**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-K/A**


**Amendment
      No. 1**





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





**for
      the fiscal year ended June 30, 2008**





**or**





** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**for
      the transition period from ________ to __________**





**Commission
      file number** **001-31260**





**Decorize,
      Inc.**


(Exact
      name of registrant as specified in its charter)


**Delaware**
            
            **43-193180**(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)**1938
                E. Phelps****Springfield,
                Missouri**
            
            **65802**(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant’s
      telephone number, including area code   **(417)
      879-3326**





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


**None**





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


**None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  ̈ Yes
þ No





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act.  ̈ Yes
þ No





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. þ Yes  ̈ No





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





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
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
                  accelerated filer  ̈
              
              Accelerated
                  filer  ̈Non-accelerated
                  filer  ̈
              
              Smaller
                  reporting company þ





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).  ̈
      Yes
þ No





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant as of the last business day of the registrant’s
      most recently completed fiscal quarter was $1,144,851, based upon a closing
      bid
      of the registrant’s common stock as reported by The OTC Bulletin Board on that
      date of $0.10 per share. There were 28,752,318 shares of the registrant’s common
      stock outstanding as of October 24, 2008







**EXPLANATORY
        NOTE**
 
 Amendment
        No. 1 to our Annual Report on Form 10-K for the year ended June 30, 2008,
        which
        was originally filed with the Securities and Exchange Commission on September
        26, 2008 (the “Original Filing”), is being filed solely to amend Parts III and
        IV of the Original Filing to include the information required by Items 10,
        11,
        12, 13 and 14 in Part III and the new certifications of the principal executive
        officer and principal financial officer required to be filed under Part IV
        of
        Form 10-K with this amendment. In addition, we have (i) removed any reference
        in
        the Original Filing to the incorporation by reference of the Company’s proxy
        statement for its 2008 annual stockholders meeting, and (ii) updated the
        information with respect to the number of outstanding shares of the Company’s
        common stock on the cover page.
 
 This
        amendment does not reflect events occurring after the filing of the Original
        Filing, and is not intended to modify or update the disclosures therein or
        the
        exhibits filed therewith in anyway, except as set forth in this
        amendment.





**DECORIZE,
      INC.**





PART
                IItem
                1.
            Business
            
            2Item
                1A.
            Risk
                Factors
            
            7Item
                1B.
            Unresolved
                Staff Comments
            
            11Item
                2.
            Properties
            
            11Item
                3.
            Legal
                Proceedings
            
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            12PART
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder
                Mattersand
                Issuer Purchases of Equity Securities
            
            12Item
                6.
            Selected
                Financial Data
            
            13Item
                7.
            Management's
                Discussion and Analysis of Financial Conditionand
                Results of Operation
            
            13Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            22Item
                8.
            Financial
                Statements
            
            23Item
                9.
            Changes
                in and Disagreements with Accountants on Accountingand
                Financial Disclosure
            
            24Item
                9A(T)
            Controls
                and Procedures
            
            24Item
                9B.
            Other
                Information
            
            26PART
                IIIItem
                10.
            Directors,
                Executive Officers, Promoters and Corporate Governance
            
            27Item
                11.
            Executive
                Compensation
            
            30Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            
            33Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            35Item
                14.
            Principal
                Accountant Fees and Services
            
            37PART
                IVItem
                15.
            Exhibits
            
            38Signatures
            
            40


i





**FORWARD-LOOKING
      STATEMENTS**





This
      Annual Report on Form 10-K contains forward-looking statements. The words
“intend,” “anticipate,” “believe,” “estimate,” “plan,” “expect” and similar
      expressions as they relate to us, identify these forward-looking statements.
      Forward-looking statements include those that address activities, developments
      or events that we expect or anticipate will or may occur in the future. All
      statements other than statements of historical facts contained in this Annual
      Report, including statements regarding our future financial position, business
      strategy, budgets, projected costs and plans and objectives of management for
      future operations, are forward-looking statements. The actual outcome of the
      events described in these forward-looking statements could differ materially.
      Risks, uncertainties and assumptions that could cause actual results to differ
      materially from the expectations reflected in the forward-looking statements
      include, among other things:





·
            the
                risks associated with growth;





·
            our
                failure to purchase and manufacture merchandise at attractive
                prices;





·
            changes
                in consumer demand and preferences that cause people to desire products
                other than those traditionally offered by Decorize;
                and





·
            risks
                associated with the lack of liquidity of our shares of common stock
                due to
                the limited public market for our common
                stock.





These
      factors expressly qualify all subsequent oral and written forward-looking
      statements attributable to us or persons acting on our behalf.





A
      forward-looking statement may include a statement of the assumptions or bases
      underlying the forward-looking statement. We have chosen these assumptions
      or
      bases in good faith and we believe that they are reasonable. However, we caution
      you that assumed facts or bases almost always vary from actual results, and
      the
      differences between assumed facts or bases and actual results can be material,
      depending on the circumstances. When considering forward-looking statements,
      you
      should keep in mind the risk factors and other cautionary statements in this
      Annual Report. Except for our ongoing obligations to disclose material
      information as required by the federal securities laws, we do not have any
      intention or obligation to update forward-looking statements after we distribute
      this Annual Report.





Readers
      are referred to the caption “Risk Factors” appearing at Item 1A of this Annual
      Report for additional factors that may affect our forward-looking statements.
      In
      light of these risks, uncertainties and assumptions, the forward-looking events
      discussed in this Annual Report may not occur. We undertake no obligation to
      update or revise our forward-looking statements, whether as a result of new
      information, future events or otherwise.


1


**PART
      I**


**Item** **1.
      Business.**





**General**





Our
      company, headquartered in Springfield, Missouri, is a manufacturer and
      wholesaler of imported home furnishings and accessories. We founded
      decorize.com, LLC, the company that became Decorize, Inc., in March 2000 to
      create a direct “source to business” home furnishings company to serve both
      large and small retailers in the United States, with products delivered from
      Asia. The Decorize business model relies on manufacturing and importing our
      home
      furnishings products direct from Asia to our retailers' sites in the United
      States. All of the products we sold during our most recent fiscal year were
      manufactured by suppliers located in Asia. Products primarily designed and
      marketed to independent retailers are marketed under the GuildMaster brand
      name
      so that we may continue to build on customer awareness of that brand. Products
      we design and source for large retailers are exclusively marketed under the
      Decorize brand name.




We
      use
      our “source to business” model to serve two distinct markets, the source to
      large retailers market and the source to independent retailers market. The
      source to large retailers market is comprised of customers that we believe
      can
      benefit from our pricing, delivery times and custom design capability. The
      independent retailers market includes small retailers, high-end department
      stores and designers or decorators that, in our experience, have paid premium
      prices and have been unable to directly source home furnishings and accents
      from
      overseas. The prices of our products include the cost of freight to the United
      States port of entry, which reduces the uncertainty about ocean freight costs
      that would otherwise be borne directly by the independent retailer. Also,
      because we have a significantly higher volume of shipments than our individual
      customers would have, we are able to negotiate lower per item shipping rates
      on
      the ocean freight, allowing us to pass through a lower cost than a small
      retailer would obtain on its own account.





During
      fiscal 2008, the revenue mix of the two retail markets we serve was
      approximately 76% from independent retailers and 24% from large retailers.
      The
      independent retailers market historically has not comprised the majority of
      the
      revenue mix. However, the Company has continued to shift more resources to
      growing this portion of the business to service the 35,000 retailers who occupy
      this market space.





**Decorize**





We
      source
      our products from a network of manufacturing partners in Asia, principally
      China, Indonesia, India and the Philippines. Working in concert with our
      third-party logistics providers, we stage products in facilities located in
      those countries for shipment directly to our large retailer customers in the
      United States. We are able to pass on lower prices to large retailers because
      we
      eliminate or reduce the additional costs that are required in the traditional
      model for building substantial product inventories, multiple stage warehousing
      and multiple handling levels by a third party. The products sourced to be moved
      through our specialty retailers channel are either shipped from Asia directly
      to
      our fulfillment center in Springfield, Missouri or, in certain situations where
      it is economically feasible, are shipped direct to our customers utilizing
      a
      third party cross docking service. Decorize has two wholly-owned domestic
      subsidiaries, GuildMaster, Inc. and Faith Walk Designs, Inc., and two
      wholly-owned foreign subsidiaries, WestWay Enterprises, Ltd. and P.T. Niaga
      Merapi.





**GuildMaster**





GuildMaster,
      Inc., a Missouri corporation (“GuildMaster”), is our wholly-owned domestic
      subsidiary, which we acquired in June of 2001. GuildMaster was founded in 1981
      and is well recognized in the industry for its design uniqueness. From its
      beginning, the GuildMaster brand has predominantly focused on custom, high-end
      home accent products. We have leveraged the GuildMaster name to market and
      brand
      the products we sell through our specialty retailer channel.





**Faith
      Walk**





Faith
      Walk Designs, Inc., a Missouri corporation (“Faith Walk”), is our wholly-owned
      domestic subsidiary, founded by our Vice President, J. Michael Sandel, and
      his
      spouse, which we acquired in July 2001. Prior to this acquisition, Faith Walk
      sourced its products in unpainted form from domestic suppliers and added design
      finishing in its Houston, Texas manufacturing facility. Under our business
      model, all former Faith Walk branded designs are manufactured entirely by our
      subsidiaries or suppliers in Asia and are marketed under the GuildMaster brand
      name.




2




**WestWay
      Enterprises, Ltd.**





WestWay
      Enterprises, Ltd., our wholly-owned foreign subsidiary located in Dongcheng,
      China (“WestWay”), was created in July 2003. The formation of this subsidiary
      was required because of local regulations affecting our ability to employ
      personnel locally. WestWay employs approximately eighteen personnel, who
      primarily manage quality control and quality assurance for products manufactured
      by suppliers within the country of China.




**P.T.
      Niaga Merapi**





In
      October 2003, we created P.T. Niaga Merapi, our wholly-owned foreign subsidiary
      with offices located near Yogyakarta, Indonesia. We initially created this
      foreign subsidiary to comply with local regulations and requirements for
      Decorize to employ local residents whose primary purpose was to be responsible
      for quality control and assurance within the country of Indonesia, where a
      substantial amount of our GuildMaster products are manufactured. In April 2004,
      to further improve our product quality, we acquired an Indonesian facility
      to
      conduct light manufacturing, final assembly, and finishing operations. This
      operation has allowed us to consistently provide a more unique and higher
      quality product than previously available from third party manufacturers within
      the country. In addition, through this subsidiary, we are able to better package
      our finished products for shipping and reduce the amount of losses incurred
      during the transportation process due to faulty or inadequate
      packaging.





**Business
      Strategy**





Our
      objective in evaluating and designing our business model is to enable our
      company to surpass competitors in our industry on product value, item
      uniqueness, selection and delivery options of imported home furnishings products
      by improving our use of information technology, logistics processes and our
      direct sourcing business model. We believe our customers focus on these factors
      when choosing a home furnishings supplier, and if we can exceed the offerings
      of
      our competitors, we will increase our market share at the cost of our
      competitors.





Our
      "source to business" model for the large retailer customers eliminates several
      layers of handling and warehousing by importers and distribution centers.
      Products are sourced in Asia and shipped directly to retailers in the United
      States. We believe that a majority of our industry competitors ship product
      through several levels of warehouse facilities, which we estimate would increase
      the cost of our products by up to 15%.





The
      business model for our independent retailer customers leverages our unique
      design and foreign production capabilities. Our manufacturing facility in
      Indonesia allows us to maintain a higher level of product quality than
      previously found from manufacturers within that country. In addition to product
      quality, our facility also allows us to insure the quality and adequacy of
      the
      product packaging, thus reducing returns due to freight damage and increasing
      customer satisfaction.





We
      have
      developed support systems for manufacturing of our products in Asia, which
      provide product development support and quality assurance supervision in the
      production, packaging and shipping of our private label products. A very
      important element of our business model is a concentration on designing and
      customizing proprietary product lines to meet specific customer needs. This
      model enables us to provide high-volume, high-quality proprietary products
      to
      large retailers at attractive prices and offers independent retailers access
      to
      a broad range of accessories and accent furniture that was previously not
      available to them.





Our
      support systems consist primarily of quality control personnel who oversee
      the
      manufacturing done by our suppliers in Asia. Our overseas employees are an
      integral part of the direct shipping method that we prefer. The oversight,
      management and first-hand knowledge of our foreign regional suppliers provided
      by our overseas manufacturing support team is integral to our business model’s
      success. Recently, Decorize has begun to expand the roles of our overseas
      support team beyond mere quality control into areas of product development
      and
      procurement of items available in Asia that would not likely have become part
      of
      our product offerings without our overseas staff. Currently, our company employs
      approximately 520 persons overseas, and we may increase that number to suit
      our
      level of production and design. Our focus overseas will continue to be on
      quality control, concentrating on items such as consistency to design requests,
      manufacturing quality and packaging and delivery issues, but we will continue
      to
      seek opportunities for them to provide assistance on procurement and development
      of possible product offerings.




3




We
      are
      expanding our product sourcing, development and warehousing operations in Asia
      to support the increasing volumes of product sourced there under our business
      model. At the same time, we are continuing to build our sales and distribution
      channels in the United States in order to improve our ability to present our
      products and services to a growing customer base.





To
      improve our operational effectiveness, we continue to develop new and existing
      technological solutions. These solutions provide us the information we need
      to
      closely work with suppliers to improve our supply chain. In addition, we utilize
      technology to track customer orders, production status and deliveries so we
      may
      meet demanding customer expectations. We will continue to seek upgrades in
      our
      technological infrastructure that improve operating efficiencies, improve
      customer service capabilities and improve quality and cost control in our
      operations.





Although
      we are currently focusing our efforts on limited categories and products that
      are most productive for us, our long-term strategy includes the acquisition
      or
      in-house development of additional product categories that will enable us to
      offer a broad line of accessories, accent furniture and related categories.
      Potential product categories into which we may expand our product offerings
      include specialty lighting, gifts, institutional furnishings, ironwork and
      florals, which are product areas in which we are not currently well-represented.
      We also intend to develop our current staff and management and operational
      infrastructure in order to pursue marketing opportunities that we have
      identified in new product areas in customer markets that we are not currently
      pursuing. In that regard, we intend for our overseas support systems to
      increasingly be responsible for developing new product offerings by researching
      items that may be available in the overseas market for which they are
      responsible. We expect that we will need to raise additional external funds
      to
      implement our growth strategy in a timely fashion. To that end, we expect to
      evaluate various financing opportunities in private or public markets and will
      arrange financing when appropriate terms are available.




**Merchandise;
      Research and Development**





We
      design, market and sell through our distribution chain a variety of imported
      home furnishings and home accent items, such as hand-painted or
      traditionally-finished armoires, chests, tables, chairs, painted furniture,
      paintings, sculpture, tapestries, other fine art pieces, various hand-made
      ceramics, candles, lamps and similar accessory items. Accent furniture includes
      items such as occasional tables, end tables, mirrors, wicker chairs, tables
      and
      ottomans. Accessories include items such as wood, rattan, glass or ceramic
      bowls, statuettes, vases, candles and candleholders, baskets, boxes, lamps
      and
      bath items. Wall art includes a variety of traditional art such as framed oil
      paintings or prints, but also includes many other types of materials and
      designs, including fabrics, woven materials and collages.





Our
      product offerings are now marketed and sold through two distinct brands,
      Decorize and GuildMaster, each of which has a slightly different product mix
      that is driven by the particular brand’s customer focus. Decorize branded
      products are typically more proprietary in nature and often developed to meet
      the specific requirements of our large retailer customers. Our large retailer
      customers market our products to their retail consumers through their brick
      and
      mortar store locations. The product mix we supply to those retailers depends
      upon their perception of their customers’ tastes and demands. Our GuildMaster
      branded products are typically marketed toward specialty retailers, high-end
      department stores, designers and decorators who market our products to consumers
      that shop at their brick and mortar store locations. The product mix is
      determined by analyzing current and future trends and tastes in the marketplace.
      We maintain approximately 1,250 unique items in our supply chain and
      periodically review, add and drop products based upon the demand in the
      marketplace.





Utilizing
      technology, we have assembled a worldwide focus group of over 100 designers,
      sales professionals and retailers to participate in the semi-annual selection
      process of new products. We plan to increase the size of the focus group to
      over
      1,000 persons in the near future, which we believe will give us a competitive
      advantage as we select new product designs for introduction to the marketplace.
      Furthermore, as we introduce leading edge design to the early adopters in the
      independent retail channel and collect market data we are able to take the
      “best” sellers or variants thereof to the large retail customers.




4




Since
      our
      inception, we have not experienced any significant difficulty in manufacturing
      or otherwise obtaining quality merchandise in adequate volumes and at suitable
      prices.




**Suppliers**





We
      have
      developed a network of more than 200 supply partners in China, the Philippines,
      Indonesia and India that manufacture most of the products we sell to our
      customers. For the year ended June 30, 2008, Decorize's top ten vendors
      accounted for approximately 40% of our total purchases from third parties.
      During the time spent arranging the production of our goods with overseas
      manufacturers, Decorize and its supply partners are developing a better
      understanding of each other’s needs and requirements. We work closely with our
      overseas suppliers to ensure that they manufacture and ship products that meet
      our requirements. As our supply partners become more familiar with Decorize’s
      business model and products, they become more adept at meeting our design and
      manufacturing needs, which gives us greater confidence in continuing to direct
      orders to those overseas vendors who have demonstrated success in working with
      us and in increasing our reliance on particular supply partners for meeting
      our
      overseas manufacturing needs. However, we believe that none of our suppliers
      are
      material to our business individually, since there are a number of alternative
      suppliers available to manufacture our products in both Asia and other parts
      of
      the world.





The
      raw
      materials used by our suppliers, such as wood products, metal, glass and
      ceramics, are readily available in many places throughout the world. Because
      of
      the availability of replacement raw materials, we do not anticipate any
      significant difficulties in obtaining suitable raw materials for the manufacture
      of our products, even if there is a shortage of those materials in any
      particular country or region in which our suppliers are located.





The
      relationship with our logistics companies provides us with state-of-the-art
      staging and warehousing facilities in the countries from which we source
      products. However, if necessary, we have alternative sources for those staging
      and warehousing services.





**Customers**





The
      current customer base for our brands includes approximately ten large retailers
      and more than 2,500 small retailers, designers and decorators. During the year
      ended June 30, 2008, our customer revenues were approximately $15.2 million.
      Although our top five customers in the past year accounted for approximately
      20%
      of our revenues, our business plan for growing our business is expected to
      result in greater revenue diversification. During fiscal 2008, our top five
      customers from the standpoint of revenues were Klaussner Furniture, Dillard’s,
      Office Max, Williams-Sonoma and Neiman Marcus. Our purchase orders with our
      customers are completed on a purchase-by-purchase basis. As such, we have not
      entered into any long-term purchase agreements with any customers, nor do we
      have any formal volume commitments with any of them.





**Industry
      and Competition**





We
      estimate that the premium home accents and accessories market of the home
      furnishings industry in which we compete includes approximately 35,000 companies
      that account for approximately $12 billion of sales at the retail level. We
      believe that there are no dominant competitors within the premium home accents
      and accessories market of the home furnishings industry.




There
      is
      intense competition in our industry. However, we believe that our low-cost
      business model, our ability to provide highly customized products, our
      successful selection/design of fashion trends, our large number of products,
      our
      low inventory requirements and our intensive customer service practices will
      attract a growing number of customers and will allow us to increase revenues
      rapidly. Our model is not protected from duplication and it is possible that
      other companies will compete with us by using a similar approach in conducting
      their business.




5




**Foreign
      Market Risks**





As
      an
      importer of manufactured products from countries in the Pacific Rim, our
      business is subject to political risks that are beyond our control. Since our
      inception, we have perceived the greatest risk relative to our supply chain
      to
      come from our suppliers located in China. However, we believe that the
      globalization movement and the recent focus on reduction of tariffs and the
      planned ongoing reductions should provide a beneficial tariff environment for
      importers. We believe that the recent entry of China into the World Trade
      Organization (“WTO”) should substantially reduce the risk that China might take
      political actions that would restrict its trade with the United States or the
      rest of the world. Our strategy to minimize our exposure to the political risks
      of any one country has been to develop manufacturing partners in multiple
      countries. All of the products offered by Decorize are available from multiple
      supply sources in other countries, which we believe protects us from the
      political risks of any one country or region.





We
      are
      also subject to governmental regulations and tariff policies, which may change
      from time to time. We believe that the increased globalization of the United
      States retail economy, which has been spurred in part by the WTO and also the
      broadened reach of consumers because of the expansion of retail capabilities
      of
      the Internet, are causing a global shift in attitudes toward the preference
      for
      a more open world-wide economy. These trends should favor the reduction of
      tariffs and expansion of international trade, which should benefit our
      business.





**Warehousing
      and Distribution**





Our
      ability to reduce or eliminate warehousing of our products and the related
      direct expenses and management costs that would be required is critical to
      our
      success. The greater part of the products we sell to large retailers are shipped
      directly from our manufacturers in Asia to our customers’ stores or distribution
      centers, so we do not carry any inventory related costs.





Our
      ability to track orders and merchandise delivery in a detailed and timely manner
      is an essential requirement for us to eliminate excess warehouse and retail
      capacity under our direct ship model. In response to this need for detailed
      order information, we have consistently sought the services of logistics
      providers that have the technology and capabilities to track our orders and
      merchandise delivery in a detailed and timely manner. Decorize has no
      intellectual property rights in the tracking processes or the technology used
      by
      our logistics providers; however, we believe that there are a significant number
      of other logistics suppliers that would be able to provide the same technology
      and, with our assistance, duplicate the tracking processes that we currently
      use.





**Management
      Information Systems**





We
      maintain a corporate enterprise software system, which integrates purchase
      orders, imports, transportation, distribution and financial systems. This system
      also supports all subsidiary companies and the consolidation of the same.
      Expenditures for continuing upgrades of management information systems are
      anticipated in the foreseeable future to refine and update these
      systems.




**Trademarks
      and Tradenames**





We
      completed the registration for the service mark "The World's Décor...Right to
      your Door" on September 2, 2002, with the United States Patent and Trademark
      office. The registration for “The World’s Décor ... Right to your Door” will
      terminate in 10 years from the date of grant, or may be cancelled after 6 years
      if we do not file the appropriate documents evidencing our continued use of
      that
      mark. Our application for the service mark “Decorize” was filed in April 2002
      and registration was granted in August 2003.





In
      addition, we have common law rights to the use of “decorize.com” and “The
      World’s Décor....Right to your Store”; however, we have not chosen to complete an
      application for registration of those marks at this time.





**Employees**





As
      of
      June 30, 2008, our company and its subsidiaries employed 554 persons on a full
      time basis, including 501 at our Indonesian subsidiary and 18 at our Chinese
      subsidiary. Our employees are not represented by any union. We have not
      experienced any work stoppage due to labor disagreements, and we believe that
      our employee relations are good.





6





**Item** **1A.
      Risk Factors**





*Our
      limited operating history makes it difficult for us to evaluate our future
      business prospects and make decisions based on those estimates of our future
      performance.*





The
      concept for our business model was developed in 2000. The acquisitions of our
      two domestic operating subsidiaries were completed in June and July of 2001.
      Even though GuildMaster and Faith Walk operated independently for some time
      prior to being acquired, we do not have an extensive operating history in our
      current combined form, which makes it difficult to evaluate our business on
      the
      basis of historical operations. Furthermore, the opportunity for significant
      sales growth to large retail customers could dramatically impact our financial
      performance. As a consequence, our past results may not be indicative of future
      results. Although this is true for any business, it is particularly true for
      us
      because of our relatively brief operating history. Reliance on historical
      results may hinder our ability to anticipate and timely adapt to increases
      or
      decreases in sales, revenues or expenses. For example, if we overestimate our
      future sales for a particular period or periods based on our historical growth
      rate, we may increase our overhead and other operating expenses to a greater
      degree than we would have if we correctly anticipated the lower sales level
      for
      that period and reduced our controllable expenses accordingly. If we make poor
      budgetary decisions as a result of unreliable historical data, we could be
      less
      profitable or incur losses, which may result in a decline in our stock
      price.





