<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 
      For the quarterly period ended March 31, 1998

[ ]   TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 

      For the Transition Period from _______________ TO _______________.

                                    333-44747
                            (Commission File Numbers)

                        ROSEDALE DECORATIVE PRODUCTS LTD.
             (Exact name of registrant as specified in its charter)

              Ontario, Canada                                  5110
      (State or other jurisdiction of              (Primary Standard Industrial
      incorporation or organization)                Classification Code Number)

                               731 Millway Avenue
                                Concord, Ontario
                                 Canada L4K 3S8
                    (Address of principal executive offices)

                                 (619) 794-2602
              (Registrants' telephone number, including area code)

                                 Not Applicable
   (Former name, former address and former fiscal year, if changed since last
   report)

         Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO [ ]

         As of July 14, 1998, 2,500,000 shares of Common Stock, par value $.01
per share, of Rosedale Decorative Products Ltd. were issued and outstanding.


                                       1
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

Item 1.  Financial Statements

<TABLE>
<CAPTION>
                                                     TABLE OF CONTENTS

<S>                                                                                            <C>  
       Interim Combined Balance Sheet as of March 31, 1998 and March 31, 1997                   3 - 4

       Interim Combined Statement of Income for the period ended March 31, 1998
         and March 31, 1997                                                                         5

       Interim Combined Statement of Cash Flows for the period ended
           March 31, 1998   and March 31, 1997                                                  6 - 7

       Interim Combined Statement of Stockholders' Equity for the period ended
              March 31, 1998 and March 31, 1997                                                     8

       Notes to Interim Combined Financial Statements                                          9 - 22

</TABLE>


                                       2
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Balance Sheet
As of March 31,
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                      1998                1997
                                                                                        $                   $
                                     ASSETS
<S>                                                                             <C>                 <C>       
       CURRENT ASSETS

           Cash                                                                    179,427             400,235
           Accounts receivable (note 2)                                          6,950,599           4,182,970
           Inventory (note 3)                                                    5,723,775           5,996,220
           Prepaid expenses and sundry assets                                      424,821             337,384
                                                                                ----------          ----------
                                                                                13,278,622          10,916,809

       LOANS RECEIVABLE FROM AFFILIATED
         COMPANIES (note 4)                                                         39,487              58,958

       DEFERRED PRODUCT COSTS (note 5)                                             259,506             146,304

       DEFERRED POLICY COSTS (note 6)                                              184,251             125,108

       MORTGAGES RECEIVABLE (note 7)                                               417,368             377,765

       PROPERTY, PLANT AND EQUIPMENT (note 8)                                    2,000,594           1,446,829
                                                                                ----------          ----------
                                                                                16,179,828          13,071,773
                                                                                ----------          ----------
                                                                                ----------          ----------
</TABLE>




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


                                       3
<PAGE>



ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Balance Sheet
As of March 31,
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                      1998                1997
                                                                                        $                   $
                                   LIABILITIES
<S>                                                                             <C>                 <C>       
       CURRENT LIABILITIES

           Bank indebtedness (note 9)                                            4,485,280           3,747,105
           Accounts payable and accrued expenses
                (note 10)                                                        5,868,378           4,637,735
           Income taxes payable                                                    508,372             112,652
           Current portion of long-term debt (note 11)                              55,491              64,026
                                                                                ----------          ----------
                                                                                10,917,521           8,561,518

       LONG-TERM DEBT (note 11)                                                  1,004,495             862,730

       LOANS PAYABLE TO STOCKHOLDERS                                               240,746             249,695

       ADVANCES FROM DIRECTORS (note 13)                                         1,557,417           1,664,435

       DEFERRED INCOME TAXES                                                       191,998             142,300
                                                                                ----------          ----------
                                                                                13,912,177          11,480,678
                                                                                ----------          ----------

                              STOCKHOLDERS' EQUITY

       CAPITAL STOCK (note 14)                                                         163                 163

       CUMULATIVE TRANSLATION ADJUSTMENT                                         (197,727)             135,181

       RETAINED EARNINGS                                                         2,465,215           1,455,751
                                                                                ----------          ----------
                                                                                 2,267,651           1,591,095
                                                                                ----------          ----------
                                                                                16,179,828          13,071,773
                                                                                ----------          ----------
                                                                                ----------          ----------
</TABLE>



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


                                       4
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Combined Statement of Income
For the period ended March 31,
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                                              Three-months        Three-months
                                                                                 March 31,           March 31,
                                                                                      1998                1997
                                                                                        $                   $
<S>                                                                              <C>                 <C>      
       SALES                                                                     6,506,589           4,925,180

       COST OF SALES                                                             4,078,108           2,920,969
                                                                                ----------          ----------
       GROSS PROFIT                                                              2,428,481           2,004,211
                                                                                ----------          ----------
       OPERATING EXPENSES

           General and administrative                                              522,362             377,928
           Selling                                                                 510,243             500,082
           Design studio                                                           173,860             268,516
           Book development costs                                                   50,892             102,414
           Amortization                                                            157,793             182,158
                                                                                ----------          ----------

       TOTAL OPERATING EXPENSES                                                  1,415,150           1,431,098
                                                                                ----------          ----------

