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, 1999

                        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.)


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

(905) 669-8909
(Registrant's telephone number, including area code)
</TABLE>

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, 1999 were $16,908,400

As of March 17,  2000 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 $1.437 on March 1, 2000 was $4,004,508.

As of March 17, 2000,  there were 2,786,714  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 one 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,  area rugs 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 received the "Estate
Award for Excellence in Wallcovering  Design" on four separate  occasions.  This
award is presented by a leading trade publication 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.  Its  largest  distributor,  The
Blonder  Company,  has also twice named  Rosedale  "Supplier  of the Year" (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
57% of the Company's total revenues and wholesale  distribution of wallcoverings
under  non-company  brand names accounts for  approximately 26% of the Company's
total revenues.  Sales of designer fabrics account for  approximately 10% of the
Company's  revenues and the Company's retail paint and wallpaper store generates
approximately 7% of the Company's annual revenues.
<PAGE>
         In  1999,  the  Company  distributed  approximately  25  Company  brand
wallcovering  and fabric  collections to  approximately  10,000 to 20,000 retail
wallpaper  and paint stores  worldwide.  In  addition,  in 1999,  the  Company's
Ontario subsidiary  distributed  approximately 60 non-Company brand wallcovering
collections to approximately 1,500-2,000 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 nine 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 five 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 approves 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.
<PAGE>
         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  seven  different  lines  of  wallcoverings  under  its  Rosedale,
Cambridge Studios, Concord and Ridley Nash brands. 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  10% 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
<PAGE>
     Wallcovering  manufacturers  in the United  Kingdom,  Canada and the United
States manufacture  company brand  wallcoverings for the Company.  The Company's
Rosedale and Cambridge  Studios lines of  wallcoverings  are manufactured in the
United  Kingdom by Imperial Home Decor Group  ("Borden")  and Zen  Wallcoverings
Ltd. ("Zen"),  and in Canada by Imperial Home Decor Group ("Sunworthy") and Blue
Mountain  Wallcoverings  Ltd..  The majority of the  production for Rosedale and
Cambridge  Studios  wallcoverings  has been  diverted to Canada..  The Company's
Hamilton  House  brand  is  manufactured  in  the  United  States  by  Hawthorne
Wallcoverings.

     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  decorative  ceiling  tiles were  launched in
Canada in the fourth quarter of 1999 and will be introduced into the U.S. market
in early 2000.

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.

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.

         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.
<PAGE>
         It  takes  between  10 to 12  months  from the  time  that the  Company
approves  designs for a  collection  to the  shipping  of sample  books for that
collection.  Recently, the Company's Rosedale subsidiary began producing preview
copies of its sample books using it's 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 40% of its wallcoverings and fabrics in
Canada  through  its  Ontario  subsidiary.  The  balance of its sales is 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 56% 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,  Eisenhart Wallcoverings and Aztec. National
distributors  include The  Blonder  Company,  which  distributes  the  Company's
Cambridge  Studios  and  Ridley  Nash  brands,  Seabrook  Wallcoverings,   which
distributes  the  Company's  Hamilton  House brand and Imperial Home Decor Group
which distributes another 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,  1999,  the Company  employed 60 (58 on a full time
basis) persons,  which includes 8 senior executives,  19 sales staff persons (17
full time,  2 part  time),  9 design  studio,  14 support  staff  persons and 10
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.
<PAGE>
         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  President.  The lease calls for
rental  payments in the amount of Cdn.  $24,000 per annum,  plus property taxes,
payable  in  equal  monthly  installments  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 [IS THIS ISSUE RESOLVED]

         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 the taxes
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, 1999 are as follows:
<TABLE>
<CAPTION>

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

         Date                     High              Low

<S>      <C>  <C>                <C>               <C>
         6/30/98                 $7.625            $7.000
         9/30/98                 $9.375            $6.875
         12/31/98                $7.750            $4.562
         3/31/99                 $4.750            $1.750
         6/30/99                 $2.593            $1.000
         9/30/98                 $1.625            $1.000
         12/31/99                $4.000            $1.000
         ------------------- ---------------- -----------------
</TABLE>

         The Company has not paid dividends to date.


<PAGE>
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  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 consist of foreign and domestic  manufacturers  and distributors
most of who 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.

Management's Plans for 2000

         The Company  has taken  appropriate  steps to rectify its  performance.
Selling  prices on  collections  launched in 2000 have been  increased to show a
positive  impact  on  margins.  A  cutting  charge  for  single  rolls  has been
instituted, which will generate revenue and save man-hours.

          The Company is in final  negotiations  with a number of new  potential
customers that could result in a substantial  increase in revenues.  The Ontario
division  intends to launch two  additional  collections  in 2000,  which  could
result in an additional $2-3 million in sales.  Coupled with the initial success
of the decorative ceiling panels program, 2000 has the potential of being a very
profitable year for the Company.

         Expenses  are being  watched  closely,  with  certain  areas being cut.
Substantial  personnel  cuts have been made in the design  studio as a result of
increased  efficiencies  associated  with the continued  computerization  of the
design process.  The Company  anticipates  additional  savings in cost of sample
book production.

          It is management's intention to continue to rationalize the efficiency
of the Company's operations and attain profitability in 2000.

Results of Operations

         Fiscal  year ended  December  31,  1999  compared  to the  fiscal  year
December 31, 1998


<PAGE>
         Revenues for the fiscal year ended December 31, 1999 were  $16,908,400,
a 10.9% reduction over prior year revenues of $18,970,793. This decrease was due
to a decrease in sales in all sectors of the market, but in particular,  was due
to the  Chapter  11 filing of one of our large  customers,  Imperial  Home Decor
Group.  The  estimated  revenue lost as a result of this filing was in excess of
$1,000,000 for the period ended December 31, 1999.

         Gross  Profit for the Company for the fiscal  year ended  December  31,
1999 was 33.9% of sales, a decrease as compared to the same period one-year ago,
which was 39.8%.  This  decrease in gross profit margin can be attributed to the
mix of sales changing year over year. Stock  obsolescence  accounted for over 2%
of this change.  The foreign exchange forward contracts that the Company entered
into affected margins by over 2% as well.

         Selling  expenses for the Company  increased by 16.9% to $2,496,841 for
the fiscal year ended December 31, 1999 as compared to $2,135,594 for the fiscal
year ended  December 31,  1998.  This  increase is  attributable  to  additional
commissioned  sales  personnel being hired for Kingsway  Fabrics,  a division of
Rosedale  Wallcoverings,  and an additional sales person to handle the marketing
of commercial vinyl and the ceiling panels.  Travel  increased  substantially in
1999 as Kingsway  Fabrics began  developing a market for its product line.  This
cost will not re-occur in 2000 as the majority of the  preliminary  set-up costs
have occurred.