*We
      have incurred losses historically, and we may not be able to attain or maintain
      profitability in the future.*





We
      incurred a net loss of $0.6 million for the fiscal year ended June 30, 2008,
      which was a decrease of 14% from the $0.7 million loss in fiscal 2007. Although
      our margins improved substantially during 2008, we have not achieved
      profitability. We will need to generate greater revenues and maintain or improve
      our operating margins to achieve and maintain profitability in the future.
      If we
      incur operating losses on a long-term basis, we may experience a shortage of
      working capital that could adversely affect our business or our ability to
      continue our business, in which case our stock price may decline, perhaps
      significantly, and you could lose the value of your investment.





*Our
      customers have no obligation to purchase from us, which may result in sudden
      declines in sales.*





Our
      customer mix currently consists of approximately ten large retailers and more
      than 1,000 small retailers, designers and decorators. We do not have supply
      agreements or other volume commitments that are binding on our customers, and
      our sales originate solely from individual purchase orders that we negotiate
      with our individual customers. As a consequence, our customers are not obligated
      to purchase any amount of our products, and they may choose to stop or decrease
      their level of product purchases from us at any time, without giving us prior
      notice. This could cause our sales to fluctuate, and we could experience a
      sudden and unexpected decline in sales. We could experience unexpected
      operational losses if our customer sales were to decline significantly without
      notice. Furthermore, our revenue projections are subject to greater uncertainty
      than if we had volume commitments from one or more of our largest customers.
      Although our top five customers in fiscal year 2008 accounted for approximately
      20% of our revenues, we cannot assure you that these customers, or any of our
      customers, will continue to purchase our products in significant volume or
      at
      all.





*We
      are implementing a strategy to grow and expand our business, which is expensive
      and may not generate increases in our revenues.*





We
      intend
      to expand our business, and we are incurring expenses associated with our growth
      and expansion. Although over the course of the last several years we have raised
      funds through private offerings to implement our growth strategy, these funds
      may not be adequate to offset all of the expenses we incur in expanding our
      business. We have hired additional employees overseas and continue upgrading
      our
      technological infrastructure to improve quality and cost controls, operating
      efficiency and customer service capabilities. We will need to generate greater
      revenues to offset expenses associated with our growth, and we may be
      unsuccessful in achieving greater revenues, despite our attempts to grow our
      business. If our growth strategies do not result in increased revenues, we
      may
      have to abandon our plans for further growth or even reduce the current size
      of
      our operations.




7




*We
      may need to raise additional funds, and these funds may not be available when
      we
      need them.*





Based
      on
      our current plans, we are adjusting our operating expenses so that cash
      generated from operations and from working capital financing and other short
      term financing is expected to be sufficient for the foreseeable future to fund
      our operations at our currently forecasted levels. However, if our forecasts
      are
      inaccurate, we will need to raise additional funds. In addition, we expect
      that
      we will need to raise additional funds if we decide to pursue more rapid
      expansion, the development of new or enhanced services and products, appropriate
      responses to competitive pressures or the acquisition of complementary
      businesses or technologies, or if we must respond to unanticipated events that
      require us to make additional investments. There can be no assurance that
      additional financing will be available when needed on favorable terms, or at
      all. If these funds are not available when we need them, then we may need to
      change our business strategy and reduce our rate of growth.





*We
      must effectively manage the growth of our operations, or we may outgrow our
      current infrastructure.*





As
      of
      June 30, 2008, our total number of employees was 554, including 519 employees
      at
      our overseas operations in Asia. In the past, we have experienced a high rate
      of
      sales growth, which at times exceeded the capacity of our infrastructure and
      resulted in a backlog of customer orders and product quality issues. We
      addressed those capacity issues by hiring additional personnel and increasing
      the capacity of our facilities, and we will continue pursuing additional sales
      growth for our company. If we expand too quickly, or if our infrastructure
      does
      not improve rapidly enough, our customer orders could again outpace our ability
      to meet our customers’ needs, which could force us to delay or reduce customer
      orders. Expanding our infrastructure will be expensive, and will require us
      to
      train our workforce and improve our financial and managerial controls to keep
      pace with the growth of our operations.





*We
      face substantial competition from numerous sources, many of which have access
      to
      greater resources than we do.*





Competition
      in the wholesale market for home furnishings is intense. We compete with a
      diverse group of wholesalers ranging from internet businesses to traditional
      brick-and-mortar companies, many of which have greater resources than Decorize.
      We believe that barriers to entry in the wholesale furniture and home
      furnishings market are not significant, and start-up costs are relatively low,
      so our competition may increase in the future. Our belief that there are minimal
      barriers to entry is based on our observation that operations such as ours
      do
      not require the wholesalers to own warehouses, showrooms and factories to
      operate, which we believe is because (i) our direct ship business model can
      be
      operated with minimal warehousing needs and costs, which are significantly
      less
      than traditional models, (ii) wholesale product orders can be placed after
      receipt of customer orders, in order to further reduce warehousing needs, (iii)
      samples can be shown to customers at little or no cost, without the necessity
      of
      showroom space for actual product, (iv) if a competitor wants showroom space,
      it
      is typically available for lease at competitive rates in most United States
      markets and (v) all manufacturing can be done by third party suppliers, so
      there
      is no need to own or lease a manufacturing facility. New competitors may be
      able
      to launch new businesses similar to ours, and current competitors may replicate
      our business model, at a relatively low cost. If wholesalers with significantly
      greater resources than Decorize decide to replicate our business model, they
      may
      be able to quickly gain recognition and acceptance of their business methods
      and
      products through marketing and promotion. We may not have the resources to
      compete effectively with current or future competitors. If we are unable to
      effectively compete, we will lose sales to our competitors, and our revenues
      will decline.





*Our
      directors have the ability to significantly influence any matters to be decided
      by the stockholders, which may prevent or delay a change in control of our
      company.*





The
      current members of our Board of Directors beneficially own, in the aggregate,
      44.8% of our common stock on a fully diluted basis. As a result, if they choose
      to vote in concert, our directors could significantly influence the outcome
      of
      any corporate matter submitted to our stockholders for approval, including
      any
      transaction that might cause a change in control, such as a merger or
      acquisition. It is unlikely that stockholders in favor of a matter that is
      opposed by the Board of Directors would be able to obtain the number of votes
      necessary to overrule the Board of Directors.




8




*Because
      we do not manufacture our products in the United States, a disruption in the
      delivery of imported products may have a greater effect on us than on our
      competitors.*





We
      import
      products that we have manufactured, purchased or had manufactured for us
      overseas. Because we import all of our products and deliver them directly to
      our
      customers, we believe that disruptions in shipping deliveries may have a greater
      effect on us than on competitors who manufacture and warehouse products in
      the
      United States. Deliveries of our products may be disrupted through factors
      such
      as:





·
            raw
                material shortages, work stoppages, strikes and political
                unrest;





·
            problems
                with ocean shipping, including work stoppages and shipping container
                shortages;





·
            increased
                inspections of import shipments or other factors causing delays in
                shipments; and





·
            economic
                crises, international disputes and
                wars.





For
      example, we experienced significant delays in shipments due to a dockworkers
      dispute on the West Coast in fiscal 2003. The delays from this dispute resulted
      in the cancellation of some customer orders, since we could not obtain products
      from overseas in a timely manner. Although we managed to minimize the impact
      of
      the delays, a longer dispute could have placed us at a serious disadvantage
      to
      some of our competitors. Most of our competitors warehouse products they import
      from overseas, which allows them to continue delivering their products for
      the
      near term, despite overseas shipping disruptions. If our competitors are able
      to
      deliver products when we cannot, our reputation may be damaged and we may lose
      customers to our competitors.





*If
      we
      were required to purchase our imported products in foreign currencies instead
      of
      United States dollars, we would be subject to currency rate
      fluctuations.*





Currently,
      the products we buy abroad are priced in United States dollars, so we are not
      directly affected by changes in foreign exchange rates. If we are required
      to
      pay for goods in foreign currencies in the future, we would be affected by
      fluctuating currency exchange rates. In that event, we would attempt to enter
      into foreign currency exchange contracts with major financial institutions
      to
      hedge the overseas purchase transactions and limit our exposure to those
      fluctuations. If we were not able to successfully protect ourselves against
      those currency rate fluctuations, then our profits on the products subject
      to
      those fluctuations would also fluctuate and could cause us to be less profitable
      or incur losses, even if our business is doing well.





*We
      may need to substantially increase our marketing efforts in order to grow our
      business, which is expensive.*





In
      order
      to grow our business, we will need to develop and maintain widespread
      recognition and acceptance of Decorize, our business model and our products.
      We
      believe that we have presented our product offering to only a small percentage
      of the large and medium sized retailer market. Currently, we rely primarily
      on
      word of mouth from our existing customers and contacts we develop personally
      through industry events to promote and market Decorize. In order to successfully
      grow Decorize, we may need to significantly increase our financial commitment
      to
      creating awareness and acceptance of Decorize among retailers, which would
      be
      expensive. In fiscal year 2008, marketing and advertising expenses were
      approximately $551,000, which represented 10.5% of our operating expenses for
      the year. If we fail to successfully market and promote our business, we could
      lose current customers to our competitors, or our growth efforts may be
      ineffective. However, if we incur significant expenses promoting and marketing
      Decorize, it could cause our profitability to decline in the short
      term.





*Our
      businesses are not diversified, which could result in significant fluctuations
      in our operating results.*




All
      of
      our business is involved in the retail and wholesale marketing of furniture
      and
      other home products, and, accordingly, is dependent upon trends in the home
      furnishings sector. Downturns in the home furnishings sector could have a
      material adverse effect on our business. A downturn in the home furnishings
      sector may reduce our stock price, even if our business is
      successful.




9




*There
      are certain rules applicable to our common stock as a “penny stock,” and those
      rules may limit the liquidity and the resale of our common stock.*





The
      Securities and Exchange Commission (the “SEC”) has promulgated rules governing
      the trading in penny stocks, defined generally as low-priced (below $5),
      speculative securities of very small companies. While penny stocks generally
      trade over-the-counter, such as on the Over the Counter Bulletin Board (“OTCBB”)
      or the “Pink Sheets,” they may also trade on securities exchanges, including
      foreign securities exchanges. Under these rules, our common stock is currently
      classified as a penny stock. As a penny stock, our common stock is currently
      subject to rules promulgated by the SEC that impose additional sales practice
      requirements on broker-dealers that might sell such securities to persons other
      than established customers and institutional accredited investors. For
      transactions covered by the rule, the broker-dealer must make a special
      suitability determination for the purchaser and receive the purchaser’s written
      consent to the transaction prior to completing a sale. Further, if the price
      of
      the stock is below $5 per share and the issuer does not have $2.0 million or
      more net tangible assets or is not listed on a registered national securities
      exchange, sales of such stock in the secondary trading market are subject to
      certain additional rules promulgated by the SEC. Our common stock is currently
      subject to these additional rules. These rules generally require, among other
      things, that brokers engaged in secondary trading of penny stocks provide
      customers with written disclosure documents, monthly statements of the market
      value of penny stocks, disclosure of the bid and asked prices and disclosure
      of
      the compensation to the broker-dealer and the salesperson working for the
      broker-dealer in connection with the transaction. These rules and regulations
      may affect the ability of broker-dealers to sell our common stock, thereby
      effectively limiting the liquidity of our common stock. These rules may also
      adversely affect the ability of persons that acquire our common stock to resell
      their securities in any trading market that may exist at the time of such
      intended sale. Furthermore, penny stocks, including our common stock, may trade
      infrequently, which means that it may be difficult to sell penny stock shares,
      including shares of our common stock, once you own them. Investors in penny
      stocks, including our common stock, should be prepared for the possibility
      that
      they may lose their whole investment.




*Our
      common stock is not listed on a national exchange, and the current public market
      for our common stock is limited and highly volatile, which generally affects
      the
      price of our common stock.*





Our
      common stock currently trades in the United States only in the over-the-counter
      market on the OTCBB, which is a reporting service and not a securities exchange.
      We cannot assure investors that in the future our common stock would ever
      qualify for inclusion on any of the NASDAQ markets, The American Stock Exchange
      or any other national exchange or that more than a limited market will ever
      develop for our common stock. The lack of an orderly market for our common
      stock
      may negatively impact the volume of trading and market price for our common
      stock.





Historically,
      the volume of trades for our stock has been limited. Moreover, thus far the
      prices at which our common stock has traded have fluctuated fairly widely on
      a
      percentage basis. There can be no assurance as to the prices at which our common
      stock will trade in the future, although they may continue to fluctuate
      significantly. Prices for our common stock will be determined in the marketplace
      and may be influenced by many factors, including the following:





·
            the
                depth and liquidity of the markets for our common stock;




·
            investor
                perception of Decorize and the industry in which we
                participate;




·
            general
                economic and market conditions;




·
            statements
                or changes in opinions, ratings or earnings estimates made by brokerage
                firms or industry analysts relating to the market in which we do
                business
                or relating to us specifically, as has occurred in the
                past;




10




·
            quarterly
                variations in our results of
                operations;




·
            general
                market conditions or market conditions specific to technology industries;
                and




·
            domestic
                and international macroeconomic
                factors.




The
      trading activity in our common stock should be considered sporadic, illiquid
      and
      highly volatile. An active trading market for our common stock may not exist
      in
      the future. Even if a market for our common stock does exist, investors may
      not
      be able to resell their common stock at or above the purchase price for which
      such investors purchased such shares.





In
      addition, the stock market has recently experienced extreme price and volume
      fluctuations. These fluctuations are often unrelated to the operating
      performance of the specific companies. As a result of the factors identified
      above, a stockholder (due to personal circumstances) may be required to sell
      his
      shares of our common stock at a time when our stock price is depressed due
      to
      random fluctuations, possibly based on factors beyond our control.





**Item** **1B.
      Unresolved Staff Comments**





Not
      applicable.




**Item** **2.
      Properties.**





Our
      corporate headquarters are based in a single leased building of approximately
      9,600 square feet located in Springfield, Missouri. The rent for this space
      is
      $3,766 per month and the facilities are in good condition. The lease for our
      corporate headquarters ended in April 2008 and we have continued to lease the
      facility on a month-to-month basis since that time. We anticipate that if
      additional space is required within the next twelve months for our headquarters,
      then such space will be available in the Springfield area on a reasonable
      commercial basis.





We
      currently sublease and operate a 30,000 square foot fulfillment center located
      in Springfield, Missouri on a month to month basis from a company owned by
      SRC
      Holdings Corporation, the largest holder of the Company’s common stock and the
      sole holder of the Company’s outstanding shares of Series A Convertible
      Preferred Stock. The lease is for a minimum 10,000 square feet at a monthly
      rate
      of $0.60 per square foot utilized, but allows for expansion and contraction
      of
      square footage as necessary on a month-to-month basis up to a maximum of 45,000
      square feet. Decorize averages approximately 30,000 square feet of utilization
      on a monthly basis. The Springfield facility is in good condition, and we
      believe the space is adequate for our operations in the foreseeable future.
      The
      current agreement is on a month to month basis, however, we believe that we
      could lease suitable space at comparable rates in the Springfield area should
      that be necessary.





We
      also
      lease additional design studio and office space of approximately 1,950 square
      feet located in Houston, Texas. The rent for this facility is $875 per month.
      We
      lease this facility on a month to month basis.





We
      lease
      and operate our own showroom of approximately 8,950 square feet in High Point,
      North Carolina. The lease terminates on October 31, 2009. The base rent per
      month is $9,866 for the period ending October 31, 2008 and $10,162 for the
      period from November 1, 2008 to October 31, 2009. In addition to the base rent
      we are required to pay common area maintenance charges which average
      approximately $700 per month. We have an option to renew the lease for one
      five-year period following the October 31, 2009 termination date.





We
      lease
      and operate our own showroom of approximately 4,780 square feet in Las Vegas,
      Nevada. The lease terminates on September 30, 2012. The base rent per month
      is
      $11,018. On October 1 st of each
      year the base rent increase 3%. In addition to the base rent we are required
      to
      pay common area maintenance charges which average approximately $3,774 per
      month. We have the option to renew the lease for one five-year period following
      the September 30, 2012 termination date.




11




We
      lease
      and operate our own showroom of approximately 3,670 square feet in Dallas,
      Texas. The lease terminates on November 30, 2009. The base rent per month is
      $6,721 for the period ending November 30, 2008 and $6,923 for the period from
      December 1, 2008 to November 30, 2009.





Pursuant
      to agreements with independent sales representative groups, we lease varying
      amounts of floor space at several regional showrooms throughout the United
      States on a month-to-month basis. The monthly rental payments vary between
      approximately $500 and $4,500.





Our
      Indonesian subsidiary operations are based in a leased manufacturing, office
      and
      warehouse facility of approximately 21,200 square feet. The lease terminates
      on
      March 31, 2013. The Company has paid all of its obligations under the lease
      with
      the exception of a final payment of approximately $65,000 which is due and
      payable on February 28, 2009. The Company has the option to renew the lease
      for
      one five-year period following the March 31, 2013 termination date.





Our
      Chinese subsidiary lease office and warehouse space in China comprising a total
      of approximately 7,200 square feet. The lease agreements terminate on March
      31,
      2010. The monthly rental payments total approximately $3,000 per month.




We
      maintain insurance for physical loss on all domestic properties described above,
      and we believe that the amount of this insurance coverage provides adequate
      protection


.


**Item** **3.
      Legal Proceedings.**





We
      are
      subject to certain legal proceedings and claims from time to time that arise
      in
      the ordinary course of and are incidental to the business. In the opinion of
      management, the amount of ultimate liability with respect to these actions,
      whether individually or in the aggregate, will not materially affect our
      consolidated results of operations or our financial condition.





**Item** **4.
      Submission of Matters to a Vote of Security Holders.**





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of the year ended June 30, 2008.





**PART
      II**





**Item** **5.
      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.**





Shares
      of
      our common stock are currently quoted on the OTCBB under the symbol “DCZI.OB”.
      Our shares began quotation on the OTCBB on May 23, 2007. The following table
      summarizes the high and low historical closing prices reported by the OTCBB
      Historical Data Service for the periods indicated. OTCBB quotations reflect
      inter-dealer prices, without retail mark-up, mark down or commissions, so those
      quotes may not represent actual transactions.





High
            
            LowFourth
                Quarter 2008
            
            $
            0.21
            
            $
            0.07Third
                Quarter 2008
            
            $
            0.24
            
            $
            0.14Second
                Quarter 2008
            
            $
            0.35
            
            $
            0.14First
                Quarter 2008
            
            $
            0.61
            
            $
            0.33Fourth
                Quarter 2007 (May 23 through June 30)
            
            $
            0.60
            
            $
            0.50


12





Previously,
      our common stock was traded on The American Stock Exchange from March 8, 2002
      until April 27, 2007, under the symbol "DCZ". The following table summarizes
      the
      highest and lowest closing prices per share as reported by The American Stock
      Exchange for the periods indicated.





**High**
            
            **Low**Fourth Quarter
                2007 (through April 27)
            
            $
            0.58
            
            $
            0.29Third
                Quarter 2007
            
            
            0.84
            
            
            0.40Second
                Quarter 2007
            
            
            0.49
            
            
            0.23First
                Quarter 2007
            
            
            0.33
            
            
            0.17Fourth
                Quarter 2006
            
            
            0.51
            
            
            0.23Third
                Quarter 2006
            
            
            0.62
            
            
            0.32Second
                Quarter 2006
            
            
            0.81
            
            
            0.46First
                Quarter 2006
            
            
            0.79
            
            
            0.45




We
      had
      approximately 88 record holders of our common stock as of June 30, 2008,
      according to the books of our transfer agent. A significant number of shares
      were held in street name, so the Company believes that the number of beneficial
      owners is significantly higher.





We
      have
      not paid cash dividends on our common stock since our inception. Our Board
      of
      Directors does not anticipate payment of any cash dividends in the foreseeable
      future and intends to continue its present policy of retaining earnings for
      reinvestment in our operations.





The
      following table summarizes as of June 30, 2008, the shares of common stock
      authorized for issuance under our equity compensation plans:





**Equity
      Compensation Plan Information**





Plan category
            
            Number of securities to be
              issued upon exercise of
              outstanding options,
              warrants and rights
            
            Weighted average
              exercise price of
              outstanding options,
              warrants and rights
            
            Number of securities
              remaining available for
              future issuance under
              equity compensation plansEquity compensation plans approved by
                security holders
            
            
            1,112,375
            
            $
            0.18
            
            
            1,643,000Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            1,112,375
            
            $
            0.18
            
            
            1,643,000





**Item** ******6.
      Selected Financial Data.**





Not
      applicable.





**Item** **7.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.**





**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the amounts reported in the accompanying financial
      statements and related footnotes. Management bases its estimates and assumptions
      on historical experience, observance of industry trends and various other
      sources of information and factors. Actual results could differ from these
      estimates. Critical accounting policies are defined as those that are reflective
      of significant judgments and uncertainties, and potentially could result in
      materially different results under differing assumptions and conditions.
      Decorize believes the following critical accounting policies require
      management's most difficult, subjective and complex judgments.




13




*Goodwill* -
      Effective July 2001, we adopted the provisions of Statement of Financial
      Accounting Standards (SFAS) No. 142, *Goodwill
      and Other Intangible Assets* ,
      (“SFAS
      No. 142”) which was issued by the Financial Accounting Standards Board (FASB) in
      July 2001. SFAS No. 142 required that an intangible asset that is acquired
      shall
      be initially recognized and measured based on its fair value. SFAS No. 142
      also
      provided that goodwill should not be amortized, but shall be tested for
      impairment annually, or more frequently if circumstances indicate potential
      impairment, through a comparison of fair value to its carrying amount. As of
      June 30, 2008, Decorize did not identify or record any impairment.





*Revenue
      Recognition* –
Our
      revenue is generated through the sale of merchandise to customers for prices
      that are fixed at the time the order is placed. We recognize revenue when
      pervasive evidence of the sale exists, the earnings process is complete and
      the
      risks and rewards of ownership of the goods have transferred to the customer,
      which is considered to have occurred when the customer receives title to the
      products. Depending upon the specific terms of the transaction, title may
      transfer upon shipment of the products to the customer or upon receipt of the
      products by the customer. Sales are billed and our services are complete upon
      receipt of title by the customer. Collectibility of the amounts billed to
      customers is reasonably assured. We provide an allowance for expected sales
      returns, which is estimated based upon our historical experience.





*Allowances
      for Doubtful Accounts* - We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the inability of our customers to make required payments. We perform ongoing
      credit evaluation of our customers’ financial condition. If the financial
      condition of our customers were to deteriorate, which resulted in an impairment
      of their ability to make payments, additional allowances would likely be
      required. Actual collections could differ materially from our
      estimates.





*Stock
      Options* - Stock
      options granted to employees are accounted for under SFAS
      No. 123R, *Share-Based Payment* .
      The
      fair value of stock-based awards to employees is calculated by us using the
      Black-Scholes option valuation model, which requires that we make certain
      subjective assumptions. These assumptions include future stock price volatility
      and the expected life of the stock option, which affect the calculated fair
      values. For the majority of the granted options, forfeitures are assumed to
      equal 10% of the total grant amount of the options. The expected term of options
      granted is derived from the time between the date of final vesting and the
      expiration of the option. The risk-free rate for the expected term of the option
      is based on the U.S. Treasury yield curve in effect at the time of grant. The
      calculated compensation expense is recognized on a straight-line basis over
      each
      vesting period.





The
      fair
      values of options granted during the year ended June 30, 2008 were estimated
      on
      the date of the respective grants using the Black-Scholes-Merton option-pricing
      model with the following weighted average assumptions: Dividends per share,
      $0;
      Risk-free interest rate, 3.06%; Weighted-average expected life of options,
      4.7
      years; Expected volatility, 132%. A total of 465,000 and 1,112,500 options
      were
      granted under the Plan during the years ended June 30, 2008 and 2007,
      respectively.




**Results
      of Operations and Comparison of the Year Ended June 30, 2008 to the Year Ended
      June 30, 2007**





The
      following table presents certain items included in Decorize’s consolidated
      statements of operations, a copy of which is included in this Annual Report,
      and
      the percentage of total revenues for the periods indicated. All such data should
      be read in conjunction with, and is qualified in its entirety by reference
      to,
      our consolidated financial statements and accompanying notes.