       OPERATING INCOME                                                          1,013,331             573,113
           Interest expense                                                        131,181              54,956
                                                                                ----------          ----------

       INCOME BEFORE INCOME TAXES                                                  882,150             518,157

           Income taxes (note 15)                                                  353,000             198,642
                                                                                ----------          ----------
       NET INCOME                                                                  529,150             319,515
                                                                                ----------          ----------
                                                                                ----------          ----------
       Pro Forma Earnings Per Share (note 14)                                         0.20                0.12
                                                                                ----------          ----------
                                                                                ----------          ----------
</TABLE>




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


                                       5
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                                              Three-months        Three-months
                                                                                  March 31           March 31,
                                                                                      1998                1997

                                                                                        $                   $

<S>                                                                            <C>                  <C>       
       Cash flows from operating activities:

           Net income                                                              529,150             319,515
                                                                               -----------          ----------

           Adjustments to reconcile net income to net cash provided by operating
                activities:

           Amortization                                                            157,793             182,158
           (Increase) decrease in deferred product costs                           381,523           (146,304)
           (Increase) in accounts receivable                                   (2,266,687)           (268,207)
           (Increase) decrease in inventory                                      1,470,056             281,779
           (Increase) in prepaid expenses and sundry assets                      (244,725)           (201,525)
           Increase (decrease) in accounts payable and accrued expenses          (873,053)           (833,071)
           Increase (decrease) in income taxes payable                             335,833            (87,777)
           Increase in deferred income taxes                                         1,436             113,116
                                                                               -----------          ----------

                Total adjustments                                              (1,037,824)           (959,831)
                                                                               -----------          ----------

           Net cash provided by (used in) operating activities                    (508,674)          (640,316)
                                                                               -----------          ----------

       Cash flows from investing activities:

           Increase in deferred policy costs                                       (1,378)               1,260
           Purchases of property, plant and equipment                            (227,518)           (185,959)
           Increase in mortgages receivable                                       (14,684)           (377,765)
                                                                               -----------          ----------

           Net cash used in investing activities                                 (243,580)           (562,464)
                                                                               -----------          ----------
                                                                               -----------          ----------
</TABLE>




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


                                       6
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                                              Three-months        Three-months
                                                                                 March 31,           March 31,
                                                                                      1998                1997

                                                                                        $                   $

<S>                                                                            <C>                  <C>       
       Cash flows from financing activities:

            Proceeds from bank indebtedness                                         514,337            148,325
            (Repayment of) proceeds from loans with affiliated companies            (2,602)              5,586
            Proceeds from long-term debt                                           (19,610)           (64,051)
            Repayment of stockholders' loans                                         17,625            (2,514)
            Proceeds from loans with directors                                        1,801            194,369
                                                                               ------------         ----------

            Net cash provided by financing activities                               511,551            281,715
                                                                               ------------         ----------

       Effect of foreign currency exchange rate changes                            (22,525)            241,477
                                                                               ------------         ----------

       Net (decrease) increase in cash and cash equivalents                       (263,228)          (679,588)

       Cash and cash equivalents, January 1                                         442,655          1,079,823
                                                                               ------------         ----------

       End of three month period ended March 31                                     179,427            400,235
                                                                               ------------         ----------
                                                                               ------------         ----------

       Income taxes paid                                                             17,166             15,180
                                                                               ------------         ----------
                                                                               ------------         ----------

       Interest paid                                                                 83,169             54,956
                                                                               ------------         ----------
                                                                               ------------         ----------
</TABLE>




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


                                       7
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Statements of Stockholders' Equity
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>
                                                          Common
                                          Class A          Stock                                    Cumulative
                                        Number of      Number of                       Retained    Translation
                                           Shares         Shares          Amount       Earnings    Adjustments
                                      -----------    -----------     -----------    -----------    -----------
                                                                              $              $              $

<S>                                   <C>            <C>             <C>            <C>            <C>        
       Balance as of March 31, 1997            20            220             163      1,455,751        135,181

       Foreign currency translation            -              -               -              -       (310,386)

       Net income for the nine-month
        period to December 31, 1997            -              -               -         480,314             - 
                                      -----------    -----------     -----------    -----------    -----------

       Balance as of December 31,
        1997                                   20            220             163      1,936,065      (175,205)

       Foreign currency translation            -              -               -              -        (22,522)

       Net income for the three-month
        period to March 31, 1998               -              -               -         529,150             - 
                                      -----------    -----------     -----------    -----------    -----------

       Balance as of March 31,
        1998                                   20            220             163      2,465,215      (197,727)
                                      -----------    -----------     -----------    -----------    -----------
                                      -----------    -----------     -----------    -----------    -----------
</TABLE>




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


                                       8
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           a)   Basis of Presentation

                These financial statements combine the accounts of the following
                companies as at the respective interim fiscal periods:

                Ontario Paint & Wallpaper Limited        March 31, 1998 and 1997
                Rosedale Wallcoverings and Fabrics Inc.  March 31, 1998 and 1997

