<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 June 30, 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 [   ] NO [ X ]

      As of August 14, 1998, 2,765,000 shares of Common Stock, par value $.01
per share, of Rosedale Decorative Products Ltd. were issued and outstanding.


<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

Item 1.  Financial Statements


                                TABLE OF CONTENTS


  Interim  Balance Sheet as of June 30, 1998 and December 31, 1997         2 - 3

  Interim Statement of Income for the three months ended June  30, 1998        4

  Interim Statement of Income for the six months ended June 30, 1998           5

  Interim Statement of Cash Flows for the period ended June 30, 1998       6 - 7

  Interim Statement of Stockholders' Equity for the period ended 
    June 30, 1998                                                              8

  Notes to Interim Financial Statements                                   9 - 24


                                       2

<PAGE>

ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Balance Sheet
As of June 30, 1998 and December 31, 1997
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>

                                                             1998          1997
                                                              $             $
<S>                                                       <C>            <C>    

                  ASSETS

CURRENT ASSETS
     Cash                                                 4,806,036      442,655
     Accounts receivable (note 2)                         5,226,585    4,683,912
     Inventory (note 3)                                   6,879,294    7,193,831
     Prepaid expenses and sundry assets                     312,752      180,096
                                                         ----------   ----------
                                                         17,224,668   12,500,494

LOANS RECEIVABLE FROM AFFILIATED COMPANIES  (note 4)          2,019       36,884

DEFERRED PRODUCT COSTS (note 5)                             199,922      641,028

DEFERRED POLICY COSTS (note 6)                              178,226      182,873

MORTGAGES RECEIVABLE (note 7)                               336,203      402,684

PROPERTY, PLANT AND EQUIPMENT (note 8)                    2,168,602    1,930,869
                                                         ----------   ----------
                                                         20,109,640   15,694,832
                                                         ----------   ----------
                                                         ----------   ----------

</TABLE>


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


                                       3

<PAGE>

ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Combined Balance Sheet
As of June 30, 1998 and December 31, 1997
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>

                                                              1998          1997
                                                               $             $

<S>                                                      <C>            <C>      
                                   LIABILITIES
CURRENT LIABILITIES
     Bank indebtedness (note 9)                          3,388,338      3,970,943
     Accounts payable and accrued expenses
          (note 10)                                      6,512,540      6,741,431
     Income taxes payable                                  629,410        172,538
     Current portion of long-term debt (note 11)            80,521         82,616
                                                        ----------     ----------
                                                        10,610,809     10,967,528

LONG-TERM DEBT (note 11)                                   931,383        996,981

LOANS PAYABLE TO STOCKHOLDERS                              694,315        238,945

ADVANCES FROM DIRECTORS (note 13)                          858,784      1,539,791

DEFERRED INCOME TAXES                                      185,720        190,564
                                                        ----------     ----------
                                                        13,112,851     13,933,809
                                                        ----------     ----------

                           STOCKHOLDERS' EQUITY

CAPITAL STOCK (note 14)                                  4,306,778            163

CUMULATIVE TRANSLATION ADJUSTMENT                         (211,047)      (175,205)

RETAINED EARNINGS                                        2,732,898      1,936,065
                                                        ----------     ----------
                                                         6,828,629      1,761,023
                                                        ----------     ----------
                                                        20,109,640     15,694,832
                                                        ----------     ----------
                                                        ----------     ----------

</TABLE>


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


                                       4

<PAGE>

ROSEDALE DECORATIVE PRODUCTS LTD.
Combined Statement of Income
For the three-months ended June 30,
(Amounts expressed in US dollars)
(Unaudited)

<TABLE>
<CAPTION>

                                       Three-months    Three-months
                                           June 30,        June 30,
                                              1998             1997

                                             $              $

<S>                                      <C>            <C>      
SALES                                    4,244,876      6,033,457

COST OF SALES                            2,224,517      4,038,647
                                         ---------      ---------
GROSS PROFIT                             2,020,359      1,994,810
                                         ---------      ---------
OPERATING EXPENSES