14





**For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **Change**Net sales
            
            $
            15,233,457
            
            
            100
            %
            $
            15,919,683
            
            
            100.0
            %
            $
            (686,226
            )
            
            —Cost
                of sales
            
            
            9,988,023
            
            
            65.6
            %
            
            10,976,817
            
            
            68.9
            %
            
            (998,794
            )
            
            (3.3
            )%Gross
                profit
            
            
            5,245,434
            
            
            34.4
            %
            
            4,942,866
            
            
            31.1
            %
            
            302,568
            
            
            3.3
            %Operating
                expenses
            
            
            5,257,491
            
            
            34.5
            %
            
            4,902,737
            
            
            30.8
            %
            
            354,754
            
            
            3.7
            %Operating
                income (loss)
            
            
            (12,057
            )
            
            (0.1
            )%
            
            40,129
            
            
            0.3
            %
            
            (52,186
            )
            
            (0.4
            )%Total
                other expense
            
            
            575,015
            
            
            3.8
            %
            
            722,332
            
            
            4.5
            %
            
            (147,317
            )
            
            (0.7
            )%Net
                loss
            
            
            (587,072
            )
            
            (3.9
            )%
            
            (682,203
            )
            
            (4.2
            )%
            
            95,131
            
            
            0.3
            %





Sales





Our
      sales
      are derived primarily from the sale of home furnishing and home décor products
      to large and independent retailers. Sales for fiscal 2008 decreased $0.7
      million, or 4.3%, to $15.2 million compared to $15.9 million in fiscal 2007.
      Sales to independent retailers increased 11.3%, while sales to large retailers
      decreased 34.3%. Returns and allowances from both large and small retail
      customers were relatively flat at 6.2% in fiscal 2008 compared to 6.1% in fiscal
      2007.





We
      believe our revenue growth in the independent retailer market is the result
      of a
      continued focus on sales efforts and constant improvements to our product
      selection and quality. We believe that we have presented our product and
      services to only a small portion the vast number of independent retailers who
      would find our offerings attractive and would order product from us. We intend
      to continue marketing our goods aggressively to our current independent retailer
      customers, and we expect that as a result, we will increase our sales to them
      substantially on a dollar-to-dollar comparative basis. In addition, we are
      implementing plans to market our products to new independent retailer customers,
      with the intent to develop a broader, more robust customer base.





The
      decrease in our sales to large retailers during fiscal 2008 compared to fiscal
      2007 resulted from the loss of a significant customer. Sales to this customer
      totaled $3.1 million during fiscal 2007 and $0 during fiscal 2008. No other
      large retailer customer accounted for more than $1.0 million in sales in either
      fiscal 2007 or fiscal 2008.




Cost
      of Sales





The
      cost
      of sales for fiscal 2008 decreased as a percentage of sales to 65.6%, compared
      to 69.00% for fiscal 2007. We believe that the percentage decrease in our costs
      of sales for fiscal 2008 compared to the prior year was the result of
      management’s concerted efforts to run efficient manufacturing facilities in
      Asia, successful vendor negotiations resulting in lower raw materials costs
      for
      some of our products and the implementation of price increases across much
      of
      our product lines. In addition, we eliminated slow moving product offerings
      and
      improved our designs, providing faster inventory turnover and fewer markdowns
      on
      aging inventory.




Operating
      margins and pricing in our industry are very competitive. We must focus on
      selling more goods to more customers at very competitive prices in order to
      increase our revenues. Greater sales volumes, especially from large retailers,
      may come at the expense of some gross margin.





Operating
      Expenses





During
      fiscal 2008, our operating expenses increased $0.4 million to $5.3 million,
      compared to $4.9 million for fiscal 2007. The majority of this increase is
      related to increased selling expenses in fiscal 2008, specifically commission
      paid to independent sales reps and royalties paid to independent product
      designers. Additional increase in showroom rents and advertising were partially
      offset by decreases in SEC filing expenses, audit and legal fees and investor
      relations costs. All other expenses were relatively flat.




15




Other
      Expense





Other
      expense for fiscal 2008 decreased to $0.6 million compared from $0.7 million
      for
      fiscal 2007. The decrease is attributable to a decrease in interest expense
      resulting from 1) a reduction in interest rates on certain stockholder notes
      payable negotiated in April 2008 and 2) lower interest costs associated with
      the
      revolving line of credit from Guaranty Bank in comparison to the costs
      associated with the factoring agreement with Bibby Financial Services that
      was
      in place during fiscal 2007.





Inflation





We
      do not
      believe our business is materially affected by inflation. We anticipate that
      any
      increase in costs of goods sold and operating costs caused by inflation will
      be
      passed on to our customers through increases in price per unit. However, an
      increase in inflation could decrease customer demand for retail products
      resulting in lower sales volume as retailers adjust to decreased
      demand.




**Liquidity
      and Capital Resources**





We
      had
      working capital of approximately $(2.1) million at June 30, 2008, compared
      with
      $(0.9) million at June 30, 2007. Cash was $0.3 million at June 30, 2008,
      compared to $0.8 million at June 30, 2007. Cash used in operating activities
      was
      $1.6 million in fiscal year 2008 compared to $0.9 million in fiscal year 2007.
      The principal operating uses of cash during fiscal year 2008 were attributable
      to the net loss of $0.6 million, a $0.4 million increase in receivables and
      a
      $0.8 increase in inventories.





During
      fiscal 2008 we invested approximately $0.1 million in the purchase of property
      and equipment, primarily leasehold improvements in our Indonesian manufacturing
      facility and computer equipment in our Springfield, Missouri corporate
      headquarters and in our Indonesian subsidiary.




During
      the year ended June 30, 2008, net cash provided by financing activities was
      $1.1
      million. We raised $0.6 million from the issuance of stockholder notes payable,
      made principal payments on stockholder notes payable of $0.1, had net borrowings
      from our bank line of credit of $2.1 million, paid net amounts due to our factor
      totaling $1.3 million and paid registration fees totaling $0.1 million in
      connection with registering our common stock.





Bank
      Line of Credit





On
      October 19, 2007, the Company obtained a $3,000,000 revolving credit facility
      from Guaranty Bank, which was subsequently amended on December 27, 2007 (as
      amended, the “Credit Facility”), to fund the Company’s ongoing working capital
      needs.





The
      Company retired its existing indebtedness under a factoring arrangement with
      Bibby Financial Services (Midwest), Inc. with a portion of the proceeds from
      the
      Credit Facility (see below). The terms of the Credit Facility prohibit the
      Company from using Credit Facility proceeds for the purpose of repaying any
      other third party indebtedness, including indebtedness that is subordinate
      to
      the Credit Facility, without the prior approval of Guaranty Bank.





The
      Company can borrow, repay and re-borrow principal under the Credit Facility
      from
      time to time during its term. The aggregate principal amount drawn under the
      Credit Facility at any given time may not exceed the lesser of $3,000,000 or
      the
      borrowing base. The borrowing base is equal to the sum of (a) 80% of the value
      of eligible accounts receivable, plus (b) 50% of the value of eligible
      inventory. Eligible accounts receivable includes the Company’s accounts
      receivable generated in the ordinary course of business that satisfy certain
      conditions of Guaranty Bank, and excludes certain unacceptable accounts
      receivable, such as accounts of an account debtor when 20% of the outstanding
      balance owed by such account debtor is more than 90 days past due. Eligible
      inventory includes the Company’s inventory that is in good, new and saleable
      condition and is not obsolete or unmerchantable, in Guaranty Bank’s reasonable
      opinion. As of June 30, 2008, the amount available to be advanced under the
      Credit Facility was $2,358,364.




16




The
      annual interest rate on the Credit Facility was initially equal to the prime
      rate of interest (5.0% at June 30, 2008) plus a prime margin of 1.5% (the “Prime
      Margin”). Pursuant to the amendment made on December 27, 2007, the Prime Margin
      was 2.0% for the period from December 27, 2007 through March 31, 2008. The
      Prime
      Margin was recalculated on April 1, 2008 and will be recalculated on the first
      day of each succeeding fiscal quarter thereafter based upon the Company’s
      trailing four quarters “cash flow”, defined as operating income or loss plus
      depreciation expense deducted in arriving at operating income or operating
      loss
      for the relevant period. Prime Margin being: 0.0% if “cash flow” is equal to or
      greater than $1,000,000; 0.5% if “cash flow” is equal to or greater than
      $750,001 and equal to or less than $1,000,000; 1.0% if “cash flow” is equal to
      or greater than $500,001 and equal to or less than $750,000; 1.50% if “cash
      flow” is equal to or greater than $250,001 and equal to or less than $500,000;
      2.0% if “cash flow” is equal to or greater than $1 or equal to or less than
      $250,000; and 2.50% if “cash flow” is $0 or less. Interest accrued on the
      outstanding principal balance is due monthly. The Credit Facility expires,
      and
      any and all principal outstanding under the Credit Facility is due and payable,
      on the maturity date of December 31, 2008.





The
      Company paid Guaranty Bank a loan origination fee and certain other costs
      totaling $25,000, which were recorded as deferred financing fees and are being
      amortized to interest expense on a straight-line basis over the term of the
      Credit Facility.





The
      Company is not required to pay any fees based upon any unused portion of the
      amount available for borrowing under the Credit Facility.





The
      Credit Facility is secured by substantially all of the assets of the Company
      and
      is guaranteed by Merapi and WestWay.





The
      Credit Facility contains covenants, including financial covenants, with which
      the Company must comply. The financial covenants include a minimum fixed charge
      coverage ratio, a limitation on payment of dividends and a transactional
      limitation on capital expenditures. With certain exceptions, the Company is
      prohibited under the Credit Facility from, among other things, incurring or
      assuming any indebtedness, entering into any merger or reorganization and
      acquiring any stock or assets of any other entity. The Company was not in
      compliance with the minimum fixed charge coverage ratio covenant as of June
      30,
      2008. At the Company’s request, Guaranty Bank agreed to waive the minimum fixed
      charge coverage ratio requirement for the quarter ended June 30, 2008. The
      Company anticipates that it will not be in compliance with the minimum fixed
      charge coverage ratio for the quarter ending September 30, 2008 and will again
      request Guaranty Bank to waive the requirement for compliance. Although Guaranty
      Bank has expressed a willingness to waive the requirement for the quarter ending
      September 30, 2008 there can be no assurance that Guaranty Bank will actually
      do
      so.





Certain
      notes payable to stockholders (see Stockholder
      Notes Payable below)
      contain cross-default provisions, which, as a result of the Company’s
      non-compliance with the minimum fixed charge coverage ratio requirement in
      the
      Credit Facility, have caused the Company to be in default under the terms of
      the
      notes. At the Company’s request, the respective note holders agreed to waive the
      specific cross-default provisions as they relate to the Company’s non-compliance
      with the minimum fixed charge coverage ratio requirement in the Credit
      Facility.





In
      connection with the Credit Facility, all holders of the Company’s notes payable
      to stockholders (see Stockholder
      Notes Payable below)
      agreed to subordinate outstanding indebtedness owed to them by the Company
      pursuant to separately executed subordination agreements in favor of Guaranty
      Bank.





Factoring
      Agreement





On
      March
      31, 2006, the Company and Bibby Financial Services (Midwest), Inc. (“BFS”)
      entered into a new Master Purchase and Sale Agreement (the “BFS Factoring
      Agreement”) to govern the exclusive global factoring arrangements provided by
      BFS. The new agreement replaced the Master Purchase and Sale Agreement entered
      into between the Company and BFS in August 2005. The BFS Factoring Agreement,
      under which BFS purchased certain accounts receivable of the Company on a full
      recourse basis, was accounted for as a secured borrowing and provided the
      Company with a maximum credit facility of $3,000,000.




17




On
      October 19, 2007, upon obtaining the revolving credit facility from Guaranty
      Bank (see Bank
      Line of Credit above),
      the Company terminated the BFS Factoring Agreement. Pursuant to the terms of
      the
      BFS Factoring Agreement the Company incurred interest expense and factoring
      fees
      totaling $92,620 and $379,248 during the years ended June 30, 2008 and 2007,
      respectively. Additionally, the Company incurred fees of $44,273 during the
      year
      ended June 30, 2008 to terminate the agreement before its scheduled maturity
      date.





Stockholder
      Notes Payable and Debt-for-Stock Private Placements





*Quest
      Commercial Finance, L.L.C.* –





On
      May 5,
      2006, Decorize entered into a Commercial Security Agreement with Quest
      Commercial Finance, L.L.C. (“Quest Commercial”), which provided for Quest
      Commercial to make a revolving credit line in the amount of up to $750,000
      available to Decorize (the “Quest Credit Facility”). The Quest Credit Facility,
      which is evidenced by a promissory note dated May 5, 2006, was modified on
      September 27, 2007 and again on April 28, 2008.





The
      original terms of the Quest Credit Facility provided that interest would accrue
      on the principal balance from time to time outstanding at a rate per annum
      equal
      to the greater of 10% or the prime rate of interest plus 5%. Accrued interest
      was payable monthly on the last day of each calendar month, beginning May 31,
      2006.





On
      September 26, 2007, the Quest Credit Facility was modified to set the interest
      rate at 13.75% per annum and to provide for the payment of a $7,500 annual
      lender fee on September 26, 2007, and thereafter on May 5 of each year until
      the
      note is paid in full.





On
      April
      1, 2008, the Quest Credit Facility was further modified effective April 1,
      2008
      so that the interest payable on the note accrues at the prime rate per annum
      and
      to provide for the suspension of monthly interest payments until January 1,
      2009
      at which time all accrued unpaid interest is due and to provide for monthly
      interest payments thereafter until maturity.





Subject
      to the provisions of the related promissory note, Decorize can borrow, repay
      and
      reborrow principal under the Credit Facility from time to time during its term.
      If a default occurs under this promissory note as a result of Decorize failing
      to pay any amount when due or any other event of default, the unpaid outstanding
      principal balance will thereafter accrue interest at a rate equal to 3% per
      annum over the interest rate that would otherwise apply, and Quest Commercial
      may declare all amounts due under the Credit Facility to be due and payable
      immediately.





Decorize’s
      obligations under the Credit Facility are secured by a security interest granted
      to Quest Commercial in Decorize’s inventory. In this regard, Quest Commercial
      shall have an equal priority of interest in this inventory relative to the
      rights of SRC Holdings Corporation (“SRC”), which has loaned amounts to the
      Company under a convertible promissory note originally issued in April 2004,
      as
      most recently amended on June 15, 2005.





The
      Quest
      Credit Facility matures on May 5, 2009. In consideration of Quest Commercial
      providing the Quest Credit Facility, Decorize paid Quest Commercial a commitment
      fee of $30,000.





Steven
      W.
      Fox, a director of the Company, is the General Manager of Quest Commercial
      Finance, L.L.C.


18





*Quest
      Capital Alliance II, L.L.C.* –





On
      August
      17, 2006, Decorize issued a $75,000 three-month promissory note, payable to
      the
      order of Quest Capital Alliance II, L.L.C. (“Quest II”), bearing interest at
      13.25% per annum. The note was paid in full on September 11, 2006.





On
      September 11, 2006, Decorize issued a promissory note (the “Quest II Promissory
      Note”), payable to the order of Quest II, in the original principal amount of
      $750,000. Quest II charged a $41,250 origination fee in connection with the
      loan, and discounted the principal amount funded to the Company under the Quest
      II Promissory Note by the amount of the origination fee.





Interest
      on the outstanding principal under the Quest II Promissory Note accrued at
      a
      rate of 18% per annum, from January 9, 2007 to February 12, 2007, and then
      at a
      rate of 21% per annum from February 12, 2007 to March 15, 2007. The note was
      amended on March 15, 2007 to lower the interest rate to 13.75% and to extend
      the
      maturity date to March 15, 2008. The Company paid a renewal fee of $7,500 in
      connection with amendment and extension.





On
      April
      28, 2008, the Company executed an Extension and Modification Agreement (the
      “Quest II Extension Agreement”), effective March 15, 2008, by and between the
      Company and Quest II. Pursuant to the Quest II Extension Agreement, the Quest
      II
      Promissory Note, as amended, was modified so that the maturity date of the
      note
      was extended to March 15, 2009, and the interest rate, effective March 15,
      2008,
      became 9.75% per annum.





Also
      on
      April 28, 2008, the Company executed a Stock Exchange Agreement, effective
      April
      1, 2008, by and between the Company and Quest II (the “Quest II Exchange
      Agreement”). Pursuant to the Quest II Exchange Agreement, the Company sold
      500,000 shares of its common stock to Quest II in exchange for a $100,000
      reduction in the outstanding principal balance of the Quest II Promissory Note.
      Under the Quest II Exchange Agreement, Quest II represented that it is an
“accredited investor” for purposes of the Securities Act, and indicated that it
      is acquiring the shares for investment and without a view towards distribution.
      As such, the Company believes that the issuance of the 500,000 shares of common
      stock to Quest II pursuant to the Quest II Exchange Agreement was made in
      compliance with the requirements of Rule 506 of Regulation D and therefore
      exempt from registration. In connection with the execution of the Quest II
      Extension Agreement and the Quest II Exchange Agreement, the Company executed
      on
      April 28, 2008 an Amended and Restated Promissory Note in the principal amount
      of $650,000, in replacement of and substitution for the Quest II Promissory
      Note
      to give effect to the amended terms resulting from the Quest II Extension
      Agreement and the principal reduction resulting from the Quest II Exchange
      Agreement.





The
      Amended and Restated Promissory Note is secured by a security interest in
      Decorize’s inventory and proceeds from inventory pursuant to the terms and
      conditions of a Commercial Security Agreement (the “Security Agreement”) entered
      into between Decorize and Quest II on September 11, 2006. The Security Agreement
      provides that upon an event of default, Quest II may accelerate the indebtedness
      owed under the Amended and Restated Promissory Note, assemble and sell the
      collateral, have a receiver appointed to take possession of any or all of the
      collateral, collect remedies, obtain a deficiency judgment and exercise all
      other rights and remedies available to Quest II. The default interest rate
      is
      equal to 21% per annum.





Steven
      W.
      Fox, a director of the Company, is the General Manager of Quest Capital Alliance
      II, L.L.C.





*Jon
      T. Baker* –





On
      April
      28, 2008, the Company executed a Subordinated Promissory Note Payoff Agreement
      (the “Payoff Agreement”) effective April 21, 2008, by and between the Company
      and Jon T. Baker (“Baker”). Pursuant to the Payoff Agreement, the Company
      paid **** Baker
      $20,000 in full satisfaction of all outstanding debt (including all unpaid
      accrued interest) owed to Baker under the terms of that certain Subordinated
      Promissory Note in the principal amount of $56,451 executed by the Company
      in
      favor of Baker on January 30, 2004. As a result of the Payoff Agreement, the
      Company recognized a gain on the retirement of this debt of approximately
      $53,000.




19




Jon
      T.
      Baker is a stockholder and former Chief Executive Officer of the
      Company.





*James
      K. Parsons* –




On
      April
      28, 2008, the Company executed a Stock Exchange Agreement (the “Parsons Exchange
      Agreement”) by and between the Company and James K. Parsons (“Parsons”).
      Pursuant to the Parsons Exchange Agreement, the Company sold 1,500,000 shares
      of
      its common stock to Parsons in exchange for a $300,000 reduction in the
      outstanding principal balance of that certain Amended and Restated Promissory
      Note (the “Amended Promissory Note”) issued by the Company to Parsons on May 5,
      2006 in the original principal amount of $609,467.69. Under the Parsons Exchange
      Agreement, Parsons represented that he is an “accredited investor” for purposes
      of the Securities Act of 1933, as amended (the “Securities Act”), and indicated
      that he is acquiring the shares for investment and without a view towards
      distribution. As such, the Company believes that the issuance of the 1,500,000
      shares of common stock to Parsons pursuant to the Parsons Exchange Agreement
      was
      made in compliance with the requirements of Rule 506 of Regulation D promulgated
      under the Securities Act and was therefore exempt from registration. In
      connection with the execution of the Parsons Exchange Agreement, on April 28,
      2008 the Company also executed in favor of Parsons a Second Amended and Restated
      Promissory Note in the principal amount of $277,160.01, in replacement of and
      substitution for the Amended Promissory Note to give effect to the principal
      reduction of the Amended Promissory Note resulting from the Exchange
      Agreement





Parsons
      also agreed to extend the maturity date of that certain Third Amended and
      Restated Promissory Note issued by the Company to Parsons on July 31, 2006 in
      the principal amount of $1,000,000, from July 31, 2008 to July 31, 2009. To
      give
      effect to this extension, on April 28, 2008, the Company executed a Fourth
      Amended and Restated Promissory Note in the principal amount of $1,000,000
      in
      favor of Parsons, in replacement of and substitution for the Third Amended
      and
      Restated Promissory Note.





James
      K.
      Parsons is a stockholder and Executive Vice President of the
      Company.





*SRC
      Holdings Corporation* –





On
      April
      30, 2008, Decorize, Inc. (the “Company”) executed an Unsecured Promissory Note
      in the principal amount of $500,000 (the “Note”) in favor of SRC Holdings
      Corporation, a Missouri corporation (“SRC”). The Note bears interest at the
      prime rate per annum as published by the Wall Street Journal and matures on
      April 30, 2009, at which time all accrued interest and outstanding principal
      are
      due and payable. The Company anticipates is using the proceeds from the Note
      for
      working capital and general corporate purposes.





On
      April
      30, 2008, the Company executed a Modification Agreement by and between the
      Company and SRC (the “Modification Agreement”), which modifies the Third Amended
      and Restated Promissory Note in the principal amount of $750,000 executed by
      the
      Company in favor of SRC on June 15, 2005 (the “SRC Note”). Pursuant to the
      Modification Agreement, the SRC Note was modified so that, effective April
      29,
      2008, (i) the SRC Note accrues interest at the prime rate per annum as published
      by the Wall Street Journal (5.25% as of the date of execution) and (ii) all
      accrued interest on the unpaid principal balance on the SRC Note is due and
      payable in full upon demand by SRC at any time.





SRC
      is
      the single largest holder of the Company’s common stock and the sole holder of
      the Company’s outstanding shares of Series A Convertible Preferred
      Stock.





*Consent
      of Lender* –





On
      April
      28, 2008, the Company received written consent in the form of a Consent of
      Lender from Guaranty Bank (“Guaranty”), pursuant to that certain Credit
      Agreement dated October 19, 2007 between Guaranty and the Company, whereby
      Guaranty consented to the Company executing and consummating the Subordinated
      Note Payoff Agreement between the Company and Baker and the Unsecured Promissory
      Note in favor of SRC, both as described above.





20





*Summary* –





After
      giving effect to the various transactions noted above the Company’s outstanding
      stockholder notes payable as of June 30, 2008 is summarized as
      follows:





**Holder**
            
            **Principal**
              **Outstanding**
            
            **Maturity Date**James K. Parsons
            
            $
            1,000,000
            
            
            July
                31, 2009James
                K. Parsons
            
            
            256,968
            
            
            July
                31, 2010SRC
                Holdings Corporation
            
            
            750,000
            
            
            On
                DemandSRC
                Holdings Corporation
            
            
            500,000
            
            
            April
                30, 2009Quest
                Capital Alliance II, L.L.C.
            
            
            650,000
            
            
            March
                15, 2009Quest
                Commercial Finance, L.L.C.
            
            
            700,000
            
            
            May
                5, 2009Total
            
            $
            3,856,968





Other
      Private Placements





On
      February 5, 2007, the Company sold 821,429 shares of common stock, $0.001 par
      value per share to an accredited investor for total consideration of $287,500,
      representing a purchase price of $0.35 per share. This investor also received
      warrants in this transaction, which are exercisable for an aggregate of 178,571
      shares of common stock at an initial exercise price of $0.70 per share. The
      warrants will expire on February 5, 2009.