         General and  administrative  expenses for the Company increased by 30%,
to $2,749,064  for the fiscal year ended  December 31, 1999 from  $2,114,943 for
the fiscal year ended December 31, 1998. Over $400,000 of this increase  relates
to bad debt  expense,  due mainly to the filing under Chapter 11 of the Imperial
Home Decor Group in the U.S.  There was also an increase in consulting and legal
fees, approximately $150,000, as the Company entered into negotiations regarding
a possible acquisition, which did not come to fruition.

         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  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 showed a
small revenue for the fiscal year ended December 31, 1999 of $2,593  compared to
costs of $279,454 for the same period last year.

         Design  studio  expenses  for the Company  increased by 3.3% to for the
fiscal year ended December 31, 1999, to $791,741  versus $766,235 for the fiscal
year ended December 31, 1998.  This slight increase is attributable to a general
inflation increase and a fluctuation in exchange rates.

         The  operating  loss for the fiscal  year ended  December  31, 1999 was
$(1,121,541)  compared to an operating  income of $1,655,037 for the fiscal year
ended December 31, 1998.  This relates to lower sales volume with lower margins,
an increase in operating  costs and a significant bad debt expense as previously
discussed. The U.S. dollar has remained very strong against the Canadian dollar,
which has had a negative impact of approximately  $400,000 on the operating loss
due to the foreign exchange forward contracts the Company has committed to.


<PAGE>
         Interest expense for the Company for the fiscal year ended December 31,
1999  decreased  9.0% to $265,990 from $292,341 for the year ended  December 31,
1998.  This  decrease  in  interest  expense  is  attributable  to  interest  on
short-term investments on funds raised during our initial public offering.

         The  net  loss  for  the  fiscal  year  ended  December  31,  1999  was
$1,528,250,  as compared to net income of  $1,050,553  for the fiscal year ended
December 31, 1998.

         The loss per share for the fiscal  year ended  December  31,  1999 were
$0.55 compared to earnings per share of $0.49 for the fiscal year ended December
31, 1998.  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 1999 was 2,769,997 and 2,160,753 for 1998.

Liquidity and Capital Resources

         The  Company  had a  negative  net change in cash of  $176,694  for the
fiscal year ended  December  31,  1999.  The  principal  sources of cash were an
increase  in  bank  indebtedness  of  $1,175,468  and  a  decrease  in  Accounts
Receivable of $568,201. These items were offset by the net loss recorded for the
year.

         Cash  flows used in  investing  activities  for the  fiscal  year ended
December  31,  1998  were  $1,127,488.   This  reflected  capital  addition  for
cylinders,  designs and  engravings  for new  collections.  It is the  Company's
intention to utilize a good portion of the funds to develop new product lines of
wallpaper plus continue the development of floor coverings and ceiling tiles.

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.
<PAGE>
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                           54      Chief Executive Officer and Chairman of the Board

         Sidney Ackerman                     54      President and Director

         Norman G. Maxwell                   52      Chief Financial Officer and Director

         Ken Page                            37      Director

         Gregory Sichenzia                   37      Director

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

     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 Controller 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.
<PAGE>
     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.

     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  2000.
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 1999,  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 1999, failed to file on a timely
basis reports required by Section 16(a) of the Securities Exchange Act of 1934.
<PAGE>
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.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                  Long-Term Compensation

                                                                               Awards                  Payouts

                                                                                        Securities             All
                                                                            Restricted  Underlying             Other

                                                       Other                Stock        Options/    LTIP      Compen-sation
                                                    Compen-sation           Award(s)       SARs      Payouts       ($)
Name              Position   Year (1)     Salary                   Bonus       ($)       (#)(1)(2)     ($)

<S>               <C>          <C>      <C>           <C>          <C>         <C>        <C>          <C>       <C>
Alan Fine(1)      Chief        1999     $ 161,529     $9,541       ----        ----       125,750      ----      ----
                  Executive    1998     $ 160,000     $7,602       ----        ----        ----        ----      ----
                  Officer      1997     $ 173,360     $7,020       ----        ----        ----        ----      ----

Sidney            President    1999     $ 161,529     $18,245      ----        ----       125,750      ----      ----
Ackerman(1)                    1998     $ 160,000     $8,995       ----        ----        ----        ----      ----
                               1997     $ 173,360     $9,595       ----        ----        ----        ----      ----
----------------- ---------- ---------- ----------- ------------ ---------- ----------- ------------ --------- ----------
</TABLE>

(1)  Reflects total  compensation  received from both the Company's  Ontario and
     Rosedale subsidiaries.  As the Company is located in Canada, the executives
     are have been paid salaries of $240,000  Canadian  dollars,  ($160,000 U.S.
     based on an effective exchange rate of $1.50).

(2)  Options  under the 1998 Plan were  granted on August  19,  1999 at the most
     recent closing price of the Company's shares as traded on NASDAQ,
     specifically, $1.00 per share on August 18, 1999.

STOCK OPTIONS GRANTS AND EXERCISES

           Stock  options  totaling  251,500  shares  were  granted to the named
executive officers during the last completed fiscal year.

           The  following  table  shows  the  value  at  December  31,  1999  of
unexercised options held by the named executive officers:
<TABLE>
<CAPTION>

                           Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values

                                                                       Number of securities         Value of unexercised
                                                                      underlying unexercised       in-the-money options at
                                                                        options at fiscal            fiscal year-end ($)
                                                                           year-end (#)

           Name               Shares acquired on   Value Realized
                                 exercise (#)            ($)        Exercisable/unexercisable     Exercisable/unexercisable


<S>                                   <C>                 <C>               <C>     <C>                  <C>      <C>
Sidney Ackerman, President            0                   0                 125,750/0                    $100,600/0
---------------------------- --------------------- ---------------- --------------------------- ------------------------------
</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.
<PAGE>
         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.

         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.
<PAGE>
         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.

         On August  19,  1999,  the Board of  Directors  granted  336,500  stock
options at the most recent  closing price of the  Company's  shares as traded on
NASDAQ,  specifically,  U.S.  $1.00  per  share on August  18,  1999.  Officers,
Directors  and five percent  shareholders  were  granted  276,500  options.  The
remaining 60,000 options were granted to key employees.