     General and administrative            526,546        632,732
     Selling                               532,732        629,043
     Design studio                         190,335        128,606
     Book development costs                 30,370        102,993
     Amortization                          150,770        183,188
                                         ---------      ---------                                                     
TOTAL OPERATING EXPENSES                 1,430,753      1,676,562
                                         ---------      ---------
OPERATING INCOME                           589,606        318,249
     Interest expense                      137,384         79,752
                                         ---------      ---------
INCOME BEFORE INCOME TAXES                 452,223        238,497
     Income taxes (note 15)                184,539        103,422
                                         ---------      ---------
NET INCOME                                 267,683        135,074
                                         ---------      ---------
                                         ---------      ---------
Pro Forma Earnings Per Share (note 14)        0.10           0.05
                                         ---------      ---------
                                         ---------      ---------
Fully Diluted Earnings per Share              0.07           0.04
                                         ---------      ---------
                                         ---------      ---------

</TABLE>


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


                                       5

<PAGE>

ROSEDALE DECORATIVE PRODUCTS LTD.
Combined Statement of Income
For the six-months ended June 30,
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
                                                      Six-months              Six-months
                                                        June 30,                June 30,
                                                            1998                    1997

                                                           $                      $

<S>                                                   <C>                      <C>       
SALES                                                 10,751,465               10,958,637
                                                                            
COST OF SALES                                          6,302,625                6,959,616
                                                      ----------               ----------

GROSS PROFIT                                           4,448,840                3,999,021
                                                      ----------               ----------

OPERATING EXPENSES                                                          
     General and administrative                        1,096,921                1,010,659
     Selling                                           1,042,976                1,129,125
     Design studio                                       364,195                  397,122
     Book development costs                               81,262                  205,407
     Amortization                                        308,562                  365,346
                                                      ----------               ----------
TOTAL OPERATING EXPENSES                               2,893,915                3,107,660
                                                      ----------               ----------
OPERATING INCOME                                       1,554,925                  891,361
     Interest expense                                    220,553                  134,708
                                                      ----------               ----------
INCOME BEFORE INCOME TAXES                             1,334,373                  756,653
     Income taxes (note 15)                              537,539                  302,064
                                                      ----------               ----------
NET INCOME                                               796,833                  454,589
                                                      ----------               ----------
                                                      ----------               ----------
Pro Forma Earnings Per Share (note 14)                      0.31                     0.17
                                                      ----------               ----------
                                                      ----------               ----------
Fully Diluted Earnings per Share                            0.22                     0.12
                                                      ----------               ----------
                                                      ----------               ----------

</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>

                                                                       Six-months     Six-months
                                                                          June 30       June 30,
                                                                              1998          1997

                                                                               $              $

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

     Net income                                                            796,833       454,589
                                                                         ---------       -------
     Adjustments to reconcile net income to net cash
        provided by operating activities:

     Amortization                                                          308,562       365,346
     (Increase) decrease in deferred product costs                         441,106      (207,901)
     (Increase) decrease in accounts receivable                           (542,672)   (1,082,088)
     (Increase) decrease in inventory                                      314,537       170,698
     (Increase) decrease in prepaid expenses and sundry assets            (132,655)       37,804
     Increase (decrease) in accounts payable and accrued expenses         (228,891)      232,360
     Increase (decrease) in income taxes payable                           456,872       105,733
     Increase (decrease) in deferred income taxes                           (4,843)      113,518
                                                                         ---------       -------
            Total adjustments                                              612,016      (264,530)
                                                                         ---------       -------
     Net cash provided by (used in) operating activities                 1,408,849       190,059
                                                                         ---------       -------

Cash flows from investing activities:

     (Increase) decrease in deferred policy costs                            4,647           907
     Purchases of property, plant and equipment                           (546,296)     (313,420)
     (Increase) decrease in mortgages receivable                            66,481      (381,368)
                                                                         ---------       -------
     Net cash used in investing activities                                (475,168)     (693,881)
                                                                         ---------       -------
                                                                         ---------       -------

</TABLE>


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


                                       7

<PAGE>

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

<TABLE>
<CAPTION>


                                                                        Six-months     Six-months
                                                                           June 30,      June 30,
                                                                               1998          1997