Also
      on
      February 5, 2007, the Company sold 446,428 shares of common stock to another
      accredited investor, in a separate transaction for total consideration of
      $250,000, representing a purchase price of $0.56 per share. This investor also
      received warrants, which are exercisable for an aggregate of 297,620 shares of
      common stock at $0.80 per share. The warrants will expire on February 5, 2009.
      Professional fees totaling $100,603 incurred in connection with the registration
      of shares issued in these private placements have been charged to additional
      paid in capital during the twelve months ended June 30, 2007.





In
      each
      of these private placements, the investors represented that they were
“accredited investors” for purposes of the Securities Act, and indicated that
      they were acquiring the shares for investment and not with a view to
      distribution. We provided each investor with appropriate financial and operating
      information. Each of the investors was an existing stockholder of Decorize.
      Accordingly, we believe these offerings were made in compliance with the “safe
      harbor” requirements of Rule 506 under Regulation D of the Securities Act, which
      we have relied upon in taking the position that the private placements were
      exempt from registration under the Securities Act.





Stock
      Registration Fees





Professional
      fees totaling $77,250 and $100,603 incurred in connection with the registration
      of certain of the Company’s shares of common stock issued in private placements
      have been charged to additional paid in capital during the years ended June
      30,
      2008 and 2007, respectively.





Access
      to Equity Financing





On
      April
      12, 2007, our Board of Directors received a letter from the American Stock
      Exchange LLC (“AMEX”) indicating that AMEX intended to file a delisting
      application with the SEC in order to terminate the listing of our common stock
      on the exchange. The April 12 letter from AMEX indicated that this decision
      was
      based upon its determination that the Company was not in compliance with certain
      continued listing standards of AMEX. We subsequently applied to have our shares
      of common stock quoted on the OTCBB, and our application was approved and our
      shares listing on the OTCBB approved in May 2007. We believe that the OTCBB
      is a
      better trading platform for our shares, in light of our current stage of
      development, and that the OTCBB will be more cost effective than listing on
      a
      securities exchange. We currently anticipate that the principal source of
      working capital in the foreseeable future will continue to be from the issuance
      of short-term debt instruments and advances from our factor, or we may consider
      moving to an asset-backed credit facility from a more traditional lender. We
      do
      not believe that the move from AMEX to the OTCBB will have any impact on the
      availability of any of those forms of debt financings, and none of our current
      loan agreements or any related covenants were impacted by the transition to
      the
      OTCBB. In addition, we note that our most recent private placements of equity
      were made in April of this year, after we moved to the OTCBB, and we continue
      to
      expect that sources of equity financing will be available to our company
      following the move to the OTCBB.





21





Other





It
      is
      likely that Decorize will continue to require additional equity and debt
      financing in order to provide sufficient operating capital until such time
      as
      the Company generates sufficient operating cash flow to support its operations.
      There is no assurance that such financing will be available on terms that will
      be acceptable to us. The inability to secure such financing could have a
      material adverse effect on our ability to maintain our business or to achieve
      our growth objectives.





**Total
      Contractual Cash and Other Obligations**





The
      following table summarizes our long-term debt and operating lease obligations
      as
      of June 30, 2008:





**Total**
            
            **Less than**
              **1 Year**
            
            **1-5 Years**Principal payments due
                on notes payable to stockholders
            
            $
            3,856,968
            
            $
            2,705,000
            
            $
            1,151,968Future
                minimum lease payments under noncancelable operating
                leases
            
            
            1,236,876
            
            
            496,988
            
            
            739,888Totals
            
            $
            5,093,844
            
            $
            3,201,988
            
            $
            1,891,856





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, expenses, results
      of operations, liquidity, capital expenditures or capital resources that are
      material to our stockholders.





**Item** **7A.
      Quantitative and Qualitative Disclosures About Market
      Risk.**





Not
      applicable.


22





**Item** **8.
      Financial Statements.**




**DECORIZE,
      INC.**


**Index
      to Financial Statements**


**June
      30, 2008 and 2007**




PageReport
                of Independent Registered Public Accounting Firm
            
            F-1Consolidated
                Balance Sheets as of June 30, 2008 and 2007
            
            F-2Consolidated
                Statements of Operations for the years ended June 30, 2008 and
                2007
            
            F-4Consolidated
                Statements of Stockholders’ Equity (Deficit) for the years ended June 30,
                2008 and 2007
            
            F-5Consolidated
                Statements of Cash Flows for the years ended June 30, 2008 and
                2007
            
            F-6Notes
                to Consolidated Financial Statements for the years ended June 30,
                2008 and
                2007
            
            F-8


23





**Report
      of Independent Registered Public Accounting Firm**





Audit
      Committee, Board of Directors


and
      Stockholders


Decorize,
      Inc.


Springfield,
      Missouri





We
      have
      audited the accompanying consolidated balance sheets of Decorize,
      Inc. as of June 30, 200 8
      and
      2007, and the related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for the years then ended. The Company’s
      management is responsible for these financial statements. Our responsibility
      is
      to express an opinion on these financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing auditing procedures
      that are appropriate in the circumstances, but not for the purpose of expressing
      an opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. Our audits also included
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management and evaluating the overall financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Decorize, Inc. as of June
      30, 2008 and 2007, and the results of its operations and its cash flows for
      the
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.





/s/ **BKD,** **LLP**





Springfield,
      Missouri


September
      25, 2008


F-1


**Decorize,
        Inc.**
 **Consolidated
        Balance Sheets**
 **June
        30, 2008 and 2007**


**ASSETS**




**2008**
            
            **2007**Current
                AssetsCash
            
            $
            269,105
            
            $
            781,011ReceivablesTrade
                accounts receivable, net of allowances
              2008 –
                $319,119; 2007 – $120,250
            
            
            2,814,326
            
            
            2,397,464Other
            
            
            26,709
            
            
            8,052Inventories
            
            
            1,692,597
            
            
            933,104Prepaid
                expenses and other
            
            
            196,660
            
            
            243,056Total
                current assets
            
            
            4,999,397
            
            
            4,362,687Property
                and equipment, net of accumulated depreciation 2008 – $934,658;
                2007 – $813,684
            
            
            299,802
            
            
            311,264Goodwill
            
            
            3,258,938
            
            
            3,258,938Other
            
            
            35,557
            
            
            36,2613,594,297
            
            
            3,606,463Total
                Assets
            
            $
            8,593,694
            
            $
            7,969,150




*See
      accompanying notes to the consolidated financial
      statements*


F-2


**Decorize,
      Inc.**


**Consolidated
      Balance Sheets**


**June
      30, 2008 and 2007**


**LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)**




**2008**
            
            **2007**Current
                liabilitiesAccounts
                payable
            
            $
            1,931,132
            
            $
            1,803,035Accrued
                salaries and commissions
            
            
            75,694
            
            
            51,103Other
                accrued expenses
            
            
            337,409
            
            
            495,179Due
                to factor
            
            
            —
            
            
            1,302,564Bank
                line of credit
            
            
            2,061,728
            
            
            —Current
                portion of capital lease obligations
            
            
            —
            
            
            8,245Current
                portion of stockholders’ notes
            
            
            2,705,000
            
            
            1,556,451Total
                current liabilities
            
            
            7,110,963
            
            
            5,216,577Notes
                payable to stockholders, less current portion
            
            
            1,151,968
            
            
            2,209,468Total
                liabilities
            
            
            8,262,931
            
            
            7,426,045Preferred
                stock, 8% cumulative, convertible, redeemable$.001
                par value; authorized 10,000,000 shares; issued and outstanding 500,000
                shares
            
            
            675,121
            
            
            635,121Stockholders’
                equity (deficit)Common
                stock, $.001 par value; 50,000,000 shares authorized; issued and
                outstanding 2008 – 28,751,693 shares; 2007 – 26,634,068
                shares
            
            
            28,752
            
            
            26,634Additional
                paid-in capital
            
            
            13,551,612
            
            
            13,219,000Accumulated
                deficit
            
            
            (13,924,722
            )
            
            (13,337,650
            )Total
                stockholders’ equity (deficit)
            
            
            (344,358
            )
            
            (92,016
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            8,593,694
            
            $
            7,969,150




*See
      accompanying notes to the consolidated financial
      statements*


F-3


**Decorize,
      Inc.**


**Consolidated
      Statements of Operations**


**Years
      Ended June 30, 2008 and 2007**


**2008**
            
            **2007**Net
                Sales
            
            $
            15,233,457
            
            $
            15,919,683Cost
                of Goods Sold
            
            
            9,988,023
            
            
            10,976,817Gross
                Profit
            
            
            5,245,434
            
            
            4,942,866Operating
                Expenses:Selling,
                general and administrative
            
            
            5,200,086
            
            
            4,838,494Depreciation
                and amortization
            
            
            57,405
            
            
            64,243Total
                operating expenses
            
            
            5,257,491
            
            
            4,902,737Operating
                income (loss)
            
            
            (12,057
            )
            
            40,129Other
                income (expense):Interest
                income
            
            
            6,377
            
            
            1,194Interest
                expense
            
            
            (580,098
            )
            
            (646,023
            )Amortization
                of debt discount and financing costs
            
            
            (44,023
            )
            
            (69,187
            )Gain
                on debt retirement
            
            
            53,604
            
            
            —Other
            
            
            (10,875
            )
            
            (8,316
            )Total
                other expense
            
            
            (575,015
            )
            
            (722,332
            )Net
                loss
            
            
            (587,072
            )
            
            (682,203
            )Add:
                Dividends declared on preferred stock
            
            
            (40,000
            )
            
            (40,000
            )Loss
                available to common stockholders
            
            $
            (627,072
            )
            $
            (722,203
            )Basic
                and diluted loss per common share
            
            $
            (0.02
            )
            $
            (0.03
            )Basic
                and diluted weighted-average common shares outstanding
            
            
            27,079,539
            
            
            25,796,808




*See
      accompanying notes to the consolidated financial
      statements*


F-4


**Decorize,
      Inc.**


**Consolidated
      Statements of Stockholders’ Equity (Deficit)**


**Years
      Ended June 30, 2008 and 2007**




**Additional****Common Stock**
            
            **Paid-in**
            
            **Accumulated****Shares**
            
            **Par Value**
            
            **Capital**
            
            **Deficit**
            
            **Total**Balances,
                June 30, 2006
            
            
            25,239,211
            
            $
            25,239
            
            $
            12,730,735
            
            $
            (12,655,447
            )
            $
            100,527Exercise
                of common stock warrants and options
            
            
            127,000
            
            
            127
            
            
            21,463
            
            
            —
            
            
            21,590Issuance
                of common stock
            
            
            1,267,857
            
            
            1,268
            
            
            536,233
            
            
            —
            
            
            537,501Dividends
                declared
            
            
            —
            
            
            —
            
            
            (40,000
            )
            
            —
            
            
            (40,000
            )Issuance
                of common stock warrants and options
            
            
            —
            
            
            —
            
            
            71,172
            
            
            —
            
            
            71,172Registration
                costs related to issuance of common stock
            
            
            —
            
            
            —
            
            
            (100,603
            )
            
            —
            
            
            (100,603
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (682,203
            )
            
            (682,203
            )Balances,
                June 30, 2007
            
            
            26,634,068
            
            $
            26,634
            
            $
            13,219,000
            
            $
            (13,337,650
            )
            $
            (92,016
            )Exercise
                of common stock options
            
            
            117,625
            
            
            118
            
            
            19,879
            
            
            —
            
            
            19,997Issuance
                of common stock
            
            
            2,000,000
            
            
            2,000
            
            
            398,000
            
            
            —
            
            
            400,000Dividends
                declared
            
            
            —
            
            
            —
            
            
            (40,000
            )
            
            —
            
            
            (40,000
            )Issuance
                of common stock options
            
            
            —
            
            
            —
            
            
            31,983
            
            
            —
            
            
            31,983Registration
                costs related to issuance of common stock
            
            
            —
            
            
            —
            
            
            (77,250
            )
            
            —
            
            
            (77,250
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (587,072
            )
            
            (587,072
            )Balances,
                June 30, 2008
            
            
            28,751,693
            
            $
            28,752
            
            $
            13,551,612
            
            $
            (13,924,722
            )
            $
            (344,358
            )





*See
      accompanying notes to the consolidated financial
      statements*


F-5


**Decorize,
      Inc.**


**Consolidated
      Statements of Cash Flows**


**Years
      Ended June 30, 2008 and 2007**


**2008**
            
            **2007****Operating
                Activities**Net
                loss
            
            $
            (587,072
            )
            $
            (682,203
            )Items
                not requiring (providing) cashDepreciation
                and amortization
            
            
            127,974
            
            
            98,549Provision
                for bad debts
            
            
            10,945
            
            
            26,689Provision
                for sales returns and allowances
            
            
            956,480
            
            
            1,017,009Compensatory
                issuance of common stock and stock options
            
            
            31,983
            
            
            59,472Issuance
                of warrants in exchange for consulting services
            
            
            —
            
            
            11,700Amortization
                of debt discount and financing costs
              included
                in interest expense
            
            
            47,148
            
            
            69,187Gain
                on debt retirement
            
            
            (53,604
            )
            
            —(Gain)
                loss on disposal of property and equipment
            
            
            (1,500
            )
            
            15,814Changes
                inTrade
                accounts receivable
            
            
            (1,384,287
            )
            
            (1,994,942
            )Inventories
            
            
            (759,493
            )
            
            (110,819
            )Prepaid
                expenses and other current assets
            
            
            29,355
            
            
            (66,201
            )Accounts
                payable
            
            
            128,097
            
            
            352,110Accrued
                expenses and other
            
            
            (87,584
            )
            
            343,080Net
                cash used in operating activities
            
            
            (1,541,558
            )
            
            (860,555
            )**Investing
                Activities**Purchase
                of property and equipment
            
            
            (116,512
            )
            
            (203,896
            )Proceeds
                from sale of equipment
            
            
            1,500
            
            
            9,937Net
                cash used in investing activities
            
            
            (115,012
            )
            
            (193,959
            )**Financing
                Activities**Principal
                payments on stockholders’ notes payable
            
            
            (72,500
            )
            
            (30,290
            )Proceeds
                from issuance of stockholders’ notes payable
            
            
            600,000
            
            
            920,000Net
                borrowings on bank line of credit
            
            
            2,061,728
            
            
            —Deferred
                fees associated with bank financing
            
            
            (48,060
            )
            
            (7,500
            )Principal
                payments on capital lease obligations
            
            
            (8,245
            )
            
            (17,010
            )Issuance
                of common stock, net of related expenses
            
            
            19,997
            
            
            559,091Payment
                of registration costs related to issuance of common stock
            
            
            (105,692
            )
            
            (72,161
            )Advances
                from (repayments to) factor, net
            
            
            (1,302,564
            )
            
            381,058Net
                cash provided by financing activities
            
            
            1,144,664
            
            
            1,733,188**Increase
                (Decrease) in Cash**
            
            
            (511,906
            )
            
            678,674**Cash,
                Beginning of Year**
            
            
            781,011
            
            
            102,337**Cash,
                End of Year**
            
            $
            269,105
            
            $
            781,011





*See
      accompanying notes to the consolidated financial
      statements*


F-6


**Decorize,
      Inc.**


**Consolidated
      Statements of Cash Flows**


**Years
      Ended June 30, 2008 and 2007**





**2008**
            
            **2007****Supplemental
                Cash Flows Information:**Interest
                paid
            
            $
            516,191
            
            $
            584,069Dividends
                accrued on preferred stock
            
            $
            40,000
            
            $
            40,000Accrued
                fees associated with stock registration
            
            
            —
            
            $
            28,442Debt
                converted to common stock
            
            $
            400,000
            
            
            —





*See
      accompanying notes to the consolidated financial statements*




F-7


**Decorize,
        Inc.**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended June 30, 2008 and 2007**


**Note
                      1:**
                    **Nature****of
                        Operations and Summary of Significant Accounting
                        Policies**
  ***Nature
        of Operations***
  Decorize,
        Inc. (“Decorize”) together with its subsidiaries (collectively the “Company”) is
        a manufacturer and wholesaler of imported home furnishings and home accent
        items. Products are sold primarily to retailers in the United
        States.
  ***Principles
        of Consolidation***
  The
        consolidated financial statements include the accounts of Decorize and its
        wholly-owned subsidiaries, P.T. Niaga Merapi, WestWay Enterprises Limited,
        GuildMaster, Inc. and Faith Walk Designs, Inc. All significant intercompany
        accounts and transactions have been eliminated in consolidation.
  ***Use
        of Estimates***
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
  ***Cash
        Equivalents***
  The
        Company considers all liquid investments with original maturities of three
        months or less to be cash equivalents. At June 30, 2008 and 2007, the Company
        had no cash equivalents.
  ***Accounts
        Receivable***
  Accounts
        receivable are stated at the amount billed to customers. The Company provides
        an
        allowance for doubtful accounts, which is based upon a review of outstanding
        receivables, historical collection information and existing economic conditions.
        Accounts receivable are ordinarily due 30 to 60 days after the issuance of
        the
        invoice. Delinquent receivables are written off based on individual credit
        evaluation and specific circumstances of the customer. The Company also provides
        an allowance for sales returns and allowances, which is based on upon a review
        of outstanding receivables, historical returns and allowances information
        and
        specific allowances granted to customers.
  The
        Company’s trade accounts receivable allowances as of June 30, 2008 and 2007 were
        as follows:
  **2008**
              
              **2007**Allowance
                  for doubtful accounts
              
              $
              81,385
              
              $
              36,211Allowance
                  for returns and allowances
              
              
              237,734
              
              
              84,039$
              319,119
              
              $
              120,250
  The
        Company has established relationships with several major customers. Sales
        to the
        Company’s top two customers during the year ended June 30, 2008, as measured by
        sales volume, respectively accounted for 6.4% and 5.7% of total net sales
        for
        the year. Neither of these two customers accounted for more than 5.0% of
        total
        net sales during the year ended June 30, 2007. Sales to the Company’s top two
        customers during the year ended June 30, 2007, as measured by sales volume,
        respectively accounted for 19.5% and 5.9% of total net sales for the year.
        Neither of these two customers accounted for more than 5.0% of total net
        sales
        during the year ended June 30, 2008. No other customers accounted for 5.0%
        of
        the Company’s total net sales in either of the years ended June 30, 2008 and
        2007.
  F-8
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
  The
        Company grants credit to customers who meet the Company’s preestablished credit
        requirements and generally does not require collateral to secure payment
        of
        accounts receivable.
  ***Inventory***
  Inventories
        consist primarily of finished and unfinished home furnishings and accessories.
        Inventories are stated at the lower of cost or market. Cost is determined
        using
        the first-in, first-out (FIFO) method and includes the cost of ocean freight
        and
        duties.
  ***Property
        and Equipment***
  Property
        and equipment are stated at cost less accumulated depreciation and are
        depreciated over the estimated useful life of each asset. Leasehold improvements
        are amortized over the shorter of the lease term or the estimated useful
        lives
        of the improvements. Depreciation has been computed by applying the
        straight-line method to each asset category over their estimated lives, as
        follows:
  **Category**
              
              **Estimated Life**
              
              **Balance at**
                **June 30, 2008**
              
              **Balance at**
                **June 30, 2007**Automobiles
              
              
              5
                  years
              
              $
              21,480
              
              $
              28,480Warehouse
                  and production equipment
              
              
              5-7
                  years
              
              
              56,426
              
              
              54,464Computer
                  software
              
              
              3
                  years
              
              
              178,482
              
              
              178,482Office
                  and computer equipment
              
              
              3-7
                  years
              
              
              613,898
              
              
              576,928Leasehold
                  improvements
              
              
              Lease
                  term
              
              
              364,174
              
              
              151,316Construction
                  in progress
              
              
              
              
              
              —
              
              
              135,278Total
              
              
              
              
              
              1,234,460
              
              
              1,124,948Less
                  accumulated depreciation
              
              
              
              
              
              934,658
              
              
              813,684Property
                  and equipment, net
              
              
              
              
              $
              299,802
              
              $
              311,264
  ***Impairment
        of Long-lived Assets***
  Long-lived
        assets are reviewed for impairment whenever events or changes in circumstances
        indicate the carrying amount of an asset may not be recoverable. When events
        or
        changes in circumstances indicate an asset may not be recoverable, the Company
        estimates the future cash flows expected to result from the use of the asset.
        If
        the sum of the expected undiscounted future cash flows is less than the carrying
        value of the asset, an impairment loss is recognized. The impairment loss
        is
        recognized by measuring the difference between the carrying value of the
        assets
        and the estimated fair value of the assets. The Company’s estimates of fair
        values are based on the best information available and require the use of
        estimates, judgments and projections as considered necessary. The actual
        results
        may vary significantly. No impairment losses have been recorded in 2008 and
        2007.
  ***Goodwill***
  The
        Company applies the provisions of Statement of Financial Accounting Standards
        No. 142, *Goodwill
        and Other Intangible Assets* (SFAS
        No. 142). SFAS No. 142 requires that an intangible asset that is acquired
        shall
        be initially recognized and measured based on its fair value. SFAS No. 142
        also
        provides that goodwill should not be amortized, but shall be tested for
        impairment using a two-step process annually, or more frequently if
        circumstances indicate potential impairment, through a comparison of fair
        value
        to its carrying amount. The Company consists of a single reporting unit as
        defined in SFAS No. 142. As the first step in the process, management compares
        the estimated fair value of the Company based upon the market price of its
        common stock to the carrying value of its equity to determine whether a
        potential impairment of goodwill exists. The Company’s evaluations have not
        indicated a potential impairment, so the Company did not record a charge
        to
        reduce the carrying value of goodwill during 2008 or 2007.
  F-9
 **Decorize,
            Inc.**
 **Notes
            to Consolidated Financial Statements**
 **Years
            Ended June 30, 2008 and 2007**
 ***Income
        Taxes***
  Deferred
        tax assets and liabilities are recognized for the tax effects of differences
        between the financial statement and tax bases of assets and liabilities.
        A
        valuation allowance is established to reduce deferred tax assets if it is
        more
        likely than not that a deferred tax asset will not be realized. Decorize,
        Inc.
        files consolidated income tax returns with its subsidiaries.
  ***Revenue
        Recognition***
 
 The
        Company’s revenue is generated through the sale of merchandise to customers for
        prices that are fixed at the time the order is placed. Revenue is recognized
        when pervasive evidence of the sale exists, the earnings process is complete
        and
        the risks and rewards of ownership of the goods have transferred to the
        customer, which is considered to have occurred when the customer receives
        title
        to the products. Depending upon the specific terms of the transaction, title
        may
        transfer upon shipment of the products to the customer or upon receipt of
        the
        products by the customer. Sales are billed and our services are complete
        upon
        receipt of title by the customer. Collectibility of the amounts billed to
        customers is reasonably assured. The Company provides an allowance for expected
        sales returns, which is estimated based upon our historical experience. Deposits
        received in advance for orders from customers are recorded as deferred revenue
        and are not recognized in income until title to the products passes to the
        customer.
  ***Cost
        of Goods Sold***
  The
        Company’s cost of goods sold includes substantially all costs incurred in our
        Indonesian and Chinese subsidiaries and transportation costs incurred in
        transferring goods from our subsidiaries to the United Sates. Cost of goods
        sold
        includes depreciation expense of $70,569 and $34,306 for the years ended
        June
        30, 2008 and 2007, respectively.
  ***Advertising
        Costs***
  The
        Company expenses advertising costs as they are incurred. We incurred advertising
        and marketing expenses during the years ended June 30, 2008 and 2007, totaling
        $551,152 and $371,542, respectively.
  ***Amounts
        Due To and From Related Parties***
  Accounts
        payable included amounts due to employees and stockholders totaling $106,546
        and
        $32,434 as of June 30, 2008 and 2007, respectively. Other accounts receivable
        from employees totaled $6,731 and $5,822 as of June 30, 2008 and 2007,
        respectively.
  ***Loss
        Per Share***
  Basic
        and
        diluted loss per share are computed by dividing the net loss increased by
        dividends declared on preferred stock by the weighted average number of common
        shares outstanding during the period and excludes the otherwise dilutive
        effects
        of outstanding stock options and warrants as their effects would be
        antidilutive.
  F-10
 **Decorize,
            Inc.**
 **Notes
            to Consolidated Financial Statements**
 **Years
            Ended June 30, 2008 and 2007**
 **June 30, 2008**
              
