10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2009

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-7753

DECORATOR INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania		25-1001433
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
10011 Pines Blvd., Suite #201, Pembroke Pines, Florida		33024
(Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code:	(954) 436-8909

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]  

Accelerated filer  [  ]

Non-accelerated filer   [  ]   

Smaller reporting company   [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes  [  ].            No  [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of each class	Outstanding at August 18, 2009
Common Stock, Par Value $.20 Per Share	3,016,919 shares

PART I – FINANCIAL INFORMATION

Item 1.   Financial Statements.

DECORATOR INDUSTRIES, INC

BALANCE SHEETS

ASSETS	July 4,		January 3,
	2009		2009
	(UNAUDITED)
Current Assets:
Cash and Cash Equivalents	$	284,115	$	16,499
Accounts Receivable, less allowance for
doubtful accounts ($247,613 and $446,421)		2,550,285		2,214,256
Inventories		2,525,266		3,783,581
Other Current Assets		515,717		524,879
Total Current Assets		5,875,383		6,539,215
Property and Equipment
Land, Buildings & Improvements		2,872,422		4,805,667
Machinery, Equipment, Furniture & Fixtures and Software		7,362,332		7,750,046
Total Property and Equipment		10,234,754		12,555,713
Less: Accumulated Depreciation and Amortization		6,960,245		7,355,020
Active Assets, Net		3,274,509		5,200,693
Property Held for Sale, Net		3,357,565		3,369,374
Net Property and Equipment		6,632,074		8,570,067
Goodwill, less accumulated Amortization of $1,348,569		3,820,972		3,799,300
Deferred Income taxes		1,822,000		876,000
Other Assets		283,198		362,227
Total Assets	$	18,433,627	$	20,146,809
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	859,881	$	830,153
Current Maturities of Long-term Debt		3,539,000		2,684,000
Checks Issued But Not Yet Presented		253,370		321,703
Accrued Expenses:
Compensation		231,696		420,583
Other		1,194,317		1,875,677
Total Current Liabilities		6,078,264		6,132,116
Long-Term Debt		555,000		615,000
Total Liabilities		6,633,264		6,747,116
Stockholders' Equity
Common Stock $.20 par value: Authorized shares, 10,000,000;
Issued shares, 4,730,763 and 4,658,729		946,153		931,746
Paid-in Capital		2,054,759		2,011,386
Retained Earnings		17,112,374		18,769,484
		20,113,286		21,712,616
Less: Treasury stock, at cost: 1,713,844 shares		8,312,923		8,312,923
Total Stockholders' Equity		11,800,363		13,399,693
Total Liabilities and Stockholders' Equity	$	18,433,627	$	20,146,809

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

1

DECORATOR INDUSTRIES, INC

STATEMENTS OF EARNINGS

(UNAUDITED)

	For the Thirteen Weeks Ended										For the Twenty-Six Weeks Ended
	July 4, 2009					June 28, 2008					July 4, 2009					June 28, 2008
Net Sales	$	5,677,395		100.0	%	$	12,563,069		100.0	%	$	10,783,033		100.0	%	$	23,066,967		100.0	%
Cost of Products Sold		4,446,441		78.3	%		10,366,143		82.5	%		8,833,284		81.9	%		19,373,831		84.0	%
Gross Profit		1,230,954		21.7	%		2,196,926		17.5	%		1,949,749		18.1	%		3,693,136		16.0	%
Selling and Administrative Expenses		1,830,651		32.2	%		3,906,527		31.1	%		4,319,641		40.1	%		6,160,603		26.7	%
Operating Loss		(599,697	)	-10.5	%		(1,709,601	)	-13.6	%		(2,369,892	)	-22.0	%		(2,467,467	)	-10.7	%
Other Income (Expense)
Interest, Investment and
Other Income		8,303		0.1	%		15,161		0.1	%		11,934		0.1	%		34,610		0.2	%
Interest Expense		(32,787	)	-0.6	%		(33,089	)	-0.2	%		(69,152	)	-0.6	%		(63,190	)	-0.3	%
Loss Before Income Taxes		(624,181	)	-11.0	%		(1,727,529	)	-13.7	%		(2,427,110	)	-22.5	%		(2,496,047	)	-10.8	%
Provision for Income Taxes		(258,000	)	-4.6	%		(667,000	)	-5.3	%		(770,000	)	-7.1	%		(960,000	)	-4.1	%
Net Loss	$	(366,181	)	-6.4	%	$	(1,060,529	)	-8.4	%	$	(1,657,110	)	-15.4	%	$	(1,536,047	)	-6.7	%
EARNINGS PER SHARE
Basic	$	(0.12	)			$	(0.36	)			$	(0.56	)			$	(0.52	)
Diluted	$	(0.12	)			$	(0.36	)			$	(0.56	)			$	(0.52	)
Weighted Average Number of Shares Outstanding
Basic		2,987,495					2,928,299					2,970,528					2,932,427
Diluted		2,987,495					2,928,299					2,970,528					2,932,427