                                                                               $             $

<S>                                                                       <C>           <C>
Cash flows from financing activities:
     Proceeds from share capital                                          4,306,615             0
     Proceeds from (repayment of) bank indebtedness                        (582,605)      (43,561)
     (Repayment of) proceeds from loans with affiliated companies            34,865         2,356
     Proceeds from (repayment of) long-term debt                            (67,693)      (82,838)
     Proceeds from (repayment of) stockholders' loans                       455,370        (1,809)
     Proceeds from (repayment of) loans with directors                     (681,008)      164,763
                                                                          ---------     ---------
     Net cash provided by financing activities                            3,465,544        38,911
                                                                          ---------     ---------
Effect of foreign currency exchange rate changes                            (35,844)      128,173
                                                                          ---------     ---------
Net (decrease) increase in cash and cash equivalents                      4,363,381      (336,738)

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

End of six month period ended June 30                                     4,806,036       743,085
                                                                          ---------     ---------
                                                                          ---------     ---------
Income taxes paid                                                            38,428       196,331
                                                                          ---------     ---------
                                                                          ---------     ---------
Interest paid                                                               163,311       134,708
                                                                          ---------     ---------
                                                                          ---------     ---------
</TABLE>


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


                                        8

<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 December 31, 1996                                 20           220           163     1,136,237      (106,297)

Foreign currency translation                                    --            --            --           --
                                                                                                                   128,173
Net income for the six-month period to
  June 30, 1997                                                  --            --            --      454,589            --
                                                          ----------    ----------    ----------   ----------  -----------
Balance as of June 30, 1997                                     20           220           163     1,590,826        21,876

Balance as of December 31, 1997                                 20           220           163     1,936,065      (175,203)

Capital stock redeemed                                         (20)         (220)

Capital stock issued                                             0     2,600,000     4,306,615

Foreign currency translation                                    --            --            --           --       (-35,844)

Net income for the three-month period to
  June 30, 1998                                                 --            --            --       796,833           --
                                                          ----------   ----------    ----------   ----------   -----------
Balance as of June 30, 1998                                       0    2,600,000     4,306,778     2,732,898      (211,047)
                                                          ----------   ----------    ----------   ----------   -----------
                                                          ----------   ----------    ----------   ----------   -----------

</TABLE>


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


                                        9

<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         June 30, 1998 and 1997
                Rosedale Wallcoverings and Fabrics Inc.   June 30, 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.


                                       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)

        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.

         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.




                                       11

<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)

         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 the passage of title to the customers.

         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.


                                       12

<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)

         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                      5,328,734   4,788,725
Less:  Allowance for doubtful accounts     102,149     104,813
                                         ---------   ---------
Accounts receivable, net                 5,226,585   4,683,912
                                         ---------   ---------
                                         ---------   ---------
</TABLE>


   3.    INVENTORY

<TABLE>
<CAPTION>


                                          1998        1997
                                            $          $
<S>                                  <C>         <C>      
Inventory comprised the following:

Raw materials                           99,138      41,678
Finished goods                       6,780,156   7,152,153
                                     ---------   ---------

                                     6,879,294   7,193,831
                                     ---------   ---------
                                     ---------   ---------

</TABLE>


                                       13

<PAGE>

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


      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
            July 1, 1999.


      5.    DEFERRED PRODUCT COSTS

<TABLE>
<CAPTION>

                                                      1998        1997

                                                        $          $
<S>                                                  <C>       <C>    
         Book development costs                      841,991   848,996
         Deferred software costs                      60,858    62,915
                                                    --------   -------
         Cost                                        902,849   911,911
                                                    --------   -------
         Less: Accumulated amortization

               Book development costs                685,918   208,299
               Deferred software costs                17,009    12,584
                                                    --------   -------
                                                     702,927   270,883
                                                    --------   -------
         Net Deferred Product Costs                  199,922   641,028
                                                    --------   -------
                                                    --------   -------
</TABLE>


      6.    DEFERRED POLICY COSTS

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


                                       14

<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 July 1, 1999.
<TABLE>
<CAPTION>

                        1998      1997

                          $        $

<S>                    <C>       <C>    
1216748 Ontario Inc.   176,299   209,073
1217576 Ontario Inc.   159,904   193,611
                       -------   -------


                       336,203   402,684
                       -------   -------
                       -------   -------

</TABLE>

            The fair value of the mortgages receivable is estimated to be
            $360,000.


