UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                   For the fiscal year ended December 31, 1998

                        Commission File Number 333-44747

                        ROSEDALE DECORATIVE PRODUCTS LTD
                     ---------------------------------------

             (Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>

<S>                                                         <C>
Ontario, Canada                                                   N/A
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                              Identification No.)
</TABLE>

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

                                 (905) 669-8909
              (Registrant's telephone number, including area code)

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

                           Common Stock, no par value
                    Redeemable Common Stock Purchase Warrants
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has 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
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

     The  Company's   revenues  for  the  year  ended  December  31,  1998  were
$18,790,793

     As of March 1, 1999 the aggregate  market value of the voting stock held by
non-affiliates  of the  registrant  (based on The Nasdaq  Stock Market last sale
price of $1.875 on March 1, 1999) was $5,184,375.

     As of March 1, 1999, there were 2,765,000 shares of the registrant's common
stock outstanding.


<PAGE>
PART I.

Item 1.  HISTORY OF THE COMPANY

         Rosedale Decorative Products, Ltd. (the "Company") commenced operations
as a single retail store,  Ontario  Paint & Wallpaper  Limited,  in 1913 and has
operated  as a family  owned  business  since  its  inception.  The focus of the
business  during its early years was the sale of paint to  homeowners  and major
contractors. The retail store is still in operation in its original location and
has become a Toronto  landmark.  In the early 1970's,  Ontario Paint & Wallpaper
Limited  ("Ontario")  diversified  into  wallpaper  distribution.  In 1981,  the
Company's  subsidiary  Rosedale  Wallcoverings  and Fabrics,  Inc.  ("Rosedale")
commenced  operations under the name Desart  Wallcoverings  Inc. In 1988, Desart
Wallcoverings  Inc. changed its name to Rosedale  Wallcoverings Inc. and in 1995
the name was changed to Rosedale  Wallcoverings  & Fabrics Inc.  Over the years,
the  Company  has  become one of the  largest  independent  wholesale  wallpaper
distributors in Canada.  In the early 1990's the Company  continued to diversify
by designing  wallcovering  collections for  distribution in Canada,  the United
States, Europe, South America and Asia.

         On May 14, 1997 the Company was formed by the  shareholders of Rosedale
and  Ontario  for  the  purpose  of  consolidating   the  business  of  the  two
subsidiaries.

General

         The Company,  through its two  wholly-owned  subsidiaries,  Ontario and
Rosedale,   designs,  markets  and  distributes  residential  wallcoverings  and
designer  fabrics.  The Company also operates a retail paint and wallpaper store
located in downtown Toronto, Canada which has been in continuous operation since
1913. The Company's  products include wallpaper and wallpaper borders (which are
collectively referred to as wallcoverings), designer fabrics and paint.

         The Company designs  wallcovering and designer fabric  collections that
it distributes  under its own brand names.  Wallcoverings and fabrics sold under
Company brand names are  manufactured  for the Company on an outsource  basis by
third  party   manufacturers.   In  addition  to  selling  its  own  brand  name
wallcoverings  and  fabrics,  the  Company is also a  wholesale  distributor  of
wallcoverings  designed  and  manufactured  by  other  manufacturers.  Wholesale
distribution of other manufacturers' wallcoverings is done through the Company's
Ontario  subsidiary.  Design and distribution of Company brand  wallcoverings is
accomplished  primarily through its Rosedale subsidiary and, to a lesser extent,
through its Ontario subsidiary.

         The  Company's  Rosedale  subsidiary  has received a number of industry
recognized  awards.  Since 1994,  the Rosedale  subsidiary has been received the
"Estate Award for Excellence in Wallcovering Design" on four separate occasions.
This  award  is  presented  by a  leading  trade  publications  and is  given in
recognition  of  wallcovering   collections  that  exhibit   outstanding  design
characteristics.  In addition,  Rosedale has received the "Hot Line Elite" award
on numerous occasions which is presented by another leading trade publication to
the  wallcovering  producer  whose  collections  have been cited by  independent
retail stores  throughout  the United  States as top sellers.  Rosedale has also
twice been named "Supplier of the Year" by its largest distributor,  The Blonder
Company (most recently in 1997) despite the fact that its collections  represent
only  approximately  5% of the total  wallcovering  collections  offered  by The
Blonder Company in each year.

         Sales of Company's name brand  wallcoverings  account for approximately
54% of the Company's total revenues and wholesale  distribution of wallcoverings
under  non-company  brand names accounts for  approximately 29% of the Company's
total revenues.  Sales of designer fabrics account for  approximately 12% of the
Company's  revenues and the Company's retail paint and wallpaper store generates
approximately


<PAGE>
5% of the Company's annual revenues.

         In  1998,  the  Company  distributed  approximately  26  Company  brand
wallcovering  and fabric  collections to  approximately  10,000 to 20,000 retail
wallpaper  and paint stores  worldwide.  In  addition,  in 1998,  the  Company's
Ontario subsidiary  distributed  approximately 47 non-Company brand wallcovering
collections to approximately 1,700-2,000 home decorating stores in Canada.

         The Company  believes that its product mix of  wallcoverings,  designer
fabrics  and  paints,  along with its newer  offerings  of floor  coverings  and
ceiling tiles presents significant cross marketing  opportunities.  Rosedale has
recently   introduced   wallcovering   and  fabric  sample  books  that  include
coordinated carpets and area rugs; a first in the industry.

Company Brands

         The Company designs and distributes  approximately  ten different lines
of wallcoverings and fabrics sold under the Company's own brand names each year.
A variety  of  wallcovering  and fabric  collections  are sold under each of the
Company's brand names. Each wallcovering collection sold by the Company consists
of a variety of coordinated  wallpapers,  borders and fabrics.  Collections take
approximately  twelve  months to  develop  and are  generally  available  in the
marketplace  for a minimum of two years after  launch.  The  Company's  Rosedale
subsidiary  designs and distributes six wallcovering  collections and two fabric
programs  per year,  sold under five brand  names,  and the  Ontario  subsidiary
designs and  distributes two  wallcovering  collections per year, sold under two
brand names.  Such products are  distributed to  approximately  10,000 to 20,000
retail stores and interior designers worldwide.

         Wallcovering  and  designer  fabric  collections  are  developed by the
Company's  design staff using a variety of color schemes to create  thematically
consistent collections. Each collection is tailored to fit the particular target
market  for the brand  name for  which  the  collection  is being  created.  The
Company's management,  design, marketing and sales staff approve collections for
production  based upon their  assessment  of the  commercial  potential of those
collections in each of the Company's target markets.

         Each of the Company's  subsidiaries maintains its own design studio and
creative  staff.  Rosedale's  design  studio is located in its Concord,  Ontario
facility.  Recently,  the Company's Rosedale subsidiary installed a state of the
art computer aided design (CAD) system, with two workstations,  for the creation
and coloring of wallcovering and fabric designs.  The system provides Rosedale's
design  staff with the  ability to produce a wide  variety of designs  and color
schemes and has reduced the time required for producing  finished  designs.  The
Company's  Ontario  subsidiary  maintains  a design  studio and staff in London,
England.

         Company  brand  name  wallcoverings  and  fabrics  include;   Rosedale,
Cambridge Studios,  Hamilton House,  Kingsway Fabrics,  Concord and Ridley Nash.
The Company's brand name  wallcoverings  and fabrics are targeted for middle and
upper middle income consumers and to the high end interior designer market where
the  Company's  wallcoverings  can compete  based upon  quality and design.  The
Company does not design wallcovering and fabric collections for the lower end of
the market where competition is based primarily upon price.

         The Company's Rosedale and Cambridge Studios brands were established in
1987 and 1993,  respectively,  and are designed  and  marketed by the  Company's
Rosedale  subsidiary.  The Concord and Ridley Nash lines of  wallcoverings  were
established in 1992 and 1995, respectively, and are designed by the design staff
of  the  Company's   Ontario   subsidiary.   Each  year,  the  Company  produces
approximately  eight  different  lines  of  wallcoverings  under  its  Rosedale,
Cambridge Studios, Concord and Ridley Nash brands.


<PAGE>
Wallcovering  collections sold under all four brand names are targeted to middle
to and upper middle income consumers.

         The Company's Hamilton House brand, which was introduced in 1995 by the
Company's Rosedale subsidiary in order to provide the Company with a brand which
is specifically designed for the interior design market and decorator boutiques.
With the addition of the Hamilton House brand line of wallcoverings,  Rosedale's
product mix was  expanded to cover all major  price  categories  from the middle
level market through to the high end interior designer market.

         The Concord and Ridley Nash brands were  established  by the  Company's
Ontario  subsidiary  to provide  Ontario  with its own brand  name of  wallpaper
products for introduction into the United States market. Both brands are created
in London,  England by the  Company's  design  staff.  The  Company  designs and
distributes  one  wallcovering  collection per year under each brand name.  Both
lines of wallcoverings are targeted for middle to upper income consumers.

         The Company's  various  brands enable the Company to take  advantage of
the  changing  nature of the North  American  wholesale  distribution  business,
including the growth of large national distributors as well as the trend towards
consolidation  amongst the  smaller  regional  distributors,  and to broaden its
product  mix to cover  all  major  price  categories  with the  market  with the
exception of the low margin, mass merchant business.

Decorative Fabrics and Floor Coverings

         As part of the Company's growth strategy,  its Rosedale  subsidiary has
recently  expanded its product  lines to include  coordinated  products,  namely
decorative  fabrics,  soft window treatments and floor coverings.  The Company's
decorative  fabric  products are sold under the Kingsway  Fabrics brand name and
are  intended to be utilized by  consumers  for  draperies,  upholstery  and bed
coverings.  The expansion into the coordinated fabric market has been undertaken
in order to take advantage of the tremendous trend towards  coordinated  selling
in the home decorating  industry.  These changes encompass the way that products
are introduced into the market as well as the nature of consumer buying habits.

         Designer  fabrics  represent  approximately  12% of  Rosedale's  annual
revenues. Rosedale designs and markets two fabric collections per year which are
coordinated  with its  wallcovering  collections.  Recently,  Rosedale has added
coordinated  area rugs and runners to  complement  its  wallcovering  and fabric
offerings.

         The Company  believes  that offering a  combination  of  wallcoverings,
decorative  fabrics and floor coverings provides  significant  opportunities for
cross merchandising of the Company's products.  This in turn opens other markets
for the Company's product lines. For example,  by offering  coordinated lines of
wallcoverings,  fabrics,  and floor  coverings,  consumers  looking to  purchase
wallcoverings  will be  exposed  to the  Company's  designer  fabric  and  floor
covering  lines.  The Company  believes that it is now able to offer consumers a
complete  home  decorating  package.  The end result  being  that the  Company's
products are saleable to a wider variety of retail stores and consumers.