              **June 30, 2007**Net
                  loss, as reported
              
              $
              (587,072
              )
              $
              (682,203
              )Add:
                  Dividends declared on preferred stock
              
              
              (40,000
              )
              
              (40,000
              )Loss
                  available to common shareholders
              
              
              (627,072
              )
              
              (722,203
              )Divided
                  by weighted average shares outstanding
              
              
              27,079,539
              
              
              25,796,808Basic
                  and diluted loss per share
              
              $
              (0.02
              )
              $
              (0.03
              )
  ***Foreign
        Currency Translation***
  The
        functional currency for our foreign subsidiaries is the United States dollar.
        We
        remeasure those assets and liabilities denominated in foreign currencies
        using
        exchange rates in effect at each balance sheet date. Fixed assets and the
        related depreciation or amortization charges are recorded at the exchange
        rates
        in effect on the date we acquired the assets. Revenues and expenses denominated
        in foreign currencies are remeasured using average exchange rates for all
        periods presented. We recognize the resulting foreign exchange gains and
        losses
        as a component of cost of goods sold in the consolidated statements of
        operations.
  ***Stock-based
        Compensation***
  At
        June
        30, 2008 and 2007, the Company had a stock-based employee compensation plan,
        which is described more fully in *Note
        10, Stock-Based Compensation* .
  ***Preferred
        Stock***
  During
        2004, the Company issued 500,000 shares of Series A Convertible Preferred
        Stock.
        Each preferred share is convertible into one common share (subject to certain
        antidilution provisions). Conversion is at the shareholder’s option, or
        mandatory if the market price of the common stock exceeds $2.50 for ten
        consecutive trading days with a sufficient daily trading volume. Dividends
        are
        cumulative and accrue 8% per year, payable in arrears. Preferred shares may
        be
        redeemed at the shareholder’s option for $1.00 each plus accrued dividends in
        three equal annual payments beginning February 13, 2007, or earlier at the
        option of the Company (subject to a redemption premium). The Company carries
        its
        Series A Convertible Preferred Stock on its balance sheet at the current
        redemption amount. Holders of Series A Convertible Preferred Stock are entitled
        to elect up to two of the Company’s Board of Directors while 500,000 or more
        shares of Series A Convertible Preferred Stock are outstanding. All accrued
        preferred stock dividends must be paid before any dividends may be distributed
        to common shareholders, and in the event of liquidation the preferred stock
        ranks prior to common to the extent of its redemption value. In January 2005,
        a
        conversion feature was added to the Series A Convertible Preferred Stock,
        enabling it to be converted to the Company common stock at a rate of $0.40
        per
        share for an aggregate of 1,250,000 common shares. In June 2005, the conversion
        price was amended to $0.20 per share, for an aggregate totaling 2,500,000
        shares.
  ***Financial
        Instruments***
  The
        carrying amounts of the Company’s financial instruments, which consist
        principally of cash, accounts receivable, accounts payable and notes payable,
        approximate fair value.
  ***Reclassifications***
  Certain
        reclassifications have been made to the 2007 financial statements to conform
        to
        fiscal 2008 presentation. These reclassifications have no effect upon net
        loss.
  F-11
 **Decorize,
            Inc.**
 **Notes
            to Consolidated Financial Statements**
 **Years
            Ended June 30, 2008 and 2007**
 ***Recent
        Accounting Standards***
  In
        March
        2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, *Accounting
        for Certain Hybrid Financial Instruments.* SFAS No.
        155 resolves certain accounting issues related to various hybrid financial
        instruments. The Company adopted the provisions of SFAS No. 155 on July 1,
        2007.
        The adoption of this standard did not have a material impact on the Company’s
        financial condition, results of operations or cash flows.
  In
        June 2006, the FASB issued FASB Interpretation 48, *Accounting
        for Uncertainty in Income Taxes* .
        Interpretation 48 provides clarifying guidance on the accounting for uncertainty
        in income taxes recognized in financial statements in accordance with SFAS
        No.
        109, *Accounting
        for Income Taxes* ,
        and
        prescribes recognition and measurement guidance in determining amounts to
        be
        recorded in the financial statements. This Interpretation applies to all
        income
        based tax items and is effective for fiscal years beginning after
        December 15, 2006. The Company adopted Interpretation 48 on July 1,
        2007. The adoption of FIN 48 did not have a material impact on the Company’s
        financial condition, results of operations or cash flows.
  In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements in Current Year Financial
        Statements,* which
        requires registrants to consider the effect of all carryover and reversing
        effects or prior year misstatements when quantifying errors in current year
        financial statements. The cumulative effective of initial application is
        to be
        reported in the carrying amount of assets and liabilities as of the beginning
        of
        the fiscal year, and the offsetting is to be made to the opening balance
        of
        retained earnings for that year. The Company adopted SAB 108 during the first
        quarter of its fiscal year ended June 30, 2007. The adoption of SAB No. 108
        did
        not have a material on the Company's financial condition, results of operations
        or cash flows.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* ,
        which
        defines fair value, establishes a framework for measuring fair value in
        accordance with U.S. generally accepted accounting principles, and enhances
        disclosures about fair value measurements. SFAS No. 157 applies when other
        accounting pronouncements require fair value measurements; it does not require
        new fair value measurements. In February 2008, the FASB issued FASB Staff
        Position No. 157-2, *Effective Date of FASB Statement No. 157,* which delays the effective date of SFAS No. 157 for all nonfinancial assets
        and nonfinancial liabilities, except for items that are recognized or disclosed
        at fair value in the financial statements on a recurring basis (at least
        annually).  SFAS No. 157 is effective for us beginning July 1,
        2008; however, FSP No. 157-2 delays the effective date for certain items to
        July 1, 2009.  We do not expect the adoption of this statement to have
        a material effect on our financial position or results of
        operations.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* ,
        including an amendment of SFAS No. 115, *Accounting
        for Certain Investments in Debt and Equity Securities.* SFAS No.
        159 permits entities to choose to measure many financial instruments and
        certain
        other items at fair value. The objective of which is to improve financial
        reporting by providing entities with the opportunity to mitigate volatility
        in
        reported earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. Eligible items
        for
        the measurement option include all recognized financial assets and liabilities
        except: investments in subsidiaries, interests in variable interest entities,
        employers’ and plans’ obligations for pension benefits, assets and liabilities
        recognized under leases, deposit liabilities, financial instruments that
        are a
        component of shareholder’s equity. Also included are firm commitments that
        involve only financial instruments, nonfinancial insurance contracts and
        warranties and host financial instruments. The statement permits all entities
        to
        choose at specified election dates, after which the entity shall report
        unrealized gains and losses on items for which the fair value option has
        been
        elected in earnings, at each subsequent reporting date. The fair value option
        may be applied instrument by instrument; however, the election is irrevocable
        and is applied only to entire instruments and not to portions of instruments.
        The Company adopted SFAS No. 159 on July 1, 2008, as required. The Company
        did
        not choose to report additional assets and liabilities at fair value other
        than
        those required to be accounted for at fair value prior to the adoption of
        SFAS
        No. 159. Therefore, the adoption of this standard did not have a material
        effect
        on our financial position or results of operations.
  F-12
 **Decorize,
            Inc.**
 **Notes
            to Consolidated Financial Statements**
 **Years
            Ended June 30, 2008 and 2007**
 In
        December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements—An Amendment of
        ARB No. 51.  SFAS No. 160* establishes new accounting and reporting standards for the noncontrolling
        interest in a subsidiary and for the deconsolidation of a subsidiary.
 Among other matters, it also requires the recognition of a noncontrolling
        interest (sometimes called “minority interest”) as equity in the consolidated
        financial statements and separate from the parent’s equity.  The amount of
        net income attributable to the noncontrolling interest will be included in
        consolidated net income on the face of the income statement.  SFAS No. 160
        is effective for fiscal years, and interim periods within those fiscal years,
        beginning on or after December 15, 2008.  We do not expect the
        adoption of this statement to have a material effect on our financial position
        or results of operations.
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), *Business
        Combinations (“SFAS No.* 141R”),
        which replaces SFAS No. 141, *Business
        Combinations.* SFAS No. 141R will significantly change the accounting for business combinations
        and will impact financial statements both on the acquisition date and in
        subsequent periods.  Under SFAS No. 141R, an acquiring entity will be
        required to recognize the assets acquired, the liabilities assumed, and any
        noncontrolling interest in the acquiree measured at their fair values as
        of the
        acquisition date, with limited exceptions.  SFAS No. 141R also includes a
        substantial number of new disclosure requirements.  SFAS No. 141R applies *prospectively* to
        business combinations for which the acquisition date is on or after the
        beginning of the first annual reporting period beginning on or after
        December 15, 2008.  We are currently evaluating the potential impact
        that the provisions of SFAS No. 141R may have on our consolidated financial
        statements.
 
 In
        March 2008, the FASB issued SFAS No. 161, *Disclosures
        about Derivative Instruments and Hedging Activities* .
        SFAS
        No. 161 requires disclosure of the fair values of derivative instruments
        and their gains and losses in a tabular format. It also requires disclosure
        of
        derivative features that are credit risk-related and cross-referencing within
        footnotes to enable financial statement users to locate important information
        about derivative instruments. SFAS No. 161 is effective for financial
        statements issued for fiscal years and interim periods after November 15,
        2008, with early application encouraged. The Company is evaluating the impact
        of
        SFAS No. 161 on its consolidated financial statements.
 
 In
        April 2008, the FASB issued FASB Staff Position FSP No. 142-3, *Determination
        of the Useful Life of Intangible Assets* .
        FSP
        No. 142-3 amends the factors that should be considered in developing
        renewal or extension assumptions used to determine the useful life of a
        recognized intangible asset under SFAS No. 142, *Goodwill
        and Other Intangible Assets* .
        FSP
        No. 142-3 is effective for financial statements issued for fiscal years
        beginning after December 15, 2008, and interim periods within those fiscal
        years. The Company is evaluating the impact of FSP No. 142-3.
 
 In
        May 2008, the FASB issued SFAS No. 162, *The
        Hierarchy of Generally Accepted Accounting Principles* .
        SFAS
        No. 162 improves financial reporting by identifying a consistent framework,
        or hierarchy, for selecting accounting principles to be used in preparing
        financial statements that are presented in conformity with U.S. generally
        accepted accounting principles for nongovernmental entities. SFAS No. 162
        is effective sixty days following the SEC’s approval of the Public Company
        Accounting Oversight Board auditing amendments to AU Section 411, *The
        Meaning of Present Fairly in Conformity with Generally Accepted Accounting
        Principles* .
        The
        Company is evaluating the impact of SFAS No. 162.
 
 In
        June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, *Determining
        Whether Instruments Granted in Share-based Payment Transactions are
        Participating Securities* .
        FSP
        No. EITF 03-6-1 states that unvested share-based payment awards that
        contain nonforfeitable rights to dividends or dividend equivalents (whether
        paid
        or unpaid) are participating securities and shall be included in the computation
        of EPS pursuant to the two-class method. FSP No. EITF 03-6-1 is effective
        for financial statements issued for fiscal years beginning after
        December 15, 2008. All prior-period EPS data presented shall be adjusted
        retrospectively (including interim financial statements, summaries of earnings,
        and selected financial data) to conform to the provisions of this FSP. Early
        application is not permitted. The Company is evaluating the impact of FSP
        No. EITF 03-6-1.
 
 F-13
 **Decorize,
            Inc.**
 **Notes
            to Consolidated Financial Statements**
 **Years
            Ended June 30, 2008 and 2007**
  **Note
                    2:**
                  **Inventories**
  The
        Company’s inventories as of June 30, 2008 and 2007 were as follows:
  **2008**
              
              **2007**Raw
                  materials
              
              $
              183,296
              
              $
              89,581Work
                  in process
              
              
              136,714
              
              
              95,637Finished
                  units
              
              
              1,372,587
              
              
              747,886$
              1,692,597
              
              $
              933,104
 
 **Note
                3:**
              **Bank
                  Line of Credit**
 
 On
        October 19, 2007, the Company obtained a $3,000,000 revolving credit facility
        from Guaranty Bank, which was subsequently amended on December 27, 2007 (as
        amended, the “Credit Facility”), to fund the Company’s ongoing working capital
        needs.
 
 The
        Company retired its existing indebtedness under a factoring arrangement with
        Bibby Financial Services (Midwest), Inc. with a portion of the proceeds from
        the
        Credit Facility (see *Note
        4, Due to Factor* ).
        The
        terms of the Credit Facility prohibit the Company from using Credit Facility
        proceeds for the purpose of repaying any other third party indebtedness,
        including indebtedness that is subordinate to the Credit Facility, without
        the
        prior approval of Guaranty Bank.
 
 The
        Company can borrow, repay and re-borrow principal under the Credit Facility
        from
        time to time during its term. The aggregate principal amount drawn under
        the
        Credit Facility at any given time may not exceed the lesser of $3,000,000
        or the
        borrowing base. The borrowing base is equal to the sum of (a) 80% of the
        value
        of eligible accounts receivable, plus (b) 50% of the value of eligible
        inventory. Eligible accounts receivable includes the Company’s accounts
        receivable generated in the ordinary course of business that satisfy certain
        conditions of Guaranty Bank, and excludes certain unacceptable accounts
        receivable, such as accounts of an account debtor when 20% of the outstanding
        balance owed by such account debtor is more than 90 days past due. Eligible
        inventory includes the Company’s inventory that is in good, new and saleable
        condition and is not obsolete or unmerchantable, in Guaranty Bank’s reasonable
        opinion. As of June 30, 2008, the amount available to be advanced under the
        Credit Facility was $2,358,364.
 
 The
        annual interest rate on the Credit Facility was initially equal to the prime
        rate of interest (5.0% at June 30, 2008) plus a prime margin of 1.5% (the
“Prime
        Margin”). Pursuant to the amendment made on December 27, 2007, the Prime Margin
        was 2.0% for the period from December 27, 2007 through March 31, 2008. The
        Prime
        Margin was recalculated on April 1, 2008 and will be recalculated on the
        first
        day of each succeeding fiscal quarter thereafter based upon the Company’s
        trailing four quarters “cash flow”, defined as operating income or loss plus
        depreciation expense deducted in arriving at operating income or operating
        loss
        for the relevant period. Prime Margin being: 0.0% if “cash flow” is equal to or
        greater than $1,000,000; 0.5% if “cash flow” is equal to or greater than
        $750,001 and equal to or less than $1,000,000; 1.0% if “cash flow” is equal to
        or greater than $500,001 and equal to or less than $750,000; 1.50% if “cash
        flow” is equal to or greater than $250,001 and equal to or less than $500,000;
        2.0% if “cash flow” is equal to or greater than $1 or equal to or less than
        $250,000; and 2.50% if “cash flow” is $0 or less. Interest accrued on the
        outstanding principal balance is due monthly. The Credit Facility expires,
        and
        any and all principal outstanding under the Credit Facility is due and payable,
        on the maturity date of December 31, 2008.
 
 The
        Company paid Guaranty Bank a loan origination fee and certain other costs
        totaling $25,000, which were recorded as deferred financing fees and are
        being
        amortized to interest expense on a straight-line basis over the term of the
        Credit Facility.
  F-14
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 The
        Company is not required to pay any fees based upon any unused portion of
        the
        amount available for borrowing under the Credit Facility.
 
 The
        Credit Facility is secured by substantially all of the assets of the Company
        and
        is guaranteed by Merapi and WestWay.
 
 The
        Credit Facility contains covenants, including financial covenants, with which
        the Company must comply. The financial covenants include a minimum fixed
        charge
        coverage ratio, a limitation on payment of dividends and a transactional
        limitation on capital expenditures. With certain exceptions, the Company
        is
        prohibited under the Credit Facility from, among other things, incurring
        or
        assuming any indebtedness, entering into any merger or reorganization and
        acquiring any stock or assets of any other entity. The Company was not in
        compliance with the minimum fixed charge coverage ratio covenant as of June
        30,
        2008. At the Company’s request, Guaranty Bank agreed to waive the minimum fixed
        charge coverage ratio requirement for the quarter ended June 30, 2008. The
        Company anticipates that it will not be in compliance with the minimum fixed
        charge coverage ratio for the quarter ending September 30, 2008 and will
        again
        request Guaranty Bank to waive the requirement for compliance. Although Guaranty
        Bank has expressed a willingness to waive the requirement for the quarter
        ending
        September 30, 2008 there can be no assurance that Guaranty Bank will actually
        do
        so.
 
 Certain
        notes payable to stockholders (see *Note
        5, Notes Payable to Stockholders* )
        contain
        cross-default provisions, which, as a result of the Company’s non-compliance
        with the minimum fixed charge coverage ratio requirement in the Credit Facility,
        have caused the Company to be in default under the terms of the notes. At
        the
        Company’s request, the respective note holders agreed to waive the specific
        cross-default provisions as they relate to the Company’s non-compliance with the
        minimum fixed charge coverage ratio requirement in the Credit
        Facility.
 
 In
        connection with the Credit Facility, all holders of the Company’s notes payable
        to stockholders (see *Note
        5, Notes Payable to Stockholders* )
        agreed
        to subordinate outstanding indebtedness owed to them by the Company pursuant
        to
        separately executed subordination agreements in favor of Guaranty
        Bank.
 
 **Note
                4:**
              **Due
                  to Factor**
 
 On
        March
        31, 2006, the Company and Bibby Financial Services (Midwest), Inc. (“BFS”)
        entered into a new Master Purchase and Sale Agreement (the “BFS Factoring
        Agreement”) to govern the exclusive global factoring arrangements provided by
        BFS. The new agreement replaced the Master Purchase and Sale Agreement entered
        into between the Company and BFS in August 2005. The BFS Factoring Agreement,
        under which BFS purchased certain accounts receivable of the Company on a
        full
        recourse basis, was accounted for as a secured borrowing and provided the
        Company with a maximum credit facility of $3,000,000.
 
 On
        October 19, 2007, upon obtaining the revolving credit facility from Guaranty
        Bank (see *Note
        3, Bank Line of Credit* ),
        the
        Company terminated the BFS Factoring Agreement. Pursuant to the terms of
        the BFS
        Factoring Agreement the Company incurred interest expense and factoring fees
        totaling $92,620 and $379248 during the years ended June 30, 2008 and 2007,
        respectively. Additionally, the Company incurred fees of $44,273 during the
        year
        ended June 30, 2008 to terminate the agreement before its scheduled maturity
        date.
  F-15
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 **Note
                5:**
              **Notes
                  Payable to Stockholders**
  The
        Company’s notes payable to stockholders as of June 30, 2008 and 2007 were as
        follows:
  **2008**
              
              **2007**Revolving
                  line of credit (A)
              
              $
              700,000
              
              $
              600,000Note
                  payable (B)
              
              
              256,968
              
              
              609,468Note
                  payable (C)
              
              
              —
              
              
              56,451Note
                  payable (D)
              
              
              1,000,000
              
              
              1,000,000Note
                  payable (E)
              
              
              500,000
              
              
              —Note
                  payable (F)
              
              
              750,000
              
              
              750,000Note
                  payable (G)
              
              
              650,000
              
              
              750,000$
              3,856,968
              
              $
              3,765,919
 
 (A)
              Revolving
                  line of credit promissory note in the principal sum of $750,000
                  issued by
                  the Company in favor of a certain stockholder on May 5, 2006, interest
                  payable monthly at a rate per annum of prime plus 5.0%, maturing
                  on May 5,
                  2009, secured by inventories. On September 26, 2007, the note was
                  modified
                  so that the interest payable on the note accrues at the rate of
                  13.75% per
                  annum and to provide for a recurring lender fee of $7,500 due on
                  September
                  26, 2007, and thereafter on May 5thof
                  each succeeding year until the note is paid in full. On April 1,
                  2008, the
                  note was further modified so that the interest payable on the note
                  accrues
                  at the prime rate per annum and to provide for the suspension of
                  monthly
                  interest payments until January 1, 2009 at which time all accrued
                  unpaid
                  interest is due and to provide for monthly interest payments thereafter
                  until maturity.
  (B)
              Stockholder
                  note payable, bearing interest at a rate per annum of prime plus
                  1.25%,
                  requiring bi-weekly principal payments of $4,038 (“Parsons Note One”). On
                  April 28, 2008, the note was amended and restated to account for
                  that
                  certain stock exchange agreement (see*Note
                  7, Stockholders’ Equity*)
                  pursuant to which the Company issued 1,5000,000 shares of its common
                  stock
                  in exchange for a $300,000 reduction in the outstanding principal
                  balance
                  of the note.
  (C)
              Stockholder
                  note payable, bearing interest at prime plus 1%. The note matured
                  on
                  December 31, 2004. On April 21, 2008, the Company paid $20,000
                  in full
                  satisfaction of the outstanding principal balance and all accrued
                  unpaid
                  interest, recognizing a gain on debt retirement of
                  $53,604.
  (D)
              Stockholder
                  note payable, interest payable monthly at a rate per annum of prime
                  plus
                  1.25%. On April 28, 2008, the note was amended and restated to
                  extend the
                  maturity date to July 31, 2009.
  (E)
              Stockholder
                  note payable issued by the Company on April 30, 2008 in the principal
                  amount of $500,000, bearing interest at the prime rate per annum,
                  maturing
                  on April 30, 2009.
  (F)
              Convertible
                  stockholder note payable, interest payable monthly at a rate per
                  annum of
                  prime plus 0.5%, due upon demand. On April 30, 2008, the note was
                  amended
                  so that the interest payable on the note accrues at the prime rate
                  per
                  annum and so that the Company is no longer required to make monthly
                  installment payments of interest over the term of the note. The
                  note is
                  convertible, at the option of the holder, into 3,750,000 shares
                  of the
                  Company’s common stock.
  (G)
              On
                  August 17, 2006, Decorize issued a promissory note, payable to
                  the order
                  of Quest Capital Alliance II, L.L.C. (“Quest Capital II”), in the original
                  principal amount of $75,000. The maturity date for this note was
                  November
                  17, 2006. Outstanding principal due under this note accrued interest
                  until
                  the date of maturity at a rate equal to 13.25% per annum. In consideration
                  of Quest Capital II providing the Promissory Note, Decorize paid
                  Quest
                  Capital II a loan fee of $250. This note was paid in full September
                  11,
                  2006.
  F-16
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 On
                  September 11, 2006, Decorize issued a promissory note (the “Promissory
                  Note”), payable to the order of Quest Capital II, in the original
                  principal amount of $750,000. Quest Capital II charged a $41,250
                  origination fee in connection with the loan, and discounted the
                  principal
                  amount funded to Decorize under the Promissory Note by the amount
                  of the
                  origination fee. Steven W. Fox, who is the general manager of Quest
                  Capital II, is also a director of
                  Decorize.
 
 Interest
        on the outstanding principal under the Promissory Note accrued at a rate
        of (i)
        18.0% per annum from January 9, 2007 to February 12, 2007, then at a rate
        of
        21.0% per annum from February 12, 2007 to March 15, 2007. The note was amended
        on March 15, 2007 to lower the interest rate to 13.75% and to extend the
        maturity date to March 15, 2008. The Company paid a renewal fee of $7,500
        in
        connection with this amendment. The note was further modified on March 15,
        2008
        so that the interest payable on the note accrued at the rate of 9.75% per
        annum
        and to extend the maturity date to March 15, 2009. On April 1, 2008, the
        note
        was amended and restated 1) to account for that certain stock exchange agreement
        (see *Note
        7, Stockholders’ Equity* )
        pursuant to which the Company issued 500,000 shares of its common stock in
        exchange for a $100,000 reduction in the outstanding principal balance of
        the
        note; 2) so that the interest payable on the note accrues at the prime rate
        per
        annum; and 3) so that all interest accruing on the note is due at payable
        at
        maturity.
  The
        prime
        rate of interest at June 30, 2008, was 5.0%. The aggregate annual maturities
        of
        stockholder notes payable at June 30, 2008, are as follows:
  **Year Ended June 30**
              
              **Aggregate Principal**
                **Maturities**2009
              
              $
              2,705,0002010
              
              
              1,105,0002011
              
              
              46,968Total
                  principal due on stockholder notes payable
              
              
              3,856,968Less
                  current portion
              
              
              2,705,000Long-term
                  stockholder notes payable
              
              $
              1,151,968
 
 **Note
                6:**
              **Leases**
 
 The
        Company leases various plant, office and showroom facilities and certain
        other
        equipment under agreements accounted for as operating leases. These leases
        expire through March 2013 and certain leases contain renewal
        options.
  The
        Company has, from time to time, also leased equipment under agreements accounted
        for as capital leases. As of June 30, 2008, the Company has no capital lease
        obligations.
  F-17
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 Future
        minimum payments for noncancellable operating leases with initial or remaining
        terms of one year or more at June 30, 2008, are as follows:
  **Minimum**
                **Payments**2009
              
              $
              496,9882010
              
              
              293,4842011
              
              
              188,7002012
              
              
              193,0072013
              
              
              64,697$
              1,236,876
  Total
        rent expense incurred under operating leases amounted to $749,010 and $544,421
        for the years ended June 30, 2008 and 2007, respectively. Of these amounts,
        $78,637 and $38,967 is included in cost of goods sold for the years ended
        June
        30, 2008 and 2007, respectively.
  **Note
                7:**
              **Stockholders’
                  Equity**
  On
        February 5, 2007, the Company sold 821,429 shares of common stock, $0.001
        par
        value per share to an accredited investor for total consideration of $287,500,
        representing a purchase price of $0.35 per share. This investor also received
        warrants in this transaction, which are exercisable for an aggregate of 178,571
        shares of common stock at an initial exercise price of $0.70 per share. The
        warrants will expire on February 5, 2009.
 