      8.    PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>


                                              1998         1997

                                                $           $

<S>                                           <C>         <C>   
Leasehold improvements                        30,535      31,331
Automobile                                    19,547      20,057
Equipment and furniture                      296,153     255,335
Furniture and fixtures                       249,362     301,585
Computer and equipment                       342,942     335,796
Cylinders and related design costs         3,469,770   3,057,727
                                           ---------   ---------


Cost                                       4,408,309   4,001,831
                                           ---------   ---------


Less: Accumulated amortization

      Leasehold improvements                  11,716      10,448
      Automobile                              16,598      16,485
      Equipment and furniture                202,668     184,572
      Furniture and fixtures                 186,694     196,837
      Computer and equipment                 238,756     228,903
      Cylinders and related design costs   1,583,275   1,433,717
                                           ---------   ---------
                                           2,239,707   2,070,962
                                           ---------   ---------

Net Assets                                 2,168,602   1,930,869
                                           ---------   ---------
                                           ---------   ---------
</TABLE>

                                       15

<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 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

                                                                                 $            $

<S>                                                                        <C>         <C>      
   Accounts payable and accrued expenses is comprised of the following:

                  Trade payables                                           5,523,407   6,358,585
                  Accrued expenses                                           989,133      38,846
                                                                           ---------   ---------
                                                                           6,512,540   6,741,431
                                                                           ---------   ---------
                                                                           ---------   ---------


   11.      LONG-TERM DEBT
                                                                                1998        1997

                                                                                 $           $
         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 $120,000                                     120,774     165,231
                                                                           ---------   ---------

</TABLE>



                                       16


<PAGE>


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




      11.   LONG-TERM DEBT (cont'd)
<TABLE>
<CAPTION>


                                                                       1998          1997

                                                                         $             $

<S>                                                                 <C>           <C>    
   Balance forward                                                  120,774       165,231

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                                                       891,130       914,366
                                                                  ---------     ---------

                                                                  1,011,904     1,079,597

         Less:  Current portion                                     (80,521)      (82,616)
                                                                  ---------     ---------

         Long-term portion                                          931,383       996,981
                                                                  ---------     ---------
                                                                  ---------     ---------
</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 July 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 July
            1, 1999.









                                       17


<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>    <C>
                           20   Class A Preference shares      0       1
                           20   Common shares                  0       2
                                                           -----   -----
                                                               0       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                0      160
                                                           -----    -----
                                                           -----    -----
</TABLE>



                                       18


<PAGE>

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

      14.   CAPITAL STOCK   (cont'd)

            c) Rosedale Decorative Products Ltd.

               Authorized

                 Unlimited number of common shares

               Issued
<TABLE>
<CAPTION>

                                             1998        1997

                                               $           $

<S>                                     <C>             <C>
            2,600,000 Common Shares     4,306,778           0
                                       ----------       ------
                                       ----------       ------
</TABLE>
            d) Issued -- Combined

<TABLE>
<CAPTION>
                                                         1998        1997
            
                                                           $           $
<S>                                                 <C>              <C>
                   20   Class A Preference shares           0           1
                  220   Common Shares                       0         162
            2,600,000   Common Shares               4,306,778           0
                                                    ---------       ------
             
                                                    4,306,778         163
                                                    ---------       ------
                                                    ---------       ------
</TABLE>

      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
            June 30, 1998.

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

            On June 18, 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.

            Subsequent to June 30, 1998, the Company issued 165,000 common
            shares to the public.

                                       19

<PAGE>


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


      15.   INCOME TAXES

<TABLE>
<CAPTION>

                                   1998      1997

                                     $         $

            <S>                   <C>       <C>    
            a)  Current           629,410   113,995
                Deferred          185,720   168,015
                                 --------   --------

                                  815,130   282,010
                                 --------   --------
                                 --------   --------
</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.

            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.