Third Party Manufacturing

     Company  brand   wallcoverings   are   manufactured   for  the  Company  by
wallcovering  manufacturers in the United Kingdom, Canada and the United States.
The  Company's  Rosedale  and  Cambridge  Studios  lines  of  wallcoverings  are
manufactured in the United Kingdom by Borden  Wallcoverings Ltd.  ("Borden") and
Zen  Wallcoverings  Ltd.  ("Zen").  Borden  manufacturers  the  majority  of the
Company's  wallcoverings  and has been a contract  manufacturer with the Company
since 1985. The Company's Hamilton House brand is


<PAGE>
     manufactured in the United States by Hawthorne Wallcoverings. The Company's
wallcoverings  are also  manufactured  in Canada by Blue Mountain  Wallcoverings
Ltd. and Sunworthy Wallcoverings Inc.

     Designer  fabric  collections  designed  by the  Company and sold under the
Kingsway  Fabrics  brand  name are  manufactured  in the  United  States  by two
manufacturers,  Santee Print Works Ltd. ("Santee") and New London Textiles, Inc.
("New London").

     The Company  generally  enters into  contracts  with its  manufacturers  to
produce its designs to the Company's  specifications  on a "make and ship" basis
which means that the manufacturers hold no inventory of the Company's  products.
The Company's products are manufactured on a pattern by pattern basis. The terms
and conditions of production are outlined by the Company in written instructions
provided to the manufacturers for each new design that the Company produces. The
Company  maintains  the  exclusive  copyrights  to each of its  designs  and the
manufacturers do not have rights to sell the Company's  designs unless permitted
by the Company.

Wholesale Distribution of Wallcoverings Manufactured by Third Parties

     The Company, through its Ontario subsidiary,  is a wholesale distributor of
wallcoverings  designed  and  produced  by  manufacturers  located in the United
Kingdom and Canada.  The Company markets  wallcovering  collections  produced by
third party manufactures under each manufacturer's  brand names. The Company has
distribution  agreements  with John Wilman  Limited  ("John  Wilman") and Vymura
International  PLC ("Vymura"),  located in the United Kingdom,  and with Norwall
Group Inc. ("Norwall"), located in Canada. The Company's distribution agreements
with John  Wilman,  Vymura and Norwall  provide the Company  with the  exclusive
Canadian  distribution  rights for each  manufacturers'  wallcovering lines. The
Company believes that its position as one of the few remaining  distributors not
owned  by a  manufacturing  facility,  makes  it an  attractive  distributor  to
manufacturers   that  do  not  want  to  sell  their   products  to  competitive
manufacturers for distribution.

New Products

     The  Company  intends  to  expand  the  products  offered  by  its  Ontario
subsidiary  to  include  a line  of  retro  art  decorative  ceiling  tiles  for
commercial and residential customers.  The decorative ceiling tiles are designed
to fit into standard suspension ceiling frameworks and are embossed with designs
that emulate ceilings found in many turn of the century buildings. This provides
commercial and  residential  customers  with the ability to add Victorian  style
ceilings to their decor. The Company believes that its decorative  ceiling tiles
will be attractive to commercial users, such as restaurants  looking to recreate
the look of the late  1800's.  The  anticipated  launch  date for the  Company's
decorative ceiling tiles is in the second quarter of 1999.

Retail Operation

     The Company's  retail  operation,  Ontario  Paint & Wallpaper,  has been in
continuous  operation  since  1913  and the  store  has  become  a  landmark  in
metropolitan  Toronto.  The retail store sells Benjamin Moore paints and related
sundry products,  including  wallcoverings to customers  ranging from individual
homeowners  to large  industrial  accounts.  The  store  offers  a full  line of
wallcoverings,  include all brands  distributed by the Company.  The majority of
Ontario Paint & Wallpaper's  paint sales are made to local movie studios for set
designs and to commercial customers for apartment and office buildings. Sales to
commercial  customers  have been growing  steadily over the past two years.  The
retail store is the largest  single source  distributor of Benjamin Moore Paints
in Canada.



<PAGE>
         The retail  store  offers  special  services  to attract  and  maintain
commercial customers. The store maintains detailed records of paint purchases by
commercial customers. Commercial customers that have purchased paint in the past
can order  additional paint simply by telephoning the store and indicating which
area of their  building  requires  paint.  The store manager then  retrieves the
stored information about the building,  selects the correct paint colors for the
commercial  customer and then delivers the paint to the  customer.  In addition,
the Company has a portable paint scanner which provides  retail store  employees
with the ability to visit a building and scan the  building's  paints and return
to the store where the scanned information is transferred to a paint mixer which
then mixes matching paint colors.

         The paint  store was also the  setting  for a monthly  home  decorating
television  show which is  broadcast  from the store.  The  television  show was
hosted by City T.V., and provided practical advice on home painting and repairs.
The  television  show was taped from the store in front of a live  audience.  In
June 1997,  the  retail  store also began  presenting  bi-monthly  seminars  for
homeowners  providing  elementary to advanced  instruction  on various  painting
techniques.   The  seminars  are  conducted  in  conjunction  with  a  local  TV
personality.  The  program  has been quite  successful  with all  classes  being
oversold.

Marketing and Distribution (Company Brands)

         The Company distributes its brand name wallcoverings and fabrics in the
United States and Canada through regional and national distributors. The Company
appoints  a single  distributor  to a  particular  geographical  area and  their
territories  generally  do not overlap.  The Company  does not  maintain  formal
distribution agreements with its distributors, as is the custom in the industry.
It  is  understood  and  common  practice  in  the  industry  that  neither  the
distributor nor the  manufacturer is obligated to maintain a relationship  other
than on a collection by collection  basis. It is the Company's  policy that each
of its  distributors  is  obligated  to purchase  every  collection  the Company
markets or forfeit its right to be a Company distributor.

         In addition the Company sells  directly to selected  large national and
regional  retail  chains and  specialty  stores that  specialize  in the sale of
wallcoverings and designer fabrics.

         The Company markets and promotes its products  through the distribution
and sale of sample  books.  The  Company  prepares a sample book for each of its
Company brand collections of wallcoverings and fabrics designs.  The majority of
the sample books  prepared by the Company  contain  partial sheets of wallpaper,
coordinated  borders and fabrics.  Recently,  the Company has added  coordinated
floor  coverings  to  its  sample  books.  In  addition,  sample  books  contain
photographs   of  model   room   settings   demonstrating   how  the   Company's
wallcoverings,   coordinated  designer  fabrics  and  floor  coverings  look  in
simulated home environments.  By offering  coordinated  wallcoverings and fabric
collections in its sample books,  the Company is able to have its entire product
line shown to a wider  variety of end users.  The Company also  produces  sample
books which contain only designer  fabric samples which it distributes to fabric
wholesalers.  In  1996,  the  Company  distributed  over  80,000  Company  brand
wallcovering sample books and 12,000 Company brand designer fabric sample books.

         The number of sample  books  that the  Company  prepares  for any given
collection is determined based upon orders from the Company's distributors.  The
distributors  inform  the  Company  how many books  they will  require  for each
collection  and the Company  produces  the sample  books.  The Company  does not
produce sample books unless a distributor  has requested  them. The sample books
are sold to distributors and the  distributors,  in turn, place the sample books
with retail and interior  design  customers  who  ultimately  sell the Company's
products to  consumers.  In addition to purchasing  the Company's  sample books,
each distributor is also required to purchase inventory for each pattern in each
collection.

         It  takes  between  10 to 12  months  from the  time  that the  Company
approves designs for a collection


<PAGE>
to the shipping of sample books for that  collection.  Recently,  the  Company's
Rosedale subsidiary began producing preview copies of its sample books using its
in house computer aided design ("CAD")  system.  This allows Rosedale to preview
its  collections to distributors  and to make changes to its  collections  based
upon feedback from distributors  before the final printing of sample books. This
has resulted in a large cost saving to the Company.  Rosedale believes that this
innovation  will also allow it to more  specifically  tailor its collections and
sample books to consumer trends in the markets on a more timely basis.

Canadian Distribution

         The Company sells approximately 45% of its wallcoverings and fabrics in
Canada  through  its  Ontario  subsidiary.  The balance of its sales are through
regional  distributors  and  national  chains such as Color Your World and Sears
Canada.   Regional   distributors  include  Crown  Wallcoverings,   the  largest
distributor  to the Canadian  interior  design market and Images  Wallcoverings.
Images Wallcoverings Ltd. is a distributor located on the west coast of Canada.

United States Distribution

         Approximately 53% of the Company's  wallcovering  sales are made in the
United States.  Distribution of the Company's wallcoverings in the United States
is done through sales to national and regional  distributors as well as sales to
large  retail  wallpaper  chains.  Regional  distributors  in the United  States
include Walltrends, Hunter & Co., Key Wallcoverings,  G&W Distributors,  Fashion
Wallcoverings, Olney Wallcoverings, Eisenhardt Wallcoverings and Aztec. National
distributors  include The  Blonder  Company,  which  distributes  the  Company's
Cambridge  Studios brand,  and Seabrook  Wallcoverings,  which  distributes  the
Company's Hamilton House line of wallcoverings.

         The Company also sells  directly to retail  chains in the United States
which  include  Wallpapers  to Go,  Sherwin  Williams,  Gardener  Wallcoverings,
Horners and Tretiaks.

         In  1993,   Rosedale   embarked  on  the   development  of  a  separate
distribution network of wholesalers  throughout North America for the purpose of
distributing  its decorative  fabrics.  The Company designer fabrics are sold by
approximately  ten independent  salespersons who also sell products  produced by
other fabric companies.  The other fabrics sold by these salespersons  generally
do not compete  directly with the Company's  designer  fabrics in either look or
price points.  The  salespersons are compensated on a commission only basis. The
Company does not have contracts with any of these salespersons.

Wallcovering Market

         Over two billion rolls of  wallcoverings  were sold  worldwide in 1994,
with over 161  million  rolls sold in Canada and the United  States and over 500
million  rolls of  residential  wallcoverings  sold in  Europe  during  the same
period.  Sales of wallcoverings tend to have a direct  relationship to the level
of home renovations and the economy in general,  but have a lesser  relationship
to new housing starts.

         The Company  competes  primarily  within the  residential  wallcovering
segment  of the home  decorative  industry,  which is a sector  of the  building
supplies  industry  which caters to the  do-it-yourself  market.  Currently  the
wallcovering  segment is  fragmented,  comprised of, many small and medium sized
companies  with no  single  large  company  dominating  the  market.  Management
believes  that  several  of the  companies  within  this  segment  may  consider
consolidation  and may be  acquisition  targets  for the  Company in the future,
although  there can be no  assurances  that the Company will be able to identify
such  acquisition  target  and  consummate  an  acquisition  on  terms  that are
acceptable to the Company.



<PAGE>
         The  Company  believes  that  homes  built  prior to 1980  account  for
approximately 86% of the U.S. housing market.  As a result,  many of these homes
may warrant renovations.  With the bulk of the United States population entering
the post-40 age group,  the U.S.  Census Bureau  estimates that by the year 2000
home ownership  will increase to 70% from 66% in 1996.  Based upon 1997 economic
data the U.S. Census Bureau predicts that domestic housing will continue to rise
by at least 1 million homes per year through the year 2000.