                All material inter-company accounts and transactions have been
                eliminated. (see note 14)

           b)   Principal Activities

                The companies, Ontario Paint and Wallpaper Limited and Rosedale
                Wallcoverings and Fabrics Inc. were incorporated in Canada on
                December 3, 1971 and April 7, 1981 respectively. The companies
                are principally engaged in the designing, manufacturing and
                marketing of wallpapers and decorative fabrics in Canada, U.S.
                and Europe.

           c)   Deferred Product costs

                Expenditures relating to the design and distribution of
                wallpaper and fabric sample books consisting book development
                and design costs relating to collections that have not been
                launched are deferred and amortized over a three-year period on
                a straight-line basis. Proceeds from the sale of sample books
                are offset against the book development costs when received.

           d)   Cash and Cash Equivalents (Bank Indebtedness)

                Cash and cash equivalents (bank indebtedness) includes cash on
                hand, amounts due from and to banks, and any other highly liquid
                investments purchased with a maturity of three months or less.
                The carrying amounts approximate fair values because of the
                short maturity of those instruments.

           e)   Other Current Financial Instruments

                The carrying amount of the companies' accounts receivable and
                payable approximates fair value because of the short maturity of
                these instruments.

           f)   Long-term Financial Instruments

                The fair value of each of the companies' long-term financial
                assets and debt instruments is based on the amount of future
                cash flows associated with each instrument discounted using an
                estimate of what the companies' current borrowing rate for
                similar instruments of comparable maturity would be.

           g)   Inventory

                Inventory is valued at the lower of cost and fair market value.
                Cost is determined on the first-in, first-out basis.


                                       9
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   (cont'd)

           h)   Property, Plant and equipment

                Property, plant and equipment are recorded at cost and are
                amortized on the basis of their estimated useful lives at the
                undernoted rates and methods:

<TABLE>
             <S>                                           <C>                           <C>              
                Leasehold improvements                        10%                               Straight-line
                Cylinders and related design costs            5 years                           Straight-line
                Equipment furniture and fixtures              20%                           Declining balance
                Computer equipment                            30% and 20%                   Declining balance
                Automobile                                    30%                           Declining balance
</TABLE>

Amortization for assets acquired during the year is recorded at one-half of the
indicated rates, which approximate when they were put into use.

           i)   Income taxes

                The companies account for income tax under the provisions of
                Statement of Financial Accounting Standards No. 109, which
                requires recognition of deferred tax assets and liabilities for
                the expected future tax consequences of events that have been
                included in the financial statements or tax returns. Deferred
                income taxes are provided using the liability method. Under the
                liability method, deferred income taxes are recognized for all
                significant temporary differences between the tax and financial
                statement bases of assets and liabilities.

           j)   Foreign Currency Translation

                The companies maintain their books and records in Canadian
                dollars. Foreign currency transactions are translated using the
                temporal method. Under this method, all monetary items are
                translated into Canadian funds at the rate of exchange
                prevailing at balance sheet date. Non-monetary items are
                translated at historical rates. Income and expenses are
                translated at the rate in effect on the transaction dates.
                Transaction gains and losses are included in the determination
                of earnings for the year.

                The translation of the financial statements from Canadian
                dollars ("CDN $") into United States dollars is performed for
                the convenience of the reader. Balance sheet accounts are
                translated using closing exchange rates in effect at the balance
                sheet date and income and expense accounts are translated using
                an average exchange rate prevailing during each reporting
                period. No representation is made that the Canadian dollar
                amounts could have been, or could be, converted into United
                Sates dollars at the rates on the respective dates and or at any
                other certain rates. Adjustments resulting from the translation
                are included in the cumulative translation adjustments in
                stockholders' equity.

           k)   Sales

                Sales represent the invoiced value of goods supplied to
                customers. Sales are recognized upon delivery of goods and
                passage of title to customers.


                                       10
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   (cont'd)

           l)   Net Income Per Weighted Average Common Stock

                Net income per common stock is computed by dividing net income
                for the year by the weighted average number of common stock
                outstanding as presented on a pro-forma basis as explained in
                note 14 (d).

           m)   Use of Estimates

                The preparation of financial statements requires management to
                make estimates and assumptions that affect certain reported
                amounts of assets and liabilities and disclosures of contingent
                assets and liabilities at the date of the financial statements
                and the reported amounts of revenues and expenses during the
                reporting period. Actual results could differ from those
                estimates.

           n)   Accounting Changes

                On January 1, 1997, the companies adopted the provisions of SFAS
                No. 121, Accounting for the Impairment of Long-Lived Assets and
                for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires
                that long-lived assets to be held and used by an entity be
                reviewed for impairment whenever events or changes in
                circumstances indicate that the carrying amount of an asset may
                not be recoverable. SFAS No. 121 is effective for financial
                statements for fiscal years beginning after December 15, 1995.
                Adoption of SFAS No. 121 did not have a material impact on the
                companies' result of operations.

           n)   Accounting Changes   (cont'd)

                In December 1995, SFAS No. 123, Accounting for Stock-Based
                Compensation, was issued. It introduced the use of a fair
                value-based method of accounting for stock-based compensation.
                It encourages, but does not require, companies to recognize
                compensation expense for stock-based compensation to employees
                based on the new fair value accounting rules. Companies that
                choose not to adopt the new rules will continue to apply the
                existing accounting rules contained in Accounting Principles
                Board Opinion No. 25, Accounting for Stock Issued to Employees.
                However, SFAS No. 123 requires companies that choose not to
                adopt the new fair value accounting rules to disclose pro forma
                net income and earnings per share under the new method. SFAS No.
                123 is effective for financial statements for fiscal years
                beginning after December 15, 1995. The companies have adopted
                the disclosure provisions of SFAS No. 123.