                                    20

<PAGE>


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


      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.                         0    10,345
            Loan -- 976168 Ontario Inc.                     2,019     4,467
            Mortgage receivable -- 1216748 Ontario Inc.   176,299   192,640
            Mortgage receivable -- 1217576 Ontario Inc.   159,904   178,544
            Rent paid -- 966578 Ontario Inc.                8,176    17,648

</TABLE>

      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 June 30, 1998   three months   six months
            --------------------------   -----------   -----------
<S>                                      <C>           <C>        
            United States of America     $ 2,023,082   $ 5,415,204
            Canada                         2,142,566     4,518,270
            Other                             79,228       817,991
                                         -----------   -----------
                                         $ 4,244,876   $10,751,465
                                         -----------   -----------
                                         -----------   -----------

            Period ended June 30, 1997
            --------------------------
            United States of America     $ 2,993,595   $ 5,398,990
            Canada                         2,792,588     4,592,845
            Other                            247,274       966,802
                                         -----------   -----------
                                         $ 6,033,457   $10,958,637
                                         -----------   -----------
                                         -----------   -----------

</TABLE>


                                       21

<PAGE>


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


      17.   SEGMENTED INFORMATION   (cont'd)

            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 June 30, 1998  three months  six months
            --------------------------  ------------  ---------
<S>                                      <C>           <C>      
            United States of America     $ 125,739     $ 401,604
            Canada                         141,465       334,670
            Other                              479        60,559
                                         ---------     ---------
                                         $ 267,683     $ 796,833
                                         ---------     ---------
                                         ---------     ---------

            Period ended June 30, 1997
            --------------------------
            United States of America     $  68,025    $ 224,072
            Canada                          73,730      190,519
            Other                           (6,681)      39,998
                                         ---------    ---------
                                         $ 135,074    $ 454,509
                                         ---------    ---------
                                         ---------    ---------
</TABLE>


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

<TABLE>
<CAPTION>

           Period ended June 30, 1998
           --------------------------
<S>                                     <C>        
           United States of America     $ 1,425,695
           Canada                        17,046,943
           Other                          1,637,002
                                        -----------
                                        $20,109,640
                                        -----------
                                        -----------

           Period ended June 30, 1997

           United States of America     $ 1,149,550
           Canada                        13,133,391
           Other                          1,411,891
                                        -----------
                                        $15,694,832
                                        -----------
                                        -----------

</TABLE>

                                    22

<PAGE>

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


      17.   SEGMENTED INFORMATION   (cont'd)

            c) Sales to major customers are as follows:

<TABLE>
<CAPTION>

                                                          1998          1997
<S>                                                    <C>           <C>       
            Sales                                      $2,517,971    $1,707,766
                                                       ----------    ----------
            % of total sales                                   23%           16%
                                                       ----------    ----------
            Amounts included in accounts receivable    $1,194,710    $  470,373
                                                       ----------    ----------

            d) Purchases from major suppliers are as follows:

                                                          1998          1997

            Purchases                                  $2,940,735    $3,705,657
                                                       ----------    ----------
            % of total purchases                               33%           55%
                                                       ----------    ----------
            Amounts included in accounts payable       $2,419,155    $1,622,003
                                                       ----------    ----------

</TABLE>


      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 reassessments 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.


                                    23

<PAGE>


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


      19.   COMMITMENTS

            Minimum payments under operating leases for premises amount to
            approximately $321,000 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:
<TABLE>

            Payable during the following periods:

<S>                                                         <C>       
            Within one year                                 $  321,018
            Over one year but not exceeding two years          321,018
            Over two years but not exceeding three years       321,018
            Over three years but not exceeding four years      321,018
            Over four years but not exceeding five years       321,018
            Thereafter                                         427,910
                                                            ----------
                                                            $2,033,000
                                                            ----------
                                                            ----------
</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 two of the officers and one shareholder 
            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.


                                    24

<PAGE>

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


         20.      LIFE INSURANCE POLICIES   (cont'd)

                  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).

            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 June 30, 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 June 30, 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 cash requirements arise as the contracts are
            exercised to the value of $17,985,000 (in varying amounts from July
            1998 through December 1999). The following table presents the
            aggregate notional principal amounts, carrying values and fair
            values of the Company's foreign exchange contracts outstanding at
            June 30, 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>
                           June 30, 1998                                    June 30, 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      $8,235,000      --         ($ 413,439)      --         --         --
            1998      $9,750,000      --         ($ 196,710)      --         --         --
</TABLE>

                                    25
<PAGE>

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


Results of Operation

      Six months ended June 30, 1998 compared to six months ended June 30, 1997.