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

2

DECORATOR INDUSTRIES, INC

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Twenty-Six Weeks Ended
	July 4, 2009			June 28, 2008
Cash Flows From Operating Activities:
Net Loss	$	(1,657,110	)	$	(1,536,047	)
Adjustments to Reconcile Net Loss to Net Cash
(Used in)/Provided by Operating Activities
Depreciation and Amortization		261,832			713,241
Provision for Losses on Accounts Receivable		47,651			130,715
Deferred Taxes		(770,000	)		(92,000	)
Stock-Based Compensation		15,280			21,127
Loss/(Gain) on Disposal of Assets		88,128			(4,000	)
Noncash charges for asset impairment		365,500			1,270,077
Increase/(Decrease) from Changes in:
Accounts Receivable		(383,680	)		(1,339,144	)
Inventories		1,258,315			(4,976	)
Prepaid Expenses		(207,092	)		(434,375	)
Other Assets		(32,138	)		(4,597	)
Accounts Payable		29,728			767,310
Accrued Expenses		(853,274	)		529,000
Net Cash (Used in)/Provided by Operating Activities		(1,836,860	)		16,331
Cash Flows From Investing Activities:
Net cash paid for acquisitions		(8,672	)		––
Capital Expenditures		(107,244	)		(143,652	)
Proceeds from Property Dispositions		1,451,225			3,880
Net Cash Provided by/(Used in) Investing Activities		1,335,309			(139,772	)
Cash Flows From Financing Activities:
Long-term Debt Payments		(60,000	)		(519,444	)
Dividend Payments		––			(175,495	)
Change in Checks Issued but Not Yet Presented		(68,333	)		182,874
Net Borrowings under Line-of-Credit Agreement		855,000			978,000
Issuance of Stock for Directors Trust		42,500			44,500
Purchase of Common Stock for Treasury		––			(386,002	)
Net Cash Provided by Financing Activities		769,167			124,433
Net Increase in Cash and Cash Equivalents		267,616			992
Cash and Cash Equivalents at Beginning of Year		16,499			17,544
Cash and Cash Equivalents at End of Period	$	284,115		$	18,536
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest	$	63,008		$	58,088
Income Taxes	$	––		$	5,453
Increase in Acquisition Cost/Goodwill	$	21,672		$	104,220
Working Capital, other than Cash		(13,000	)		(104,220	)
Net Cash Paid for Acquisition/Goodwill	$	8,672		$	––

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

3

DECORATOR INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

TWENTY-SIX WEEKS ENDED JULY 4, 2009 AND JUNE 28, 2008

(UNAUDITED)

NOTE 1.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company’s financial position as of July 4, 2009, the changes therein for the twenty-six week period then ended and the results of operations for the twenty-six week periods ended July 4, 2009 and June 28, 2008.

NOTE 2.

The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America.  For additional information, reference is made to the Company’s annual report on Form 10-K for the year ended January 3, 2009. The results of operations for the twenty-six week periods ended July 4, 2009 and June 28, 2008 are not necessarily indicative of operating results for the full year.

NOTE 3.

INVENTORIES

Inventories at July 4, 2009 and January 3, 2009 consisted of the following:

	July 4, 2009		January 3, 2009
Raw Material and Supplies	$	2,048,568	$	3,166,886
In Process and Finished Goods		476,698		616,695
Total Inventory	$	2,525,266	$	3,783,581

NOTE 4.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by weighted-average number of shares outstanding.  Diluted earnings per share includes the dilutive effect of stock options.  No dilution is shown for all periods since the effect of the stock options on the net loss is antidilutive.  In accordance with SFAS No. 128, the following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations:

	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008
Numerator:
Net loss	$	(366,181	)	$	(1,060,529	)	$	(1,657,110	)	$	(1,536,047	)
Denominator:
Weighted-average number of
common shares outstanding		2,987,495			2,928,299			2,970,528			2,932,427
Dilutive effect of
stock options on net income		0			0			0			0
		2,987,495			2,928,299			2,970,528			2,932,427
Diluted earnings per share:	$	(0.12	)	$	(0.36	)	$	(0.56	)	$	(0.52	)

4

NOTE 5.