         The trend at the distribution  level of the industry has been towards a
market characterized by fewer distributors with higher distribution volumes. The
Company  has  developed   strong   relationships   with   independent   regional
distributors. The Company is also well positioned to take advantage of growth in
mass merchandising  through its relationship with its national  distributors and
large retail  chains.  In addition,  the Company hopes to penetrate  alternative
fabric markets such as apparel and soft goods industries.

Patents and Trademarks

         The Company  trademarks the names of each of its  collections and brand
names.  In  addition,  the  Company  copyrights  designs  created  for its brand
wallcovering and fabrics.

Government Regulation

         The  Company is subject to various  Canadian  regulations  relating  to
health and safety standards  applicable warehouse  operations.  The Company must
comply  with  Canadian  federal   regulations   administered  by  the  Workman's
Compensation Board,  relating to worker safety issues in its warehouse facility.
Although the cost of compliance with such  regulations is not material,  changes
to existing  regulations  may have a material  adverse  effect on the  Company's
business and result of operations.  The Company is also subject to U.S.  Federal
Regulations  relating  to  imports  of goods and the North  American  Free Trade
Agreement on its  products  that it exports to the United  States.  Although the
cost of compliance  with such  regulations is not material,  changes to existing
regulations  may have a material  adverse  effect on the Company's  business and
result of operations.

Employees

         As of December  31,  1998,  the Company  employed 63 (61 on a full time
basis) persons,  which includes 8 senior executives,  18 sales staff persons (15
full time, 2 part time), 9 designers,  17 support staff persons and 13 warehouse
workers.   The  Company  has  no  unionized  employees  and  believes  that  its
relationship with its employees is satisfactory.

Item 2.  PROPERTIES AND FACILITIES

         The  Company  leases  facilities  in  Concord,  Ontario for each of its
subsidiaries.  The Company leases an  approximately  78,000 square foot facility
for its Ontario  subsidiary.  The lease was amended July 13, 1995 and expires on
October 31, 2004 with an annual base rent of Cdn. $260,027.  The building houses
Ontario's executive offices, warehouse and showroom. The Company leases a 47,000
square foot  facility  for its Rosedale  subsidiary.  The lease for the Rosedale
facility  runs  through  October  31,  2004  and  has  a  base  annual  rent  of
Cdn.$176,640.  The Rosedale  subsidiary houses its design facilities,  executive
offices, warehouse and showroom. Management believes that this space is adequate
for its design and warehouse  needs in the foreseeable  future.  Management also
believes that there is ample room for expansion in the future.

         The Company also leases  space for its retail  paint store,  located in
downtown Toronto,  from a company owned by Alan Fine, Chief Executive Officer of
the Company, and Sid Ackerman, the Company's


<PAGE>
     President.  The  lease  calls for  rental  payments  in the  amount of Cdn.
$24,000  per  annum,  plus  general  sales  taxes,   payable  in  equal  monthly
instalments  of Cdn.  $2,000.  The lease is for a one year  term,  automatically
renewable from year to year unless  terminated in writing by either the landlord
or the tenant on 30 days written notice.

Item 3.  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 material legal proceedings  pending or threatened against
the Company.

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

                  None.

PART II.

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

          (a) The high and low bid price of the Company's  common stock for each
quarter  since its initial  public  offering  which  commenced on June 18, 1998,
through the close of its fiscal year on December 31, 1998 are as follows:
<TABLE>
<CAPTION>


Start Date           End Date                   High                 Low

<S>                  <C>                       <C>                  <C>  
6/19/98              6/31/99                   $7.50                $7.00

7/1/98               9/30/98                   $8.91                $6.88

10/1/98              12/31/97                  $7.00                $4.50

</TABLE>

         The Company has not paid dividends to date.

         (b) The Company made an initial public offering of its common stock, no
par value ("Common Stock") and common stock purchase warrants  ("Warrants") (the
"Common  Stock and Warrants are  collectively  referred to as the  "Securities")
pursuant to a  registration  statement  declared  effective by the Commission on
June  18,  1998,  File No.  333-44747("Registration  Statement").  Each  Warrant
permits the holder, upon exercise,  to receive one share of the Company's common
stock, no par value.

     The following are the Company's  expenses  incurred in connection  with the
issuance and distribution


<PAGE>
of the  Securities in the offering from the effective  date of the  Registration
Statement to the ending date of the reporting period of this 10-KSB:
<TABLE>
<CAPTION>



Expense                                                                         Amount

<S>                                                                             <C>     
Underwriter's Discounts and Commissions                                         $648,312

Finders Fees                                                                           0

Expenses paid to or for the Underwriters                                         211,611

Other expenses(1)                                                                467,457

Total Expenses                                                                $1,326,930

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

         (1) Estimate

         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 any class of equity securities of the Company,  or to
any affiliate of the Company.

         The net  offering  proceeds  to the  Company  after  deducting  for the
foregoing expenses are $5,156,195.

         The following are the  application of the net proceeds by the Company's
from the sale of the  Securities in the offering from the effective  date of the
Registration  Statement  to the  ending  date of the  reporting  period  of this
10-KSB:
<TABLE>
<CAPTION>

Item                                                                  Amount

<S>                                                                   <C>       
Working Capital ...........................................           $  238,995
New Product Development ...................................                    0
Temporary Investments(1) ..................................            3,306,200
Sales and Marketing .......................................                    0
Hire Additional Personnel .................................                    0
Repayment of Trade Payables ...............................            1,611,000
Total Application of Net Proceeds .........................           $3,799,062
                                                                      ----------
</TABLE>

          (1)  money market investments

         To date,  there have been no material changes to the application of the
net proceeds as described in the Company's Registration Statement in the section
"Use of Proceeds."


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

General

         The  statements  contained in this report that are not  historical  are
forward looking  statements  within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements


<PAGE>
regarding  the  Company's  expectations,   intentions,   beliefs  or  strategies
regarding  the future.  All forward  looking  statements  include the  Company's
statements  regarding  liquidity,  anticipated  cash needs and  availability and
anticipated  expense  levels.  All forward looking  statements  included in this
report are based on information available to the Company on the date hereof, and
the Company assumes no obligation to update any such forward looking  statement.
It is  important  to  note  that  the  Company's  actual  results  could  differ
materially from those in such forward looking statements.

         The  wallcoverings,  decorative  fabrics  and paint  markets are highly
competitive and consists of foreign and domestic  manufacturers and distributors
most of whom are  larger  and have  greater  resources  than  the  Company.  The
Company's  future  success  as  a  designer  and  distributor  of  high  quality
wallcoverings  and  designer  fabrics  will be  influenced  by  several  factors
including the ability of the Company to efficiently  meet the quality and design
requirements  of its  customers,  management's  ability to evaluate the public's
quality  and  design  requirements  and  to  achieve  market  acceptance  of its
wallcoverings  and designer fabrics  collections.  Further factors impacting the
Company's  operations are increases in expenses  associated with continued sales
growth,  the ability of the Company to control costs,  to develop  products with
satisfactory   profit  margins  and  the  ability  to  develop  and  manage  the
introduction of new product lines and competition.

Results of Operations

         Fiscal  year ended  December  31,  1998  compared  to the  fiscal  year
December 31, 1997

         Revenues for the fiscal year ended December 31, 1998 were  $18,970,793,
a 8.6% reduction over prior year revenues of $20,757,423.  This decrease was due
to the  weakening  of the  Canadian  dollar  versus  the  U.S.  dollar.  Using a
consistent  exchange  rate,  revenues  decreased by 1.66%.  This decrease can be
attributed to general weakening in the market,  fallout of the Asian flu and the
dramatic devaluation of the Russian Ruble.

         Gross  Profit for the company for the fiscal  year ended  December  31,
1998 was 39.8% of sales,  an increase  as  compared to the same period  one-year
ago, which was 35.7%.  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,  of which  50% of our  sales  arise.  As the
majority of our purchases are made in Canadian  dollars,  a stronger U.S. dollar
will help our gross margin,  whereas a strong U.S.  dollar has a negative impact
on the conversion of the financial statements.

         Selling  expenses for the company  decreased by 8.01% to $2,135,594 for
the fiscal year ended December 31, 1998 as compared to $2,321,585 for the fiscal
year ended  December 31, 1997.  This decrease is  attributable  to a decrease in
sales travel and commissions, and promotion expense.

         General  and  administrative  expenses  for the  Company  decreased  by
11.13%,  to  $2,114,943  for the  fiscal  year  ended  December  31,  1998  from
$2,379,749. The Company has successfully attempted to rationalize these expenses
on an across the board basis.

         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 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


<PAGE>
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 fiscal year ended December 31, 1998
was $279,454 compared to $189,566 for the same period last year.

         Design studio  expenses for the Company  decreased by 8.29% to $766,235
for the fiscal year ended December 31, 1998 versus  $826,796 for the fiscal year
ended  December  31,  1997.  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 fiscal year ended December 31, 1998 increased
48.16% to  $1,655,037  from  $1,117,039  for the fiscal year ended  December 31,
1997.  This relates to the increase in gross  margins and a conscious  effort to
control expenses.

         Interest expense for the Company for the fiscal year ended December 31,
1998 increased  39.60% to $292,341 from $209,403 for the year ended December 31,
1997. This increase in interest expense is attributable to higher interest rates
and interest accrued on shareholders' loans.

         Net income for the fiscal year ended December 31, 1998 increased 31.35%
over the fiscal year ended December 31, 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 fiscal  year ended  December  31, 1998 were
$0.71  compared to $0.53 for the fiscal year ended  December 31, 1997.  Earnings
per share were calculated for both periods based on the weighted  average number
of shares issued in each year.  The weighted  average  number of shares for 1998
was 1,478,563 and 1,500,000 for 1997.

         The  earnings  per share on a  comparative  basis  using the  number of
common shares  outstanding  as of December 31, 1998,  would be $0.38 in 1998 and
$0.29 in 1997.

         Fiscal  year ended  December  31,  1997  compared  to fiscal year ended
January 31, 1996

         Revenues for the fiscal year ended December 31, 1997 were  $20,757,423,
a 9.67% increase over the prior year's  revenues of  $18,927,369.  This increase
was due to greater  acceptance of product lines in the market,  increased market
share from the independent  retail stores,  increase in 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 fiscal  year ended  December  31,
1997 was 35.69% of sales,  an  improvement  as compared to the fiscal year ended
December 31, 1996 which was 35.00%.  This  positive  change can be attributed to
higher prices,  more efficient buying practices and a higher mix of sales to the
independents and an increase in sales to independent retail stores.

         Selling expenses for the Company  decreased by 4.76% in the fiscal year
ended  December 31, 1997 as compared to the fiscal year ended December 31, 1996.
This  decrease is  attributable  primarily to a reduction  in freight  costs and
warehouse wages.

         General and administrative  expenses for the Company increased by 8.42%
in the fiscal year ended  December 31, 1997 as compared to the fiscal year ended
December 31,  1996.  In 1996,  management  payroll was reduced as part of a cost
reduction plan.