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

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 1,286,714 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.
<PAGE>
<TABLE>
<CAPTION>


                                                                Shares of Common
                                                               Stock Beneficially   Approximate Percentage
                                                                     Owned              of Common Stock
                                                                                          Outstanding
Name
-------------------------------------------------------------- ------------------- --------------------------
<S>            <C>                                               <C>                    <C>
Sidney Ackerman(2)                                               516,726                18.5%
Alan Fine (3)                                                    548,781                19.7%
Rosalyn Fine (4)                                                 201,219                 7.2%
The Ackerman Family Trust (5)                                    233,274                 8.4%
All Executive Officers and Directors
as a Group (two persons)                                       1,065,507                38.2%
---------------------
</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  233,274  shares of Common  Stock held by the Ackerman
Family Trust.  Includes  228,574 shares of Common Stock owned by 1369597 Ontario
Inc., which is owned by Sidney Ackerman and the Ackerman Family Trust.

     (3) Includes 404,706.5 shares of Common Stock owned by 1369598 Ontario Inc.
of which Alan Fine and the Fine Family Trust are shareholders.

     (4) Includes 57,143.5 shares of Common Stock owned by 1274152 Ontario, Inc.
of which  Rosalyn Fine is a 100% owner.  Rosalyn Fine is the former wife of Alan
Fine and the sister of Sidney Ackerman.

     (5) The Ackerman Family Trust owns 233,274 shares of Common Stock.  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 on the
shares.

           During the year, a tax-free  reorganization of the share capital held
         by the principal  stockholders'  was done. The above table reflects the
         results of that reorganization. The total number of shares of 1,500,000
         beneficially owned did not change.

Voting Agreement

         Effective  August 16, 1999,  Sidney  Ackerman,  Alan Fine, The Ackerman
Family Trust,  1274152  Ontario Inc.,  1324864  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 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.
<PAGE>
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  $208,429  and  $473,477,
respectively, and the outstanding amount of the loans made by Sidney Ackerman to
Ontario and Rosedale were $110,777 and $335,217,  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 $16,826  per annum,  plus  general
property taxes,  payable in equal monthly  installments of $1,402.  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, the Company loaned two related companies,  966578 Ontario Inc. and
976168 Ontario Inc.. As of December 31, 1997, the Company had  outstanding  loan
receivables  from 976168  Ontario  Inc. in the amount of $2,054.  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 $179,291 and
$162,619, 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 $7,039,000,
which bear  interest at rates  varying  between the bank's prime rate plus 0.25%
and prime plus 1.25%. 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  $1,732,000  from the
Company  and  its  subsidiaries,  guarantees  from  affiliated  companies  up to
$589,000,  assignment  of life  insurance of  $2,079,000 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.

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)


<PAGE>
            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**
            ----------------
                  * Previously filed.
         **Filed herewith

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

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

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

     (4) 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: April 4, 2000

         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   April 4, 2000
Alan Fine

/s/ SIDNEY ACKERMAN                         President Director                  April 4, 2000
Sidney Ackerman

/s/ NORMAN G. MAXWELL                       Director, Chief Financial Officer,  April 4, 2000
Norman G. Maxwell                           Principal Accounting Officer

/s/ KEN PAGE                                Director                            April 4, 2000
Ken Page

/s/ GREGORY SICHENZIA                       Director                            April 4, 2000
Gregory Sichenzia

</TABLE>
<PAGE>




                        ROSEDALE DECORATIVE PRODUCTS LTD.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998

                  TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
                        ROSEDALE DECORATIVE PRODUCTS LTD.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998

                  TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>


                                                      TABLE OF CONTENTS

<S>                                                                                                          <C>
       Report of Independent Auditors                                                                        1

       Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998                           2 - 3

       Consolidated Statements of Operations for the years ended December 31, 1999,
           December 31, 1998 and December 31, 1997                                                           4

       Consolidated Statements of Cash Flows for the years ended December 31, 1999,
           December 31, 1998 and December 31, 1997                                                         5 - 6

       Consolidated Statements of Changes in Stockholders' Equity for the years
           ended December 31, 1999, December 31, 1998 and December 31, 1997                                  7

       Notes to Consolidated Financial Statements                                                          8 - 25

</TABLE>






<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, 1999
       and 1998 and the related  consolidated  statements  of  operations,  cash
       flows and  changes in  stockholders'  equity for each of the years  ended
       December 31, 1999, 1998 and 1997. 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  Ltd. as of December 31, 1999 and 1998 and
       the  results of its  operations  and its cash flows for each of the years
       ended  December 31, 1999,  1998 and 1997,  in conformity  with  generally
       accepted accounting principles in the United States of America.

       Since the  accompanying  financial  statements have not been prepared and
       audited in accordance with generally accepted  accounting  principles and
       standards in Canada,  they may not satisfy the reporting  requirements of
       Canadian statutes and regulations.

                                               /s/ Schwartz Levitsky Feldman LLP
                                                   Schwartz Levitsky Feldman LLP

       Toronto, Ontario
       March 13, 2000                                      Chartered Accountants


<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Consolidated Balance Sheets
As of December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>

                                                                                      1999               1998
                                                                                        $                  $

                                                           ASSETS

       CURRENT ASSETS

<S>                                                                              <C>                <C>
           Cash                                                                  3,240,720          3,417,414
           Accounts receivable (notes 3 and 10)                                  3,341,592          3,696,050
           Inventory (notes 4 and 10)                                            7,385,373          7,229,444
           Prepaid expenses and sundry assets [note 19(a)]                         626,074            288,764
           Income taxes recoverable                                                 95,827             38,738
                                                                                ----------         ----------

                                                                                14,689,586         14,670,410

       LOAN RECEIVABLE FROM AFFILIATED COMPANY (note 5)                              2,054              1,933

       DEFERRED PRODUCT COSTS [note 1(a) and 6]                                    861,366            851,202

       DEFERRED POLICY COSTS (note 7)                                                   -             268,506

       MORTGAGES RECEIVABLE (note 8)                                               341,910            321,841

       PROPERTY, PLANT AND EQUIPMENT (note 9)                                    2,901,705          2,160,433
                                                                                ----------         ----------


                                                                                18,796,621         18,274,325
                                                                                ==========         ==========

</TABLE>










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

                                                                               2


<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Consolidated Balance Sheets
As of December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
                                                                                      1999               1998
                                                                                        $                  $
                                                         LIABILITIES

       CURRENT LIABILITIES

<S>                                <C>                                           <C>                <C>
           Bank indebtedness (note 10)                                           4,744,567          3,327,022
           Accounts payable and accrued expenses (note 11)                       5,289,746          4,581,034
           Current portion of long-term debt (note 12)                                  -              77,076
                                                                                ----------         ----------

                                                                                10,034,313          7,985,132

       LONG-TERM DEBT (note 12)                                                         -             950,956