 Also
        on
        February 5, 2007, the Company sold 446,428 shares of common stock to another
        accredited investor, in a separate transaction for total consideration of
        $250,000, representing a purchase price of $0.56 per share. This investor
        also
        received warrants, which are exercisable for an aggregate of 297,620 shares
        of
        common stock at $0.80 per share. The warrants will expire on February 5,
        2009.
 
 The
        Company executed a Stock Exchange Agreement, effective April 1, 2008, by
        and
        between the Company and Quest Capital Alliance II, L.L.C. (the “Quest II
        Exchange Agreement”). Pursuant to the Quest II Exchange Agreement, the Company
        sold 500,000 shares of its common stock to Quest II in exchange for a $100,000
        reduction in the outstanding principal balance of the September 11, 2006
        promissory note (see *Note
        5, Notes Payable to Stockholders* ).
 
 The
        Company executed a Stock Exchange Agreement, effective April 28, 2008, by
        and
        between the Company and James K. Parsons (“Parsons”) (the “Parsons Exchange
        Agreement”). Pursuant to the Parsons Exchange Agreement, the Company sold
        1,500,000 shares of its common stock to Parsons in exchange for a $300,000
        reduction in the outstanding principal balance of the Parsons Note One (see *Note
        5, Notes Payable to Stockholders* ).
 
 Professional
        fees totaling $77,250 and $100,603 incurred in connection with the registration
        of certain of the Company’s shares of common stock issued in private placements
        have been charged to additional paid in capital during the years ended June
        30,
        2008 and 2007, respectively.
 
 See
        also, *Note
        10, Stock-Based Compensation* .
 
 F-18
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 **Note
                8:**
              **Related
                  Party Transactions**
  The
        Company subleases warehouse space in Springfield, Missouri from a company
        owned
        by SRC Holdings Corporation (“SRC”). SRC is the largest holder of the Company’s
        common stock and the sole holder of the Company’s outstanding shares of Series A
        Convertible Preferred Stock. The rental expense is determined monthly based
        on
        the actual square footage occupied by the Company during the month. The Company
        incurred lease expense totaling $211,495 and $103,348 during the years ended
        June 30, 2008 and 2007, respectively. Management believes the cost of this
        sublease is similar to what the Company would pay for leasing similar warehouse
        space from an unrelated party.
 
 **Note
                  9:**
                **Income****Taxes**
  The
        provision for income taxes includes these components :
  **2008**
              
              **2007**Taxes
                  currently payable
              
              $
              —
              
              $
              —Deferred
                  income taxes
              
              
              —
              
              
              —Income
                  tax expense
              
              $
              0
              
              $
              0
  A
        reconciliation of income tax expense at the statutory rate to the Company’s
        actual income tax expense is shown below:
  **2008**
              
              **2007**Computed
                  at the statutory rate (34%)
              
              $
              (199,604
              )
              $
              (231,950
              )Increase
                  (decrease) resulting fromForeign
                  subsidiary operations
              
              
              156,811
              
              
              157,170Nondeductible
                  expenses
              
              
              18,074
              
              
              7,592State
                  income taxes
              
              
              (3,000
              )
              
              (2,607
              )Changes
                  in the deferred tax asset valuation allowance including adjustments
                  to
                  prior net operating loss carryforwards
              
              
              24,529
              
              
              53,084Other
              
              
              3,190
              
              
              16,711Actual
                  tax expense
              
              $
              0
              
              $
              0
  F-19
  **Decorize,
        Inc.**
 **Notes
        to Consolidated Financial Statements**
 **Years
        Ended June 30, 2008 and 2007**
 
 The
        tax
        effects of temporary differences related to deferred taxes shown on the balance
        sheets were:
  **2008**
              
              **2007**Deferred
                  tax assetsAllowance
                  for doubtful accounts
              
              $
              30,926
              
              $
              45,694Allowance
                  for sales returns
              
              
              90,338
              
              
              —Accrued
                  compensated absences
              
              
              12,920
              
              
              12,312Reserve
                  for obsolete inventories
              
              
              66,429
              
              
              52,479Net
                  operating loss carryforwards
              
              
              3,370,578
              
              
              3,488,009Property
                  and equipment
              
              
              28,833
              
              
              23,260Charitable
                  contribution carryforwards and other
              
              
              5,844
              
              
              5,844Additional
                  inventory costs capitalized
              
              
              25,935
              
              
              11,6953,631,803
              
              
              3,639,293Deferred
                  tax liabilitiesPrepaid
                  insurance and other
              
              
              (13,465
              )
              
              (19,150
              )Net
                  deferred tax asset before valuation allowance
              
              
              3,618,338
              
              
              3,620,143Valuation
                  allowanceBeginning
                  balance
              
              
              (3,620,143
              )
              
              (3,567,059
              )(Increase)
                  decrease during the period
              
              
              1,805
              
              
              (53,084
              )Ending
                  balance
              
              
              (3,618,338
              )
              
              (3,620,143
              )Net
                  deferred tax asset
              
              $
              0
              
              $
              0
  For
        the
        years ended June 30, 2008 and 2007, the Company recorded a valuation allowance
        for the full amount of the net deferred tax asset otherwise recorded due
        to the
        losses causing uncertainty as to the realizability of the deferred tax assets
        in
        future years. As of June 30, 2008 and 2007, the Company had approximately
        $8,800,000 and $9,100,000, respectively, of net operating loss carryforwards
        available to offset future federal income taxes. The carryforwards expire
        in
        varying amounts from 2021 to 2028, if unused. Utilization of the net operating
        loss carryforwards may be subject to certain limitations as a result of changes
        in ownership of the Company.
  The
        Company adopted the provisions of FIN 48, *“Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement
        No. 109,”* (“FIN
        48”), on July 1, 2007. FIN 48 clarifies the accounting for income tax positions
        by prescribing a minimum recognition threshold that a tax position is required
        to meet before being recognized in the financial statements. FIN 48 also
        provides guidance on the derecognition of previously recognized deferred
        tax
        items, measurement, classification, interest and penalties, accounting in
        interim periods, disclosure and transition. Under FIN 48, the Company recognizes
        the tax benefit from an uncertain tax position only if it is more likely
        than
        not that the tax position will be sustained upon examination by the taxing
        authorities, based on the technical merits of the tax position. Any tax benefits
        recognized in the financial statements from such a position are measured
        based
        on the largest benefit that has a greater than 50% likelihood of being realized
        upon ultimate resolution. The adoption of FIN 48 had no impact upon the
        Company’s financial position, results of operations or cash flows. In connection
        with adopting FIN 48, the Company adopted the policy to recognize interest
        and
        penalties related to unrecognized tax benefits (if any) in income tax expense.
        No such interest and penalties have been accrued as of June 30,
        2008.
  F-20
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 **Note
                10:**
              **Stock-Based
                  Compensation**
  ***Equity
        Incentive Plan***
  The
        Company’s 1999 Equity Incentive Plan (the “Plan”), which is shareholder
        approved, permits the grant of nonqualified options to its employees,
        consultants and directors for up to 3 million shares of common stock. The
        Company believes that such awards better align the interests of its employees
        with those of its shareholders. Option awards are generally granted with
        an
        exercise price equal to the market price of the Company’s stock at the date of
        grant; those option awards generally vest based on two to three years of
        continuous service and typically have seven to ten year contractual terms.
        1,112,375 stock options were outstanding as of June 30, 2008, of which 773,625
        were fully vested.
  The
        fair
        value of each option award is estimated on the date of grant using a
        Black-Scholes-Merton option valuation model that uses the assumptions noted
        in
        the following table. Expected volatility is based on historical volatility
        of
        the Company’s stock. The Company uses historical data to estimate option
        exercise and employee termination within the valuation model. The expected
        term
        of options granted represents the period of time that options granted are
        expected to be outstanding. The risk-free rate for periods within the
        contractual life of the option is based on the implied yield available on
        the
        grant date for U.S. Treasury zero-coupon issues with an equivalent remaining
        term. Where the expected term of the Company’s stock-based awards does not
        correspond with the terms for which interest rates are quoted, the Company
        uses
        a straight-line interpolation to determine the rate from the available term
        maturities.
  A
        total
        of 465,000 and 1,112,500 options were granted under the Plan during the years
        ended June 30, 2008 and 2007. The fair values of the options granted during
        the
        years ended June 30, 2008 and 2007, were estimated on the date of the respective
        grants using the Black-Scholes-Merton option-pricing model with the following
        weighted average assumptions:
  **2008**
              
              **2007**Dividend
                  per share
              
              $
              0
              
              $
              0Risk-free
                  interest rate
              
              
              3.06
              %
              
              4.86
              %Weighted-average
                  expected life of options
              
              
              4.7
                  years
              
              
              6.2
                  yearsExpected
                  volatility of the Company’s common stock market price
              
              
              132
              %
              
              73
              %Weighted-average
                  fair value of options granted during the year
              
              $
              0.16
              
              $
              0.08
   On
        August
        25, 2006, the compensation committee met and approved a proposal to modify
        all
        of the 648,000 outstanding employee stock options, all of which were fully
        vested, by reducing the applicable exercise price to $0.17 per share, which
        was
        the closing market price of the common stock on that date. The fair value
        of the
        modification was calculated using the Black-Scholes model, and the Company
        recorded a one-time expense of $32,300. The compensation committee also approved
        the issuance of another 429,000 employee stock options at an exercise price
        of
        $0.17 per share. The Company only issued 413,000 of those options, as one
        grant
        to an employee in another country was subsequently rescinded, with the approval
        of the compensation committee. These employee stock options vested ratably
        on
        the first day of each quarter from October 1, 2006 to October 1, 2007. The
        value
        of the employee stock options were again calculated utilizing the Black-Scholes
        model, and the Company will recognize approximately $26,000 of expense
        associated with the issuance of the options over the service
        period.
  F-21
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 A
        summary
        of option activity under the Plan as of June 30, 2008 and 2007, and changes
        during the years then ended, is presented below:
  **2008**
              
              **2007****Shares**
              
              **Weighted**
                **Average**
                **Exercise Price**
              
              **Shares**
              
              **Weighted Average**
                **Exercise Price**Outstanding,
                  beginning of year
              
              
              928,250
              
              $
              0.19
              
              
              708,500
              
              $
              0.52Granted
              
              
              465,000
              
              
              0.19
              
              
              1,112,500
              
              
              0.18Exercised
              
              
              (117,625
              )
              
              0.17
              
              
              (127,000
              )
              
              0.17Forfeited
              
              
              (163,250
              )
              
              0.23
              
              
              (765,750
              )
              
              0.49Outstanding,
                  end of year
              
              
              1,112,375
              
              
              0.18
              
              
              928,250
              
              
              0.19Options
                  exercisable, end of year
              
              
              773,625
              
              
              0.18
              
              
              817,000
              
              
              0.18
  Stock
        based compensation recognized in connection with the Plan was $31,983 and
        $59,472 for the years ended June 30, 2008 and 2007.
  No
        income
        tax benefits were recognized and no stock-based compensation was capitalized
        as
        part of the cost of an asset during the years ended June 30, 2008 and
        2007.
  The
        aggregate intrinsic value of options outstanding and exercisable as of June
        30,
        2008 and 2007, was $0 and $560,856, respectively. The aggregate intrinsic
        value
        is calculated as the difference between the exercise price of the underlying
        awards and the quoted price of the Company’s common stock for the options that
        were in-the-money.
  The
        total
        intrinsic value of options exercised during years ended June 30, 2008 and
        2007,
        was $8,393 and $60,310, respectively.
  Cash
        generated through the exercise of stock options totaled $19,997 and $21,590
        for
        the years ended June 30, 2008 and 2007, respectively. No cash was used in
        the
        settlement of shared-based obligations during 2008 and 2007.
  The
        Company had a total of 338,750 and 111,250 unvested options outstanding as
        of
        June 30, 2008 and 2007, respectively. As of June 30, 2008 and 2007, total
        unrecognized compensation cost related to nonvested share-based compensation
        arrangements granted under the Plan was $53,713 and $12,691, respectively.
        The
        total fair value of shares vested during the years ended June 30, 2008 and
        2007,
        was $41,614 and $27,172, respectively.
  In
        accordance with guidance in SFAS 123(R), the cash flows resulting from excess
        tax benefits (tax benefits related to the excess of proceeds from employee’s
        exercises of stock options over the stock-based compensation cost recognized
        for
        those options) are classified as financing cash flows. The Company recorded
        no
        excess tax benefits as financing cash inflows during the years ended June
        30,
        2008 and 2007, because of the full valuation allowance established against
        the
        Company’s deferred tax assets.
  F-22
 **Decorize,
          Inc.**
 **Notes
          to Consolidated Financial Statements**
 **Years
          Ended June 30, 2008 and 2007**
 The
        following table summarizes information about stock options under the Plan
        outstanding at June 30, 2008:
  **Options Outstanding**
              
              **Options Exercisable****Range of Exercise**
                **Prices**
              
              **Number**
                **Outstanding**
              
              **Weighted****Average**
                **Remaining Contractual**
                **Life**
              
              **Range of Exercise**
                **Price**
              
              **Number**
                **Exercisable**
              
              **Range of Exercise**
                **Price**$0.15 –
                  0.47
              
              
              1,112,375
              
              
              5.6
                  years
              
              $
              0.17 –
                  0.47
              
              
              773,625
              
              $
              0.17 –
                  0.47
  **Note
                11:**
              **Significant
                  Estimates and
                  Concentrations**
  Accounting
        principles generally accepted in the United States of America require disclosure
        of certain significant estimates and current vulnerabilities due to certain
        concentrations. Those matters include the following:
  ***Major
        Supplier***
  The
        Company purchased approximately 6% and 15% of its principal products from
        one
        China-based supplier during the years ending June 30, 2007 and 2006,
        respectively. There are a limited number of suppliers for these
        products.
  ***Foreign*** **Operations**
  All
        of
        the Company’s manufacturing operations are conducted in Indonesia and China and
        all of the Company’s products are imported from Indonesia, China and to a lesser
        extent, other Asian countries.
  As
        of
        June 30, 2008, net assets located outside the United States totaled
        approximately $1,393,000. These assets consisted principally of inventory
        and
        equipment at our Indonesian subsidiary totaling approximately $841,000,
        equipment at our Chinese subsidiary totaling approximately $50,000 and inventory
        in transit from our subsidiaries to the United States totaling approximately
        $502,000.
  As
        of
        June 30, 2007, net assets located outside the United States totaled
        approximately $795,000. These assets consisted principally of inventory and
        equipment at our Indonesian subsidiary totaling approximately $534,000,
        equipment at our Chinese subsidiary totaling approximately $58,000 and inventory
        in transit from our subsidiaries to the United States totaling approximately
        $203,000.
  **Note
                12:**
              **Profit-sharing
                  Plan**
  ***Profit-sharing
        Plan***
  The
        Company has a 401(k) profit-sharing plan covering substantially all employees.
        The Company’s contributions to the plan are determined annually by the Board of
        Directors. There were no Company contributions to the plan for 2008 or
        2007.
  F-23
  **Note
                13:**
              **Future
                  Liquidity Needs**
  The
        Company has incurred net losses and negative cash flows from operating
        activities since its formation and had a working capital deficit at June
        30,
        2008. Management is continuing to evaluate and implement strategies to mitigate
        these conditions during the next fiscal year. These include establishing
        and
        expanding relationships with key customers, renewed focus on specialty retail
        customers, better margin management through improved operational processes,
        selective reductions of operating overhead and seeking additional sources
        of
        equity and debt financing.
  At
        June
        30, 2008, the Company’s short-term debt consisted of borrowings under a line of
        credit agreement which matures during the next year and short term and demand
        notes payable to shareholders. As of September 25, 2008 the Company had not
        obtained commitments from the lenders to renew these loans nor had the Company
        received any indication that these loans would not continue to be extended
        with
        substantially similar terms.
  Management
        believes that additional financing may be needed to meet the capital
        requirements associated with the Company’s growth objectives or to retire
        existing debt. Management is evaluating alternatives for obtaining new debt
        and
        equity financing to meet future capital requirements, or to retire debt as
        deemed appropriate.
  F-24
 
 **Item
                9.**
              **Changes
                  In and Disagreements With Accountants on Accounting and Financial
                  Disclosure.**
  None.
  **Item** **9A(T).
        Controls and Procedures.**
 
 **Disclosure
        Controls and Procedures**
 
 We
        maintain disclosure controls and procedures designed to provide reasonable
        assurance that information required to be disclosed in reports filed under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
        processed, summarized and reported within the specified time periods and
        accumulated and communicated to our management, including our principal
        executive officer and principal financial officer, as appropriate to allow
        timely decisions regarding disclosure.
 
 Our
        management, with the participation of our Chief Executive Officer (“CEO”) and
        our Chief Financial Officer (“CFO”), evaluated the effectiveness of our
        disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)
        promulgated under the Exchange Act) as of June 30, 2008, the end of our fiscal
        year. Based on that evaluation, our CEO and CFO concluded that, as of that
        date,
        our disclosure controls and procedures required by paragraph (b) of Rules
        13a-15
        or 15d-15 were not effective at the reasonable assurance level because of
        the
        identification of a material weakness in our internal control over financial
        reporting, which we view as an integral component of our disclosure controls
        and
        procedures.
 
 **Management’s
        Report on Internal Control over Financial Reporting**
 
 Our
        management is responsible for establishing and maintaining effective internal
        control over financial reporting as defined in Rule 13a-15(f) and 15-15(f)
        under
        the Exchange Act. Our internal control over financial reporting is designed
        to
        provide reasonable assurance regarding the reliability of our financial
        reporting and the preparation of consolidated financial statements for external
        reporting purposes in accordance with U.S. generally accepted accounting
        principles
 
 Our
        internal control over financial reporting includes those policies and procedures
        that: (1) pertain to the maintenance of records that, in reasonable detail,
        accurately and fairly reflect our transactions and dispositions of our assets;
        (2) provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of consolidated financial statements in accordance with
        U.S.
        generally accepted accounting principles, and that our receipts and expenditures
        are being made only in accordance with authorizations of our management and
        directors; and (3) provide reasonable assurance regarding prevention or timely
        detection of unauthorized acquisition, use, or disposition of our assets
        that
        could have a material effect on our consolidated financial
        statements.
 
 Our
        management performed an assessment of the effectiveness of our internal control
        over financial reporting as of June 30, 2008. Management based its assessment
        on
        the criteria described in the “Internal Control - Integrated Framework” issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        The objective of this assessment was to determine whether our internal control
        over financial reporting was effective as of June 30, 2008. Management’s
        assessment included evaluation of elements such as the design and operating
        effectiveness of key financial reporting controls, process documentation,
        accounting policies, and our overall control environment.
 
 A
        material weakness is a deficiency, or combination of deficiencies, in internal
        control over financial reporting, such that there is a reasonable possibility
        that a material misstatement of our annual or interim consolidated financial
        statements will not be prevented or detected on a timely basis. In our
        assessment of the effectiveness of internal control over financial reporting
        as
        of June 30, 2008, we identified the following material
        weakness:
  24
 
 ***Internal
        control structure over information technology*** –
 
 Several
        significant deficiencies exist in the design and implementation of our internal
        controls over information technology which, when considered in the aggregate,
        amount to a material weakness in the Company’s internal control over financial
        reporting.
 
 A.
            Lack
                of qualified information technology personnel.
                The Company’s former Director of Information Technology terminated his
                employment with the Company shortly prior to June 30, 2008. As of
                June 30,
                2008, the Company had no qualified information technology professional
                on
                its corporate staff, leaving our CFO to perform all information technology
                related functions with the assistance of a third party
                consultant. 
 B.
            Lack
                of disaster recovery plan.
                The Company does not currently have written policies and procedures
                in
                place for disaster recovery over its information systems and system
                backups are not currently performed on a regular basis which poses
                a
                significant risk to the Company in the event of a disaster or system
                failure. 
 C.
            Inadequate
                restrictions to technology assets, systems and data.
                The Company does not adequately restrict physical access to key hardware
                components such as servers, routers and backup systems. Additionally,
                the
                Company lacks a formal process to create, modify and delete user
                accounts
                and does not adequately restrict access to data or prevent unauthorized
                access. Also, as of June 30, 2008, our CFO was performing all information
                technology related functions, which in combination with the CFO’s other
                duties, created a situation where the Company’s normal internal controls
                could be circumvented. 
 ***Conclusion*** –
 
 Based
        on
        our assessment, and because of the material weakness described above, we
        have
        concluded that our internal control over financial reporting was not effective
        as of June 30, 2008.
 
 The
        effectiveness of our internal control over financial reporting has not been
        audited by BKD, LLP, our independent registered public accounting
        firm.
 
 **Remediation
        and Changes in Internal Control**
 
 As
        reported in our Annual Report on Form 10-KSB for the year ended June 30,
        2007,
        BKD, LLP identified several material weaknesses in our internal control over
        financial reporting that existed as of June 30, 2007. The identified material
        weaknesses are noted below. During the year ended June 30, 2008 we developed
        and
        implemented remediation plans to address these material weaknesses and improve
        our internal control over financial reporting. These actions caused management
        to conclude that these items no longer rise to the level of material weaknesses
        in our internal control over financial reporting as of June 30,
        2008.
 