<PAGE>
         Rosedale develops wallpaper and fabric books which are created for each
collection and sold through  distributors.  The majority of expenditures for the
creation  of these books are  incurred  in the quarter  before the launch of the
collection.  Some  expenditure  is incurred  as early as six to eight  months in
advance.  Revenues  generated  from the sale of 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,  there is not
always a matching of revenues and expenses e.g. costs for a January launch would
be recorded  the last quarter of the fiscal  year,  whilst the revenue  would be
recorded in the following  year. The Company  ensures that there are firm orders
on hand from customers before  significant  expenditures are incurred to produce
the books. Therefore,  there are no speculative risks in their production.  Book
development  costs for the fiscal  year ended  December  31,  1997 was  $189,566
compared to a recovery  of  ($278,079)  for the same  period last year.  This is
attributable to delays in the launching of certain collections during 1997.

         Design studio  expenses for the Company  decreased  $72,576 to $826,796
for the fiscal year ended December 31, 1997 versus the same period for the prior
year. This reduction is attributable lower staff requirements as a result of the
implementation  of the CAD/CAM design computer  system for the studio.  Prior to
the  implementation  of the CAD  system,  all  coloring of new designs and color
changes to existing designs as well as the creation of non sophisticated designs
were done manually. This process required approximately ten designers (four full
time and six free  lance).  With  the CAD  system,  the  whole  process  will be
computerized requiring only three designers (two full time and one freelance).

         Income from operations  increased $396,267 to $1,117,029 for the fiscal
year ended December 31, 1997 versus the prior year. This increase in income from
operations is directly a result of continued  sales growth and improved  margins
coupled  with strict cost  control.  In addition,  for fiscal 1997,  the Company
revised its estimate of the useful lives for cylinders and related  design costs
extending the amortization  period to five years from three years on a straight-
line basis.

         This change was  necessary  to more  accurately  reflect the  estimated
useful lives of the cylinders and related design costs. As a result, the current
year's amortization charge was reduced by approximately $480,000.

         Interest expense for the Company for the fiscal year ended December 31,
1997  decreased  10.84% to  $209,403  from  $234,865  for the fiscal  year ended
December 31, 1996. This decrease in interest expense is directly attributable to
lower interest rates and the offset of interest earned on the mortgages.

         Net income for the fiscal year ended  December 31, 1997 was $799,828 as
compared to $423,571 for the fiscal year ended December 31, 1996, an increase of
$376,257  or  88.83%.  Of this  increase,  $174,202,  or 46.30%,  pertains  to a
cumulative  effect of a change in accounting  principle for book development and
design  costs.  In 1997,  the  company  changed  the  accounting  principle  for
recognition  of book  development  and design  costs from a full  write-off to a
deferral over three years. The subsidy represents the discount between the costs
of the sample books and the price at which they are sold to major retailers. The
company  considers  that it is more  appropriate  to recognize the production of
sample books of wallpaper as an asset,  as there is enduring  value which should
be recognized  over the life of the  collection.  The balance of the increase in
net income of 53.70% is attributable mainly to the following factors:

     o A change in the useful life for cylinders  and related  design costs from
three years to five years;

     o Deferral of expenses relating to book  development,  and design costs for
launches of  collections  in the  following  year;  

     o Higher  prices for product  lines;  

     o Better mix of sales 

     o Stricter cost control


<PAGE>
Liquidity and Capital Resources

         The Company  had a positive  net change in cash of  $2,974,759  for the
fiscal year ended  December 31,  1998.  The  principal  sources of cash were Net
Income of $1,050,553, a decrease in Accounts Receivable of $693,551. These items
were offset by cash used to reduce Accounts Payable and increase Inventories.

         Cash  flows used in  investing  activities  for the  fiscal  year ended
December  31,  1998  were  $1,013,451.   This  reflected  capital  addition  for
cylinders,  designs and engravings for new collections. The company received net
proceeds from it's initial public offering effective June 18, 1998 in the amount
of $5,156,195.  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 plus continue the development of floor coverings and ceiling tiles.

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 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. Item 7. FINANCIAL STATEMENTS

         The Financial  Statements  are included with this report  commencing on
page F-1.

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

         None.

PART III.

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

Directors and Executive Officers

         The  following  table sets forth  certain  information  concerning  the
Directors and Executive Officers of the Company:

<TABLE>
<CAPTION>

Name                                 Age        Position

<S>                                   <C>       <C>
Alan Fine                             52        Chief Executive Officer and Chairman of the Board

Sidney Ackerman                       52        President and Director

Norman G. Maxwell                     49        Chief Financial Officer, Operations Manager and
                                                Director

Ken Page                              36        Director

Gregory Sichenzia                     36        Director
</TABLE>

<PAGE>
     Set  forth  below  is a  biographical  description  of  each  director  and
executive officer of the Company based on information supplied by each of them.

     Alan Fine has served as the Chief  Executive  Officer  and  Chairman of the
Board of the Company since its inception in May 1997. In 1982,  Mr. Fine founded
Rosedale  Wallcoverings  &  Fabrics  Inc.  and has  served as the  President  of
Rosedale  Wallcovering  & Fabrics,  Inc. since 1987. Mr. Fine has also served as
the Secretary  for Ontario  Paint & Wallpaper Ltd since 1978.  From 1972 to 1977
Mr. Fine was the Manager of Wallpaper Distribution for Ontario Paint & Wallpaper
Ltd.

     Sidney  Ackerman  has  served as the  President  of the  Company  since its
inception in May 1997. In 1971, Mr. Ackerman was responsible for the development
of Ontario Wallcoverings which became the wallpaper  distribution arm of Ontario
Paint & Wallpaper  Ltd. In June 1978,  Mr.  Ackerman  was elected  Director  and
Treasurer of Ontario Paint & Wallpaper Ltd. Since 1994, Mr.  Ackerman has served
as the President of Ontario Paint & Wallpaper Ltd.

     Norman G. Maxwell has been Chief Financial  Officer and Operations  Manager
of the Company  since its  inception in May 1997 and has served as a director of
the Company since May 1997. Prior thereto, since 1992, Mr. Maxwell has served as
the Vice  President  of Finance with  Ontario.  From 1989 to 1992,  Mr.  Maxwell
served as the Comptroller of Ontario.  Mr. Maxwell has been in the  wallcovering
industry for over 20 years and has been a Certified Management  Accountant since
1977.

     Ken Page has been a Director of the Company since June 1998. Since 1992 Mr.
Page  has  been a  partner  of the law firm of Page  Hill in  Toronto,  Ontario,
Canada. Mr. Page graduated from the University of Western Ontario with an LLB in
1986 and was admitted to the bar in Ontario 1988.

     Gregory Sichenzia has been a Director of the Company since August 1998. Mr.
Sichenzia is a partner of the law firm of Sichenzia,  Ross & Friedman LLP in New
York,  New York and has been  since  May 1998.  He had been a partner  of Singer
Zamansky LLP in New York, New York, since November 1996. Prior thereto and since
August 1994, he had been an associate  attorney at Schneck  Waeltman  Hashmall &
Mischel LLP in New York City.

Committees of the Board of Directors

     The Board of Directors has a Compensation Committee and an Audit Committee.

     The Compensation Committee consists of Gregory Sichenzia,  Ken Page and Sid
Ackerman.  Mr.  Sichenzia  and Mr. Page are  independent  directors  who are not
salaried officers of the Company.  The purpose of the Compensation  Committee is
to review the Company's  compensation of its executives,  to make determinations
relative  thereto and to submit  recommendations  to the Board of Directors with
respect  thereto.  The  Compensation  Committee also selects the persons to whom
options to purchase  shares of the  Company's  Common Stock under the 1998 Stock
Option  Plan will be  granted  and to make  various  other  determinations  with
respect to such Plan.


<PAGE>
         The Audit Committee  consists of Gregory  Sichenzia,  Ken Page and Alan
Fine.  The purpose of the Audit  Committee  is to provide  general  oversight of
audit, legal compliance and potential conflict of interest matters.

Compensation of Directors

         The Company has not paid  compensation  to any  director  for acting in
such capacity.  The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.

         The Company intends to file with the Securities and Exchange Commission
within  120  days of the end of the  fiscal  year  covered  by  this  report  an
information statement (the "Information Statement"),  pursuant to Regulation 14C
pertaining  to the  Annual  Meeting  of  Stockholders  to be held  in May  1999.
Information  regarding  directors  and  executive  officers of the Company  will
appear under the caption  "Election of Directors" in the  Information  Statement
and is incorporated herein by reference.

Section 16(a) Beneficial Ownership Reporting Compliance

         Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company  during  fiscal year 1998,  the Company is not aware of
any  director,  officer  or  beneficial  owner of more than ten  percent  of the
Company's Common Stock that, during fiscal year 1998, failed to file on a timely
basis reports required by Section 16(a) of the Securities Exchange Act of 1934.

Item 10. EXECUTIVE COMPENSATION

         The   following   table  sets  forth  certain   information   regarding
compensation  paid by the Company  during each of the last three fiscal years to
the Company's  Chief  Executive  Officer and to each of the Company's  executive
officers who earned in excess of $100,000.
<TABLE>
<CAPTION>

                           Summary Compensation Table

              Long-Term Compensation
          Awards                    Payouts

                                                                                                 Securities                 All
                                                                                  Restricted     Underlying                Other
                                                       Other                        Stock         Options/         LTIP   Compen-
                                                      Compen-                      Award(s)         SARs         Payouts  sation
               Position Year (1)       Salary         sation          Bonus          ($)          (#)(1)(2)         ($)     ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>           <C>         <C>        <C>              <C>           <C>              <C>            <C>            <C>     <C>
Alan Fine(1)  Chief       1998       $ 160,000         ----          $7,602          ----           ----           ----    ----
              Executive   1997       $ 173,360        $7,020          ----           ----           ----           ----    ----
              Officer     1996        $ 41,068        $8,582        $121,003         ----           ----           ----    ----
Sidney        President   1998       $ 160,000          ---          $8,995          ----           ----           ----    ----
Ackerman(1)               1997       $ 173,360        $9,595           ---           ----           ----           ----    ----
                          1996        $ 41,068        $8,621        $121,003         ----           ----           ----    ----
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Reflects  total  compensation  received from both the Company's  Ontario and
Rosedale subsidiaries.

STOCK OPTIONS GRANTS AND EXERCISES

           No stock options were granted to the named executive  officers during
the last completed fiscal year.