       DUE TO STOCKHOLDERS AND DIRECTORS (note 13)                               1,560,918          1,174,987

       DEFERRED INCOME TAXES                                                       219,913            156,786
                                                                                ----------         ----------

                                                                                11,815,144         10,267,861
                                                                                ----------         ----------

                                                    STOCKHOLDERS' EQUITY

       COMMON STOCK (note 14)                                                    5,061,956          5,013,883

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


         ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                              66,849           (388,341)


       RETAINED EARNINGS                                                         1,710,358          3,238,608
                                                                                ----------         ----------

                                                                                 6,981,477          8,006,464
                                                                                ----------         ----------

                                                                                18,796,621         18,274,325
                                                                                ==========         ==========



</TABLE>


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

                                                                               3
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Consolidated Statements of Operations
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
                                                                   1999               1998               1997
                                                                     $                  $                  $

<S>                                                          <C>                <C>                <C>
       SALES                                                 16,908,400         18,970,792         20,757,423

       COST OF SALES                                         11,179,513         11,420,943         13,350,033
                                                             ----------         ----------         ----------

       GROSS PROFIT                                           5,728,887          7,549,849          7,407,390
                                                             ----------         ----------         ----------

       OPERATING EXPENSES

           General and administrative                         2,749,065          2,114,943          2,379,749
           Selling                                            2,496,841          2,135,594          2,321,585
           Design studio                                        791,741            766,235            826,796
           Book development costs (recovery)                    (2,593)            279,454            189,566
           Amortization                                         815,374            598,586            572,655
                                                             ----------         ----------         ----------

       TOTAL OPERATING EXPENSES                               6,850,428          5,894,812          6,290,351
                                                             ----------         ----------         ----------

       OPERATING INCOME (LOSS)                              (1,121,541)          1,655,037          1,117,039

           Interest expense                                     265,990            292,341            209,403
                                                             ----------         ----------         ----------

       INCOME (LOSS) BEFORE INCOME TAXES                    (1,387,531)          1,362,696            907,636

           Income taxes (note 15)                               140,719            312,143            282,010
                                                             ----------         ----------         ----------

       INCOME BEFORE CUMULATIVE EFFECT OF
           CHANGE IN ACCOUNTING PRINCIPLE                   (1,528,250)          1,050,553            625,626
           Cumulative effect of change in accounting
           principle (note 1c)                                      -                   -             174,202
                                                             ----------         ----------         ----------

       NET INCOME (LOSS)                                    (1,528,250)          1,050,553            799,828
                                                             ==========         ==========         ==========

       Net earnings (loss) per common share, basic and
           diluted (note 14)                                     (0.55)               0.49               0.53
                                                             ==========         ==========         ==========

       Weighted average number of common shares
           outstanding                                        2,769,997          2,160,753          1,500,000
                                                             ==========         ==========         ==========

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated 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>

                                                                   1999               1998               1997
                                                                     $                  $                  $
       Cash flows from operating activities:

<S>                                                         <C>                  <C>                  <C>
           Net income (loss)                                (1,528,250)          1,050,553            799,828
                                                             ----------         ----------         ----------

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

           Amortization                                         815,374            598,586            572,655
(Increase) decrease in deferred product costs                    41,687           (260,562)          (658,762)

           (Increase) decrease in accounts receivable           568,201            693,551           (964,145)
           (Increase) decrease in inventory                     286,443           (570,438)        (1,222,626)
           Increase in prepaid expenses and sundry assets      (310,170)          (124,276)           (51,588)
           Increase (decrease) in accounts payable and
               accrued expenses                                 410,952         (1,758,420)         1,549,646
           Increase in income taxes recoverable                 (53,110)          (205,553)           (20,144)
           Increase (decrease) in deferred income taxes          51,824            (21,615)           168,015
                                                             ----------         ----------         ----------

           Total adjustments                                  1,811,201         (1,648,727)          (626,949)
                                                             ----------         ----------         ----------

           Net cash provided by (used in) operating
               activities                                       282,951           (598,174)           172,879
                                                             ----------         ----------         ----------

       Cash flows from investing activities:

           (Increase) decrease in deferred policy costs         277,090           (100,759)           (25,227)
           Purchases of property, plant and equipment        (1,404,578)          (968,113)          (871,703)
           Decrease in mortgages receivable                          -              55,421                 -
                                                             ----------         ----------         ----------

           Net cash used in investing activities             (1,127,488)        (1,013,451)          (896,930)
                                                             ----------         ----------         ----------
</TABLE>




              The accompanying notes are an integral part of these
                       consolidated 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>

                                                             1999         1998           1997
                                                               $            $              $

Cash flows from financing activities:

<S>                                                         <C>        <C>             <C>
     Issuance of common stock .......................       48,073     5,156,195          --
     Proceeds from (repayment of) bank indebtedness .    1,175,468      (388,743)      540,267
     Proceeds from loans from stockholders ..........      419,756        33,429        25,789
     (Repayment of) proceeds from long-term debt ....   (1,060,898)       21,426       134,616
     Proceeds from (repayment of) directors loans ...     (116,038)     (269,222)      132,861
                                                        -----------    ----------    ----------

     Net cash provided by financing activities ......      466,361     4,553,085       833,533
                                                        -----------    ----------    ----------

Effect of foreign currency exchange rate changes ....      201,482        33,299      (218,749)
                                                        -----------    ----------    ----------

Net  increase (decrease) in cash and cash equivalents     (176,694)    2,974,759      (637,168)

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

Cash and cash equivalents, end of year ..............    3,240,720     3,417,414       442,655
                                                        ===========    ==========    ==========

Income taxes paid ...................................      316,810       238,575       135,302
                                                        ===========    ==========    ==========

Interest paid .......................................      531,980       330,384       299,421
                                                        ===========    ==========    ==========
</TABLE>












              The accompanying notes are an integral part of these
                       consolidated 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         Common      Additional                         Other
                                        Number of          Stock         Paid-in       Retained  Comprehensive
                                           Shares         Amount         Capital       Earnings  Income (loss)
                                    -------------  -------------  --------------  -------------  -------------
                                                              $               $              $              $
       <S>                              <C>            <C>              <C>           <C>            <C>
       Balance as of December 31,
           1997                         1,500,000              2              -       2,188,055      (226,990)

       Issuance of common stock         1,265,000      5,013,881              -              -              -

       Purchase warrants (1,265,000)           -              -          142,314             -              -

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

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

       Balance as of December 31,
           1998                         2,765,000      5,013,883         142,314      3,238,608      (388,341)

       Issuance of common stock
           [note 14 (b) (iv) (v)]          21,714         48,073              -              -              -

       Foreign currency translation            -              -               -              -         455,190

         Net loss for the year                 -              -               -     (1,528,250)             -
                                        ---------      ---------        --------      ---------     ----------

       Balance as of  December 31,
           1999                         2,786,714      5,061,956         142,314      1,710,358         66,849
                                        =========      =========        ========      =========     ==========

</TABLE>




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

                                                                               7


<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(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,  Rosedale Wallcoverings and Fabrics Inc.
               ("Rosedale") and Ontario Paint and Wallpaper Limited ("Ontario"),
               respectively.