      Revenues for the six months ended June 30, 1998 were $10,751,465, a 
1.9% reduction over prior year revenues of $10,958,637. This decrease was due 
to the weakening of the Canadian dollar versus the U.S. dollar. Using a 
consistent exchange rate, revenues increased by 4.3%. This increase can be 
attributed to greater acceptance of product lines in the market, increased 
market share from retail chains, and increased residential real estate sales 
coupled with the improving economic climate in North America.

      Gross profit for the Company for the six months ended June 30, 1998 was 
41.4% of sales, an increase as compared to the same period one-year ago, 
which was 36.5%. This increase in gross profit margin can be attributed to a 
change in sales mix due to a decrease in sales to the export market and the 
strengthening of the U.S. dollar, from which 50% of the Company's sales are 
derived. As the majority of the Company's purchases are made in Canadian 
dollars, a stronger U.S. dollar will help the Company's gross margin, whereas 
a strong U.S. dollar has a negative impact on the conversion of the Canadian 
sales for the financial statements.

      Selling expenses for the Company decreased by 7.63% to $1,042,976 for 
the six- month period ended June 30, 1998 as compared to $1,129,125 for the 
six-month period ended June 30, 1997. This decrease is attributable to a 
decrease in sales, travel and promotion expense.

      General and administrative expenses for the Company increased by 8.54%, 
to $1,042,976, for the six- months period ended June 30, 1998 from $1,010,659 
for the six-months ended June 30, 1997. In 1997, the Company recorded a bad 
debt recovery in the amount of $53,912. In the first six months of 1998, 
government employee benefits increased by 21% over last year as the method of 
calculation was changed. A portion of this increase however will be recovered 
later in the year.

      The Company 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 sales 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 cost for the six-month period ended June 30, 
1998 was $81,262 compared to $205,407 for the same period last year.

                                       26

<PAGE>

      Design studio expenses for the Company decreased by 8.29%, to $364,195, 
for the six-months ended June 30, 1998 versus $397,122 for the same period 
last year. This reduction is attributable to lower staff requirements as a 
result of the implementation of computer-aided design ("CAD") design computer 
systems for the studio.

      Operating income for the six-months ended June 30, 1998 increased 
74.44%, to $1,554,925, from $891,361 for the six-months ended June 30, 1997. 
This relates to the increase in gross margins and a conscious effort to 
control expenses.

      Interest expense for the Company for the six-months ended June 30, 1998 
increased 63.73%, to $220,553, from $134,708 for the six-months ended June 
30, 1997. This increase in interest expense is attributable to higher 
interest rates and increased borrowing.

      Net income for the six-months ended June 30, 1998 increased 75.29% over 
the same period ended June 30, 1997. The improvement is attributable to a 
better mix of sales, better gross margins and a tighter control of costs.

      Earnings per share for the six months ended June 30, 1998 were $0.31 
compared to $0.17 for the same period last year. Earnings per share were 
calculated for both periods based on 2,600,000 common shares issued as of 
June 30, 1998.

      Fully diluted earnings per share were $0.22 for the six months ended 
June 30, 1998 compared to $0.12 for the comparative period last year. Fully 
diluted earnings per share were calculated based on a total of 3,700,000 
common shares which includes 1,100,000 warrants.

      Subsequent to June 30, 1998, the Company issued an additional 165,000 
common shares and 165,000 warrants to the public.

      Three months ended June 30, 1998 compared to three months ended 
June 30, 1997.

      Revenues for the three months ended June 30, 1998 were $4,244,876, a 
29.6% reduction as compared to the same period last year. Export sales 
weakened in the second quarter to create part of the shortfall and the 
production delay in the launch of a new collection also contributed to the 
decline.

      Gross Profit for the three months ended June 30, 1998 was $2,202,359, a 
1.3% increase over the comparative previous period. This relates to the 
strengthening of the U.S. dollar which accounted for 50% of the Company's 
sales. Gross Profit increased as the majority of the Company's product costs 
are in Canadian dollars.