<PAGE>
           The  following  table  shows  the  value  at  December  31,  1998  of
unexercised options held by the named executive officers:

                 Aggregated Option Exercises in Last Fiscal Year
                       and Fiscal Year-end Option Values
<TABLE>
<CAPTION>

                                                                         Number of securities         Value of unexercised in-the-
                                                                        underlying unexercised       money options at fiscal year-
                                                                      options at fiscal year-end                end ($)
                                                                                  (#)
      Name                 Shares acquired on      Value Realized
                              exercise (#)              ($)            Exercisable/unexercisable       Exercisable/unexercisable
-------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>                      <C>                             <C>
Alan Fine, Chief                   0                     0                        0/0                             0/0
Executive Officer
Sidney Ackerman,                   0                     0                        0/0                             0/0
President
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Employment Agreements

         On the Effective  Date of the Company's  Registration  Statement,  Alan
Fine and Sidney Ackerman both entered into five year employment  agreements with
the Company.  Alan Fine is retained as Chief Executive Officer of the Company at
an annual  salary of $160,000.  Sidney  Ackerman is retained as President of the
Company at an annual salary of $160,000.

         The employment  agreements with Alan Fine and Sidney  Ackerman  provide
that upon the death of any of the two  employees  that three  years full  salary
will be paid to the employee's estate in a lump sum payment. The agreements also
provide for reimbursement of reasonable business expenses.

         Alan Fine and Sidney  Ackerman are entitled to bonuses of up to $10,000
each  based  on  achieving   sales,   profitability   and  management  goals  as
predetermined  by the Board of Directors  or  compensation  committee  and other
subjective  criteria as  determined  by the Board of Directors  or  Compensation
Committee.

         Alan Fine and Sidney  Ackerman  shall  each  receive  $20,000  per year
additional  compensation,  including car  allowance,  insurance  and  retirement
savings with matched contributions by the Company and such other perquisites.

         Upon the  resignation,  or exercise of retirement  option upon reaching
the age of 60,  the  Company  shall  pay the  employee  a lump  sum  resignation
allowance  equal to three years salary plus  equivalent in benefits.  Based upon
any wrongful  termination  of either Alan Fine or Sidney  Ackerman,  the Company
shall pay the  employee a lump sum  resignation  allowance of 5 years salary and
equivalent in benefits.

         In the event that there is a change in control of the Company,  through
an  acquisition  where any  person  acquires  more than 50% of the shares of the
Company,  an  amalgamation,  consolidation  or merger with  another  corporation
resulting  in at least 50% of the  voting  shares of the  surviving  corporation
being  controlled  by a new acquirer or the sale directly or otherwise of all of
the assets of the Company to a third party in a non-distress situation, then the
Company  shall pay to Alan Fine and Sidney  Ackerman a lump sum payment equal to
the sum of one and  one-half  times their  respective  annual  salaries  paid or
payable in respect of the most recently completed fiscal year.

Stock Option Plan

         The Company has adopted a Stock Option Plan (the "1998 Plan"), pursuant
to which 750,000 shares of Common Stock are reserved for issuance.


<PAGE>
         The 1998 Plan is  administered  by the  Compensation  Committee  or the
board of directors,  who determine,  among other things,  those  individuals who
shall receive options, the time period during which the options may be partially
or fully  exercised,  the  number of shares of Common  Stock  issuable  upon the
exercise of the options and the option exercise price.

         The 1998 Plan is for a period for ten years.  Options may be granted to
officers,  directors,  consultants, key employees,  advisors and similar parties
who provide their skills and expertise to the Company. Options granted under the
1998 Plan may be exercisable for up to ten years, may require vesting, and shall
be at an  exercise  price  all as  determined  by the  board.  Options  will  be
non-transferable  except to an  option  holder's  personal  holding  company  or
registered  retirement  savings plan and are exercisable only by the participant
during his or her lifetime.

         If a  participant  ceases  affiliation  with the  Company  by reason of
death, permanent disability or retirement at or after age 70, the option remains
exercisable  for three months from such  occurrence  but not beyond the option's
expiration  date.  Other  termination  gives  the  participant  three  months to
exercise,   except  for   termination  for  cause  which  results  in  immediate
termination of the option.

         Options  granted  under  the  1998  Plan,  at  the  discretion  of  the
compensation  committee or the board, may be exercised either with cash,  Common
Stock having a fair market equal to the cash exercise price,  the  participant's
personal  recourse  note,  or with an  assignment  to the Company of  sufficient
proceeds from the sale of the Common Stock acquired upon exercise of the Options
with an  authorization  to the broker or selling agent to pay that amount to the
Company, or any combination of the above.

         The  exercise  price of an option may not be less than the fair  market
value per share of Common  Stock on the date that the option is granted in order
to receive  certain tax benefits under the Income Tax Act of Canada (the "ITA").
The exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options.  A benefit  equal
to the  amount  by which  the fair  market  value of the  shares at the time the
employee  acquires  them  exceeds the total of the amount paid for the shares or
the  amount  paid for the  right to  acquire  the  shares  shall be deemed to be
received  by the  employee  in the year the  shares  are  acquired  pursuant  to
paragraph  7(1) of the ITA.  Where the exercise  price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction  from income equal to one quarter of the
benefit as calculated  above.  If the exercise  price of the option is less than
the fair market value at the time it is granted,  no deduction  under  paragraph
110(1)(d) is permitted. Options granted to any non-employees,  whether directors
or consultants or otherwise  will confer a tax benefit in  contemplation  of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.

         Options  under the 1998 Plan must be issued  within  ten years from the
effective date of the 1998 Plan.

         Any  unexercised   options  that  expire  or  that  terminate  upon  an
employee's  ceasing to be  employed by the Company  become  available  again for
issuance under the 1998 Plan.

         The 1998 Plan may be  terminated or amended at any time by the board of
directors,  except  that the  number  of shares of  Common  Stock  reserved  for
issuance  upon the  exercise of options  granted  under the 1998 Plan may not be
increased without the consent of the shareholders of the Company.

         Information  regarding  executive  compensation  will appear  under the
caption   "Executive   Compensation"   in  the  Information   Statement  and  is
incorporated herein by reference.



<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

         The  following  table sets forth  certain  information,  as of the date
hereof, and as adjusted to give effect to the sale of 1,265,000 shares of Common
Stock and  1,265,000  Warrants,  by the Company with  respect to the  beneficial
ownership  of the Common Stock by each  beneficial  owner of more than 5% of the
outstanding shares thereof, by each director,  each nominee to become a director
and each executive named in the Summary  Compensation Table and by all executive
officers, directors and nominees to become directors of the Company as a group.
<TABLE>
<CAPTION>


                                                           Shares of
                                                            Common       Approximate
                                                             Stock       Percentage of
                                                          Beneficially   Common Stock
Name                                                         Owned        Outstanding

<S>            <C>                                          <C>              <C>  
Sidney Ackerman(2) .................................        375,000          14.4%
Alan Fine(3) .......................................        562,500          21.6%
Rosalyn Fine(4) ....................................        187,500           7.2%
The Ackerman Family Trust(5) .......................        375,000          14.4%
All Executive Officers and Directors
as a Group (two persons) ...........................        937,500          36.1%
</TABLE>
     (1) Unless  otherwise  indicated,  the address is c/o  Rosedale  Decorative
Products Ltd., 731 Millway Avenue, Concord, Ontario, Canada L4K 3S8.

     (2) Does not include  375,000  shares of Common  Stock held by the Ackerman
Family Trust.  Includes  106,500 shares of Common Stock owned by 1274152 Ontario
Inc. of which Sidney Ackerman is a 25% owner.

     (3) Includes 268,500 shares of Common Stock owned by 454590 Ontario Limited
of which  Alan Fine and the Fine  Family  Trust are  shareholders  and  includes
159,750 shares of Common Stock owned by 1274152  Ontario Inc. of which Alan Fine
is a 12.5% owner.

     (4) Includes 53,250 shares of Common Stock owned by 1274152  Ontario,  Inc.
of which Rosalyn Fine is a 12.5% owner.  Rosalyn Fine is the former wife of Alan
Fine and the sister of Sidney Ackerman.

     (5) The  Ackerman  Family  Trust  owns  375,000  shares  of  Common  Stock,
including 106,500 shares of Common Stock owned by 1274152 Ontario, Inc. of which
The  Ackerman  Family  Trust is a 25%  owner,  held in trust for the  benefit of
Sidney Ackerman's wife and two minor children. Sheldon Shapiro and Fred Stoppell
are  trustees  of The  Ackerman  Family  Trust.  Under  the  terms of the  trust
instrument, the trustees have the power to vote the shares.

Voting Agreement

         Effective  March 31, 1998,  Sidney  Ackerman,  Alan Fine,  The Ackerman
Family   Trust,   1274152   Ontario  Inc.  and  454590   Ontario   Limited  (the
"Shareholders"),  entered into a Common Stock voting agreement.  Pursuant to the
terms of the voting  agreement,  each of the Shareholders  agrees to vote all of
their Shares  unanimously in respect of any matter to be voted on at any meeting
of the shareholders of the Company. In the event the Shareholders cannot express
unanimity or any of them  abstains  from voting then the  Shareholders  agree to
vote all of their  Shares  against such matter or withhold all of their votes in
respect of such matter as  applicable  and to so  instruct  their  proxies.  The
provisions  of the voting  agreement  shall  apply to any shares in the  capital
stock of the Company to which voting rights attach which may be issued


<PAGE>
to the  Shareholders at any time during the term of the voting agreement and any
shares in the capital  stock of the Company which are issued in  replacement  of
any shares or after acquired shares.  The voting agreement does not apply to any
shares that are sold or transferred  to a Shareholder  and does not apply to any
shares  that  are  sold or  transferred  to a  third  party  in an  arm's-length
transaction.  The voting agreement  terminates upon Sidney Ackerman or Alan Fine
being no longer  employed by the Company or any of its  subsidiaries or the date
upon  which any  Shareholder  divests  itself of all  shares in an  arm's-length
transaction for fair market consideration, whichever is earlier.

         Information  regarding  ownership  of  certain  beneficial  owners  and
management  will  appear  under the caption  "Ownership  of  Securities"  in the
Information Statement and is incorporated herein by reference.

Item 12. CERTAIN TRANSACTIONS

         In 1995, Alan Fine,  Chief Executive  Officer of the Company and Sidney
Ackerman,  President of the Company each loaned funds to the  Company's  Ontario
and Rosedale  subsidiaries.  As at December 31, 1998, the outstanding amounts of
loans made by Alan Fine to Ontario and  Rosedale  were  $234,841  and  $460,108,
respectively, and the outstanding amount of the loans made by Sidney Ackerman to
Ontario and Rosedale were $164,229 and $315,809,  respectively.  These loans are
secured by a general security agreement on the personal property of Rosedale and
Ontario and bear interest at a rate equal to the prime rate of interest  charged
by the National Bank of Canada plus 1.5% per annum and are payable on demand.

         Alan Fine, Chief Executive Officer of the Company, and Sidney Ackerman,
President of the Company, own all of the issued and outstanding capital stock of
966578  Ontario  Inc. and 976168  Ontario Inc. The Company  leases space for its
retail store,  located in downtown  Toronto,  from 966578 Ontario Inc. The lease
calls for rental payments in the amount of $16,100 per annum, plus general sales
taxes,  payable in equal monthly  instalments of $1,342.  The lease is for a one
year  term,  automatically  renewable  from year to year  unless  terminated  in
writing by either the landlord or the tenant on 30 days written notice.