                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   consolidated  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.

                On January 1, 2000,  521305 and 1010037  were  amalgamated  with
                Rosedale and Ontario.  The amalgamation will be accounted for as
                a pooling of interest.

                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

                (i) Book Development 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 period of
                  up to five years on a straight-line  basis.  Proceeds from the
                  sale of sample books to  distributors  are offset  against the
                  book development costs when received.

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

                (ii) Book Subsidy

                   Sales of completed  sample  books to retailers  are sold at a
                   discount.  This  discount is deferred  and  amortized  over a
                   period of up to four years on a straight-line basis.

                                                                               8
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

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

           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.

           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            20%                           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  accounts for income tax under the provisions of FAS
                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.

                                                                               9
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

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

           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.

                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  accumulated  other  comprehensive  income
                (loss) in stockholders' equity.

           k)   Earnings or Loss Per Share

                The  company  adopted FAS No.128,  "Earnings  per Share"  during
                fiscal  1998  which   requires   disclosure   on  the  financial
                statements of "basic" and "diluted"  earnings  (loss) per share.
                Basic  earnings  (loss) per share is computed  by  dividing  net
                income  (loss) by the weighted  average  number of common shares
                outstanding for the year.  Diluted  earnings (loss) per share is
                computed by dividing net income  (loss) by the weighted  average
                number  of  common   shares   outstanding   plus  common   stock
                equivalents (if dilutive)  related to stock options and warrants
                for each year.

           l)   Sales

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

           m)   Use of Estimates

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

           n)   Long-Lived Assets

                On January 1, 1996,  the company  adopted the  provisions of FAS
                No. 121,  Accounting for the Impairment of Long-Lived Assets and
                for  Long-Lived  Assets to be disposed  of. FAS No. 121 requires
                that  long-lived  assets  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.   Management   used  its  best   estimate   of  the
                undiscounted cash flows to evaluate the carrying amount and have
                determined that no impairment has occurred.

                                                                              10
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

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

           o)   Stock Based Compensation

                In  December  1995,  FAS 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. The Company chose
                to continue to account for  stock-based  compensation  using the
                intrinsic value method prescribed in Accounting Principles Board
                Opinion No. 25, "Accounting for Stock Issued to Employees",  and
                related  interpretations.  Accordingly,  compensation  cost  for
                stock  options is measured as the excess,  if any, of the quoted
                market price of the Company's stock at the measurement date over
                the amount an employee  must pay to acquire the stock.  See note
                14 (c ) for a summary of the pro-forma EPS  determined as if the
                company had applied FAS No. 123.

           p)   Concentrations of Credit Risks

                The company's receivables are unsecured and are generally due in
                30 days. Currently, the company's customers are primarily local,
                national and  international  users of wallpapers  and decorative
                fabrics. The company's  receivables do not represent significant
                concentrations  of credit risk as at December 31,  1999,  due to
                the wide variety of customers,  markets and geographic  areas to
                which the company's products are sold.

           q)   Recently Issued Accounting Standard

                    In  June  1998,  FAS No.  133 was  issued  with  respect  to
               Accounting for Derivative Instruments and Hedging activities. The
               requirements  of  FAS  No.  133  was  extended  to  fiscal  years
               beginning January 1, 2001 by FAS No. 137. The company anticipates
               that adoption of FAS No. 137 will initially affect  comprehensive
               income with respect to the foreign exchange contracts referred to
               in note 22.


       2.  COMPREHENSIVE INCOME (LOSS)

           The company has adopted FAS 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>
                                                                   1999               1998               1997

                                                                     $                  $                  $

<S>                                                         <C>                  <C>                  <C>
           NET INCOME (LOSS)                                (1,528,250)          1,050,553            799,828

           OTHER COMPREHENSIVE INCOME (LOSS)

                Foreign currency translation                    455,190          (161,351)            (77,653)
                                                            -----------         ----------            --------

           COMPREHENSIVE INCOME (LOSS)                      (1,073,060)            889,202            722,175
</TABLE>


                                                                              11

<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       2.  COMPREHENSIVE INCOME (LOSS) (cont'd)

           The  foreign  currency  translation  adjustments  are  not  currently
           adjusted for income taxes as the company is located in Canada and the
           adjustments  relate to the  translation  of the financial  statements
           from Canadian dollars into United States dollars, which are done only
           for the convenience of the reader as disclosed in note 1(j).

       3.  ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
                                                                                         1999             1998
                                                                                           $                $

<S>                                                                                 <C>              <C>
           Accounts receivable                                                      3,778,086        3,842,820
           Less:  Allowance for doubtful accounts                                     436,494          146,770
                                                                                    ---------        ---------

           Accounts receivable, net                                                 3,341,592        3,696,050
                                                                                    =========        =========
</TABLE>

           Included in the 1999  allowance for doubtful  accounts is a provision
           of $198,518 for a receivable  from a major customer who has filed for
           a Chapter 11 reorganization under the Bankruptcy Reform Act.

       4.  INVENTORY
<TABLE>
<CAPTION>

                                                                                         1999          1998
                                                                                           $             $
           Inventory comprised the following:

<S>                                                                                   <C>             <C>
                Raw materials                                                         353,694         185,956
                Finished goods                                                      7,031,679       7,043,488
                                                                                    ---------       ---------

                                                                                    7,385,373       7,229,444
                                                                                    =========       =========
</TABLE>
       5.  LOAN RECEIVABLE FROM AFFILIATED COMPANY

           The loan receivable from affiliated company, which is related through
           common ownership,  bears interest at prime plus 1.5%, has no specific
           repayment  terms and is not expected to be repaid prior to January 1,
           2001.