 A.
            Failure
                to segregate accounting duties.A
                material weakness existed at June 30, 2007 because we did not adequately
                segregate certain accounting duties. Specifically, our Controller
                had the
                ability to authorize a purchase, issue a check and authorize payments
                and
                had access to signed checks to be issued to vendors. Additionally,
                the
                Controller had the ability to record accounts payable transactions,
                record
                checks issued and electronic funds transfers, change accounts payable
                master files and post journal entries to adjust inventory, expense
                and
                cash accounts. This situation resulted in a risk of misappropriation
                of
                assets concealed by journal entry or false transaction records and
                a
                reasonable possibility that a material misstatement of our annual
                or
                interim consolidated financial statements would not have been prevented
                or
                detected on a timely basis. Since June 30, 2007, we have hired additional
                accounting personnel, realigned certain accounting duties among our
                accounting staff and instituted certain compensating controls so
                that we
                now believe that it is no longer reasonably possible that our consolidated
                financial statements will be materially misstated as a result of
                a lack of
                segregation of accounting duties.  25
 
 B.
            Lack
                of resources in the accounting function.
                A
                material weakness existed at June 30, 2007 because the Company did
                not
                have the resources, research tools or personnel with adequate experience
                or time dedicated to evaluating the proper application of new accounting
                standards and for analysis of complex accounting issues. This lack
                of
                resources and qualified personnel caused the Company to have difficulty
                drafting financial statements and footnote disclosures in accordance
                with
                accounting principles generally accepted in the United Sates and
                resulted
                in a reasonable possibility that a material misstatement of our annual
                or
                interim consolidated financial statements would not have been prevented
                or
                detected on a timely basis. Since June 30, 2007 we have hired an
                experienced Chief Financial Officer charged with, among other things,
                evaluating the appropriate application of new accounting standards
                and for
                analysis of complex accounting issues. We now believe we have sufficient
                competent personnel with an appropriate level of technical accounting
                knowledge such that it is no longer reasonably possible that our
                consolidated financial statements will be materially misstated as
                a result
                of a lack of technical accounting
                resources. 
 C.
            Audit
                adjustments.
                A
                material weakness existed at June 30, 2007 because we recorded several
                audit adjustments for errors and differences in accounting estimates
                that
                were identified during the audit of our consolidated financial statements
                for the year ended June 30, 2007. The audit adjustments included
                the
                correction of inventory balances, cost of goods sold and accrued
                expenses.
                The aggregate effect of these adjustments was material to our financial
                statements, taken as a whole. Since June 30, 2007, we have hired
                additional accounting personnel, instituted additional account
                reconciliation procedures and developed more thorough month-end and
                year-end closing processes. As a result of these actions, in the
                aggregate, the audit adjustments recorded in connection with the
                audit of
                our consolidated financial statements for the year ended June 30,
                2008,
                were not material to our financial statements, taken as a whole. 
 **Limitations
        on the Effectiveness of Controls**
 
 Our
        management, including our CEO and CFO, does
        not
        expect that our disclosure controls or our internal control over financial
        reporting will prevent or detect all errors and all fraud. A control system,
        no
        matter how well designed and operated, can provide only reasonable, not
        absolute, assurance that the control system’s objectives will be met. The design
        of a control system must reflect the fact that there are resource constraints,
        and the benefits of controls must be considered relative to their costs.
        Further, because of the inherent limitations in all control systems, no
        evaluation of controls can provide absolute assurance that misstatements
        due to
        error or fraud will not occur or that all control issues and instances of
        fraud,
        if any, within the company have been detected. These inherent limitations
        include the realities that judgments in decision-making can be faulty and
        that
        breakdowns can occur because of simple error or mistake. Controls can also
        be
        circumvented by the individual acts of some persons, by collusion of two
        or more
        people, or by management override of the controls. The design of any system
        of
        controls is based in part on certain assumptions about the likelihood of
        future
        events, and there can be no assurance that any design will succeed in achieving
        its stated goals under all potential future conditions. Projections of any
        evaluation of controls effectiveness to future periods are subject to risks.
        Over time, controls may become inadequate because of changes in conditions
        or
        deterioration in the degree of compliance with policies or
        procedures.
  **Item
                9B.**
              **Other
                  Information.**
 
 None.
  26
  **PART
        III**
 
 **Item
                10.**
              **Directors,
                  Executive Officers and Corporate
                  Governance.**
  **DIRECTORS**
 
 The
        following tables set forth certain information regarding the directors of
        the
        Company:
 
 **Name**
              
              **Age**
              
              **Position**Stephen
                  R. Crowder
              
              55
              
              Chairman
                  of the Board, President and Chief Executive OfficerRichard
                  B. Chalker
              
              68
              
              DirectorSteven
                  W. Fox
              
              52
              
              DirectorCaroline
                  Hipple
              
              53
              
              DirectorRonald
                  L. Jones
              
              66
              
              Director
 
  STEPHEN
        R. CROWDER. **** Mr.
        Crowder was appointed a director and President/Chief Executive Officer of
        the
        Company on February 3, 2004. Before joining the Company, Mr. Crowder served
        as
        President of ReGen Technologies, a joint venture between SRC and John Deere
        since 1999. Mr. Crowder also serves on the boards of SRC Holdings
        Corporation, Springfield Area Chamber of Commerce and Megavolt
        LLLP.
 
 RICHARD
        B. CHALKER. Mr. Chalker was appointed a director of the Company on May 5,
        2004.
        Mr. Chalker serves as Chairman of the Audit Committee. Mr. Chalker retired
        from
        Hallmark Cards Inc. in March of 2004, after over eight years with Hallmark,
        where he was Division Vice President - Tax & Customs responsible for the
        worldwide Tax and Customs Oversight functions. He serves on the Board of
        Directors, Audit, and Compensation committees of PBI/Gordon Corporation and
        serves on the Board of Directors of QC Holdings, Inc. Mr. Chalker earned
        a
        Bachelor of Science from Yale University and a J.D. from DePaul University.
        He
        is a CPA and passed the Illinois Bar examination.
 
 STEVEN
        W.
        FOX. **** Mr.
        Fox
        was appointed a director of the Company on February 3, 2004. Mr. Fox has
        been
        General Manager and a member of the Management Committee of Quest Capital
        Alliance, L.L.C., a private equity fund (“Quest”), since 2000. Mr. Fox also
        serves on the Board of Directors of Global Energy Group, Inc. Mr. Fox received
        his MBA and BSBA from the University of Missouri-Columbia.
 
 CAROLINE
        HIPPLE. Ms. Hipple was appointed a director of the Company on December 12,
        2007.
        Ms. Hipple serves as a consultant to the home furnishings industry. Ms. Hipple
        previously served as President and Chief Operating Officer of Storehouse
        Furniture Company, a 70-store furniture retailer with annual revenues of
        approximately $150 million. Previous to this, Ms. Hipple served over 22 years
        in
        various roles, including Executive Vice President – Sales, for This End Up
        Furniture Co. Ms. Hipple earned a Bachelor’s of Arts degree from Hollins
        College.
 
 RONALD
        L.
        JONES. Mr. Jones previously served as a director of the Company from May
        2004
        until August 2005 and was subsequently appointed a director on December 10,
        2007. Mr. Jones retired from Sealy Inc. in April 2004 where he served as
        Chairman, President, and Chief Executive Officer since 1996. During his tenure
        sales grew from $600 million to annual consolidated sales of $1.2 billion.
        Previous to this Mr. Jones served as President of Masco Home Furnishings,
        Inc.,
        a group of 14 companies with over $2 billion in annual sales. From 1982 to
        1988
        Mr. Jones was President of HON industries, a Fortune 500 company.
  27
 
 The
        Board
        affirmatively determines the independence of each director pursuant to NASDAQ
        listing standards and
        the
        rules of the SEC, by thoroughly reviewing the information provided by the
        directors and the Company concerning each director’s business and personal
        activities as they may relate to the Company and the Company’s executive
        officers. The Board has determined all persons who served as a director during
        the fiscal year ended June 30, 2008 to be independent except
        for Mr. Crowder because
        he is an employee of the Company.
 
 There
        are
        no family relationships among any of the Company’s directors or executive
        officers.
 **Audit
          Committee**
 
 Mr.
          Chalker and Mr. Jones are currently the only members of the Audit Committee,
          with Mr. Chalker serving as Chairman. Each of the members of the Audit
          Committee
          is independent, under NASDAQ listing standards and the rules of the SEC,
          and the
          Board has determined that Mr. Chalker is qualified as a “financial expert” under
          the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations
          of the SEC.
 
 **Compliance
          with Section 16(a) of the Exchange Act**
 
 Due
          to
          our status as a Section 15(d) reporting company, our executive officers,
          directors, and persons who beneficially own more than 10% of a registered
          class
          of our equity securities are not required to file with the SEC reports
          of
          ownership and changes in ownership of the Company's equity securities pursuant
          to Section 16(a) of the Securities Exchange Act of 1934.
  28
  **Code
        of Ethics**
 
 The
        Company has not formally adopted a code of ethics that applies to its principal
        executive officer and principal financial officer. The Company intends to
        adopt
        such a code of ethics prior to the end of its current fiscal year, June 30,
        2009.
 
 **EXECUTIVE
        OFFICERS**
 
 The
        following table sets forth information regarding the executive officers of
        the
        Company:
 
 **Name**
              
              **Age**
              
              **Position**Stephen
                  R. Crowder
              
              55
              
              President,
                  Chief Executive Officer and DirectorDaniel
                  F. Graham
              
              46
              
              Chief
                  Financial OfficerVikas
                  V. Karode
              
              57
              
              Chief
                  Operating OfficerJames
                  K. Parsons
              
              59
              
              Executive
                  Vice PresidentJ.
                  Michael Sandel
              
              57
              
              Vice
                  President
 
 The
        executive officers named above were appointed by the Board of Directors to
        serve
        in such capacities until their respective successors have been duly appointed
        and qualified or until their earlier death, resignation or removal from office.
        Biographical information on Mr. Crowder is set forth previously in this Report
        under the heading “Directors.”
 
 DANIEL
        F.
        GRAHAM. Mr. Graham joined the Company and was appointed Chief Financial Officer
        in February 2008. Prior to joining the Company, from January 2002 through
        January 2008 Mr. Graham served as Executive Vice President and Chief Financial
        Officer of Freedom Financial Group, Inc., a publicly-traded specialized consumer
        finance company headquartered in Springfield, Missouri. Mr. Graham has more
        than
        17 years experience in a variety of financial management and accounting roles,
        including 7 years in public accounting with McGladrey & Pullen, LLP. Mr.
        Graham earned a Bachelor of Science in Accounting and Finance from Oklahoma
        State University and is a CPA.
  VIKAS
        V.
        KARODE. Mr. Karode joined the Company and was appointed Chief Operating Officer
        in March 2004. Prior to joining the Company, from January 2003, 2002 through
        March 2004, Mr. Karode served as Chief Financial Officer of Sequel Limited,
        LLC,
        a re-manufacturer of automobile engines with annual revenues of approximately
        $40 million. Prior to this, Mr. Karode also served in various sales and senior
        financial management roles with Reichold Chemical, Inc. for 12 years and
        in
        various financial management positions with The Firestone Tire and Rubber
        Company for an additional 12 years. Mr. Karode received a Bachelor’s degree from
        the University of Bombay and an MBA from the University of Akron.
  JAMES
        K.
        PARSONS. Mr. Parsons was appointed as Executive Vice President of Decorize
        as of
        July 31, 2001 and served as a director of Decorize from that time until March
        2006. Mr. Parsons co-founded Decorize.com and GuildMaster. GuildMaster has
        been
        recognized as a design leader in the industry and has created such successful
        brands as the Arnold Palmer Home Collection, Tin Revival and America Country
        West.
  J.
        MICHAEL SANDEL. Mr. Sandel was elected as a Vice President of Decorize as
        of
        July 31, 2001 in conjunction with the Company’s acquisition of Faith Walk
        Designs, Inc., of which he was a co-owner, and served as a director of the
        Company from that time until March 2006. Mr. Sandel and his wife, Kitty Sandel,
        founded Faith Walk Designs in 1985 to focus on upscale hand-painted
        furniture.
 
 **Item
                11.**
              **Executive
                  Compensation.**
 
 **Summary
        Compensation Table**
 
 The
        following table sets forth the cash and non-cash compensation awarded to,
        earned
        by and paid by the Company to its principal executive officer and two other
        executive officers who were the most highly compensated executive officers
        of
        the Company for services rendered in all capacities during the fiscal years
        ended June 30, 2008 and 2007 (excluding executive officers whose salary and
        bonus did not exceed $100,000) (together, the “Named Executive
        Officers”):
 
 29
 
 Name and
                Principal Position
              
              Year
              
              Salary ($)
              
              Bonus ($)
              
              Option
                Awards
                ($)
              
              All Other
                Compensation ($)
              
              Total ($)Stephen
                  R. Crowder
              
              
              2008
              
              
              151,725
              
              
              —
              
              
              —
              
              
              1,120
              (4)
              
              152,845(President,
                  CEO and
                Director)
              
              
              2007
              
              
              146,145
              
              
              —
              
              
              20,650
              (1)
              
              1,120
              (4)
              
              167,915Vikas
                  V. Karode
              
              
              2008
              
              
              116,000
              
              
              —
              
              
              9,750
              
              
              —
              
              
              125,750(Chief
                  Operating Officer)
              
              
              2007
              
              
              110,000
              
              
              —
              
              
              8,050
              (2)
              
              —
              
              
              118,050J.
                  Michael Sandel
              
              
              2008
              
              
              121,000
              
              
              —
              
              
              3,000
              
              
              —
              
              
              124,000(Vice
                  President)
              
              
              2007
              
              
              113,404
              
              
              —
              
              
              2,100
              (3)
              
              —
              
              
              115,504
 
 
 (1)
              Includes
                  stock options granted under the 1999 Stock Option Plan on August
                  25, 2006,
                  which are exercisable for 300,000 shares at an exercise price of
                  $0.17 per
                  share and were issued in connection with the cancellation of options
                  for
                  225,000 shares at an exercise price of $0.52 per share. Please
                  see “Note
                  8: Stock Based Compensation - Equity Incentive Plan” to the Company’s
                  financial statements for the year ended June 30, 2007 for a discussion
                  of
                  all assumptions made in connection with determining the fair value
                  of the
                  awards.
 
 (2)
              Includes
                  stock options granted under the 1999 Stock Option Plan on August
                  25, 2006,
                  which are exercisable for 115,000 shares at an exercise price of $0.17 per
                  share and were issued in connection with the cancellation of options
                  for
                  75,000 shares at an exercise price of $0.52 per share. Please see
“Note 8:
                  Stock Based Compensation - Equity Incentive Plan” to the Company’s
                  financial statements for the year ended June 30, 2007 for a discussion
                  of
                  all assumptions made in connection with determining the fair value
                  of the
                  awards.
 
 (3)
              Includes
                  stock options granted under the 1999 Stock Option Plan on August
                  25, 2006,
                  which are exercisable for 30,000 shares at an exercise price of
                  $0.17 per
                  share. Please see “Note 8: Stock Based Compensation - Equity Incentive
                  Plan” to the Company’s financial statements for the year ended June 30,
                  2007 for a discussion of all assumptions made in connection with
                  determining the fair value of the
                  awards.
 
 (4)
              Represents
                  premiums paid with respect to a $500,000 term life insurance policy
                  for
                  the benefit of Mr. Crowder. Benefits under the policy are payable
                  to Mr.
                  Crowder’s spouse in the event of his
                  death.
 30
 The
          following table sets forth certain information concerning the compensation
          of
          our directors for the year ended June 30, 2008. Mr. Crowder does not receive
          any
          additional consideration for serving on the Board of Directors, and his
          compensation is summarized below under “Executive Compensation.”
 
 Name
                
                Fees
                  Earned or
                  Paid in
                  Cash ($)
                
                Stock
                  Awards
                  ($)
                
                Option
                  Awards
                  ($)
                
                Non-Equity
                  Incentive Plan
                  Compensation
                  ($)
                
                Nonqualified
                  Deferred
                  Compensation
                  Earnings ($)
                
                All Other
                  Compensation
                  ($)
                
                Total ($)Richard
                    B. Chalker
                
                
                —
                
                
                —
                
                
                1,500
                (1)
                
                —
                
                
                —
                
                
                —
                
                
                1,500Steven
                    W. Fox
                
                
                —
                
                
                —
                
                
                1,500
                (1)
                
                —
                
                
                —
                
                
                —
                
                
                1,500Caroline
                    Hipple
                
                
                —
                
                
                —
                
                
                1,500
                (1)
                
                —
                
                
                —
                
                
                —
                
                
                1,500Ronal
                    L. Jones
                
                
                —
                
                
                —
                
                
                1,500
                (1)
                
                —
                
                
                —
                
                
                —
                
                
                1,500
 
 
 (1)
                Includes
                    stock options granted under the 1999 Stock Option Plan on December
                    17,
                    2007, which are exercisable for 10,000 shares at an exercise
                    price of
                    $0.23 per share.
  The
          Company does not pay its non-employee directors any fees or other consideration
          for serving on its Board of Directors, except that each non-employee director
          receives an annual grant of options to acquire 10,000 shares of common
          stock.
          The directors normally receive this grant at the time of their initial
          meeting
          immediately following the annual meeting of stockholders.
 
 Each
          non-employee director of the Company receives reimbursement of reasonable
          expenses for each meeting of the Board of Directors attended. Directors
          do not
          receive separate compensation based upon the number of meetings
          attended.
 **Employment
        Agreements**
 
 We
        do not
        currently have any employment agreements with our executive
        officers.
 
 **Stock
        Option Awards**
 
 The
        Company’s 1999 Equity Incentive Plan (the “Plan”), which was approved by the
        stockholders of the Company, permits the grant of nonqualified options to
        its
        employees, consultants and directors for up to 3 million shares of common
        stock.
        The Company believes that such awards better align the interests of its
        employees with those of its stockholders. Option awards made by the Company
        have
        generally been granted with an exercise price equal to the market price of
        the
        Company’s common stock at the date of grant. The option awards generally vest
        based on three years of continuous service and typically have seven-year
        contractual terms.
  31
  The
        Company uses its stock-based employee compensation plan to compensate its
        executives and employees and also as a method to align the interests of those
        executives and employees with those of the Company’s stockholders, by granting
        equity awards that increase in value upon increases in the market price of
        the
        Company’s common stock. During the period from the beginning of fiscal 2003
        through the end of fiscal 2006, the Company’s stock price experienced continual
        and significant declines, in particular during fiscal 2006. Following those
        declines, the existing equity grants made by the Company in prior years had
        no
        market value, since the relative exercise prices were well in excess of the
        trading price for the Company’s common stock. During the final quarter of fiscal
        2006, the Board of Directors began to discuss the equity compensation plan
        and
        what changes may be appropriate to address the significant decrease in the
        Company’s market price, which the directors determined to be due to performance
        and economic factors that impacted the Company, but were not within the control
        of the management team.
 
 During
        a
        meeting of the Board of Directors on July 27, 2006, the directors discussed
        and
        approved a proposal to instruct the compensation committee to meet and consider
        lowering the exercise price of all outstanding stock options under the plan,
        which had an average exercise price of $0.52. The proposal would be effected
        by
        the compensation committee granting additional options at the current market
        price, which had fluctuated from $0.23 to $0.27 during the month of the meeting.
        One of the members of the compensation committee was not present at the July
        27
        meeting, so the compensation committee was instructed to consider the proposal
        at its next opportunity.
 
 On
        August
        25, 2006, the compensation committee met and approved a proposal to modify
        all
        of Decorize’s 648,000 outstanding employee stock options, all of which were
        fully vested, by reducing the applicable exercise price to $0.17 per share,
        which was the closing market price of the common stock on that date. Included
        in
        those stock options were options granted to Mr. Crowder that are exercisable
        for
        225,000 shares of common stock. All of those options were fully vested upon
        issuance and are exercisable according to their terms until August 25, 2016.
        Also included those stock options were options granted to Mr. Karode that
        were
        exercisable for 75,000 shares of common stock. All of those options were
        fully
        vested upon issuance and were exercised by Mr. Karode during our fiscal year
        ended June 30, 2008. On that same day, the compensation committee also approved
        the issuance of another 429,000 employee stock options at an exercise price
        of
        $0.17 per share, including options granted to Messrs. Crowder, Karode and
        Sandel
        that are exercisable for 75,000, 40,000 and 30,000 shares of common stock,
        respectively. However, the Company only issued 413,000 of those options,
        as one
        grant to an employee in another country was subsequently rescinded, with
        the
        approval of the compensation committee. These employee stock options vest
        ratably on the first day of each quarter from October 1, 2006 to October
        1,
        2007, at which time they will be fully vested, and they are exercisable
        according to their terms until August 25, 2016. None of the stock options
        granted by Decorize have any special conditions to exercise, any tandem or
        reload features, any tax reimbursement feature or any mechanism that could
        cause
        the exercise price to be lowered.
 
 On
        January 16, 2008, the compensation committee approved the issuance of 205,000
        employee stock options at an exercise price of $0.17 per share, including
        options granted to Messrs. Karode and Sandel that are exercisable for 65,000
        and
        20,000 shares of common stock, respectively.
 
 **Outstanding
        Equity Awards at June 30, 2008**
 
 The
        following table sets forth certain information concerning unexercised options
        for each Named Executive Officer outstanding at June 30, 2008. The Company
        has
        not granted any stock awards to any of the Named Executive
        Officers.
 
 Option
                  AwardsName
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Exercisable
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Unexercisable
              
              Equity Incentive Plan
                Awards: Number of
                Securities
                Underlying
                Unearned Options
                (#)
              
              Option Exercise
                Price ($)
              
              Option
                Expiration
                DateStephen R. Crowder
              
              
              300,000
              
              
              —
              
              
              —
              
              $
              0.17
              
              
              08/25/16Vikas
                  V. Karode
              
              
              16,250
              
              
              48,750
              
              
              —
              
              $
              0.17
              
              
              01/16/18J.
                  Michael Sandel
              
              
              35,000
              
              
              15,000
              
              
              —
              
              $
              0.17
              
              
              08/25/16
                  - 01/16/18
 
 32
 
 **401(k)
        Plan**
 
 Effective
        July 1, 2002, the Company adopted a 401(k) Profit Sharing Plan that is qualified
        under Section 401(k) of the Internal Revenue Code of 1986, as amended. The
        401(k) plan is available to each employee who meets the eligibility requirements
        of the plan. Employees may begin participation in the 401(k) plan on the
        first
        day of every month any time after one month of employment. Participating
        employees may contribute a portion of their compensation not exceeding a
        limit
        set annually by the Internal Revenue Service. The Company has made no
        contributions to the 401(k) plan and, at this time, does not intend to begin
        matching employee contributions to the 401(k) plan.
 
 **Item
                12.**
              **Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters.**
 
 The
        following table sets forth certain information regarding beneficial ownership
        of
        the Common Stock and Preferred Stock as of October 24, 2008, by (i) all persons
        known by the Company to be the owner of record or beneficially of more than
        five
        percent of the outstanding Common Stock and/or the outstanding Preferred
        Stock,
        (ii) each director of the Company, (iii) each person listed in the Summary
        Compensation Table set forth in “Item 11. Executive Compensation” and (iv) all
        directors and executive officers as a group. Except pursuant to applicable
        community property laws and except as otherwise indicated, each stockholder
        identified in the table possesses sole voting and investment power with respect
        to his shares.
 
