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              











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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



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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



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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



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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



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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 for 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



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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 default 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



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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



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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 sales 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



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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



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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



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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



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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