       2.  ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $

<S>                                                                                 <C>              <C>      
           Accounts receivable                                                      6,844,996        5,174,136
           Less:  Allowance for doubtful accounts                                     105,603          991,166
                                                                                    ---------        ---------

           Accounts receivable, net                                                 6,950,599        4,182,970
                                                                                    ---------        ---------
                                                                                    ---------        ---------
</TABLE>

           During 1997, two accounts receivable amounting to approximately
           $780,000, previously provided for were written off against the
           allowance for doubtful accounts.


                                       11
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       3.  INVENTORY

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $
           Inventory comprised the following:

<S>                                                                                 <C>             <C>      
                Raw materials                                                         102,742          98,681
                Finished goods                                                      5,621,033       5,897,539
                                                                                    ---------       ---------

                                                                                    5,723,775       5,996,220
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>

       4.  LOANS RECEIVABLE FROM AFFILIATED COMPANIES

           The loans receivable from affiliated companies which are related
           through common ownership bear interest at prime plus 1.5%, have no
           specific repayment terms, and are not expected to be repaid prior to
           October 1, 1999.

       5.  DEFERRED PRODUCT COSTS

<TABLE>
<CAPTION>
                                                                                         1998            1997

                                                                                           $               $

<S>                                                                                 <C>             <C>      
           Book development costs                                                     848,996         146,304
           Deferred software costs                                                     62,915              -
                                                                                    ---------       ---------

           Cost                                                                       911,911         146,304
                                                                                    ---------       ---------


           Less:  Accumulated amortization

                  Book development costs                                              634,821              -
                  Deferred software costs                                              17,584              -
                                                                                    ---------       ---------

                                                                                      652,405              -
                                                                                    ---------       ---------

           Net Deferred Product Costs                                                 259,506         146,304
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>


       6.  DEFERRED POLICY COSTS

           Deferred policy costs represents the prepaid portion of premiums on
           the life insurance policies referred to in note 20.


                                       12
<PAGE>


           ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       7.  MORTGAGES RECEIVABLE

           Second mortgages from companies related through common ownership,
           secured by land and buildings, bear interest at 9% and are payable on
           demand. No repayments are expected prior to April 1, 1999.

<TABLE>
<CAPTION>
                                                                                         1998            1997

                                                                                           $               $

<S>                                                                                 <C>             <C>      
           1216748 Ontario Inc.                                                       230,909         197,610
           1217576 Ontario Inc.                                                       186,459         180,155
                                                                                    ---------       ---------

                                                                                      417,368         377,765
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>

           The fair value of the mortgages receivable is estimated to be
$350,000.

       8.  PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                         1998            1997

                                                                                           $               $

<S>                                                                                 <C>             <C>      
           Leasehold improvements                                                      31,565          32,374
           Automobile                                                                  20,208          20,725
           Equipment and furniture                                                    257,793         263,690
           Furniture and fixtures                                                     306,165         294,720
           Computer and equipment                                                     345,268         329,347
           Cylinders and related design costs                                       3,240,592       2,428,827
                                                                                    ---------       ---------

           Cost                                                                     4,201,591       3,369,683
                                                                                    ---------       ---------

           Less:  Accumulated amortization

                  Leasehold improvements                                               11,319           8,372
                  Automobile                                                           16,884          15,854
                  Equipment and furniture                                             190,189         176,772
                  Furniture and fixtures                                              203,920         182,574
                  Computer and equipment                                              238,728         213,128
                  Cylinders and related design costs                                1,539,957       1,326,154
                                                                                    ---------       ---------

                                                                                    2,200,997       1,922,854
                                                                                    ---------       ---------

           Net Assets                                                               2,000,594       1,446,829
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>




                                       13
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       9.  BANK INDEBTEDNESS

           The companies have available credit facilities up to a maximum of
           $5,700,000 ($7,910,000 Canadian), which bear interest at rates
           varying between the bank's prime rate and prime plus 1.5%. The
           indebtedness is secured by general assignments of book debts, pledge
           of inventory under Section 427 of the Bank Act of Canada, general
           security agreements providing a first floating charge over all
           assets, guarantees and postponement of claims to a maximum of
           $722,000 each from two officers, guarantees and postponement of
           claims to a maximum of $1,450,000 from the parent companies,
           guarantees from affiliated companies up to $595,000, assignment of
           life insurance of $1,450,000 on the lives of two key officers and
           assignment of fire insurance.