 **Common Stock**
              
              **Preferred Stock****Name**
              
              **Shares**
                **Beneficially**
                **Owned****(1)**
              
              **Percent of**
                **Class****(2)**
              
              **Shares**
                **Beneficially**
                **Owned****(1)**
              
              **Percent of**
                **Class****(2)**SRC Holdings Corporation
                3140 East Division
                Springfield,
                  MO 65802
              
              
              10,036,197
              (3)
              
              28.7
              %
              
              500,000
              
              
              100.0
              %Steven
                  W. Fox
                3140
                  East Division
                Springfield,
                  MO 65802
              
              
              6,037,536
              (4)
              
              21.0
              %
              
              -0-
              
              
              0.0
              %Quest
                  Capital Alliance, L.L.C.
                3140
                  East Division
                Springfield,
                  MO 65802
              
              
              5,959,286
              (5)
              
              20.7
              %
              
              -0-
              
              
              0.0
              %James
                  K. Parsons
                3655
                  E. Phelps
                Springfield,
                  MO 65802
              
              
              4,292,303
              (6)
              
              14.9
              %
              
              -0-
              
              
              0.0
              %Jon
                  T. Baker
                6570
                  E. Farm Rd. 134
                Springfield,
                  MO 65802
              
              
              2,513,141
              
              
              8.7
              %
              
              -0-
              
              
              0.0
              %Nest
                  USA, Inc.
                1800
                  Bering Drive, Suite 755
                Houston,
                  TX 77057
              
              
              2,390,725
              (7)
              
              8.3
              %
              
              -0-
              
              
              0.0
              %Robert
                  M. Allison
                4380
                  E Whitehall Dr.
                Springfield,
                  MO 65809
              
              
              1,500,000
              (8)
              
              5.2
              %
              
              -0-
              
              
              0.0
              %J.
                  Michael Sandel
                10823
                  Dunbrook
                Houston,
                  TX 77070
              
              
              749,943
              (9)
              
              2.6
              %
              
              -0-
              
              
              0.0
              %
 Stephen
                  R. Crowder
                1938
                  E. Phelps
                Springfield,
                  MO 65802
              
              
              325,000
              (10)
              
              1.1
              %
              
              -0-
              
              
              0.0
              %Vikas
                  V. Karode
                1938
                  E. Phelps
                Springfield,
                  MO 65802
              
              
              139,375
              (11)
              
              0.5
              %
              
              -0-
              
              
              0.0
              %Ronald
                  Jones
                21455
                  North 81st Street
                Scottsdale,
                  AZ 85255
              
              
              60,000
              (12)
              
              0.2
              %
              
              -0-
              
              
              0.0
              %Richard
                  Chalker
                8830
                  Catalina St.
                Prairie
                  Village, KS 66207
              
              
              40,000
              (13)
              
              0.1
              %
              
              -0-
              
              
              0.0
              %Caroline
                  Hipple
                154
                  Krog Street, Suite 150
                Atlanta,
                  GA 30307
              
              
              10,000
              (14)
              
              *
              
              
              -0-
              
              
              0.0
              %All
                  Executive Officers and
                Directors
                  as a Group (10 persons)
              
              
              11,842,468
              
              
              40.2
              %
              
              -0-
              
              
              0.0
              %
  33
 **____________________________**
 *
        Less
        than 0.1%
 
 (1)
            Beneficial
                ownership has been determined in accordance with Rule 13d-3 under
                the
                Securities Exchange Act of 1934 and unless otherwise indicated, represents
                securities for which the beneficial owner has sole voting and investment
                power. Any securities held in the name of, and under, the voting
                and
                investment authority of a spouse of an executive officer or director
                have
                been excluded. (2)
            Based
                on 28,752,318shares
                outstanding on October 24, 2008, and with respect to the percentage
                calculated for each individual stockholder or group of stockholders,
                it is
                assumed that such stockholder or group exercises all of the stock
                options
                owned by such individual or group that are exercisable currently
                or within
                60 days of such date. (3)
            Includes
                2,500,000 shares issuable upon conversion of 500,000 shares of Series
                A
                Convertible Preferred Stock at an exercise price of $0.20 per share
                and
                3,750,000 shares issuable upon conversion of a convertible term note
                at a
                conversion price of $0.20 per share. John P. Stack is the President
                of SRC
                and has the right to exercise control over the voting and disposition
                of
                the shares of Common Stock owned by it. (4)
            Includes
                45,000shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted August 25, 2006 and 10,000 shares issuable upon
                the
                exercise of stock options granted under the Company’s stock option plan,
                at an exercise price equal to $0.23 per share, granted December 17,
                2007.
                Mr. Fox, a director of the Company, is the General Manager of Quest
                Capital Alliance, L.L.C. (“Quest”) and has the right to exercise voting
                control and disposition of the shares of the Company’s common stock owned
                by Quest. (5)
            Steven
                W. Fox, a director of the Company, is the general manager of Quest
                and
                controls the right to vote and dispose of the shares of Common Stock
                owned
                by Quest. Accordingly, these shares are also included in Mr. Fox’s
                beneficial ownership. (6)
            Includes30,000shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted August 25, 2006. **(7)**
            Marwan
                M. Atalla is the President of this stockholder and has the right
                to
                exercise control over the voting and disposition of the shares of
                Common
                Stock owned by it. (8)
            Includes
                178,571 shares issuable upon the exercise of warrants at an exercise
                price
                of $0.70 per share. (9)
            Includes30,000shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted August 25, 2006 and 7,500 sharesissuable
                upon the exercise of stock options granted under the Company’s stock
                option plan, at an exercise price equal to $0.17
                per share, granted January 16, 2008. (10)
            Includes
                300,000 shares issuable upon the exercise of stock options granted
                under
                the Company’s stock option plan, at an exercise price equal to $0.17 per
                share, granted August 25, 2006. (11)
            Includes
                24,375shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted January 16, 2008. (12)
            Includes
                50,000shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted August 25, 2006 and 10,000 sharesissuable
                upon the exercise of stock options granted under the Company’s stock
                option plan, at an exercise price equal to $0.23
                per share, granted December 17, 2007. (13)
            Includes
                10,000shares issuable upon the exercise of stock options granted under
                the
                Company’s stock option plan, at an exercise price equal to $0.17
                per share, granted August 25, 2006 and 10,000 sharesissuable
                upon the exercise of stock options granted under the Company’s stock
                option plan, at an exercise price equal to $0.23
                per share, granted December 17, 2007. (14)
            Includes10,000
                sharesissuable
                upon the exercise of stock options granted under the Company’s stock
                option plan, at an exercise price equal to $0.23
                per share, granted December 17, 2007.  34
  **Item
                13.**
              **Certain
                  Relationships and Related Transactions, and Director
                  Independence.**
  ***Quest
        Commercial Finance, L.L.C.***
 
 On
        May 5,
        2006 the Company executed a Revolving Line of Credit Promissory Note in the
        principal sum of $750,000 in favor of Quest Commercial Finance, L.L.C. (“Quest
        Commercial”) (the “Quest Commercial Note”). Interest on the note was payable
        monthly at a rate per annum of prime plus 5.0%. The note is secured by inventory
        and matures on May 5, 2009. The outstanding principal balance on the note
        was
        $600,000 and $700,000 as of June 30, 2007 and 2008, respectively.
 
 On
        September 26, 2007, the note was modified so that the interest payable on
        the
        note accrued at the rate of 13.75% per annum and to provide for a recurring
        lender fee of $7,500 due on September 26, 2007 and thereafter on May
        5 th of each
        succeeding year until the note is paid in full. The Company paid the $7,500
        lender fee to Quest Commercial on September 26, 2007.
 
 On
        April
        28, 2008, the Company executed a Modification Agreement (the “Quest Modification
        Agreement”), effective April 1, 2008, by and between the Company and Quest
        Commercial. Pursuant to the Quest Modification Agreement, the Quest Commercial
        Note, was modified so that, effective April 1, 2008 1) the note accrues interest
        at the prime rate per annum as published by the Wall Street Journal (5.25%
        as of
        the date of execution); 2) the payment of accrued interest on the note is
        suspended until January 1, 2009; and 3) the recurring lender fee was
        rescinded.
 
 Mr.
        Steven W. Fox, a director of the Company, is the General Manager of Quest
        Commercial Finance, L.L.C., Quest Capital Alliance II, L.L.C. (see below)
        and
        Quest Capital Alliance, L.L.C., a beneficial owner of more than 5% of the
        Company’s common stock.
 
 ***Quest
        Capital Alliance II, L.L.C.***
 
 On
        August
        17, 2006, Decorize issued a promissory note, payable to the order of Quest
        Capital Alliance II, L.L.C. (“Quest Capital II”), in the original principal
        amount of $75,000. The maturity date for this note was November 17, 2006.
        Outstanding principal due under this note accrued interest until the date
        of
        maturity at a rate equal to 13.25% per annum. In consideration of Quest Capital
        II providing the Promissory Note, Decorize paid Quest Capital II a loan fee
        of
        $250. This note was paid in full September 11, 2006.
 
 On
        September 11, 2006, Decorize issued a promissory note (the “Quest II Note”),
        payable to the order of Quest Capital II, in the original principal amount
        of
        $750,000. Quest Capital II charged a $41,250 origination fee in connection
        with
        the loan, and discounted the principal amount funded to Decorize under the
        Promissory Note by the amount of the origination fee.
 
 Interest
        on the outstanding principal under the Quest II Note accrued at a rate of
        (i)
        18.0% per annum from January 9, 2007 to February 12, 2007, then at a rate
        of
        21.0% per annum from February 12, 2007 to March 15, 2007. The note was amended
        on March 15, 2007 to lower the interest rate to 13.75% and to extend the
        maturity date to March 15, 2008. The Company paid a renewal fee of $7,500
        in
        connection with this amendment. The note was further modified on March 15,
        2008
        so that the interest payable on the note accrued at the rate of 9.75% per
        annum
        and to extend the maturity date to March 15, 2009.
  35
  On
        April
        28, 2008, the Company executed a Stock Exchange Agreement, effective April
        1,
        2008, by and between the Company and Quest II (the “Quest II Stock Exchange
        Agreement”). Pursuant to the Quest II Stock Exchange Agreement, the Company sold
        500,000 shares of its common stock to Quest II in exchange for a $100,000
        reduction in the outstanding principal balance of the Quest II Note. In
        connection with the Quest II Stock Exchange Agreement, the Company executed
        an
        Amended and Restated Promissory Note on April 28, 2008 in the principal amount
        of $650,000 in favor of Quest II in replacement of and substitution for the
        Quest II Note 1) to account for the $100,000 reduction in the outstanding
        principal balance of the note and 2) modifying the terms of the note so that
        a)
        the interest payable on the note accrues at the prime rate per annum and
        b) all
        interest accruing on the note is due at payable at maturity.
 
 Mr.
        Steven W. Fox, a director of the Company, is the General Manager of Quest
        Capital Alliance II, L.L.C., Quest Commercial Finance, L.L.C. (see below)
        and
        Quest Capital Alliance, L.L.C., a beneficial owner of more than 5% of the
        Company’s common stock.
 
 ***Jon
        T. Baker***
 
 On
        April
        28, 2008, the Company executed a Subordinated Promissory Note Payoff Agreement
        (the “Payoff Agreement”) effective April 21, 2008, by and between the Company
        and Jon T. Baker, a beneficial owner of more than 5% of the Company’s common
        stock (“Baker”). Pursuant to the Payoff Agreement, the Company paid **** Baker
        $20,000 in full satisfaction of all outstanding debt (including all unpaid
        accrued interest) owed to Baker under the terms of that certain Subordinated
        Promissory Note in the principal amount of $56,451 executed by the Company
        in
        favor of Baker on January 30, 2004. As a result of the Payoff Agreement,
        the
        Company recognized a gain on the retirement of this debt of approximately
        $53,000.
 
 ***SRC
        Holdings Corporation***
 
 On
        April
        30, 2008, Decorize, Inc. (the “Company”) executed an Unsecured Promissory Note
        in the principal amount of $500,000 (the “Note”) in favor of SRC Holdings
        Corporation, a Missouri corporation and the Company’s largest holder of common
        stock and the sole holder of the Company’s outstanding shares of Series A
        Convertible Preferred Stock (“SRC”). The Note bears interest at the prime rate
        per annum as published by the Wall Street Journal (5.25% as of the date of
        execution) and matures on April 30, 2009, at which time all accrued interest
        and
        outstanding principal are due and payable. The Company utilized the proceeds
        from the Note for working capital and general corporate purposes.
 
 On
        April
        30, 2008, the Company executed a Modification Agreement by and between the
        Company and SRC (the “Modification Agreement”), which modifies the Third Amended
        and Restated Promissory Note in the principal amount of $750,000 executed
        by the
        Company in favor of SRC on June 15, 2005 (the “SRC Note”). Pursuant to the
        Modification Agreement, the SRC Note was modified so that, effective April
        29,
        2008, (i) the SRC Note accrues interest at the prime rate per annum as published
        by the Wall Street Journal (5.25% as of the date of execution) and (ii) all
        accrued interest on the unpaid principal balance on the SRC Note is due and
        payable in full upon demand by SRC at any time. The SRC Note is convertible,
        at
        the option of the holder, into 3,750,000 shares of the Company’s common
        stock.
 
 The
        Company subleases warehouse space in Springfield, Missouri from a company
        owned
        by SRC Holdings Corporation (“SRC”). SRC is the largest holder of the Company’s
        common stock and the sole holder of the Company’s outstanding shares of Series A
        Convertible Preferred Stock. The rental expense is determined monthly based
        on
        the actual square footage occupied by the Company during the month. The Company
        incurred lease expense totaling $211,495 and $103,348 during the years ended
        June 30, 2008 and 2007, respectively. Management believes the cost of this
        sublease is similar to what the Company would pay for leasing similar warehouse
        space from an unrelated party.
 
 36
 
 ***James
        K. Parsons***
 
 On
        April
        28, 2008, the Company executed a Stock Exchange Agreement (the “Parsons Exchange
        Agreement”) by and between the Company and James K. Parsons (“Parsons”). Mr.
        Parsons, a former director of the Company, is Executive Vice President of
        the
        Company and a beneficial owner of more than 5% of the Company’s common stock.
        Pursuant to the Parsons Exchange Agreement, the Company sold 1,500,000 shares
        of
        its common stock to Parsons in exchange for a $300,000 reduction in the
        outstanding principal balance of that certain Amended and Restated Promissory
        Note (the “Amended Promissory Note”) issued by the Company to Parsons on May 5,
        2006 in the original principal amount of $609,467.69. In connection with
        the
        execution of the Exchange Agreement, on April 28, 2008 the Company also executed
        in favor of Parsons a Second Amended and Restated Promissory Note in the
        principal amount of $277,160.01, in replacement of and substitution for the
        Amended Promissory Note to give effect to the principal reduction of the
        Amended
        Promissory Note resulting from the Parsons Exchange Agreement.
 
 Also
        on
        April 28, 2008 Parsons agreed to extend the maturity date of that certain
        Third
        Amended and Restated Promissory Note issued by the Company to Parsons on
        July
        31, 2006 in the principal amount of $1,000,000, from July 31, 2008 to July
        31,
        2009. To give effect to this extension, on April 28, 2008, the Company executed
        a Fourth Amended and Restated Promissory Note in the principal amount of
        $1,000,000 in favor of Parsons, in replacement of and substitution for the
        Third
        Amended and Restated Promissory Note.
 
 **Item** **14.****Principal
        Accountant Fees and Services.**
 
 The
        following table presents approximate aggregate fees and other expenses for
        professional services rendered by BKD, LLP for the audit of the Company’s annual
        financial statements
        for the years ended June 30, 2008 and 2007 and fees and other expenses for
        other
        services rendered during those periods.
 **2008**
                
                **2007**Audit
                    fees
                
                $
                133,050
                
                $
                93,165Audit-related
                    fees
                
                
                30,845
                
                
                50,090Tax
                    fees
                
                
                20,850
                
                
                10,440All
                    other fees
                
                
                —
                
                
                —Total
                
                $
                184,745
                
                $
                153,695
 
 **Audit
        Fees**
 
 The
        aggregate fees billed during the years ended June 30, 2008 and 2007 by BKD,
        LLP **** for
        professional services rendered in connection with the audit of our June 30,
        2007
        and 2006 consolidated financial statements were $97,535 and $68,490,
        respectively.
 
 Fees
        billed by BKD, LLP **** for
        reviews of our interim financial statements for inclusion with quarterly
        reports
        on Form 10-QSB totaled $35,515 and $24,675 during the fiscal years ended
        June
        30, 2008 and 2007, respectively.
 
 **Audit-Related
        Fees**
 
 During
        the fiscal years ended June 30, 2008 and 2007, we incurred professional fees
        for
        other audit-related assurance services from BKD, LLP **** totaling
        $30,845 and $50,090, respectively, mainly relating to services rendered in
        connection with various registration statements during fiscal years ended
        June
        30, 2008 and 2007.
 
 **Tax
        Fees**
 
 Fees
        billed by BKD, LLP **** for
        professional services rendered in connection with tax compliance, tax advice
        and
        tax planning were $20,850 and $10,440 for the fiscal years ended June 30,
        2008
        and 2007, respectively.
  37
  **All
        Other Fees**
 
 We
        did
        not pay for any other professional accounting services during the fiscal
        years
        ended June 30, 2008 and 2007, respectively.
 
 **Pre-approval
        Policies and Procedures**
 
 The
        audit
        committee approves all audit, tax and other consulting services to be rendered
        by outside accountants prior to the work being performed, and evaluates the
        impact that provision of such services has upon the independence of the
        Company’s auditors. All services for 2008 and 2007 were compatible with the
        Company’s policies and maintaining the auditors’ independence.
  **Item
                15.**
              **Exhibits.**
  The
        exhibits listed below are filed with or incorporated by reference into this
        Annual Report on Form 10-KSB. Exhibits denominated with numbered footnotes
        are
        incorporated by reference to the other filings with the SEC set forth below.
 
 **Exhibit**
              ****
              ******Number**
              ****
              **Description**3.1
              
              Certificate
                  of Incorporation of Decorize, Inc., State of Delaware, dated June
                  27,
                  2001. (1)3.2
              
              Bylaws
                  of Decorize, Inc. (1)4.1
              
              Second
                  Amended and Restated Certificate of Designation of the Series A
                  Convertible Preferred Stock of Decorize, Inc. (2)4.2
              
              Amended
                  and Restated Promissory Note dated December 10, 2003, issued by
                  Decorize,
                  Inc. in the name of James K. Parsons (3)4.3
              
              Subordinated
                  Security Agreement dated as of December 10, 2003, between Decorize,
                  Inc.
                  and James K. Parsons (3)4.4
              
              Form
                  of Decorize, Inc. Stock Certificate (4)10.1
              
              Promissory
                  Note dated June 15, 2001 between Decorate, Inc. and Jon T. Baker.
                  (1)10.2
              
              Decorize,
                  Inc. 1999 Stock Option Plan. (5)10.3
              
              Form
                  of Employee Incentive Stock Option Notice and Agreement.
                  (5)10.4
              
              Master
                  Purchase and Sale Agreement between Decorize, Inc. and Bibby Financial
                  Services (Midwest) Inc. dated March 31, 2006. (6)10.5
              
              Commercial
                  Security Agreement dated May 5, 2006, by and between Decorize,
                  Inc. and
                  Quest Commercial Finance, L.L.C. (7)10.6
              
              Revolving
                  Line of Credit Promissory Note in the Principal Amount of up to
                  $750,000,
                  issued to Quest Commercial Finance, L.L.C. on May 5, 2006.
                  (7)10.7
              
              Modification
                  Agreement dated September 26, 2007, by and between Decorize, Inc.
                  and
                  Quest Commercial Finance, L.L.C. (8)10.8
              
              Third
                  Amended and Restated Promissory Note, issued by Decorize, Inc.
                  to James K.
                  Parsons on May 5, 2006. (7)10.9
              
              Credit
                  Agreement, dated October 19, 2007, between Guaranty Bank, Decorize,
                  Inc.,
                  GuildMaster, Inc. and Faith Walk Designs, Inc. (9)10.10
              
              Revolving
                  Promissory Note, dated October 19, 2007, issued by Decorize, Inc.,
                  GuildMaster, Inc. and Faith Walk Designs, Inc., to the order of
                  Guaranty
                  Bank in the principal amount of $3,000,000. (9)10.11
              
              Security
                  Agreement, dated October 19, 2007, among Decorize, Inc., GuildMaster,
                  Inc.
                  and Faith Walk Designs, Inc. for the benefit of Guaranty Bank.
                  (9)10.12
              
              Guaranty
                  Agreement, dated October 19, 2007, among WestWay Enterprises, Ltd.
                  and
                  P.T. Niaga Merapi for the benefit of Guaranty Bank. (9)10.13
              
              First
                  Amendment to Credit Agreement, dated December 27, 2007, between
                  Guaranty
                  Bank, Decorize, Inc., GuildMaster, Inc. and Faith Walk Designs,
                  Inc.
                  (10)
  38
  10.14
              
              Stock
                  Exchange Agreement dated as of April 28, 2008 by and between Decorize,
                  Inc. and James K. Parsons. (11)10.15
              
              Second
                  Amended and Restated Promissory Note dated as of April 28, 2008
                  by and
                  between Decorize, Inc. and James K. Parsons. (11)10.16
              
              Fourth
                  Amended and Restated Promissory Note dated as of April 28, 2008
                  by and
                  between Decorize, Inc. and James K. Parsons. (11)10.17
              
              Modification
                  Agreement dated as of April 1, 2008 by and between Decorize, Inc.
                  and
                  Quest Commercial Finance, L.L.C. (11)10.18
              
              Extension
                  and Modification Agreement dated as of March 15, 2008 by and between
                  Decorize, Inc. and Quest Capital Alliance II, L.L.C.
                  (11)10.19
              
              Stock
                  Exchange Agreement dated as of April 1, 2008 by and between Decorize,
                  Inc.
                  and Quest Capital Alliance II, L.L.C. (11)10.20
              
              Amended
                  and Restated Promissory Note dated as of Aril 1, 2008 by and between
                  Decorize, Inc. and Quest Capital Alliance II, L.L.C.
                  (11)10.21
              
              Subordinated
                  Promissory Note Payoff Agreement dated as of April 21, 2008 by
                  and between
                  Decorize, Inc. and Jon T. Baker. (11)10.22
              
              Unsecured
                  Promissory Note dated as of April 30, 2008 by and between Decorize,
                  Inc.
                  and SRC Holdings Corporation. (11)10.23
              
              Modification
                  Agreement dated as of April 30, 2008 by and between Decorize, Inc.
                  and SRC
                  Holdings Corporation. (11)21.1
              
              Subsidiaries
                  of the Registrant. *31.1
              
              Certification
                  by Stephen R. Crowder, President and Chief Executive Officer of
                  the
                  Registrant, pursuant to 17 CFR 240.13a - 14(a) or 17 CFR 240.15d
                  - 14(a).
                  *31.2
              
              Certification
                  by Daniel F. Graham, Chief Financial Officer of the Registrant,
                  pursuant
                  to 17 CFR 240.13a - 14(a) or 17 CFR 240.15d - 14(a). *32.1
              
              Certification
                  of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.
                  *
 
 (1)
              Incorporated
                  by reference to the exhibits to the Annual Report on Form 10-KSB
                  filed by
                  Registrant on September 28, 2001.(2)
              Filed
                  previously as an exhibit to the Current Report on Form 8-K filed
                  by
                  Decorize, Inc., on June 21, 2005.(3)
              Filed
                  previously as an exhibit to the Quarterly Report on Form 10-QSB
                  filed by
                  Decorize, Inc. on February 17, 2004.(4)
              Filed
                  previously as an exhibit to the Annual Report on Form 10-KSB filed
                  by
                  Decorize, Inc. on September 28, 2001.(5)
              Incorporated
                  by reference to the exhibits to the Registration Statement on Form
                  SB-2
                  filed by Guidelocator.com on September 29, 1999 (File no.
                  000-88083).(6)
              Incorporated
                  by reference to Exhibit 10.1 to the Current Report on Form 8-K
                  filed by
                  Decorize, Inc. on April 6, 2006.(7)
              Incorporated
                  by reference to the exhibits filed with the Current Report on Form
                  8-K
                  filed by Decorize, Inc. on May 11, 2006.(8)
              Incorporated
                  by reference to the exhibits filed with the Annual Report on Form
                  10-KSB
                  filed by Decorize, Inc. on September 28, 2007.(9)
              Incorporated
                  by reference to the exhibits filed with the Current Report on Form
                  8-K
                  filed by Decorize, Inc. on October 24, 2007.(10)
              Incorporated
                  by reference to the exhibits filed with the Quarterly Report on
                  Form
                  10-QSB filed by Decorize, Inc. on February 14, 2008.(11)
              Incorporated
                  by reference to the exhibits filed with the Current Report on Form
                  8-K
                  filed by Decorize, Inc. on May 2, 2008.*
              Filed
                  herewith.
  39
 
 **SIGNA** **TURES**
 
 Pursuant
        to the requirements of Section 15(d) of the Securities Exchange Act of 1934,
        the
        registrant duly caused this report to be signed on its behalf by the
        undersigned, thereunto duly authorized.
 
 .
              **DECORIZE,
                  INC**Date:     
                  October 28, 2008
              */s/
                  Stephen R. Crowder*Stephen
                  R. CrowderChief
                  Executive Officer and President
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
  Name
              
              Title
              
              Date*/s/
                  Stephen R. Crowder*
              
              President,
                  Chief Executive Officer
                and
                  Director
              
              October
                  28, 2008Stephen
                  R. Crowder
              
              *(principal
                  executive officer)**/s/
                  Daniel F. Graham*
              
              Chief
                  Financial Officer
              
              October
                  28, 2008Daniel
                  F. Graham
              
              *(principal
                  financial officer and*
                *principal
                  accounting officer)**/s/
                  Richard B. Chalker*
              
              Director
              
              October
                  28, 2008Richard
                  B. Chalker*/s/
                  Steven W. Fox*
              
              Director
              
              October
                  28, 2008Steven
                  W. Fox*/s/
                  Ronald L. Jones*
              
              Director
              
              October
                  28, 2008Ronald
                  L. Jones*/s/
                  Caroline Hipple*
              
              Director
              
              October
                  28, 2008Caroline
                  Hipple
 
 40