ASSET SALE

On May 1, 2009 and May 7, 2009, respectively, the Company entered into Sale/Leaseback transactions for its Abbotsford, WI and Bossier City, LA facilities.  

The net proceeds from these sales were $1,438,000 and were used to pay down the line-of-credit with Wachovia Bank.  The Company recognized a loss on the building sales of $97,714 in the second quarter of 2009.

The leases that the Company entered into for these facilities were each for 15 year terms and will have a total annual rent in the first year of $158,000.  Each lease has an annual increase of two percent and the Company is responsible for all maintenance and the payment of property taxes.

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

Cautionary Statement: This Quarterly Report on Form 10-Q may contain statements relating to future events, including results of operations, that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent the Company's expectations or belief as to future events and, by their very nature, are subject to risks and uncertainties which may result in actual events differing materially from those anticipated. In particular, future operating results and future liquidity will be affected by the level of demand for recreational vehicles, manufactured housing and hotel/motel accommodations and may be affected by changes in general economic conditions, interest rate fluctuations, the Company’s ability to retain or replace its line-of-credit availability, the availability of consumer credit, the availability of floor-plan credit fo r recreational vehicle and manufactured housing retail dealers, the availability of financing for manufacturers, fuel prices, competitive products and pricing pressures within the Company's markets, the Company's ability to contain its manufacturing costs and expenses, and other factors. Forward-looking statements by the Company speak only as of the date made, and the Company undertakes no obligation to update or revise such statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events.

FINANCIAL CONDITION

The Company’s financial ratios changed as illustrated below.  

	July 4, 2009	January 3, 2009
Current Ratio	0.97:1	1.07:1
Quick Ratio	0.55:1	0.45:1
Funded Debt to Total Capital	25.8%	19.8%
Working Capital	$(202,881)	$407,099

5

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

In May 2006, the Company entered into a line-of-credit agreement with Wachovia Bank.  The agreement with Wachovia provides for a revolving line of credit of up to $5,000,000, and expired on June 30, 2009.  On June 26, 2009, Wachovia extended this agreement through September 30, 2009.  The original interest rate was LIBOR plus 150 basis points and required the Company to maintain certain financial covenants.  The 2007 loss caused the Company to violate the financial covenant in the loan agreement that the ratio of Senior Funded Debt to EBITDA may not exceed 2.75 to 1.00.  The Company believes it is in compliance with all other conditions of the loan agreement. Wachovia initially provided a waiver for this violation through the end of the third quarter of 2008.   The waiver agreement changed the interest rate from LIBOR plus 150 basis points to LIBOR plus 275 basis points.  The Company remains in defau lt of the loan covenant.  At July 4, 2009, the Company had $3,419,000 in outstanding borrowings on the line-of-credit.   The outstanding balance on the line-of-credit as of January 3, 2009 was $2,564,000.

Wachovia Bank, which is now a Wells Fargo company, has indicated they will provide a forbearance agreement to extend the agreement for an additional six months beyond its current expiration date of September 30, 2009.  Although the forbearance agreement has not been completed at this time, Wachovia has indicated that the interest rate under the forbearance agreement will be eight percent, and a fee for extending the line will be required.

On May 1, 2009 and May 7, 2009, respectively, the Company entered into Sale/Leaseback transactions for its Abbotsford, WI and Bossier City, LA facilities.  

The net proceeds from these sales were $1,438,000 and were used to pay down the line-of-credit with Wachovia Bank.  The Company recognized a loss on the building sales of $97,714 in the second quarter of 2009.

The leases that the Company entered into for these facilities were each for 15 year terms and will have a total annual rent in the first year of $158,000.  Each lease has an annual increase of two percent and the Company is responsible for all maintenance and the payment of property taxes.