       10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $
           Accounts payable and accrued expenses is comprised of the following:

<S>                                                                                 <C>              <C>      
                Trade payables                                                      5,505,476        4,388,784
                Accrued expenses                                                      362,902          248,951
                                                                                    ---------        ---------

                                                                                    5,868,378        4,637,735
                                                                                    ---------        ---------
                                                                                    ---------        ---------
</TABLE>

       11. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $
<S>                                                                                 <C>             <C>      
           a)   Settlement Payable

                Settlement of a claim initiated by a third party payable $7,242
                    monthly.  The fair value of the settlement payable is
                    estimated to be $138,000                                          145,621         165,231
                                                                                    ---------       ---------
</TABLE>

<TABLE>
<CAPTION>
                                                                                         1998            1997

                                                                                           $               $

<S>                                                                                   <C>             <C>    
                Balance forward                                                       145,621         165,231
</TABLE>


                                       14
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       11. LONG-TERM DEBT (cont'd)

<TABLE>
<S>                                                                                 <C>              <C>     
           b)   Insurance Loan

                Amount in excess of cash surrender values of life insurance
                    policies (note 20) which is payable on demand but is
                     expected to become due for payment in the year 2004. The
                    loan bears interest at prime plus 1.5% and is secured by
                    letters of guarantee from a major Canadian Chartered Bank
                    and a second collateral mortgage on the assets of the
                    companies                                                         914,365         761,525
                                                                                    ---------       ---------

                                                                                    1,059,986         926,756

                Less:  Current portion                                               (55,491)        (64,026)
                                                                                    ---------       ---------

                Long-term portion                                                   1,004,495         862,730
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>



       12. LOANS PAYABLE TO STOCKHOLDERS

           Stockholder's advances are secured by general security agreements,
           bears interest at prime plus 1.5%, have no specific repayment terms,
           and the stockholders are not expected to demand repayment prior to
           April 1, 1999.

       13. ADVANCES FROM DIRECTORS

           Advances from directors are secured by general security agreements,
           bears interest at prime plus 1.5%, have no specific repayment terms,
           and the directors are not expected to demand repayment prior to April
           1, 1999.


                                       15
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       14. CAPITAL STOCK

           a)   Ontario Paint & Wallpaper Limited

                Authorized

                  500,020   Class A Preference shares, 8% non-cumulative, non-
                               voting, redeemable at $12,500 per share
                   25,000   Class B Preference shares, 8% non-cumulative, non-
                               voting, redeemable at paid up amount
                  249,980   Common shares

                Issued

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $

<S>                                                                                 <C>              <C>      
                             20   Class A Preference shares                                 1                1
                             20   Common shares                                             2                2
                                                                                    ---------        ---------

                                                                                            3                3
                                                                                    ---------        ---------
                                                                                    ---------        ---------
</TABLE>


           b)   Rosedale Wallcoverings and Fabrics Inc.

                Authorized

                  3,600        Preference shares, 9% non-cumulative, non-voting,
                               redeemable at the amount paid up plus a premium
                               of 10%

                  4,000   Common shares

                Issued

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $

<S>                                                                                 <C>              <C>      
                       200   Common shares                                                160              160
                                                                                    ---------        ---------
                                                                                    ---------        ---------
</TABLE>

           c)   Issued - Combined

<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $

<S>                                                                                 <C>              <C>      
                        20   Class A Preference shares                                      1                1
                       220   Common shares                                                162              162
                                                                                    ---------        ---------

                                                                                          163              163
                                                                                    ---------        ---------
                                                                                    ---------        ---------
</TABLE>


                                       16
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       14. CAPITAL STOCK   (cont'd)

           d)   Weighted Average Number of Common Shares

                On May 14, 1997, a newly incorporated holding company, Rosedale
                Decorative Products Ltd. (the "Registrant"), was formed by the
                shareholders of the companies for the purpose of consolidating
                and reorganizing their 100% ownership interests in anticipation
                of an initial public offering. This reorganization will be
                carried out using the pooling of interests method.

                For the purpose of determining earnings per share, the weighted
                average number of common shares has been presented on a
                pro-forma basis, on the assumption that the reorganisation was
                completed as at March 31, 1998.

                This reorganization will result in the transfer of all the
                outstanding common shares of the parent companies of Ontario and
                Rosedale current held by the Fine and Ackerman families to the
                Registrant in exchange for 1,500,000 common shares of the
                Registrant.

                After giving effect to the above transaction, there will be
                1,500,000 issued common shares of the Registrant prior to the
                public offering. Subsequent to March 31, 1998, the Company
                issued 1,100,000 common shares to the public.

                Accordingly, the earnings per share data are presented herein on
                a pro-forma basis assuming that the weighted average number of
                shares issued is 2,600,000.

       15. INCOME TAXES

<TABLE>
<CAPTION>
                                                                                       1998               1997

                                                                                         $                  $

<S>                                                                                 <C>                 <C>   
            a)  Current                                                             303,302             56,342
                Deferred                                                             49,698            142,300
                                                                                  ---------          ---------

                                                                                    353,000            198,642
                                                                                  ---------          ---------
                                                                                  ---------          ---------
</TABLE>


           b)   Deferred income taxes represented the tax charges derived from
                temporary differences between amortization of property, plant
                and equipment and amounts deducted from taxable income.