         In 1995, two related companies,  966578 Ontario Inc. and 976168 Ontario
Inc. were loaned funds by the Company.  As of December 31, 1997, the Company had
outstanding  loan  receivables from 976168 Ontario Inc. in the amount of $1,933.
The loans bear interest at a rate equal to the prime rate of interest as charged
by the National Bank of Canada plus 1.5% and are payable on demand.

         The Company has second  mortgages from two related  companies,  1216748
Ontario Inc.  and 1217576  Ontario  Inc.,  both of which are 50% owned by Sidney
Ackerman, President and Alan Fine, Chief Executive Officer. The principal amount
of the loans from 1216748 Ontario Inc. and 1217576 Ontario Inc. are $168,768 and
$153,073, respectively. The mortgages are secured by land and buildings and bear
interest at 9% per annum and are payable on demand.

         The  Company  has  available  credit  facilities  up  to a  maximum  of
$6,635,000  which bear interest at rates  varying  between the bank's prime rate
and prime plus .25%. The credit facilities are 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  $1,630,000  from the
Company  and  its  subsidiaries,  guarantees  from  affiliated  companies  up to
$555,000,  assignment  of life  insurance of  $1,304,000 on the lives of two key
officers and assignment of fire insurance.

         Information regarding Certain Transaction will appear under the caption
"Certain Transaction" in the Information Statement and is incorporated herein by
reference.



<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

             3.1       Articles of Incorporation of the Registrant(1)
             3.2       By-laws of Registrant(1)
             4.1       Form of Underwriters' Warrant(3)
             4.2       Form of Warrant Agreement(1)
             4.3       Specimen Common Stock Certificate(3)
             4.4       Specimen Redeemable Common Stock Purchase
                       Warrant Certificate(4)
             10.2      1998 Stock Option Plan(3)
             10.4      Form of Employment Agreement with Sidney Ackerman(3)
             10.5      Form of Employment Agreement with Alan Fine(3)
             21        List of Subsidiaries of Registrant*
             27        Financial Data Schedule*
         ----------------
           * Filed herewith

         Incorporated by reference from registrant's  Registration  Statement on
         Form SB-2, filed on January 22, 1998.

         Incorporated by reference from registrant's  Registration  Statement on
         Form SB-2, Amendment No. 1, filed on April 23, 1998.

         Incorporated by reference from registrant's  Registration  Statement on
         Form SB-2, Amendment No. 2, filed on May 28, 1998.

         Incorporated by reference from registrant's  Registration  Statement on
         Form SB-2, Amendment No. 3, filed on June 11, 1998.

    (b) Reports on Form 8-K.

                None.



<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.


                                                                By: /s/Alan Fine
                                                   Alan Fine, Chairman and Chief
                                                               Executive Officer

                                                            Date: March 31, 1999

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>

Name                                Position                              Date

<S>                                 <C>                                   <C> 
/s/ ALAN FINE                       Chairman, Chief Executive Officer     March  31, 1999
Alan Fine

/s/ SIDNEY ACKERMAN                 President Director                    March 31, 1998
Sidney Ackerman

/s/ NORMAN G. MAXWELL               Director, Chief Financial Officer,    March 31, 1999
Norman G. Maxwell                   Principal Accounting Officer

/s/ Ken PAGE                        Director                              March 31, 1998
Ken Page

/s/ GREGORY SICHENZIA               Director                              March 31, 1998
Gregory Sichenzia

</TABLE>
                        ROSEDALE DECORATIVE PRODUCTS LTD.

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1998



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


       Report of Independent Auditors

<S>                                                                            <C>
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 ..   2 - 3

Consolidated Statement of Income for the years ended December 31, 1998,
    December 31, 1997 and December 31, 1996 ................................       4

Consolidated Statements of Cash Flows for the years ended December 31, 1998,
    December 31, 1997 and December 31, 1996 ................................   5 - 6

Consolidated Statements of Changes in Stockholders' Equity for the years
    ended December 31, 1998, December 31, 1997 and December 31, 1996 .......       7

Notes to Consolidated Financial Statements .................................   8- 22

</TABLE>









                                        1



<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


       To the Board of Directors and Stockholders of
       Rosedale Decorative Products Ltd.

     We have audited the  accompanying  consolidated  balance sheets of Rosedale
Decorative  Products Ltd.  (incorporated  in Canada) as of December 31, 1998 and
1997 and the related  consolidated  statements of income, cash flows and changes
in  stockholders'  equity for the years ended December 31, 1998,  1997 and 1996.
These consolidated financial statements are the responsibility of the management
of Rosedale Decorative Products Ltd. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Rosedale
Decorative Products Inc. as of December 31, 1998 and 1997 and the results of its
operations  and its cash flows for the years ended  December 31, 1998,  1997 and
1996, in conformity with generally accepted accounting  principles in the United
States of America.



Toronto, Ontario
March 1, 1999                                              Chartered Accountants









<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                          Consolidated Balance Sheets
                 As of December 31, 1998 and December 31, 1997
                        (Amounts expressed in US dollars)
<TABLE>
<CAPTION>

                                                       1998           1997
     
                                                         $              $
                                                           ASSETS
       CURRENT ASSETS

<S>                                                    <C>            <C>    
    Cash ..........................................    3,417,414      442,655
    Accounts receivable (note 3) ..................    3,696,050    4,683,912
    Inventory (note 4) ............................    7,229,444    7,154,928
    Prepaid expenses and sundry assets ............      288,764      180,097
    Income taxes recoverable ......................       38,738         --   


                                                      14,670,410   12,461,592

LOANS RECEIVABLE FROM AFFILIATED COMPANIES (note 5)        1,933       36,884

DEFERRED PRODUCT COSTS (note 6) ...................      851,202      641,028

DEFERRED POLICY COSTS (note 7) ....................      268,506      182,873

MORTGAGES RECEIVABLE (note 8) .....................      321,841      402,684

PROPERTY, PLANT AND EQUIPMENT (note 9) ............    2,160,433    1,930,869

                                                      18,274,325   15,655,930

</TABLE>










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





                                        2
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                          Consolidated Balance Sheets
                 As of December 31, 1998 and December 31, 1997
                       (Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                      1998           1997
                                                                       $              $ 

                                   LIABILITIES
       CURRENT LIABILITIES

<S>                         <C>                                       <C>            <C>      
    Bank indebtedness (note 10) .................................     3,327,022      3,970,943
    Accounts payable and accrued expenses (note 11) .............     4,581,034      6,741,431
    Income taxes payable ........................................          --          172,538
    Current portion of long-term debt (note 12) .................        77,076         82,616


                                                                      7,985,132     10,967,528

LONG-TERM DEBT (note 12) ........................................       950,956        996,981

DUE TO STOCKHOLDERS AND DIRECTORS (note 13) .....................     1,174,987      1,539,792

DEFERRED INCOME TAXES ...........................................       156,786        190,562


                                                                     10,267,861     13,694,863


                              STOCKHOLDERS' EQUITY

COMMON STOCK (note 14) ..........................................     5,013,883              2

ADDITIONAL PAID-IN CAPITAL (note 14) ............................       142,314           --   

CUMULATIVE TRANSLATION ADJUSTMENTS ..............................      (388,341)      (226,990)

RETAINED EARNINGS ...............................................     3,238,608      2,188,055


                                                                      8,006,464      1,961,067
                                                                     ----------   ------------    
                                             
                                                                     18,274,325     15,655,930
                                                                     ==========   ============ 
</TABLE>













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



                                        3
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                       Consolidated Statements of Income
                        For the years ended December 31
                       (Amounts expressed in US dollars)

<TABLE>
<CAPTION>

                                                   1998          1997           1996

                                                     $             $              $ 

<S>                                              <C>           <C>           <C>       
SALES .......................................    18,970,792    20,757,423    18,927,369

COST OF SALES ...............................    11,420,943    13,350,033    12,301,621


GROSS PROFIT ................................     7,549,849     7,407,390     6,625,748


OPERATING EXPENSES

    General and administrative ..............     2,114,943     2,379,749     2,194,964
    Selling .................................     2,135,594     2,321,585     2,437,576
    Design studio ...........................       766,235       826,796       899,372
    Book development costs ..................       279,454       189,566      (278,079)
    Amortization ............................       598,586       572,655       651,143


TOTAL OPERATING EXPENSES ....................     5,894,812     6,290,351     5,904,976


OPERATING INCOME ............................     1,655,037     1,117,039       720,772

    Interest expense ........................       292,341       209,403       234,865


INCOME BEFORE INCOME TAXES ..................     1,362,696       907,636       485,907

    Income taxes (note 15) ..................       312,143       282,010        62,336


 INCOME BEFORE CUMULATIVE EFFECT OF
    CHANGE IN ACCOUNTING PRINCIPLE ..........     1,050,553       625,626       423,571
    Cumulative effect of change in accounting
    Principle (note 1c) .....................          --         174,202          --   


NET INCOME ..................................     1,050,553       799,828       423,571


Net income per common share (note 14) .......          0.71          0.53          0.28


Weighted average number of common shares
    outstanding (note 14) ...................     1,478,563     1,500,000     1,500,000

</TABLE>






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



                                        4
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                 Consolidated Statements of Cash Flows for the
                            years ended December 31
                       (Amounts expressed in US dollars)

<TABLE>
<CAPTION>

     
                                                                             1998            1997           1996

                                                                               $               $              $ 

Cash flows from operating activities:

<S>                                                                          <C>             <C>           <C>    
    Net income ..........................................................    1,050,553       799,828       423,571



    Adjustments to reconcile net income to net cash (used in) provided by
      operating activities:

    Amortization ........................................................      598,586       572,655       651,143
    Increase in deferred product costs ..................................     (260,562)     (658,762)         --   
    (Increase) decrease in accounts receivable ..........................      693,551      (964,145)     (487,558)
    (Increase) decrease in inventory ....................................     (570,438)   (1,222,626)      676,507
    Increase in prepaid expenses and sundry assets ......................     (124,276)      (51,588)      (51,405)
    Increase (decrease) in accounts payable and
        accrued expenses ................................................   (1,758,420)    1,549,646    (1,299,429)
    Increase (decrease) in income taxes payable/
        recoverable .....................................................     (205,553)      (20,144)       30,642
    Increase (decrease) in deferred income taxes ........................      (21,615)      168,015        29,335


    Total adjustments ...................................................   (1,648,727)     (626,949)     (450,765)


    Net cash provided by /(used in) operating
        activities ......................................................     (598,174)      172,879       (27,194)


Cash flows from investing activities:

    Increase in deferred policy costs ...................................     (100,759)      (63,854)      (25,227)
    Purchases of property, plant and equipment ..........................     (968,113)     (945,933)     (871,703)
    (Increase) decrease in mortgages receivable .........................       55,421      (415,044)         --   


    Net cash used in investing activities ...............................   (1,013,451)   (1,424,831)     (896,930)





</TABLE>







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




                                        5
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                 Consolidated Statements of Cash Flows for the
                             years ended December 31
                       (Amounts expressed in US dollars)