In January 2004, the Company began assigning certain account receivables under a "Receivables Servicing and Credit Approved Receivables Purchasing Agreement" with CIT Group/Commercial Services Inc.  Only receivables from sales to the hospitality industry may be assigned to CIT.  Under the agreement CIT provides credit checking, credit approval, and collection responsibilities for the assigned receivables.  If CIT approves an order from a hospitality customer and the resulting receivables are not paid or disputed by the customer within ninety days of sale, CIT will pay the receivable to the Company and assume ownership of the receivable. CIT begins collection efforts for the assigned receivables (both approved and not approved) when they are due (hospitality sales are made on Net 30 terms).  Hospitality customers are instructed to make payments directly to CIT and CIT then wires collected funds to the Company.  The Company pays CIT a percentage of all assigned receivables.  Management believes this cost is mostly offset by reductions in Bad Debt expense and collection costs.  The Company entered into this arrangement to take advantage of CIT’s extensive credit checking and collection capabilities. The current agreement with CIT expires on December 31, 2009 and will not be renewed for 2010. Management believes that the functions performed by CIT can now be performed in-house without additional staff.

6

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Days Sales Outstanding (DSO) in accounts receivable were 40.0 days at July 4, 2009 compared to 29.8 days and 32.9 days at January 3, 2009 and June 28, 2008, respectively.  The increase is attributable to longer collection times in addition to a greater percentage of the Company’s sales to the hospitality market, which traditionally has had longer collection times.  Net accounts receivable was $2,550,285 at July 4, 2009, compared to $2,214,256 and $4,632,621 at January 3, 2009 and June 28, 2008, respectively.   The decrease in accounts receivable compared to June 28, 2008 is due to the reduced sales volumes in the current year.  Inventories were $2,525,266 at July 4, 2009, as compared to $3,783,581 and $5,186,621 at January 3, 2009 and June 28, 2008, respectively.   The inventory declines are due to inventory writedowns related to RV customer bankruptcies, the decision to discontinue the manufacturing of sewn products for the RV industry, and lower sales volume.

Capital expenditures were $107,244 for the first six months of 2009, compared to $143,652 for the same period of the prior year.  

SALES BY MARKET

The following table represents net sales to each of the three different markets that the Company serves for the periods indicated:

(dollars in thousands)
	For the Thirteen Weeks Ended										For the Twenty-Six Weeks Ended
	July 4, 2009					June 28, 2008					July 4, 2009					June 28, 2008
	Net		% of			Net		% of			Net		% of			Net		% of
	Sales		total			Sales		total			Sales		total			Sales		total
Recreational Vehicle	$	1,064		19	%	$	4,503		36	%	$	1,917		18	%	$	9,323		40	%
Manufactured Housing		1,369		24	%		2,571		20	%		2,669		25	%		4,962		22	%
Hospitality		3,244		57	%		5,489		44	%		6,197		57	%		8,782		38	%
Total Net Sales	$	5,677		100	%	$	12,563		100	%	$	10,783		100	%	$	23,067		100	%

7

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

RESULTS OF OPERATIONS

Thirteen Week Period Ended July 4, 2009, (Second Quarter 2009) compared to

Thirteen Week Period Ended June 28, 2008, (Second Quarter 2008)

The following table shows a comparison of the results of operations between Second Quarter 2009 and Second Quarter 2008:

	Second Quarter			%			Second Quarter			%			$ Increase
	2009			of Sales			2008			of Sales			(Decrease)			% Change
Net Sales	$	5,677,395			100	%	$	12,563,069			100	%	$	(6,885,674	)		-54.8	%
Cost of Products Sold		4,446,441			78.3	%		10,366,143			82.5	%		(5,919,702	)		-57.1	%
Gross Profit		1,230,954			21.7	%		2,196,926			17.5	%		(965,972	)		-44.0	%
Selling and Administrative Expenses		1,830,651			32.2	%		3,906,527			31.1	%		(2,075,876	)		-53.1	%
Operating Loss		(599,697	)		-10.5	%		(1,709,601	)		-13.6	%		1,109,904			-64.9	%
Other Income/(Expense)
Interest, Investment and
Other Income		8,303			0.1	%		15,161			0.1	%		(6,858	)		-45.2	%
Interest Expense		(32,787	)		-0.6	%		(33,089	)		-0.2	%		302			-0.9	%
Loss Before Income Taxes		(624,181	)		-11.0	%		(1,727,529	)		-13.7	%		1,103,348			-63.9	%
Provision for Income Taxes		(258,000	)		-4.6	%		(667,000	)		-5.3	%		409,000			-61.3	%
Net Loss	$	(366,181	)		-6.4	%	$	(1,060,529	)		-8.4	%	$	694,348			-65.5	%