                                       17
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       15. INCOME TAXES (cont'd)

           c)   Rosedale has operating losses of approximately $770,000 which is
                expected to he used to reduce future taxable income. The
                potential tax benefit relating to the losses have been
                recognized in the accounts to the extent that they reduce
                deferred taxes. The deductibility of these losses if available
                expires as follows:

<TABLE>
              <S>                                                                           <C>       
                2001                                                                          $  432,000
                2002                                                                             312,000
                2004                                                                              26,000
                                                                                              ----------
                                                                                                $770,000

                                                                                              ----------
                                                                                              ----------
</TABLE>

                Rosedale has been reassessed by Revenue Canada and the Province
                of Ontario for fiscal year ended December 31, 1993 and December
                31, 1994 in the amount of approximately $690,000 [see note 18
                (b)]. Should the assessments be upheld, the benefits of these
                losses may not be realized.

       16. RELATED PARTY TRANSACTIONS

           Amounts due from or paid to companies which are related through
common ownership.

<TABLE>
<CAPTION>
                                                                                      1998                1997

        <S>                                                                        <C>              <C>    
                                                                                        $                   $

           Loan - 966578 Ontario Inc.                                                  12,747               -
           Loan - 976168 Ontario Inc.                                                  24,651           25,281
           Mortgage receivable - 1216748 Ontario Inc.                                 230,920          197,610
           Mortgage receivable - 1217576 Ontario Inc.                                 186,459          180,155
           Rent paid - 966578 Ontario Inc.                                              4,236            4,334
</TABLE>



                                       18
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       17. SEGMENTED INFORMATION

           Rosedale is engaged primarily in the design, manufacturing,
           marketing, and distribution and Ontario is engaged primarily in the
           marketing and distribution of wallpaper and designer fabrics.

           a) The breakdown of sales by geographic area is as follows:

<TABLE>
<CAPTION>
                Period ended March 31, 1998
                ---------------------------

             <S>                                                                              <C>          
                United States of America                                                         $   3,392,122
                Canada                                                                               2,375,704
                Other                                                                                  738,763
                                                                                                 -------------

                                                                                                 $   6,506,589
                                                                                                 -------------
                                                                                                 -------------
</TABLE>

<TABLE>
<CAPTION>
                Period ended March 31, 1997
                ---------------------------

             <S>                                                                               <C>          
                United States of America                                                         $   2,405,395
                Canada                                                                               1,800,257
                Other                                                                                  719,528
                                                                                                 -------------


                                                                                                 $   4,925,180
                                                                                                 -------------
                                                                                                 -------------
</TABLE>

           a)   The companies' accounting records do not readily provide
                information on net income by geographic area. Management is of
                the opinion that the proportion of net income based principally
                on sales, presented below, would fairly present the results of
                operations by geographic area.

<TABLE>
<CAPTION>
                Period ended March 31, 1998
                ---------------------------

             <S>                                                                               <C>          
                United States of America                                                         $     275,865
                Canada                                                                                 193,205
                Other                                                                                   60,080
                                                                                                 -------------

                                                                                                 $     529,150
                                                                                                 -------------
                                                                                                 -------------
</TABLE>

<TABLE>
<CAPTION>
                Period ended March 31, 1997
                ---------------------------

             <S>                                                                              <C>          
                United States of America                                                         $     156,047
                Canada                                                                                 116,789
                Other                                                                                   46,679
                                                                                                 -------------

                                                                                                 $     319,515
                                                                                                 -------------
                                                                                                 -------------
</TABLE>


                                       19
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

17.    SEGMENTED INFORMATION (cont'd)

           b) The breakdown of identifiable assets by geographic area is as
follows:

<TABLE>
<CAPTION>
                Year ended December 31, 1997
                ----------------------------

             <S>                                                                              <C>          
                United States of America                                                         $   1,933,015
                Canada                                                                              12,413,197
                Other                                                                                1,833,616
                                                                                                 -------------

                                                                                                 $  16,179,828
                                                                                                 -------------
                                                                                                 -------------
</TABLE>

<TABLE>
<CAPTION>
                Year ended December 1996
                ------------------------

             <S>                                                                              <C>          
                United States of America                                                         $     983,932
                Canada                                                                              11,410,711
                Other                                                                                  677,130
                                                                                                 -------------

                                                                                                 $  13,071,773
                                                                                                 -------------
                                                                                                 -------------
</TABLE>

           c) Sales to major customers are as follows:

<TABLE>
<CAPTION>
                                                                                           1998           1997

            <S>                                                                  <C>            <C>          
                Sales                                                                 1,354,454        895,016
                                                                                  -------------  -------------

                % of total sales                                                            21%            18%
                                                                                  -------------  -------------

                Amounts included in accounts receivable                           $     907,146  $     437,708
                                                                                  -------------  -------------
</TABLE>

           d) Purchases from major suppliers are as follows:

<TABLE>
<CAPTION>
                                                                                           1998           1997

<S>                                                                               <C>            <C>          
                Purchases                                                         $   1,273,878  $     943,816
                                                                                  -------------  -------------

                % of total purchases                                                        45%            50%
                                                                                  -------------  -------------

                Amounts included in accounts payable                               $  2,567,096   $  1,733,603
                                                                                  -------------  -------------
</TABLE>