                                                                              12
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
       6.  DEFERRED PRODUCT COSTS
                                                                                         1999            1998

                                                                                           $               $

<S>                                                                                 <C>             <C>
           Book development costs                                                   1,793,139       1,285,831
           Deferred software costs                                                         -           58,338
                                                                                    ---------       ---------

           Cost                                                                     1,793,139       1,344,169
                                                                                    ---------       ---------

           Less:  Accumulated amortization

                  Book development costs                                              931,773         467,454
                  Deferred software costs                                                  -           25,513
                                                                                    ---------       ---------

                                                                                      931,773         492,967
                                                                                    ---------       ---------

           Net Deferred Product Costs                                                 861,366         851,202
                                                                                    =========       =========
</TABLE>
       7.  DEFERRED POLICY COSTS

           Deferred  policy costs  represented 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 are
           secured by land and buildings, bear interest at 9% and are payable on
           demand. No repayments are expected prior to January 1, 2001.
<TABLE>
<CAPTION>

                                                                                         1999            1998

                                                                                           $               $

<S>        <C>                                                                        <C>             <C>
           1216748 Ontario Inc.                                                       179,291         168,768
           1217576 Ontario Inc.                                                       162,619         153,073
                                                                                    ---------       ---------

                                                                                      341,910         321,841
                                                                                    =========       =========
</TABLE>

                                                                              13

<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
       9.  PROPERTY, PLANT AND EQUIPMENT
                                                                                         1999            1998
                                                                                           $               $

<S>                                                                                    <C>             <C>
           Leasehold improvements                                                      35,303          29,230
           Automobile                                                                  19,879          18,711
           Equipment and furniture                                                    302,796         283,502
           Furniture and fixtures                                                     255,879         240,517
           Computer equipment                                                         535,155         348,874
           Cylinders and related design costs                                       5,180,649       3,716,883
                                                                                    ---------       ---------

           Cost                                                                     6,329,661       4,637,717
                                                                                    ---------       ---------

           Less:  Accumulated amortization

                  Leasehold improvements                                               16,779          12,671
                  Automobile                                                           18,145          16,380
                  Equipment and furniture                                             233,263         203,399
                  Furniture and fixtures                                              209,137         185,861
                  Computer equipment                                                  346,385         245,381
                  Cylinders and related design costs                                2,604,247       1,813,592
                                                                                    ---------       ---------

                                                                                    3,427,956       2,477,284
                                                                                    ---------       ---------

           Net                                                                      2,901,705       2,160,433
                                                                                    =========       =========
</TABLE>


       10. BANK INDEBTEDNESS

           The  company  has  available  credit  facilities  up to a maximum  of
           $7,039000  ($10,160,000  Canadian),  which  bear  interest  at  rates
           varying  between  the  bank's  prime  rate plus  0.25% and prime plus
           1.25%.  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 $1,732,000 from the company,  guarantees from affiliated companies
           up to $589,000,  assignment  of life  insurance of  $2,079,000 on the
           lives  of two  key  officers/  shareholders  and  assignment  of fire
           insurance.

           As at the year end,  the  company  was in breach of a covenant in its
           banking agreement with respect to capital expenditures. This covenant
           requires that annual capital  expenditures shall not exceed an amount
           based  on cash  flows  from  operations.  As a result  of the  losses
           incurred  during  the  year,  the  company  was not able to  generate
           sufficient  cash  flows as  defined  by the bank to cover its  annual
           capital  expenditures.  It is  management's  opinion that this matter
           will be  resolved to the mutual  satisfaction  of the company and its
           bankers.

                                                                              14
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
       11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
                                                                                         1999             1998
                                                                                           $                $
           Accounts payable and accrued expenses is comprised of the following:

<S>                                                                                 <C>              <C>
                Trade payables                                                      4,840,934        4,230,024
                Accrued expenses                                                      448,812          351,010
                                                                                    ---------        ---------

                                                                                    5,289,746        4,581,034
                                                                                    =========        =========
</TABLE>

<TABLE>
<CAPTION>
       12. LONG-TERM DEBT
                                                                                         1999          1998
                                                                                           $             $
           a)   Settlement Payable
                <S>                                                                      <C>           <C>
                Settlement of a claim initiated by a third party payable $7,242
                monthly.  The balance was repaid in 1999                                   -           77,076

           b)   Insurance Loan

                Amount  in  excess of cash  surrender  values of life  insurance
                policies transferred to the holding companies ("holdcos") of

                  two shareholders/key officers as described in note 21.
                  The holdcos directly own 22.72% of the issued common stock of
                the company and accordingly the amounts payable to the
                holdcos are included as due to stockholders and directors
                (note 13)                                                                  -          950,956
                                                                                    ---------        ---------

                                                                                           -        1,028,032
                                                                                    ---------        ---------
                Less:  Current portion                                                     -         (77,076)
                                                                                    ---------        ---------

                Long-term portion                                                          -          950,956
                                                                                    =========        =========

</TABLE>
       13. DUE TO STOCKHOLDERS AND DIRECTORS

           Stockholders' and directors  advances are secured by general security
           agreements,  bear  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, 2001.

                                                                              15
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(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.

                Issued
<TABLE>
<CAPTION>

                                                                                         1999             1998
                                                                                           $                $

<S>             <C>                       <C>     <C>                               <C>              <C>
                2,786,714   Common shares (1998 - 2,765,000)                        5,061,956        5,013,883
                1,265,000   Warrants                                                  142,314          142,314
                                                                                    ---------        ---------

                                                                                    5,204,270        5,156,197
                                                                                    =========        =========

</TABLE>
           b)   Changes to issued share capital

                    i) On June 15, 1998, the shareholders transferred their 100%
               ownership  interests in 521305  Ontario Inc. and 1010037  Ontario
               Inc. in exchange for the issuance of 1,500,000  common  shares of
               the company.

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

                    iii) On July 29, 1998,  the Company  issued  165,000  common
               shares to the public. The proceeds received from the issuance was
               $6,158,857 with related costs (net of income taxes)  amounting to
               $1,002,662.   Net  proceeds  included  the  deferred  income  tax
               recoveries.

                    iv)On October 8, 1999,  the company  issued 15,000 shares of
               common stock to its U.S.  legal counsel as part of a retainer for
               legal  representation in connection with a Public Registration of
               Securities.  The fair value of these shares were  measured  using
               the stock price of $2.0938 at October 8, 1999,  being the date of
               commitment.

                    v) On August 30, 1999, the Company entered into an agreement
               with a New York  research  company,  First Hudson  Research,  LLC
               ("FHR") to obtain use of that company's "AwareNet" service.  This
               service allowed the use of FHR's proprietary  e-mail data base to
               send  information  about the company to interested third parties.
               The agreement  included a provision for the issuance of shares to
               a value of  $16,666  at a share  price  determined  by an average
               seven  day bid and ask  price  prior to the  commencement  of the
               e-mail campaign. Based on this measurement criteria, 6,714 common
               shares were issued to FHR at an average price of $2.4822.