Net sales for the Second Quarter 2009 were $5,677,395, compared to $12,563,069 for the same period in the previous year, a 54.8% decrease.  Sales to the Company’s recreational vehicle customers decreased 76.4% in Second Quarter 2009 when compared to the same period of the prior year.  The recreational vehicle industry reported a 47.1% decrease in shipments during the Second Quarter 2009 compared to the same period of the prior year.  The Company’s sales to the RV industry decreased by more than the overall market because two of the Company’s major RV customers (Fleetwood Enterprises and Monaco Coach Corp.) filed bankruptcy petitions during the first week of March 2009.  Sales to these two customers were $27,000 in the Second Quarter 2009 versus $1,922,000 in the Second Quarter 2008.  Also, the Company’s decision to discontinue the manufacture of sewn goods for the RV industry impacted the 2009 s ales to the RV industry.  Sales to the Company’s manufactured housing customers decreased 46.8% in Second Quarter 2009 when compared to the same period of the prior year. The manufactured housing industry showed a 44.0% decrease in shipments during the Second Quarter 2009 compared to the same period of the prior year. Sales to the Company’s hospitality customers decreased 40.9% in the Second Quarter 2009 when compared to the same period of the prior year.

Cost of products sold decreased to 78.3% of net sales in the Second Quarter 2009 compared to 82.5% of net sales a year ago, due to reduced overhead, change in sales mix and, in the prior year, higher inventory obsolescence charges.

8

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Selling and administrative expenses were $1,830,651 in the Second Quarter 2009 versus $3,906,527 in the Second Quarter 2008.  The expenses for 2008 included one-time charges of $1,430,000 related to the write-off of impaired assets and the closing of the underperforming facilities.  Excluding the write-offs, selling and administrative expenses were $795,876 less in 2009 than in 2008.  The percentage of selling and administrative expenses to net sales increased from 31.1% to 32.2%.  The increase was due to fixed expenses being spread over a lower sales volume.  Management will continue to reduce these costs to better align with the current level of sales.

Net loss was $366,181 in the Second Quarter 2009 compared to net loss of $1,060,529 in the Second Quarter 2008. The major reason for the decreased loss was the charge of $1,430,000 in the Second Quarter 2008.

Twenty-Six Week Period Ended July 4, 2009, (First Six Months 2009) compared to

Twenty-Six Week Period Ended June 28, 2008, (First Six Months 2008)

The following table shows a comparison of the results of operations between First Six Months 2009 and First Six Months 2008:

	First						First
	Six Months			%			Six Months			%			$ Increase
		2009		of Sales				2008		of Sales			(Decrease)			% Change
Net Sales	$	10,783,033			100	%	$	23,066,967			100	%	$	(12,283,934	)		-53.3	%
Cost of Products Sold		8,833,284			81.9	%		19,373,831			84.0	%		(10,540,547	)		-54.4	%
Gross Profit		1,949,749			18.1	%		3,693,136			16.0	%		(1,743,387	)		-47.2	%
Selling and Administrative Expenses		4,319,641			40.1	%		6,160,603			26.7	%		(1,840,962	)		-29.9	%
Operating Loss		(2,369,892	)		-22.0	%		(2,467,467	)		-10.7	%		97,575			-4.0	%
Other Income/(Expense)
Interest, Investment and
Other Income		11,934			0.1	%		34,610			0.2	%		(22,676	)		-65.5	%
Interest Expense		(69,152	)		-0.6	%		(63,190	)		-0.3	%		(5,962	)		9.4	%
Loss Before Income Taxes		(2,427,110	)		-22.5	%		(2,496,047	)		-10.8	%		68,937			-2.8	%
Provision for Income Taxes		(770,000	)		-7.1	%		(960,000	)		-4.1	%		190,000			-19.8	%
Net Loss	$	(1,657,110	)		-15.4	%	$	(1,536,047	)		-6.7	%	$	(121,063	)		7.9	%

9

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Net sales for the First Six Months 2009 were $10,783,033, compared to $23,066,967 for the same period in the previous year, a 53.3% decrease.  Sales to the Company’s recreational vehicle customers decreased 79.4% in the First Six Months 2009 when compared to the same period of the prior year.  The recreational vehicle industry reported a 55.3% decrease in shipments during the first half of 2009 compared to the same period of the prior year.  The Company’s sales to the RV industry decreased by more than the overall market because two of the Company’s major RV customers (Fleetwood Enterprises and Monaco Coach Corp.) filed bankruptcy petitions during the first week of March 2009.  Sales to these two customers were $154,000 in the First Six Months 2009 versus $3,931,000 in the First Six Months 2008. Also, the Company’s decision to discontinue the manufacture of sewn goods for the RV industry impacted the 2009 sales to the RV industry.  Sales to the Company’s manufactured housing customers decreased 46.2% in the First Six Months 2009 when compared to the same period of the prior year.  The manufactured housing industry showed a 44.7% decrease in shipments during the First Six Months 2009 compared to the same period of the prior year. Sales to the Company’s hospitality customers decreased 29.4% in the First Six Months 2009 when compared to the same period of the prior year.

