounts receivable, net 3,164 789 - 3,953
Inventories 4,230 884 - 5,114
Other current assets 984 194 - 1,178
Total current assets 10,117 1,890 - 12,007
INVESTMENTS 3,977 - (2,837) c 1,140
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 2,078 242 - 2,320
Furniture and fixtures 209 291 - 500
Leasehold improvements 345 - - 345
Total property and equipment, at cost 2,632 533 - 3,165
Less-Accumulated depreciation 1,420 431 - 1,851
Net property and equipment 1,212 102 - 1,314
OTHER ASSETS 1,083 21 - 1,104
PURCHASE PRICE IN EXCESS OF BOOK
VALUE OF ACQUIRED COMPANIES
5,836 2,200 3,181 c 11,217
Total assets $ 22,225 $ 4,214 $ 344 c $ 26,783
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements.
5
<PAGE>
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS AND COMBINED COMPANIES
<TABLE>
<CAPTION>
BALANCE SHEET Interiors Decor Adjustments Combined
3/31/98 12/31/97
$(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes & Current Maturities of LTD $ 5,067 $ 566 $ - $ 5,633
Accounts payable and accrued liabilities 4,822 785 125 c 5,732
Due to related parties - -
Total current liabilities 9,889 1,351 - 11,365
NON-CURRENT LIABILITIES:
Notes & Loans Payable 5,295 623 - 5,918
Total non current liabilities 5,295 623 - 5,918
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock 8 2 (2) c 8
Common Stock 18 0 1 c 19
Additional paid-in-capital 16,810 6,547 (4,089) c 19,268
Retained deficit (8,847) (3,647) 3,647 c (8,847)
Other items (948) (661) 661 c (948)
Total stockholders' equity 7,041 2,240 - 9,500
Total liabilities and stockholders' equity $ 22,225 $ 4,214 $ 344 $ 26,783
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements.
6
<PAGE>
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS AND COMBINED COMPANIES
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS Interiors Vanguard Artmaster Decor Adjustment Combined
9 mo. to 7 mo. to 9 mo. to 9 mo. to
3/31/98 2/28/98 12/23/97 12/31/97
$(000) $(000) $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUES: $ 6,225 $ 7,832 $ 5,469 $ 3,797 $ (45) c $ 23,278
EXPENSES:
Cost of goods sold 3,775 5,205 3,556 1,894 - 14,430
Selling, general, and administrative 1,597 2,573 1,949 3,314 (45) c 9,388
Amortization of Intangibles 86 451 abc 537
Total Expenses 5,372 7,778 5,505 5,294 - 24,355
Income (loss) from operations 853 54 (36) (1,497) - (1,077)
LOSS ON SALE OF INVESTMENT (1,113) 1,113 c 0
OTHER INCOME (EXPENSE), Net 7 (3) 37 5 - 46
INTEREST INCOME (EXPENSE), Net (483) (217) (104) (78) (259) abc (1,140)
Income (loss) from operations
before (benefit) provision for taxes 377 (166) (103) (2,683) - (2,171)
PROVISION FOR TAXES 15 - - 9 - 24
Net Income (loss) from operations $ 362 $ (166) $ (103) $ (2,692) $ - $ (2,195)
Basic EPS $ .06 $ (.27)
Diluted EPS $ .06 $ (.26)
Basic Shares (000) 5,839 2,308 8,147
Diluted Shares (000) 6,161 2,308 8,469
</TABLE>
The accompanying notes and management's assumptions to the Pro Forma
Combined Financial Information are an integral part of these statements.
7
<PAGE>
INTERIORS, INC. and Combined Companies
As of June 30, 1997 and for the year then ended as of March 31, 1998 and for
the nine months then ended for Interiors, Inc.; as of comparable periods for
the Combined Companies
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
On March 10, 1998 Interiors acquired Vanguard. On March 23, 1998 Interiors
acquired Artmaster. On April 21, 1998 Interiors and Decor agreed on terms for
Interiors to acquire the outstanding Common Stock of Decor. These acquisitions
and probable acquisition have been accounted for as purchases. The excess of
purchase price over fair value of assets acquired of $7,456,000, if the
acquisitions had all occurred as of June 30, 1997, is reflected as an
intangible asset and is being amortized over fifteen years.