                                       20
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       18. CONTINGENCIES

           a)   The company is contingently liable under contested lawsuits
                amounting to approximately $31,000. Management is of the opinion
                that the company's defence is meritorious and the lawsuit will
                result in no material loss. Accordingly, no provision is
                included in the accounts for possible related losses. Should any
                expenditures be incurred by the company for resolution of these
                lawsuits, it will be charged to the operations of the year in
                which such expenditures are incurred.

           b)   Rosedale has been re-assessed by Revenue Canada and the Province
                of Ontario for fiscal years ended December 31, 1993 and December
                31, 1994 for additional taxes estimated to be $690,000. The
                company has objected to these re-assessments and has no
                obligation to pay the portion relating to Revenue Canada in the
                amount of $450,000 until the objections have been processed. No
                provision has been made in the accounts for the additional
                taxes.

       19. COMMITMENTS

           Minimum payments under operating leases for premises amount to
           approximately $330,000 per annum, exclusive of insurance and other
           occupancy charges. The leases expire on October 31, 2004. The future
           minimum lease payments over the next four years are as follows:

           Payable during the following periods:

<TABLE>
<S>                                                                                           <C>             
               Within one year                                                                $        329,787
               Over one year but not exceeding two years                                               329,787
               Over two years but not exceeding three years                                            329,787
               Over three years but not exceeding four years                                           329,787
               Over four years but not exceeding five years                                            329,787
               Thereafter                                                                              661,065
                                                                                              ----------------

                                                                                               $     2,310,000
                                                                                              ----------------
                                                                                              ----------------
</TABLE>

       20. LIFE INSURANCE POLICIES

           The companies are the beneficiaries of life insurance policies with
           The Prudential of America Life Insurance Company (Canada) ("PruCan")
           taken out on the lives of three of the officers for a total insured
           value of $22 million. In consideration for this benefit, the
           companies agreed to fund the premiums payable on the policies.
           Funding is being provided by advances from the Laurentian Bank of
           Canada ("Laurentian").

           The Laurentian has a legal right of set-off of the cash surrender
           values of the life insurance policies against the debt owing to it by
           the companies. Accordingly the related assets and liabilities have
           been offset in the financial statements.

           The amounts offset were as follows:

<TABLE>
<S>                                                                                      <C>                  
           Cash surrender value of life insurance policies                                $     2,030,532
           Advances                                                                       $    (2,030,532)
</TABLE>

           The amount in excess of the cash surrender value of the life
           insurance policies is included in long-term debt (see note 11).


                                       21
<PAGE>


ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Combined Financial Statements
(Amounts expressed in US dollars)
(Unaudited)

       20. LIFE INSURANCE POLICIES (cont'd)

           The advances from Laurentian are payable on demand but are expected
           to become due for payment in the year 2004. The companies are liable
           for the interest on the advances. Security is provided by first
           charges on the insurance policies, letters of credit from a major
           Canadian chartered bank and general security agreements creating a
           second charge over all corporate assets.

       21. FOREIGN EXCHANGE CONTRACTS

           As at March 31, 1998, the Company had outstanding foreign exchange
           contracts to sell U.S. dollars to the National Bank of Canada to
           hedge against fluctuations in foreign currency. The purpose of the
           Company's foreign exchange hedging activities is to protect the
           Company from the risk that the eventual dollar net cash inflows
           resulting from the sale and purchase of products in foreign
           currencies will not be adversely affected by changes in exchange
           rates. It is the Company's policy to use derivative financial
           instruments to reduce foreign risks. Fluctuations in the value of
           these hedging instruments are offset by fluctuations in the value of
           the underlying exposures being hedged. As the contracts are settled,
           the related gains or losses, if any, will be reported in the
           statements of financial position and income. Since these contracts
           are expected to settle in the time period from April 1, 1998 through
           December 31, 1998, there is no impact on the financial statements for
           the period ended March 31, 1998. There is a potential risk of
           non-performance by the National Bank of Canada, the financial
           institution that the Company has the Foreign Forward Exchange
           Contracts with. However, given the National Bank's prominence and
           financial condition, the Company believes that this risk is
           insignificant. The Company had no contracts outstanding with
           maturities beyond one year. The cash requirements arise as the
           contracts are exercised to the value of $6,970,000 (in varying
           amounts from April through December 1998). The following table
           presents the aggregate notional principal amounts, carrying values
           and fair values of the Company's foreign exchange contracts
           outstanding at March 31, 1998. Deferred gains and losses on forward
           exchange contracts are recognized in earnings when the future
           purchases and sales being hedged are recognized. The Company does not
           hold or issue financial instruments for trading purposes. The
           estimated fair values of the derivatives used to hedge the Company's
           risks will fluctuate over time.

<TABLE>
<CAPTION>
                             March 31, 1998                                               March 31, 1997
                      ----------------------------                                 ---------------------------
           Forward          Notional                                      Forward       Notional
           Exchange        Principal      Carrying           Fair        Exchange      Principal      Carrying
           Contracts         Amounts         Value         Values       Contracts        Amounts        Values
         -----------     -----------   -----------    -----------     -----------    -----------   -----------

       <S>             <C>           <C>            <C>             <C>            <C>           <C>        
           1998           $6,970,000            -      ($363,600)              -              -             -
</TABLE>


                                       22
<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
           Of Operations

Results of Operations

         Three months ended March 31, 1998 compared to three months ended March
31, 1997.