<TABLE>
<CAPTION>


                                                            1998           1997         1996
                                                              $              $             $ 

Cash flows from financing activities:

<S>                                                        <C>               <C>            <C>
     Issuance of common stock .........................    5,156,195          --            --   
     Proceeds from (repayment of) bank indebtedness ...     (388,743)      540,267       410,106
     (Repayment of) proceeds from loans with affiliated
         companies ....................................       33,429        25,789       (37,034)
     Proceeds from long-term debt .....................       21,426       134,616       510,414
     Proceeds from (repayment of) stockholders &
         directors loans ..............................     (269,222)      132,861       510,298


     Net cash provided by financing activities ........    4,553,085       833,533     1,393,784


Effect of foreign currency exchange rate changes ......       33,299      (218,749)       (5,363)


Net  increase (decrease) in cash and cash equivalents .    2,974,759      (637,168)      464,297

Cash and cash equivalents, beginning of year ..........      442,655     1,079,823       615,526


Cash and cash equivalents, end of year ................    3,417,414       442,655     1,079,823


Income taxes paid .....................................      238,575       135,302        59,553


Interest paid .........................................      330,384       299,421       358,756
</TABLE>



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




                                        6
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
           Consolidated Statements of Changes in Stockholders' Equity
                        For the years ended December 31
                       (Amounts expressed in US dollars)
<TABLE>
<CAPTION>

                                   Common
                                    Stock                             Cumulative
                                Number of                 Retained    Translation
                                   Shares       Amount    Earnings    Adjustments
                                     $            $           $            $

<S>                               <C>             <C>      <C>          <C>      
Balance as of December 31, 1996   1,500,000       2        1,388,227    (149,337)

Foreign currency translation ..        --          --          --       (77,653)

   Net income for the year ....        --          --        799,828        --   


Balance as of December 31, 1997   1,500,000       2        2,188,055    (226,990)

Issuance of common stock ......   1,265,000   5,165,195        --          --   

Foreign currency translation ..        --          --          --      (161,351)

  Net income for the year .....        --          --     1,050,553        --   



Balance as of December 31, 1998   2,765,000   5,156,197   3,238,608    (388,341)





</TABLE>












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



                                        7
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




       1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           a)   Basis of Presentation

     The  consolidated  financial  statements  include the  accounts of Rosedale
Decorative  Products Ltd.  ("the  Company")  and its wholly owned  subsidiaries,
521305 Ontario Inc. ("521305") and 1010037 Ontario Inc. ("1010037"),  the parent
companies of the operating  subsidiaries  Ontario  Paint and  Wallpaper  Limited
("Ontario") and Rosedale Wallcoverings and Fabrics Inc. ('Rosedale).

     On June 15,  1998,  the  company  acquired  all the issued and  outstanding
common  shares of 521305 and 1010037  from their  shareholders  in exchange  for
1,500,000 shares of the company. Since these companies were under common control
by a related  group,  this  transaction  has been recorded  using the pooling of
interest  method  whereby  the  assets,  liabilities  and  operations  have been
combined  as if the  Company  had  owned  the  wholly-owned  subsidiaries  since
incorporation.  The company was incorporated on May 14, 1997 by its shareholders
for the purpose of consolidating  their 100% ownership interests in anticipation
of an initial public offering.

     All material inter-company accounts and transactions have been eliminated.


           b)   Principal Activities

     The  company,  which  was  incorporated  in  Canada  on  May  14,  1997  is
principally engaged in the designing,  manufacturing and marketing of wallpapers
and  decorative  fabrics  in  Canada,  U.S.  and Europe  through  its  operating
subsidiaries Ontario Paint and Wallpaper Limited and Rosedale  Wallcoverings and
Fabrics Inc. These subsidiaries were incorporated in Canada on December 31, 1971
and April 7, 1981 respectively.

           c)   Deferred Product costs

     Expenditures  relating  to the design and  distribution  of  wallpaper  and
fabric sample books  consisting of 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.

     The  deferral  of a portion of book  development  and design  costs in 1997
represented a change in accounting principle from a full write-off to a deferral
over three years.

           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 Financial Instruments

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




                                        8
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       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>
<CAPTION>

<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 approximates when they were put into use.

           i)   Income taxes

     The company  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 company  maintain  its 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.








                                        9
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




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

           j)   Foreign Currency Translation (cont'd)

     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)   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.

           m)   Accounting Changes

     On January 1, 1996,  the company  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 company's result of operations.

     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.








                                       10
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       2.  COMPREHENSIVE INCOME

     The company has adopted Statement of Financial  Accounting Standard No. 130
"Reporting  Comprehensive  Income" as of  December  1, 1998 which  requires  new
standards for reporting and display of  comprehensive  income and its components
in the  financial  statements.  However,  it does not affect net income or total
stockholders' equity. The components of comprehensive income are as follows:
<TABLE>
<CAPTION>

                                         1998               1997           1996
                                          $                  $              $ 

<S>                                       <C>             <C>           <C>    
NET INCOME ...........................    1,050,553       799,828       423,571

OTHER COMPREHENSIVE LOSS

     Foreign currency translation ....     (161,351)      (77,653)      (49,710)


COMPREHENSIVE INCOME .................      889,202       722,175       373,861
</TABLE>


       3.  ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $ 

<S>                                                                                 <C>              <C>      
           Accounts receivable                                                      3,842,820        4,788,725
           Less:  Allowance for doubtful accounts                                     146,770          104,813


           Accounts receivable, net                                                 3,696,050        4,683,912

</TABLE>


       4.  INVENTORY
<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $ 
           Inventory comprised the following:

<S>                                                                                   <C>               <C>   
                Raw materials                                                         185,956           41,678
                Finished goods                                                      7,043,488        7,113,250


                                                                                    7,229,444        7,154,928
</TABLE>








                                       11
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       5.  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 January 1, 2000.

       6.  DEFERRED PRODUCT COSTS
<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $ 

<S>                                                                                 <C>               <C>    
           Book development costs                                                   1,285,831         848,996
           Deferred software costs                                                     58,338          62,915


           Cost                                                                     1,344,169           911,911

           Less: Accumulated amortization

                  Book development costs                                              467,454          258,299
                  Deferred software costs                                              25,513           12,584


                                                                                      492,967          270,883


           Net Deferred Product Costs                                                 851,202          641,028                     
</TABLE>

       7.  DEFERRED POLICY COSTS

     Deferred policy costs represents the prepaid portion of charges on the life
insurance policies referred to in note 21.


       8.  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 January 1, 2000.

                         1998           1997

                           $              $

1216748 Ontario Inc.     168,768        209,073
1217576 Ontario Inc.     153,073        193,611


                         321,841        402,684

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



                                       12
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       9.  PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                                                                         1998             1997

                                                                                           $                $ 

<S>                                                                                    <C>             <C>   
           Leasehold improvements                                                      29,230          31,331
           Automobile                                                                  18,711          20,057
           Equipment and furniture                                                    283,502         255,335
           Furniture and fixtures                                                     240,517         301,585
           Computer and equipment                                                     348,874         335,796
           Cylinders and related design costs                                       3,716,883       3,057,727


           Cost                                                                     4,637,717       4,001,831


           Less: Accumulated amortization

                  Leasehold improvements                                               12,671           10,448
                  Automobile                                                           16,380           16,485
                  Equipment and furniture                                             203,399          184,572
                  Furniture and fixtures                                              185,861          196,837
                  Computer and equipment                                              245,381          228,903
                  Cylinders and related design costs                                1,813,592        1,433,717


                                                                                    2,477,284        2,070,962


           Net                                                                      2,160,433        1,930,869

</TABLE>


       10.      BANK INDEBTEDNESS

     The company has available  credit  facilities up to a maximum of $6,635,000
($10,160,000 Canadian),  which bear interest at rates varying between the bank's
prime  rate and  prime  plus  .25%.  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 $1,630,000
from  the  company,   guarantees  from  affiliated  companies  up  to  $555,000,
assignment  of life  insurance of  $1,304,000  on the lives of two key officers/
shareholders and assignment of fire insurance.











                                       13

                                       1
<PAGE>
                        ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




<TABLE>
<CAPTION>
       11.      ACCOUNTS PAYABLE AND ACCRUED EXPENSES
                                                                                         1998             1997

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

<S>                                                                                 <C>              <C>      
                Trade payables                                                      4,230,024        6,358,585
                Accrued expenses                                                      351,010          382,846


                                                                                    4,581,034        6,741,431



       12.      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 $74,000                                            77,076          165,231

           b)   Insurance Loan

                Amount in excess  of cash  surrender  values  of life  insurance
                    policies (note 21) 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
                    company                                                          950,956          914,366


                                                                                    1,028,032        1,079,597

                Less:  Current portion                                               (77,076)         (82,616)


                Long-term portion                                                     950,956          996,981


</TABLE>

       13.      DUE TO STOCKHOLDERS AND DIRECTORS

     Stockholders'  and  directors  advances  are  secured by  general  security
agreements,  bears  interest at the National  Bank of Canada prime  lending rate
plus 1.5%, are without  specific terms of repayment,  and are not expected to be
repaid prior to January 1, 2000.





                                       14


<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




       14.      COMMON STOCK

           a)   Authorized

                An unlimited number of common and preference shares

                The  preference  shares are issuable in series upon  approval by
the  directors  with  the  appropriate  designation,   rights,   privileges  and
conditions attaching to each share of such series.
<TABLE>
<CAPTION>

                Issued
<S>                                                                                      <C>              <C> 
                                                                                         1998             1997

                                                                                           $                $ 

                2,765,000   Common shares (1997 - 1,500,000)                        5,013,883               2
                1,265,000    Warrants                                                 142,314               - 


                                                                                    5,156,197               2

</TABLE>

     b) During  the  year,  the  company  issued  1,265,000  common  shares  and
1,265,000 warrants as follows:
<TABLE>
<CAPTION>

<S>                                                                                                 <C>       
                Proceeds received from issuance                                                     $6,483,125
                Issuance costs (net of income taxes)                                                (1,326,930)


                Net proceeds                                                                   $     5,156,195
</TABLE>
                Net proceeds include the deferred income tax recoveries.

           c)   Weighted Average Number of Common Shares

     On June 15,  1998,  the company  issued  1,500,000 to the  shareholders  of
521305 and 1010037 prior to the initial public offering.

     On June 18, 1998, the company issued 1,100,000 common shares to the public.

     On July 29, 1998, the Company issued 165,000 common shares to the public.

     The weighted  average  number of shares was based on the number of days the
shares were outstanding  during the year. For the purpose of determining the net
income per common share for 1997 and 1996, the number of shares were  determined
on a pro-forma basis assuming that 1,500,000 shares were issued throughout those
years (see note 1a)

           d)   The company has adopted a Stock Option Plan (the 1998 Plan), 
pursuant to which 750,000 shares of Common Stock are reserved for issuance.