Cost of products sold decreased to 81.9% of net sales in the First Six Months 2009 compared to 84.0% of net sales a year ago, due to reduced overhead, change in sales mix and, in the prior year, higher  inventory obsolescence charges.

Selling and administrative expenses were $4,319,641 in the First Six Months 2009 versus $6,160,603 in the First Six Months 2008.  The expenses for the First Six Months 2009 included a charge of $900,000 related to the write-off of impaired assets and the closing of the underperforming facilities, whereas the charge for the First Six Months 2008 was $1,430,000.  Excluding the write-offs, selling and administrative expenses were $1,310,962 less in 2009 than in 2008.  The decrease came from reductions in employees, compensation, benefits, amortization of intangibles, commissions, and bad debt.  The percentage of selling and administrative expenses to net sales increased from 26.7% for the First Six Months 2008 to 40.1% for the First Six Months 2009 as fixed expenses were spread over a lower sales volume.  

EBITDA

EBITDA represents income before income taxes, interest expense, depreciation and amortization and is an approximation of cash flow from operations before tax.  The Company uses EBITDA as an internal measure of performance and believes it is a useful and commonly used measure of financial performance in addition to income before taxes and other profitability measures under U.S. Generally Accepted Accounting Principles (“GAAP”).

EBITDA is not a measure of performance under GAAP.  EBITDA should not be construed as an alternative to operating income and income before taxes as an indicator of the Company’s operations in accordance with GAAP.  Nor is EBITDA an alternative to cash flow from operating activities in accordance with GAAP.  The Company’s definition of EBITDA can differ from that of other companies.

The following table reconciles Net Income, the most comparable measure under GAAP, to EBITDA for the thirteen and twenty-six week periods ended July 4, 2009 and June 28, 2008:

10

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	July 4, 2009			June 28, 2008			July 4, 2009			June 28, 2008
Net Loss	$	(366,181	)	$	(1,060,529	)	$	(1,657,110	)	$	(1,536,047	)
Add:
Interest		32,787			33,089			69,152			63,190
Taxes		(258,000	)		(667,000	)		(770,000	)		(960,000	)
Depreciation & Amortization		114,869			354,906			261,832			713,241
Loss/(Gain) on Disposal of Assets		95,145			-			88,128			(4,000	)
Noncash charge for Asset Impairment		30,000			1,270,077			365,500			1,270,077
EBITDA	$	(351,380	)	$	(69,457	)	$	(1,642,498	)	$	(453,539	)

Item 4.  Controls and Procedures.

(a)  The Company’s principal executive officer and principal financial officer have reviewed the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of July 4, 2009 and have concluded that they were adequate and effective.  

(b)  During the most recent fiscal quarter, there were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 6.   Exhibits

31.1  -

Certification of Principal Executive Officer

31.2  -

Certification of Principal Financial Officer  

32  -

Certificate required by 18 U.S.C. §1350.

11

SIGNATURES

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

	DECORATOR INDUSTRIES, INC.
	(Registrant)
Date: August 18 , 2009	By:	/s/ William A. Johnson
		William A. Johnson President and Chief Executive Officer

Date: August 18 , 2009	By:	/s/ Michael K. Solomon
		Michael K. Solomon Chief Financial Officer

12

EX-31.1

EXHIBIT 31.1

I, William A. Johnson, Principal Executive Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Decorator Industries, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 18, 2009	By:	/s/ William A. Johnson
			William A. Johnson, Principal Executive Officer

EX-31.2

EXHIBIT 31.2

I, Michael K. Solomon, Principal Financial Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Decorator Industries, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  

Date:	August 18, 2009	By:	/s/ Michael K. Solomon
			Michael K. Solomon, Principal Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION REQUIRED BY 18 U.S.C. §1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Decorator Industries, Inc. (“the Company”) on Form 10-Q for the quarterly period ended July 4, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William A. Johnson, Chief Executive Officer of the Company, and Michael K. Solomon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	August 18, 2009	By:	/s/ William A. Johnson
			William A. Johnson, Chief Executive Officer
Date:	August 18, 2009	By:	/s/ Michael K. Solomon
			Michael K. Solomon, Chief Financial Officer