The above Pro Forma Combined Financial Information as of June 30, 1997 and the
year then ended and as of March 31, 1998 and for the nine months then ended for
Interiors, Inc. and comparable periods for the Combined Companies has been
prepared to reflect the combined financial position and the results of
operations of Interiors, Inc. ("Interiors") , Henlor, Inc. and subsidiaries DBA
Vanguard Studios ("Vanguard"), Merchandise Sales, Inc. DBA Artmaster Studios
(Artmaster) and Decor Group, Inc. (Decor) as if the combination had been
effective as of June 30,1997 and July 1, 1996 (for one year operations), and
March 31, 1998, July 1, 1997 (for nine months operations), respectively.
This Pro Forma Combined Financial Information should be read in conjunction
with the audited historical financial statements and notes thereto of
Interiors, as of June 30, 1997 and for the year then ended; Vanguard, as of
July 31, 1997 and for the nine months then ended, and Decor as of March 31,
1997 and for the year then ended. It should also be read in conjunction with
the unaudited interim period financial statements and notes thereto of
Interiors, as of March 31, 1998 and for the nine months then ended (Interiors
Form 10QSB); Vanguard, as of February 28, 1998 and for the seven months then
ended and Decor as of December 31, 1997, and for the nine months then ended
(Decor Form 10QSB).
In management's opinion, all material adjustments necessary to reflect the
effects of the combination have been made.
The unaudited Pro Forma Combined Financial Information is not necessarily
indicative of what actual results of operations of the Company would have been
assuming the combination had been completed as of July 1, 1996 and July 1,
1997, respectively, nor is it necessarily indicative of the results of
operations for future periods.
2. Adjustments to Pro Forma Combined Financial Information
Adjustments were made in order to reflect:
(a) The acquisition of Vanguard for a cash payment of $705,621, an 8% Henlor,
Inc. subordinated promissory note in the amount of $794,379, 299,581
unregistered shares of Interiors Common Stock valued at $500,000 and the
repayment of indebtedness of Vanguard owed to the principal shareholders
of Henlor in the amount of $294,379. The cash payments were financed by
debt of $1,000,000, with an assumed interest rate of 15% per annum.
Elimination of related party debt and all equity on Vanguard books as well
as an accrual of $450,000 of acquisition expenses and reserves resulted in
a purchase price in excess of net fair value of assets acquired of
$3,394,000 if the combination occurred as of June 30, 1997. Adjustments
for interest expense at the rates stated above and amortization of
intangibles over 15 years were made to results of operations.
8
<PAGE>
(a) The acquisition of Artmaster for an Interiors, Inc. 10% subordinated
promissory note in the amount of $537,248, 779,302 unregistered shares of
Interiors Common Stock valued at $1,250,000 and the repayment of
indebtedness of Artmaster owed to the principal shareholders of Artmaster
in the amount of $1,022,752 through a cash payment of $750,000 and an
Interiors, Inc. 10 % subordinated promissory note in the amount of
$272,752. The cash payment was indirectly financed by debt of $750,000,
with an assumed interest rate of 15% per annum. Elimination of related
party assets and debt and all equity on Artmaster books as well as an
accrual of $380,000 of acquisition expenses resulted in a purchase price
in excess of net fair value of assets acquired of $2,368,000 if the
combination occurred as of June 30, 1997. Adjustments for interest expense
at the rates stated above and amortization of intangibles over 15 years
were made to results of operations.
(b) The probable acquisition of that portion of Decor not already owned by
Interiors has been proposed as a swap of two Decor shares of Common stock
for one share of Interiors Common Stock. Interiors Common Stock had a
market value of about $2 per share at the time the related agreement was
made, so this value was used for purposes of the Pro Forma Combined
Financial Information. As of December 31, 1997 Decor had 1,709,176 common
shares outstanding and 250,000 series A convertible (at 3 for 1) preferred
stock outstanding, not owned by Interiors. This is equivalent to 2,459,176
shares of Decor, 1,229,588 shares of Interiors or $2,459,176 with
Interiors at $2 per share. Elimination of related party debt and all
equity on Decor books as well as an accrual of $125,000 of acquisition
expenses resulted in a purchase price in excess of net fair value of
assets acquired of $1,694,000 if the combination occurred as of June 30,
1997 and $3,181,000 if it occurred as of March 31, 1998, based on Decor's
December 31, 1997 balance sheet. Adjustments for amortization of
intangibles over 15 years were made to results of operations. During the
nine months ended December 31, 1997 Decor sold Interiors stock it owned
and incurred a loss of $1,113,000. Since a company cannot have a gain or
loss on the sale of its own securities and the Pro Forma Interim Financial
Information Statements of Operations are based on the assumption that
Interiors purchased Decor prior to the sale of stock, the loss has been
eliminated for Pro Forma purposes.
9