         Revenues for the three months ended March 31,1998 were $6,506,589, a
32.1% increase over prior year revenues of $4,925,180. This increase was due to
greater acceptance of product lines in the market, increased market share from
retail chains, increased residential real estate sales and expansion of the
export market coupled with the improving economic climate in North America.

         Gross profit for the company for the three months ended March 31, 1998
was 37.32% of sales, a reduction as compared to the same period one year ago,
which was 40.69%. This decrease in gross profit margin can be attributed to a
change in sales mix due to an increase in sales to large retail chains, which
buy larger volumes at smaller profit margins.

         Selling expenses for the Company increased by 2.03%, from $500,082 to
$510,243 for the three month period ended March 31, 1998 as compared to the
three month period ended March 31, 1997. This increase is attributable to an
increase in sales affecting commissions and warehouse costs.

         General and administrative expenses for the Company increased by 38.22%
to $522,362 for the three months ended March 31, 1998 from $377,928 for the
three months ended March 31, 1997. In 1997, the Company recorded a bad debt
recovery in the amount of $79,132. This extraordinary item distorts the results
for the period ended March 31, 1997. Exclusive of such extraordinary item the
Company's general and administrative expense increased by approximately $65,000.
This increase can be attributed mostly to the fact that in the first quarter of
1998, government employee benefits increased by 42% over last year as the method
of calculation was changed. A portion of this increase however, will be
recovered later in the year.

         Rosedale develops wallpaper and fabric sample books, which are created
for each collection and sold through distributors. The majority of expenditures
for the creation of sample books are incurred in the quarter before the
introduction of a collection. Some expenditures are incurred as early as six to
eight months in advance. Revenues generated from the sale of sample books are
netted from the costs incurred in the same period and the net amount is shown on
the income statement. Because expenditures are made in the quarter before the
launch of a collection, there is not always a matching of revenues and expenses
e.g. costs for a January launch would be recorded in the following year. The
Company ensures that there are firm orders in place from customers before
significant expenditures are incurred to produce the sample books. Therefore,
there is little speculative risk in their production. Book development costs for
the three month period ended March 31, 1998 was $50,892, compared to $102,414
for the same period last year.

         Design studio expenses for the Company decreased by 35.25% to $173,860
for the three months ended March31, 1998 versus $268,516 for the same period
last year. This reduction is attributable to lower staff requirements as a
result of the implementation of the computer-aided design ("CAD") computer
system for the studio.


                                       23
<PAGE>


         Operating income for the three months ended March 31, 1998 increased
76.81% to $1,013,331 from $575,113 for the three months ended March 31, 1997.
This related directly to the increase in sales.

         Interest expense for the Company for the three months ended March 31,
1998 increased 138.7% to $131,181 from $54,956 for the three months ended March
31, 1997. This increase in interest expense is directly attributable to higher
interest rates and increased borrowings. In addition, in the period March 31,
1998, the Company has included premiums on insurance policies on the lives of
two of its officers and one principal shareholder in the aggregate amount of
$48,012 as an interest expense.

         Net income for the three months ended March 31, 1998 increased 65.61%
over the same period in the prior year. The improvement is attributable to an
improved mix of sales and a positive rationalization of costs.


                                       24
<PAGE>


                                     PART II

                                OTHER INFORMATION

Item 1.  Legal Proceedings

         The Company is involved in legal proceedings with Revenue Canada. The
Revenue Canada proceeding involves the Company's challenge to a Revenue Canada
decision to disallow a business loss deduction taken by Rosedale for losses it
incurred when attempting to create a startup company in California. Rosedale
started the California company in 1992 to make window blinds as an adjunct to
its wallcovering and fabric business. The California company's growth did not
meet the Company's expectations and subsequently was sold in 1994. Rosedale
claimed losses incurred during the operation of the California business as a
business loss deduction on its 1994 tax return. Revenue Canada allowed the
deduction as a capital loss only. Rosedale has filed a formal notice of
objection to Revenue Canada's classification of the deduction. In the event that
Revenue Canada's decision is upheld, Rosedale would be required to pay $664,000
plus interest to satisfy its tax obligation. The Company believes that it has a
meritorious defense and is working to try to settle the matter. The Company is
not aware of any other of any other material legal proceedings pending or
threatened against the Company.


Item 2.  Changes in Securities and Use of Proceeds

         None

Item 3.  Defaults Upon Senior Securities

         None

Item 4.  Submission of Matters to a Vote of Security Holders

         None

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

  (a)  Exhibits

None

  (b)  Reports on Form 8-K

       The Company did not file any reports on Form 8-K during the six month
       period ended March 31, 1998.


                                       25
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                               ROSEDALE DECORATIVE PRODUCTS LTD.

Date: July 14, 1998                            By:   /s/Alan Fine
                                                   -----------------------------
                                                     Alan Fine

Date: July 14, 1998                            By:   /s/Sidney Ackerman
                                                   -----------------------------
                                                     Sidney Ackerman


                                       26