                                                                              16
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       14. COMMON STOCK (cont'd)

           c)   Employee 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.

                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  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, by 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.

                On August 19,1999,  the Board of Directors granted 336,500 stock
                options at the most recent closing price of the Company's shares
                as  traded  on  NASDAQ,  specifically,  U.S.  $1.00 per share on
                August  18,   1999.   Officers,   Directors   and  five  percent
                shareholders were granted 276,500 options.  The remaining 60,000
                options were granted to key employees.

                                                                              17
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       14. COMMON STOCK (cont'd)

           c)   Employee Stock Option Plan (cont'd)

                Pro-forma  information  regarding  net income and  earnings  per
                share is required by FAS No. 123 -  "Accounting  for Stock Based
                Compensation"  and has been  determined  as if the  company  had
                accounted for its employee stock options based on fair values at
                the grant date for  options  granted  under the 1998  Plan.  The
                company's pro-forma  information for the year ended December 31,
                1999 would have been as follows:
<TABLE>
<CAPTION>

                                                                                     1999                 1999
                                                                           --------------      ---------------
                                                                              As Reported            Pro-Forma

<S>                                                                        <C>                 <C>
                Loss from continuing operations                            $  (1,528,250)      $   (1,538,304)
                Basic and diluted EPS from continuing operations           $       (0.55)      $        (0.56)

                The fair  value  of each  option  grant  used  for  purposes  of
                estimating the pro-forma  amounts  summarized  above is based on
                the grant date using the Black-Scholes option pricing model.

                The activity of the company's stock option plan is as follows:

                                                                                 Options              Exercise
                                                                              Outstanding                Price

                Granted                                                           336,500      $             1
                                                                                ---------           ----------

                Outstanding at the end of the year                                336,500
                                                                                =========

                Options exercisable at year-end                                   336,500
                                                                                ---------

                Available for future grant                                        413,500
                                                                                =========
</TABLE>

                The remaining  life of the stock options as of December 31, 1999
                is 9.7 years.

           d)   Purchase Warrants

                During 1998, 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.

                                                                              18

<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       14. COMMON STOCK (cont'd)

           d)   Purchase Warrants (cont'd)

                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.

                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.

<TABLE>
<CAPTION>
       15. INCOME TAXES
                                                                                       1999               1998
                                                                                         $                  $

<S>                                                                                <C>                 <C>
           a)   Current                                                            88,895                   -
                Deferred                                                           51,824              312,143
                                                                                ---------              -------

                                                                                  140,719              312,143
                                                                                =========              =======
           b)   Current income taxes consists of:

                Amounts calculated at basic Canadian Federal and Provincial
                    Rates                                                        (619,000)             545,076
                Increase (decrease) resulting from:

                Temporary differences                                             (51,824)            (312,143)
                Part 1.3 large corporation tax                                     12,500                  -
                Non-deductible expenses                                                 -               81,896
                Adjustment for prior year's taxes                                  79,000                  -
                Losses utilized                                                         -             (314,829)
                Losses carried forward                                            668,219                  -
                                                                                ---------              -------

                                                                                   88,895                  -
                                                                                =========              =======
</TABLE>

                                                                              19
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(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  1998,
                issuance  costs  were  incurred  which  are  deductible  for tax
                purposes for a period up to five years.  The resulting  deferred
                income taxes  recoverable has been applied to the issue expenses
                (note 14).

           d)   Rosedale has operating losses of approximately  $2,652,000 which
                is  expected to be used to reduce  future  taxable  income.  The
                potential tax benefit  relating to the losses,  in the amount of
                approximately $416,000, has been recognized in the accounts as a
                reduction   to  the   deferred   income   tax   liability.   The
                deductibility of these losses if available expires as follows:

2001   $  120,000
2002      303,000
2004       22,000
2006    2,207,000
      -----------
      $ 2,652,000
      ===========

                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  $765,000 (see note 19).
                Should the assessments be upheld,  the losses pertaining to 2001
                would be denied.

       16. RELATED PARTY TRANSACTIONS

           Amounts  due from or paid to  companies  which  are  related  through
common ownership are as follows:
<TABLE>
<CAPTION>

                                                                                      1999                1998
                                                                                        $                   $

<S>               <C>                                                                   <C>              <C>
           Loan - 976168 Ontario Inc.                                                   2,054            1,933
           Mortgage receivable - 1216748 Ontario Inc.                                 179,291          168,768
           Mortgage receivable - 1217576 Ontario Inc.                                 162,619          153,073
           Rent paid - 966578 Ontario Inc.                                             16,826           16,116
</TABLE>


       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.

                                                                              20

<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       18. SEGMENTED INFORMATION

                    The company has  adopted  FAS No. 131 -  "Disclosures  about
               segments of enterprise and related 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.
               These products are regarded as one segment by the company. As the
               company's  reportable  segment  has  been  organized  around  its
               principal  products,  disclosure  of  revenue  by  product is not
               required.
<TABLE>
<CAPTION>

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

                                                                            1999           1998           1997
                                                                              $              $              $

<S>                                                                    <C>            <C>            <C>
                United States of America                               9,457,021      9,749,412      9,880,533
                Canada                                                 6,655,528      8,065,013      9,185,160
                Other                                                    795,851      1,156,367      1,691,730
                                                                      ----------     ----------     ----------

                                                                      16,908,400     18,970,792     20,757,423
                                                                      ==========     ==========     ==========

</TABLE>

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

                                                                            1999           1998           1997
                                                                              $              $              $

<S>                                                                    <C>              <C>            <C>
                United States of America                               (854,764)        535,782        279,780
                Canada                                                 (601,554)        451,738        295,020
                Other                                                   (71,932)         63,033         50,826
                                                                      ----------     ----------     ----------
                                                                     (1,528,250)      1,050,553        625,626
                                                                      ==========     ==========     ==========
</TABLE>

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

                Period ended December 31, 1999
<TABLE>
<CAPTION>

<S>                                                                                              <C>
                United States of America                                                         $   2,625,466
                Canada                                                                              14,363,537
                Other                                                                                1,807,618
                                                                                                    ----------

                                                                                                 $  18,796,621
                                                                                                    ==========
</TABLE>

                                                                              21
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       18. SEGMENTED INFORMATION (cont'd)

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

                <S>                                                                              <C>
                Period ended December 31, 1998

                United States of America                                                         $   1,744,862
                Canada                                                                              15,430,713
                Other                                                                                1,098,750
                                                                                                    ----------

                                                                                                 $  18,274,325
                                                                                                    ==========