      Selling expenses for the three months ended June 30, 1998 decreased by 
15% to $532,732. A reduction in commissions due to the decrease in sales and 
savings on sales promotions and travel account for the majority of these 
savings.

      General and administrative expenses decreased by 15% for the three 
month period ended June 30, 1998, as a result of a reduction in professional 
and computer consulting fees.


                                       27


<PAGE>

     Book development costs decreased by $72,623, to $30,370, for the three 
month period ended June 30, 1998. Recovery on converted books has been higher
this year due to the increase in the U.S. dollar which has reduced on subsidy.

     Design studio expenses for the second quarter increased by 48% due to
increased travel to offshore suppliers for purposes of implementing new
collections for the third and fourth quarter.

     Net Income for the three months ended June 30, 1998 increased 98% over the
same period last year. This can be attributed to better gross margins and
tighter cost controls on expenses.

      Earnings per share for the three months ended June 30, 1998 were $0.10
compared to $0.05 for the previous year, which is a 100% increase. A total of
2,600,000 common shares were used to make these calculations. Diluted Earnings
per share for the second quarter of 1998 was $0.07 with the second quarter 1997
being $0.04.

Liquidity and Capital Resources

     The Company had a positive net change in cash of $1,408,849 for the six
months ended June 30, 1998. The principal sources of cost were Net Income of
$796,833, a decrease in Inventories and Deferred Products Costs and an increase
in Income Taxes Payable. These items were offset by cash used to reduce Accounts
Payable and an increase in Accounts Receivable at the end of the period. This is
a substantial improvement over the same period in 1997 where $190,059 was
generated from Operating Profits offset by a sizeable increase in Accounts
Receivable.

Cash flows used in investing activities for the six months ending June 30, 1998
were $475,168. This reflected planned capital addition for cylinders, designs
and engravings for new collections. In June 1998, the Company received net
proceeds from its initial public offering in the amount of $4,306,615. The
Company believes that the proceeds of the offering, coupled with the income from
operations, will fulfill the Company's working capital needs for at least the
next eighteen months. It is the Company's intention to utilize a good portion of
these funds to develop new product lines of wallpaper and fabric, and to
continue the development of lines of floor coverings and ceiling tiles.


Other Information

     In June 1998, the Company completed an initial public offering of its
common stock and common stock purchase warrants pursuant to a registration
statement declared effective by the commission on June 18, 1998.

     The following are the Company's expenses incurred in connection with the
issuance and distribution of the common stock and warrants in the offering from
the effective date of the registration statement to June 30, 1998.

<TABLE>

<S>                                                <C>       
         Underwriters Discounts and Commissions    $  563,750
         Expenses paid to or for the Underwriter      185,853
         Other expenses (estimate)                    581,282
                                                   ----------
         Total expenses                            $1,330,885

</TABLE>


                                      28

<PAGE>

      None of the foregoing expenses were paid, directly or indirectly, to any
director or officer of the Company or their associates, to any person who owns
10 percent or more of common stock or warrants of the Company, or to any
affiliate of the Company.

     The net offering proceeds to the Company after deducting for the expenses
were $4,306,615. The net offering proceeds are intact in cash as at June 30,
1998 as no use of proceeds has occurred.

Year 2000

     The Company's review of its own operating systems does not indicate any
Year 2000 problems. However, the Company is highly dependent on third party
vendors. Failures and interruptions, if any, resulting from the inability of
certain computing systems of third party vendors, including the Company's
clearing broker to recognize the Year 2000 could have material adverse effect on
the Company's results of operations. There can be no assurance that the Year
2000 issue can be resolved by any of such third parties prior to the upcoming
change in the century. Although the Company may incur substantial costs,
particularly costs resulting from increased charges by its third party service
providers, as a result of such third party service providers correcting Year
2000 issues, such costs are not sufficiently certain to estimate at this time.


                                    PART II
                               OTHER INFORMATION


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

         Exhibit 27:  Financial Data Schedule

(b)  Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the six month
     period ended June 30, 1998.


                                       29

<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: August 14, 1998                   By:        /s/Alan Fine
                                           ------------------------------------
                                                      Alan Fine

Date: August 14, 1998                   By:         /s/Norman G. Maxwell
                                           ------------------------------------
                                                       Norman G. Maxwell


                                       30