                                       15
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       14.      COMMON STOCK (cont'd)

     The 1998 Plan is for a period  for ten  years.  Options  may be  granted to
officers,  directors,  consultants, key employees,  advisors and similar parties
who provide their skills and expertise to the Company. Options granted under the
1998 Plan may be exercisable for up to ten years, may require vesting, and shall
be at an  exercise  price  all as  determined  by the  board.  Options  will  be
non-transferable  except  to an  option  holders  personal  holding  company  or
registered  retirement  savings plan and are exercisable only by the participant
during his or her lifetime.

     If a participant  ceases  affiliation  with the Company by reason of death,
permanent  disability  or  retirement  at or after age 70,  the  option  remains
exercisable  for three  months from such  occurrence  but not beyond the options
expiration  date.  Other  termination  give  the  participant  three  months  to
exercise,   except  for   termination  for  cause  which  results  in  immediate
termination of the option.

     Options  granted under the 1998 Plan, at the directors of the  compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participants personal recourse
note, or with an assignment to the Company of sufficient  proceeds from the sale
of the Common Stock acquired upon exercise of the Options with an  authorisation
to the  broker  or  selling  agent to pay that  amount  to the  Company,  or any
combination of the above.

     Options  under  the 1998  Plan must be  issued  within  ten years  from the
effective date of the 1998 Plan.

     Any  unexercised  options that expire or that  terminate  upon an employees
ceasing to be employed by the Company become  available again for issuance under
the 1998 Plan.

     The 1998  Plan may be  terminated  or  amended  at any time by the board of
directors,  except  that the  number  of shares of  Common  Stock  reserved  for
issuance  upon the  exercise of options  granted  under the 1998 Plan may not be
increased  without the consent of the  stockholders  of the Company.  During the
year, no options were granted.

           e)   Purchase Warrants

     During the year,  Purchase Warrants  ("Warrants") were issued pursuant to a
Warrant Agreement between the company and J.P. Turner and Company.  Each Warrant
entitles its holders to purchase, during the four year period commencing on June
18,  1999,  one share of common  stock at an exercise  price of $6.00 per share,
subject to adjustment in accordance with the  anti-dilution  and other provision
referred to below.

     The Warrants may be redeemed by the company at any time commencing one year
from June 18, 1998 (or earlier with the consent of the representative) and prior
to their  expiration,  at a redemption  price of $0.10 per Warrant,  on not less
than 30 days' prior  written  notice to the holders of such  Warrants,  provided
that the closing bid price of the common stock if traded on the Nasdaq  SmallCap
Market,  or the last sale  price of the  common  stock,  if listed on the Nasdaq
National  Market or on a national  exchange,  is at least 150% ($9.00 per share,
subject to  adjustment) of the exercise price of the Warrants for a period of 10
consecutive  business  days ending on the third day prior to the date the notice
of redemption is given. Holders of Warrants shall have exercise rights until the
close of the business day preceding the date fixed for redemption.





                                       16
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       14.      COMMON STOCK (cont'd)


           e)   Purchase Warrants (cont'd)

     The  exercise  price and the number of shares of common  stock  purchasable
upon the exercise of the Warrants are subject to adjustment  upon the occurrence
of certain events,  including  stock  dividends,  stock splits,  combinations or
classification  of the common stock. The warrants do not confer upon holders any
voting or any other rights of shareholders of the company.

     No Warrant will be  exercisable  unless at the time of exercise the company
has filed with the  Commission  a current  prospectus  covering  the issuance of
common  stock  issuable  upon the  exercise of the  Warrant and the  issuance of
shares  has  been  registered  or  qualified  or is  deemed  to be  exempt  from
registration  or  qualification  under  the  securities  laws  of the  state  of
residence of the holder of the Warrant.  The company has  undertaken  to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of common stock upon the exercise of the Warrants  until the  expiration  of the
Warrants,  subject  to the  terms  of the  Warrant  Agreement.  While  it is the
company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so.


       15.      INCOME TAXES
<TABLE>
<CAPTION>

                                                                                  1998               1997

                                                                                   $                    $ 

<S>                                                                               <C>                  <C>      
           a)   Current                                                                -               113,995
                Deferred                                                          312,143              168,015


                                                                                  312,143              282,010
           b) Current income taxes consists of:

                Amounts calculated at basic Canadian Federal and Provincial
                    Rates                                                         545,076              371,806
                Increase (decrease) resulting from:

                Timing differences                                               (312,143)            (168,015)
                Adjustments to prior year taxes                                        -                40,497
                Non-deductible expenses                                            81,896               90,400
                Losses utilized                                                  (314,829)            (220,693)


                                                                                           -           113,995
</TABLE>




                                       17
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       15.      INCOME TAXES (cont'd)

     c) Deferred  income taxes  represent the tax charges derived from temporary
differences  between  amortization of property,  plant and equipment and amounts
deducted from taxable  income.  As a consequence of the issuance of common stock
during the year,  issuance  costs were  incurred  which are  deductible  for tax
purposes  for a period up to five years.  The  resulting  deferred  income taxes
recoverable  at December 31, 1998 has been applied to the issue  expenses  (note
14).

     d)  Rosedale  has  operating  losses  of  approximately  $534,000  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:

2001           $ 127,000
2002             286,000
2004              21,000
2005             100,000

               $ 534,000


     Rosedale has been  reassessed by Revenue Canada and the Province of Ontario
for fiscal years ended  December 31, 1993 and December 31, 1994 in the amount of
approximately  $717,000 [see note 18 (a)]. 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. .........................          --          10,345
Loan - 976168 Ontario Inc. .........................         1,933        24,467
Mortgage receivable - 1216748 Ontario Inc. .........       168,768       209,073
Mortgage receivable - 1217576 Ontario Inc. .........       153,073       193,611
Rent paid - 966578 Ontario Inc. ....................        16,116        17,648
</TABLE>






                                       18
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                       (Amounts expressed in US dollars)




       17.      UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

     The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year.  Date-sensitive  systems may  recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed.  In addition,  similar  problems may arise in some
systems  which use certain  dates in 1999 to  represent  something  other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000,  and, if not addressed,  the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect a company's  ability to conduct  normal  business  operations.  It is not
possible  to be certain  that all aspects of the Year 2000 Issue  affecting  the
company,  including  those  related to the efforts of customers,  suppliers,  or
other third parties, will be fully resolved.


       18.      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>

                                                                            1998           1997           1996

                                                                              $              $              $ 

<S>                                                                    <C>            <C>           <C>       
                United States of America                               9,749,412      9,880,533     10,399,691
                Canada                                                 8,065,013      9,185,160      7,598,257
                Other                                                  1,156,367      1,691,730        929,421


                                                                      18,970,792     20,757,423     18,927,369
</TABLE>



     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>

                                                                            1998           1997           1996

                                                                              $              $              $ 

<S>                                                                      <C>            <C>            <C>    
                United States of America                                 535,782        279,780        256,387
                Canada                                                   451,738        295,020        141,303
                Other                                                     63,033         50,826         25,881


                                                                       1,050,553        625,626        423,571
</TABLE>









                                       19
<PAGE>
                        ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




       18.      SEGMENTED INFORMATION (cont'd)

           b) The  breakdown of  identifiable  assets by  geographic  area is as
follows:
<TABLE>
<CAPTION>

                Period ended December 31, 1998

<S>                                                                                              <C>          
                United States of America                                                         $   1,744,862
                Canada                                                                              15,430,713
                Other                                                                                1,098,750


                                                                                                 $  18,274,325


                Period ended December 31, 1997

                United States of America                                                         $   1,149,550
                Canada                                                                              13,094,489
                Other                                                                                1,411,891


                                                                                                 $  15,655,930


           c) Sales to major customers are as follows:
                                                                                           1998           1997


                Sales                                                             $   6,957,178  $   2,890,783


                % of total sales                                                            37%             14%


                Amounts included in accounts receivable                           $     811,291  $     298,595


           d) Purchases from major suppliers are as follows:

                                                                                           1998           1997


                Purchases                                                         $   6,610,748  $   8,070,027


                % of total purchases                                                         57%            52%


                Amounts included in accounts payable                              $   2,339,508  $   3,101,539




</TABLE>




                                       20
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




       19.      CONTINGENCIES

     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
corporate  income taxes  estimated  to be $717,000.  The company has objected to
these  re-assessments  and has no  obligation  to pay the  portion  relating  to
Revenue  Canada  in the  amount  of  $449,000  until  the  objections  have been
processed.

     The company has retained a firm of tax  specialists  to  represent  them in
presenting  their case to Revenue Canada and currently the Notices of Objections
are being considered by the Chief of Appeals.

     Since  the  company  considers  the  re-assessments  to  be  incorrect,  no
liability  has  been  set  up in  the  accounts.  Should  all  or  part  of  the
re-assessments  be  upheld,  the  additional  income  taxes  would be taken into
account in the year of occurrence.


       20.      COMMITMENTS

     Minimum   payments   under   operating   leases  for  premises   amount  to
approximately  $293,000 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>
<CAPTION>

           Payable during the following periods:

<S>                                                                     <C>     
Within one year ...............................................         $293,287
Over one year but not exceeding two years .....................          293,287
Over two years but not exceeding three years ..................          293,287
Over three years but not exceeding four years .................          293,287
Over four years but not exceeding five years ..................          293,287
Thereafter ....................................................          244,406
                                                                 $     1,710,841
</TABLE>

       21.      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  shareholders/key  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.








                                       21
<PAGE>
                       ROSEDALE DECORATIVE PRODUCTS LTD.
                   Notes to Consolidated Financial Statements
                        (Amounts expressed in US dollars)




       21.      LIFE INSURANCE POLICIES   (cont'd)

           The amounts offset were as follows:

           Cash surrender value of life insurance policies     $       1,817,683
           Advances                                            $     (1,817,683)

     The  amount  in excess of the cash  surrender  value of the life  insurance
policies is included in long-term debt (see note 12).

     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.

     Subsequent  to the year end,  the policy in the name of a  shareholder  was
collapsed  and the  proceeds  used to pay down the debt owing to the  Laurentian
Bank. In addition,  the policies on the lives of the other two  shareholders who
are also key officers was reduced to a total insured value of $6,500.00.

       22.      FOREIGN EXCHANGE CONTRACTS

     As at December  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.  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  $15,900,000  (in varying  amounts  from January 1999
through  June  2000).  The  following  table  presents  the  aggregate  notional
principal  amounts,  carrying  values and fair values of the  Company's  foreign
exchange contracts  outstanding at December 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>
     
                               December 31, 1998                       December 31, 1997        
           Forward       Notional                                    Notional
           Exchange      Principal       Carrying        Fair        Principal      Carrying             Fair
           Contracts     Amounts          Value          Values      Amounts        Values             Values

          <S>            <C>            <C>            <C>            <C>                 <C> 
          1998           --             -               --            $ 6,970,000         -         ($  363,600)
          1999           $13,800,000    -              ($  982,978)        --             -               --   
          2000           $ 2,100,000    -              ($   69,683)        --             -               --   

</TABLE>


                                       22