</TABLE>
<TABLE>
<CAPTION>
           c)   Sales to major customers are as follows:
                                                                            1999           1998           1997

<S>                                                               <C>             <C>            <C>
                Sales                                             $    5,385,915  $   6,957,178  $   2,890,783
                                                                       ---------      ---------     ----------

                % of total sales                                             32%            37%            14%
                                                                       ---------      ---------     ----------

                Amounts included in accounts receivable           $      649,838  $     811,291  $     298,595
                                                                       ---------      ---------     ----------

           d)   Purchases from major suppliers are as follows:

                                                                           1999           1998           1997

                Purchases                                         $    5,317,789  $   6,610,748  $   8,070,027
                                                                       ---------      ---------     ----------

                % of total purchases                                         47%            57%            52%
                                                                       ---------      ---------     ----------

                Amounts included in accounts payable              $    2,383,245  $   2,339,508  $   3,101,539
                                                                       ---------      ---------     ----------

</TABLE>
       19. CONTINGENCIES

           a)   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
                $765,000.  The company has objected to these  re-assessments and
                has no obligation to pay the portion  relating to Revenue Canada
                in the  amount  of  $500,000  until  the  objections  have  been
                processed.  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.

                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.

                As at December 31, 1999,  Rosedale  made  payments in respect to
                the above income tax re-assessments amounting to $207,900 to the
                Province  of Ontario.  This amount has been  included in prepaid
                expenses and sundry assets.

                                                                              22


<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       19. CONTINGENCIES (cont'd)

           b)   Rosedale  and  Ontario  have  guaranteed  the   indebtedness  of
                affiliated companies in the amount of $1,723,493 through general
                security  agreements ranking behind the National Bank of Canada.
                As at December  31, 1999,  the  indebtedness  of the  affiliated
                companies amounted to $Nil.

           c)   Rosedale has disputed  invoices from a supplier in the amount of
                $112,456 for which debit notes have been issued.  As at December
                31, 1999, these debit notes were not cleared with the supplier.

           d)   Rosedale and Ontario have issued guarantees secured by general
                security  agreements for the loans made by Laurentian to  the
                holdcos. (see note 21)


       20. COMMITMENTS

           a)   Minimum  payments under operating  leases for premises amount to
                approximately  $303,000 per annum,  exclusive  of insurance  and
                other occupancy charges.  The leases expire on October 31, 2004.
                The future  minimum lease  payments over the next five years are
                as follows:

                Payable during the following periods:

<TABLE>
<CAPTION>
<S>                                                                                            <C>
                Within one year                                                                $       302,548
                Over one year but not exceeding two years                                              302,548
                Over two years but not exceeding three years                                           302,548
                Over three years but not exceeding four years                                          302,548
                Over four years but not exceeding five years                                           252,123
                Thereafter                                                                                  -
                                                                                                     ---------

                                                                                               $     1,462,315
                                                                                                     =========

           b)   Minimum  payments under operating leases for equipment amount to
                approximately  $26,000  per  annum.  The  future  minimum  lease
                payments over the next three years are as follows:

                Payable during the following periods:

                Within one year                                                                $        25,957
                Over one year but not exceeding two years                                                7,605
                Over two years but not exceeding three years                                             1,663
                Thereafter                                                                                  -
                                                                                                     ---------

                                                                                               $        35,225
                                                                                                     =========


</TABLE>

                                                                              23


<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       20. COMMITMENTS (cont'd)

           c)   Minimum  payments under operating  leases for vehicles amount to
                approximately  $33,000  per  annum.  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                                                               $         33,414
                Over one year but not exceeding two years                                               11,583
                Over two years but not exceeding three years                                             7,036
                Over three years but not exceeding four years                                            1,759
                Thereafter                                                                                  -
                                                                                                        ------

                                                                                               $        53,792
                                                                                                        ======

</TABLE>

       21. LIFE INSURANCE

           During the year,  as a cost saving  measure,  the  company  initiated
           negotiations  with The Prudential of America Life  Insurance  Company
           (Canada)  and the  Laurentian  Bank  of  Canada  ("Laurentian"),  the
           objective of which was to reduce the insurance  coverage on the lives
           of three  shareholders/key  officers and the related  insurance loans
           held by the operating  companies,  Rosedale and Ontario.  Previously,
           the  shareholders/key  officers'  lives were  insured to an aggregate
           value of $22 million.

           The first step was to collapse a policy in the name of a  shareholder
           and use the proceeds to repay the loan from Laurentian.

           Secondly, the policies on the lives of the other two shareholders/key
           officers  were  scaled  down from $18  million to $7 million  and the
           resulting  cash realized from the partial  surrender used to pay down
           the Laurentian loans.

           Thirdly, Rosedale and Ontario transferred the life insurance policies
           and cash  surrender  values to the  respective  holding  corporations
           ("holdcos") of the two shareholders/key officers in consideration for
           the repayment of the Laurentian loans previously held by Rosedale and
           Ontario.  Simultaneously,  through  Insurance  Transfer  Arrangements
           signed on December 31,  1999,  the company  apportioned  key man life
           insurance  in the  aggregate  amount of $2 million  from the policies
           transferred  to the holdcos.  The  company's  interest in the key man
           life  insurance is subject to the prior claims of the  Laurentian and
           the National Bank of Canada.

           In prior years,  because the  Laurentian had a legal right of set-off
           of the cash surrender  values of the life insurance  policies against
           the debt owing to it by Rosedale and Ontario,  the related assets and
           liabilities were offset in the financial  statements.  As at December
           31, 1999, the amounts  offset and  transferred to the holdcos were as
           follows:

Cash surrender values of life insurance policies   $861,400
Loans ..........................................   $861,400


                                                                              24



<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)

       21.  LIFE INSURANCE (cont'd)

           The  amount in  excess of the cash  surrender  values is  payable  on
           demand to the holdcos  and is included in amounts due to  stockholder
           and directors (note 13).

       22. FOREIGN EXCHANGE CONTRACTS

           As at December 31, 1999, 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 $7,350,000 (in varying amounts from January
           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,
           1999.  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, 1999                                           December 31, 1998
                      -------------------------------------------                  -----------------------------
           Forward          Notional                                     Notional
           Exchange        Principal      Carrying           Fair       Principal       Carrying          Fair
           Contracts         Amounts         Value         Values         Amounts         Values        Values
           ---------- -------------- -------------  -------------  --------------  ------------- -------------

           <S>            <C>                <C>        <C>        <C>                  <C>         <C>
           1999                  -              -              -   $   13,800,000             -     ($982,978)
           2000           $7,350,000            -       ($70,771)              -              -      ($69,683)
</TABLE>








                                                                              25